<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, 2000

                                          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.)
                                 www.aldila.com

            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. |X|

As of March 23, 2001, 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 $23.6 million.

As of March 23, 2001, there were 15,262,204 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 2001
Annual Meeting of Stockholders to be filed with the Commission within 120 days
after the close of the fiscal year.


                                       1
<PAGE>

                                  ALDILA, INC.

                               Report on Form 10-K
                  For the Fiscal Year Ended December 31, 2000

                                      INDEX

                                                                            Page
                                                                            ----
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    21
      Item 8.  Financial Statements and Supplementary Data                   21
      Item 9.  Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure                         21

Part III

      Item 10. Directors and Executive Officers of the Registrant            22
      Item 11. Executive Compensation                                        22
      Item 12. Security Ownership of Certain Beneficial Owners
                 and Management                                              22
      Item 13. Certain Relationships and Related Transactions                22

Part IV

      Item 14. Exhibits, Financial Statement Schedules, and Reports
                 on Form 8-K                                                 23

Signatures                                                                   39
Exhibit Index                                                                40


                                       2
<PAGE>

                                     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 demand. The
Company's current golf shaft product line consists of Aldila 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 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 upon mark-up.
Profits and losses of CFT are 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.


                                       3
<PAGE>

Graphite Golf Shafts

   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. Graphite continues to dominate the professional and
consumer woods markets, with over 81% of new woods purchased in 2000 including
graphite shafts. The initial acceptance of graphite shafts in irons did not
achieve the same success as woods and although acceptance increased for several
years, it has declined in recent years. In 2000, approximately 28% of new irons
purchased were graphite shafted. Since many golfers consider professionals to be
"opinion leaders," their acceptance and use of graphite shafts in irons will
continue to help broaden the overall graphite market.

      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.

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 88% of
net sales in the year ended December 31, 2000, 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 $4 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.


                                       4
<PAGE>

      The Company began the manufacture of composite hockey sticks in 2000,
following several months of developmental work. The manufacture of composite
hockey sticks is similar to that of graphite golf shafts and uses similar raw
materials. Revenues from the sale of hockey sticks are not expected to be
significant to the Company for several years.

      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. See "Manufacturing - Carbon Fiber Manufacturing Process." 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 are 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 2000, the Company had approximately 260 golf shaft
customers, which included approximately 80 golf club manufacturers and more than
40 distributors, with the balance principally consisting of custom club
assemblers, pro shops and repair shops. However, the majority of the Company's
sales has been and may continue to be concentrated among a relatively small
number of customers. Sales to the Company's top five customers represented
approximately 69%, 57% and 61% of net sales in 2000, 1999 and 1998,
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 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 15%, 17% and
15% of the Company's net sales in 2000, 1999 and 1998, respectively. Sales to
Callaway represented 21%, 12% and 26% of the Company's net sales in 2000, 1999
and 1998, respectively. Sales to Ping represented 19% and 10% of the Company's
net sales in 2000 and 1999, respectively. 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


                                       5
<PAGE>

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, sailboat 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 2001, 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. In addition, on March 20, 2000, the Company announced the addition of
Nick Price to the Company's advisory staff. Aldila's marketing and promotion
expenditures were approximately $0.8 million, $0.6 million and $1.0 million in
2000, 1999 and 1998, 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 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 88% of net sales for the
year ended December 31, 2000.

      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 18%, 21%, and 10% of net sales for the
years ended December 31, 2000, 1999 and 1998, respectively.


                                       6
<PAGE>

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.

      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 composite 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 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 through its 50% interest in CFT, it can
also be effective in providing large bundle carbon fiber to other manufacturing
applications outside of golf shafts.

      The Company has applied its carbon fiber technology to other products in
recent years, engaging in limited production of hockey sticks, 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 enables 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 29 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.

      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


                                       7
<PAGE>

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 2000, the Company obtained most of
its carbon fiber from its Wyoming facility but also purchased carbon fiber from
other carbon fiber manufacturers. The prices paid by the Company for carbon
fiber decreased during 2000 due to 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. 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 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.

      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


                                       8
<PAGE>

primary raw material for the Company's prepreg manufacturing operation to
support the manufacture of graphite golf shafts.

      The Company in 1998 and 1999, and CFT in 2000, 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.

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, other composites, 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.


                                       9
<PAGE>

      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 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 Aldila's 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, 2000 the Company had approximately 46 United States and foreign
registered trademarks.

Employees

      As of December 31, 2000, Aldila employed approximately 1,250 persons on a
full-time basis, including eight in sales and marketing, 18 in research and
development and engineering, 1,171 in production, and the balance are
administrative and support staff. The number of full-time employees also
includes 650 persons who are employed in the Company's Mexico facilities and 357
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, 2000, the Company also employed an additional 140 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, 2000, the Company had a sales backlog of approximately
$12.1 million compared to approximately $13.0 million as of December 31, 1999.
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.


                                       10
<PAGE>

Business Risks

      Potential Cash Flow Shortages. The Company has cash, cash equivalents and
short-term marketable securities totaling $8.7 million as of December 31, 2000
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 $8.0 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, 2001 on the senior notes.

   The Company experienced an increase in sales and operating income in 2000 as
a result of an increased demand for golf clubs in general, as the industry
worked through its excess inventory problems in 1999. Although, sales in 2000
increased, the Company expects sales for 2001 to be moderately lower with a
similar decline in operating income from continuing operations. 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 2000,
sales to the Company's top five customers represented approximately 69% 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
2000, Callaway Golf accounted for 21% of net sales, Ping accounted for 19% of
net sales and TaylorMade accounted for 15% 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, Ping and TaylorMade, who
collectively represent in excess of 55% of the Company's net sales in 2000, each
purchased from at least two other graphite shaft suppliers. In the event
Callaway, Ping, TaylorMade 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.

      Joint Venture Operating Carbon Fiber Facility. The Company started
producing carbon fiber at its Evanston, Wyoming facility in 1998. Since October
1999, this facility has been operated by a joint venture, 50% owned by each of
the Company and SGL. As a result of the operation of this facility through the
joint venture, the Company is subject to business and financial risks such as
the risks that SGL will be unable to meet its obligations to the joint venture,
that there will be operational difficulties resulting from the split ownership,
or that there will be differences of opinion between the joint venture partners
as to future operations leading to an inability to make decisions when required
or to the making of decisions not in the best interests of both joint venture
partners.

   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 starting in the latter part of 1998, the cost of
production of carbon fiber at the Evanston, Wyoming facility, including the
price paid for the acrylic fiber used for the manufacture of carbon fiber and
the other costs associated with the operation of the carbon fiber plant.


                                       11
<PAGE>

      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 and 2000, due to the current
state of excess-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 also has relationships with other outside vendors for its
additional carbon fiber needs through 2001. 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 excess-capacity 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.

      Reliance on Carbon Fiber Manufacturing Facility. During the period in
which the Company or the joint venture has operated the Evanston, Wyoming
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.

      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.

      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,


                                       12
<PAGE>

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 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.


                                       13
<PAGE>

      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 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.

      Justice Department Investigation. During 1999 the Company 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 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

      None.

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 2000.


                                       14
<PAGE>

                                     PART II

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

COMMON STOCK PERFORMANCE

                             2000                    1999
      ---------------------------------------------------------

                         High      Low          High      Low
                         ----      ---          ----      ---

      First Quarter     $2.13     $1.38        $2.75     $1.44

      Second Quarter    $1.94     $1.56        $2.50     $1.63

      Third Quarter     $2.56     $1.63        $2.00     $1.19

      Fourth Quarter    $2.38     $1.19        $1.53     $1.13

      On March 23, 2001, the closing common stock price was $1.63, and there
were approximately 400 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 are satisfied.

      On March 20, 2000, the Company and Nick Price Group entered into a stock
option agreement. The option agreement allows Nick Price to purchase 150,000
shares of Common Stock at a purchase price of $1.63. The shares are not
currently registered under any of the Company's stock option plans. In return
for the shares, the Company is receiving the services of Nick Price at a
guaranteed minimum value of $1.50 per share, or a minimum aggregate
consideration of $225,000.


                                       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>
                                                                   ---------------------------------------------------------------
                                                                     2000          1999          1998          1997          1996
                                                                   ---------------------------------------------------------------
<S>                                                                <C>           <C>           <C>           <C>           <C>
Operating Results (Year ended December 31):

      Net sales                                                    $55,859       $45,091       $62,487       $55,636       $58,394
      Cost of sales                                                 42,257        37,241        44,689        38,742        37,245
                                                                   ---------------------------------------------------------------
           Gross profit                                             13,602         7,850        17,798        16,894        21,149
                                                                   ---------------------------------------------------------------

      Selling, general and administrative                            7,483         7,179         9,005        10,255         9,112
      Amortization of goodwill                                       1,428         1,428         1,427         1,428         1,416
      Plant consolidation                                             (566)          900         1,200         1,500            --
                                                                   ---------------------------------------------------------------
           Operating income (loss)                                   5,257        (1,657)        6,166         3,711        10,621
                                                                   ---------------------------------------------------------------

      Interest expense                                                 900         1,315         1,285         1,040         1,266
      Other (income), net                                             (570)         (379)         (218)         (418)         (727)
      Equity in earnings of joint venture                             (220)          (12)           --            --            --
                                                                   ---------------------------------------------------------------

      Income (loss) before income taxes                              5,147        (2,581)        5,099         3,089        10,082
      Provision (benefit) for income taxes                           1,930          (476)        2,300         1,550         4,400
                                                                   ---------------------------------------------------------------

      Net income (loss)                                             $3,217       ($2,105)       $2,799        $1,539        $5,682
                                                                   ===============================================================

      Net income (loss) per common share-basic:                      $0.21        ($0.14)        $0.18         $0.10         $0.35
                                                                   ===============================================================

      Net income (loss)  per common share, assuming dilution:        $0.21        ($0.14)        $0.18         $0.10         $0.35
                                                                   ===============================================================

Selected Operating Results
As a Percentage of Net Sales:

      Gross profit                                                    24.4%         17.4%         28.5%         30.4%         36.2%
      Selling, general and administrative                             13.4%         15.9%         14.4%         18.4%         15.6%
      Operating income (loss)                                          9.4%         (3.7%)         9.9%          6.7%         18.2%
      Net income (loss)                                                5.8%         (4.7%)         4.5%          2.8%          9.7%

Financial Position (at December 31):

      Working capital                                              $13,387       $15,356       $15,731       $16,775       $28,274
      Total assets                                                 104,327       108,889       117,034       113,128       111,935
      Long-term debt, including current portion                      8,000        16,000        20,000        20,000        20,000
      Total stockholders' equity                                    81,366        78,149        80,254        77,283        78,826
</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 88% 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 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 upon mark-up.
Profits and losses of CFT are 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 years.

      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 Company's results of
operations dependent to a large extent on


                                       17
<PAGE>

continued sales to Callaway, Ping and TaylorMade. In 2000, sales to Callaway,
Ping and TaylorMade represented 21%, 19% and 15%, respectively, of the Company's
total net sales. The Company expects Callaway, Ping and TaylorMade to continue
to be the Company's largest customers, at least through 2001. 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,
                                         ---------------------------------------
                                            2000           1999           1998
                                         ---------------------------------------
<S>                                      <C>          <C>            <C>
Net sales                                   100.0%         100.0%         100.0%
Cost of sales                                75.6           82.6           71.5
                                         --------     ----------     ----------
      Gross profit                           24.4           17.4           28.5
                                         --------     ----------     ----------
Selling, general and administrative          13.4           15.9           14.4
Amortization of goodwill                      2.6            3.2            2.3
Plant consolidation                          (1.0)           2.0            1.9
                                         --------     ----------     ----------
      Operating income (loss)                 9.4           (3.7)           9.9
                                         --------     ----------     ----------
Other:
      Interest expense                        1.6            2.9            2.0
      Other (income), net                    (1.4)          (0.9)          (0.3)
                                         --------     ----------     ----------
Income  (loss) before income taxes            9.2           (5.7)           8.2
Provision  (benefit) for income taxes         3.4           (1.0)           3.7
                                         --------     ----------     ----------
Net income (loss)                             5.8%          (4.7%)          4.5%
                                         ========     ==========     ==========
</TABLE>

2000 Compared to 1999

      Net Sales. Net sales increased $10.8 million, or 23.9%, to $55.9 million
for 2000 from $45.1 million for the prior year. The increase in net sales was
attributable to an increase in shaft unit sales at lower selling prices to the
Company's club manufacturer customers partially offset by a $4.4 million
decrease in sales of other carbon fiber products in 1999. Shaft unit sales
increased 45.9% in 2000 as compared to 1999 which was a result of higher demand
for both premium and value shafts, and the average selling price of shafts sold
in 2000 decreased 1.5%.

      Gross Profit. Gross profit increased $5.8 million, or 73.3%, to $13.6
million in 2000 from $7.9 million in 1999, principally as a result of the
increase in net sales. Gross profit was negatively impacted by 2.5% in 2000 from
the carry over of higher cost inventories from 1999, which should not have an
impact in 2001. The Company's gross profit margin increased to 24.4% in 2000
from 17.4% in 1999, which was primarily attributed to a lower fixed cost per
unit for shafts shipped in 2000 based on higher production volumes.


                                       18
<PAGE>

      Operating Income/(Loss). Operating income increased $6.9 million, or
417.3%, to $5.3 million in 2000 from $1.7 million operating loss in 1999 and
increased as a percentage of net sales to 9.4% in 2000 compared to a loss of
3.7% in 1999. Selling, general and administrative expense increased $0.3 million
from 1999 primarily as a result of higher incentive charges, which were
partially offset by a reduction in other expenditures and adjustments. Selling,
general and administrative expenses decreased as a percentage of net sales to
13.4% in 2000 as compared to 15.9% in 1999 primarily as a result of increased
net sales in 2000 as compared to 1999.

      The Company has reflected recovery of previously recorded plant
consolidation charges in 2000 ($0.6 million) and plant consolidation charges in
1999 ($0.9 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.

      Other Expense/(Income). Interest expense decreased $0.4 million to $0.9
million in 2000 as compared to $1.3 million in 1999. The decrease is primarily
attributed to the scheduled payments on the Company's long-term debt. The
Company had a weighted average of $12.0 million outstanding in 2000 compared to
a weighted average of $19.0 million outstanding in 1999. The weighted average
interest rate on borrowings was 6.13% in 2000 as compared to 6.16% in 1999.
Equity in earnings of joint venture increased $0.2 million to $0.2 million in
2000 compared to zero in 1999. The $0.2 million increase was primarily
attributed to a full year of operations of the joint venture in 2000 as compared
to only two months of operations in 1999.

      Income Taxes. The Company recorded a provision for income taxes of $1.9
million in 2000 primarily as a result of the Company's pretax income. Included
in the provision for 2000 was a tax benefit of $0.4 million from a revision of
prior years' estimates and a tax benefit of $0.3 million attributed to increased
activity in foreign operations. The tax benefit items were partially offset by
the Company's non-deductible amortization of goodwill. The Company's effective
tax rate was 37.5% in 2000 compared to a tax benefit of 18% in 1999. The Company
should continue to realize a reduced effective tax rate, as compared to its
previous income generating years, to the extent that the statutory income tax
rates where it has foreign operations are lower than the statutory income tax
rates in the United States.

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 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/(Loss). 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.


                                       19
<PAGE>

      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.

      Other Expense/(Income). 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%.

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 $5.8 million at December 31, 2000. The Company
has $8.0 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 have been used to meet the working capital requirements of the Company and
the scheduled principal payments due under the senior notes.

      Cash (including cash equivalents) provided by operating activities in 2000
was $9.3 million, compared to $5.5 in 1999. This increase resulted principally
from an increase in net income. The Company used $0.9 million for capital
expenditures during 2000. Management anticipates capital expenditures to
approximate $1.0 million for 2001. 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 2002.

      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.


                                       20
<PAGE>

Year 2000

      The Company recognized the need to ensure its operations were not
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). The Company did not
expect any significant occurrences regarding Year 2000 readiness and has not
experienced any significant problems related to this issue.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk

      The Company's only indebtedness as of December 31, 2000 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, however the Company did not have any borrowings against the line of
credit in 2000. The Company believes that its exposure to market risk relating
to interest rate risk is not material. The Company is exposed to foreign
exchange risk to the extent of adverse fluctuations in the Mexican peso and the
Chinese renminbi. 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.

"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 on Form 10-K and elsewhere in the Company's filings with
the Securities and Exchange Commission.

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

      None.


                                       21
<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 2001 Annual Meeting of Stockholders for the year ended December 31, 2000,
which will be filed with the Commission within 120 days of the end of the fiscal
year covered by this report ("2001 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 2001
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 2001 Proxy Statement.

Item 13. Certain Relationships and Related Transactions

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


                                       22
<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, 2000 and 1999;

                  Consolidated Statements of Operations for
                        the years ended December 31,
                        2000, 1999 and 1998;

                  Consolidated Statements of Stockholders' Equity
                        for the years ended December 31, 2000,
                        1999 and 1998;

                  Consolidated Statements of Cash Flows
                        for the years ended December 31,
                        2000, 1999 and 1998;

                  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 40 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,
2000.


                                       23
<PAGE>

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

<TABLE>
<CAPTION>
                                                                           December 31,  December 31,
                                                                              2000          1999
                                                                            --------      --------
<S>                                                                         <C>           <C>
ASSETS

CURRENT ASSETS:
          Cash and cash equivalents                                           $5,603        $4,077
          Marketable securities                                                3,104         4,513
          Accounts receivable                                                  6,693         4,807
          Income taxes receivable                                                 --           886
          Inventories                                                         11,001        12,326
          Deferred tax assets                                                  3,302         4,010
          Prepaid expenses and other current assets                              607           741
                                                                            --------      --------
               Total current assets                                           30,310        31,360

PROPERTY, PLANT AND EQUIPMENT                                                  9,277        11,298

INVESTMENT IN JOINT VENTURE                                                    7,464         7,181

TRADEMARKS AND PATENTS, less accumulated amortization
           of $3,940 and $3,505                                               13,398        13,833

GOODWILL, less accumulated amortization of $12,718 and $11,290                43,342        44,770

OTHER ASSETS                                                                     536           447
                                                                            --------      --------

TOTAL ASSETS                                                                $104,327      $108,889
                                                                            ========      ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
          Accounts payable                                                    $4,405        $3,258
          Accrued expenses                                                     3,653         4,746
          Income taxes payable                                                   865            --
          Long-term debt, current portion                                      8,000         8,000
                                                                            --------      --------
               Total current liabilities                                      16,923        16,004

LONG-TERM LIABILITIES:
          Long-term debt                                                          --         8,000
          Deferred tax liabilities                                             5,981         6,338
          Deferred rent                                                           57           398
                                                                            --------      --------
               Total liabilities                                              22,961        30,740
                                                                            --------      --------

COMMITMENTS AND CONTINGENCIES ( Notes 11, 12 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 2000 and 1999        155           155
          Additional paid-in capital                                          42,627        42,627
          Retained earnings                                                   38,584        35,367
                                                                            --------      --------
               Total stockholders' equity                                     81,366        78,149
                                                                            --------      --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $104,327      $108,889
                                                                            ========      ========
</TABLE>

                 See notes to consolidated financial statements.


                                       24
<PAGE>

                          ALDILA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                           Year ended
                                                          December 31,
                                                --------------------------------
                                                  2000        1999        1998
                                                --------    --------    --------
<S>                                             <C>         <C>         <C>
NET SALES                                        $55,859     $45,091     $62,487
COST OF SALES                                     42,257      37,241      44,689
                                                --------    --------    --------
          Gross profit                            13,602       7,850      17,798
                                                --------    --------    --------

SELLING, GENERAL AND ADMINISTRATIVE                7,483       7,179       9,005
AMORTIZATION OF GOODWILL                           1,428       1,428       1,427
PLANT CONSOLIDATION                                 (566)        900       1,200
                                                --------    --------    --------
          Operating income (loss)                  5,257      (1,657)      6,166
                                                --------    --------    --------

OTHER EXPENSE (INCOME):
          Interest expense                           900       1,315       1,285
          Other, net                                (570)       (379)       (218)
          Equity in earnings of joint venture       (220)        (12)         --
                                                --------    --------    --------

INCOME (LOSS) BEFORE INCOME TAXES                  5,147      (2,581)      5,099
PROVISION (BENEFIT) FOR INCOME TAXES               1,930        (476)      2,300
                                                --------    --------    --------

NET INCOME (LOSS)                                 $3,217     ($2,105)     $2,799
                                                ========    ========    ========


NET INCOME (LOSS) PER COMMON SHARE-BASIC           $0.21      ($0.14)      $0.18
                                                ========    ========    ========

NET INCOME (LOSS) PER COMMON SHARE,
          ASSUMING DILUTION                        $0.21      ($0.14)      $0.18
                                                ========    ========    ========


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

WEIGHTED AVERAGE NUMBER OF
         COMMON AND COMMON EQUIVALENT
         SHARES                                   15,604      15,462      15,519
                                                ========    ========    ========
</TABLE>

                 See notes to consolidated financial statements.


                                       25
<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, 1998                          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 Deccember 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

Net income                                                                           3,217     3,217
                                                   -------    -------    -------   -------   -------

Balance at December 31, 2000                        15,462       $155    $42,627   $38,584   $81,366
                                                   =======    =======    =======   =======   =======
</TABLE>

                 See notes to consolidated financial statements.


                                       26
<PAGE>

                          ALDILA, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                               Year ended
                                                                              December 31,
                                                                    --------------------------------
                                                                      2000        1999        1998
                                                                    --------    --------    --------
<S>                                                                 <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                 $3,217     ($2,105)     $2,799
    Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:
        Depreciation and amortization                                  4,066       6,015       5,996
        Gain on joint venture transaction                                 --        (334)         --
        Loss on disposal of fixed assets                                  56          13         313
        Changes in assets and liabilities:
           Accounts receivable                                        (1,886)     (1,386)      1,219
           Inventories                                                 1,325       4,422      (4,140)
           Deferred tax assets                                           708       1,116      (2,224)
           Prepaid expenses and other assets                             700         136         (57)
           Accounts payable                                            1,147          (7)       (393)
           Accrued expenses                                           (1,093)        (78)        201
           Income taxes payable/receivable                             1,751      (1,398)      1,579
           Deferred tax liabilities                                     (357)       (805)       (344)
           Deferred rent                                                (341)       (119)        (94)
                                                                    --------    --------    --------
             Net cash provided by operating activities                 9,293       5,470       4,855
                                                                    --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                                  (893)     (1,042)     (6,101)
    Proceeds from sales in joint venture transaction                      --       6,972          --
    Purchase of marketable securities                                 (3,104)     (4,513)         --
    Proceeds from sales of marketable securities                       4,513          --          --
    Investment in joint venture                                         (283)       (500)         --
    Other                                                                 --         (12)         --
                                                                    --------    --------    --------
             Net cash provided by (used for) investing activities        233         905      (6,101)
                                                                    --------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Principal payments on long-term debt                              (8,000)     (4,000)         --
    Proceeds from issuance of common stock                                --          --         156
    Other, net                                                            --        (270)         16
                                                                    --------    --------    --------
             Net cash provided by (used for) financing activities     (8,000)     (4,270)        172
                                                                    --------    --------    --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                   1,526       2,105      (1,074)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                           4,077       1,972       3,046
                                                                    --------    --------    --------
CASH AND CASH EQUIVALENTS, END OF YEAR                                $5,603      $4,077      $1,972
                                                                    ========    ========    ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
    Net assets contributed to joint venture                               --     $13,276          --
    Cash paid during the year for:
        Interest                                                        $902      $1,288      $1,246
        Income taxes                                                    $974        $497      $3,275
</TABLE>

                See notes to consolidated financial statements.


                                       27
<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. All intercompany transactions and balances
have been eliminated in consolidation. The Company accounts for its joint
venture investment in Carbon Fiber Technology ("CFT") under the equity method of
accounting.

      Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that effect the reported
amounts of assets, liabilities, revenues and expenses, as well as the disclosure
of contingencies 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. In December 1999, the Securities
Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements". SAB 101 provides the SEC staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues. The Company was required to adopt SAB 101 in the fourth
quarter of the 2000 fiscal year. The adoption of SAB 101 did not have a material
effect on the Company's financial position or results of operations.

      Cash Equivalents - 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.
At December 31, 2000, 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
270 days.

      Fair Value of Financial Instruments - The fair value of short-term
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 is
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 value.

      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:

                                                              Years
                                                              -----
                  Machinery and equipment                     5-10
                  Office furniture and equipment              3-10


                                       28
<PAGE>

      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 2000, 1999 and 1998.

      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 long-lived assets 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 - 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 142,000 and 67,000 dilutive equivalent shares from outstanding stock
options for 2000 and 1998, respectively, which are not included in the
calculation of net income per common share - basic. Options to purchase
2,342,954 shares of common stock at prices ranging from $1.88 to $16.38 per
share were not included in the computation of diluted EPS at December 31, 2000
because the effect of such options would be anti-dilutive. Such options expire
at various dates through December of 2010.

      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.

      Recently Issued Accounting Pronouncements - In June of 1998, the Financial
Accounting Standards Board (the "FASB") issued SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities." This statement requires all
derivatives to be recorded on the balance sheet at fair value and established
accounting standards for hedging activities. In June 1999, the FASB issued SFAS
No. 137, which amended SFAS No. 133 by deferring its effective date one year to
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
No. 138, which amended certain accounting and reporting standards of SFAS No.
133. The Company will adopt SFAS No. 133 as of January 1, 2001. The Company does
not believe it has any derivative instruments or hedging activities, which would
be affected by SFAS No. 133.

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


                                       29
<PAGE>

2. ACCOUNTS RECEIVABLE

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

                                                 2000       1999
                                               -------    -------

Trade accounts receivable                      $ 7,594    $ 5,771
Less:  allowance for doubtful accounts            (210)      (254)
          allowance for sales returns             (691)      (710)
                                               -------    -------
          Accounts Receivable                  $ 6,693    $ 4,807
                                               =======    =======

3.    INVENTORIES

      Inventories at December 31, net of reserves of $2,530,000 and $3,157,000,
in 2000 and 1999, respectively, consist of the following (in thousands):

                                                2000       1999
                                               -------    -------
Raw materials                                  $ 4,916    $ 6,026

Work-in-process                                  3,433      3,658

Finished goods                                   2,652      2,642
                                               -------    -------
   Inventories                                 $11,001    $12,326
                                               =======    =======

4. PROPERTY, PLANT AND EQUIPMENT

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

                                                 2000       1999
                                               -------    -------

Machinery and equipment                        $16,150    $15,485

Office furniture and equipment                   1,910      2,166

Leasehold improvements                           7,671     10,436
Property and equipment not yet in
service                                             93         27
                                               -------    -------
                                                25,824     28,114
Less accumulated depreciation and
amortization                                   (16,547)   (16,816)
                                               -------    -------
Property, plant and equipment                  $ 9,277    $11,298
                                               =======    =======

      Depreciation and amortization expense was $2,060,000, $4,070,000 and
$4,094,000 in 2000, 1999 and 1998, respectively.

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


                                       30
<PAGE>

net assets with a book value of approximately $13,276,000. SGL purchased a 50%
interest in AMTC's carbon fiber manufacturing operations for approximately
$6,972,000 in cash, which resulted in a gain of approximately $334,000. Based on
the member's respective ownership interest in the joint venture, profits and
losses 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, 2000
and 1999 was approximately $220,000 and $12,000, respectively. The Company's
investment includes the unamortized excess of the Company's investment over its
equity in the joint venture net assets. The excess was approximately $144,000 at
December 31, 2000 and is being amortized on a straight-line basis over an
initial estimated economic useful life of approximately 101 months.

6. ACCRUED EXPENSES

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

                                                2000       1999
                                               -------    -------

Payroll and employee benefits                  $ 2,518    $   800
Legal and Professional Fees                         76        224
Plant consolidation                                         1,812
Interest payable                                   126        248
Other                                              933      1,662
                                               -------    -------
      Accrued Expenses                         $ 3,653    $ 4,746
                                               =======    =======

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. $8.0 million
in principal remains outstanding at December 31, 2000. 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 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.
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
receivable 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 defined). As of December 31, 2000, there
were no outstanding borrowings.

8. STOCKHOLDERS' EQUITY

      The Company announced on January 17, 2001 that its board of directors
authorized the repurchase of up to 1.0 million shares of the Company's common
stock (or up to 6.5% of the 15,462,204 shares


                                       31
<PAGE>

currently issued and outstanding). Subsequent to December 31, 2000, the Company
repurchased 200,000 shares on the open market, at an approximate cost of $1.95
per share.

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.

      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.

      In the first quarter ended March 31, 2000, the Company completed a
Lease Termination Agreement ("Agreement") with the landlord of the Rancho
Bernardo manufacturing facility. The Agreement allowed the Company to buy
itself out of the remaining years 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 reversed approximately $ 566,000 of previously accrued
plant consolidation charges.

10. INCOME TAXES

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

                                               2000       1999       1998
                                              -------    -------    -------
Current:
      Federal                                 $ 1,056    $  (751)   $ 4,088
      State                                       267        (37)       764
      Foreign                                     256         --         --
                                              -------    -------    -------
         Total                                  1,579       (788)     4,852
                                              -------    -------    -------
Deferred:
      Federal                                     266        284     (2,030)
      State                                        85         28       (538)
                                              -------    -------    -------
         Total                                    351        312     (2,568)
                                              -------    -------    -------
Tax benefit credited directly to
      additional paid-in-capital                   --         --         16
                                              -------    -------    -------
Provision (benefit) for income taxes          $ 1,930    $  (476)   $ 2,300
                                              =======    =======    =======

      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):


                                       32
<PAGE>

                                                 2000       1999
                                               -------    -------

Inventories                                    $ 1,475    $ 2,012
Accrued expenses                                 1,002      1,172
Allowance for doubtful accounts and
      sales returns                                386        413
Deferred expenses                                  270        395
State income taxes                                 169         18
                                               -------    -------
Deferred tax assets - current                  $ 3,302    $ 4,010
                                               =======    =======

      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):

                                                 2000       1999
                                               -------    -------

Trademarks and patents                         $ 5,855    $ 6,053

Property and equipment                            (158)      (110)
Other                                              283        395
                                               -------    -------
Deferred tax liabilities - long term           $ 5,980    $ 6,338
                                               =======    =======

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

                                           2000        1999        1998
                                         -------     -------     -------

Statutory rate                              34.0%      (34.0%)      34.0%
State income taxes, net of Federal
tax benefit                                  4.6        (0.3)        2.9
Non-deductible amortization                  9.4        19.1         9.7
Revision of prior years' tax estimates      (7.3)         --          --
Foreign  earnings  taxed at  different
rates                                       (2.9)         --          --
Other items                                 (0.3)       (3.2)       (1.5)
                                         -------     -------     -------
Effective rate                              37.5%      (18.4%)      45.1%
                                         =======     =======     =======

      The Company has adopted the position under APB 23 that earnings of its
foreign subsidiaries will be permanently reinvested outside of the United
States. As such, United States deferred taxes have not been provided for on
these earnings.

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
4,100,000 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.

      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 2000 and recognized on a straight-line
basis over


                                       33
<PAGE>

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:

                                           2000        1999        1998
                                         -------     -------     -------

Net income (loss) - pro forma
         (in thousands)                  $ 2,352     $(3,248)    $ 1,616
Net income (loss) per share,
         basic and assuming
         dilution - pro forma            $  0.15     $ (0.21)    $  0.10

      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 2000, 1999 and 1998 was estimated at $0.85, $0.74 and
$3.18, respectively, on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions: 0% dividend yield,
volatility of 47% in 2000, 43% in 1999 and 1998, risk free rate of return of
6.7% in 2000, 5.9% in 1999 and 5.7% in 1998 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,
2000, 1999 and 1998 and activity during the years then ended is presented below:

<TABLE>
<CAPTION>
                            2000                       1999                     1998
                   ------------------------  ------------------------  -------------------------
                                   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      3,029,659         $5.74    2,142,159         $5.81    2,003,992         $5.56
Granted             403,814         $1.71      957,500         $1.62      480,000         $6.94
Exercised                --                                       --      (33,333)        $4.70
Terminated         (326,833)        $4.83      (70,000)        $5.46     (308,500)        $6.05
                  ---------                  ---------                  ---------
Outstanding at
   December 31    3,106,640         $4.09    3,029,659         $5.74    2,142,159         $5.81
                  =========         =====    =========         =====    =========         =====
</TABLE>

      The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:

<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                  2000             Life (Yrs.)        Price         2000                Price
---------------------------------------------------------------------   ---------------------------------
<S>                     <C>                 <C>             <C>         <C>                    <C>
$1.38 - $2.36           1,223,066               8.7             $1.65           310,921             $1.65
$4.44 - $7.06           1,786,424               6.0             $5.30         1,693,093             $5.21
$12.56 - $16.38            97,150               3.5            $12.80            97,150            $12.80
                      -----------------------------------------------   ---------------------------------
$1.38 - $16.38          3,106,640               7.0             $4.09         2,101,164             $5.03
                      ===============================================   =================================
</TABLE>


                                       34
<PAGE>

      As of December 31, 2000, 1999 and 1998, 2,101,164, 1,530,870 and 1,011,837
shares were exercisable under the Plans at a weighted average exercise price of
$5.03, $5.74 and $6.04 per share, respectively.

      As of December 31, 2000, an aggregate of 1,042,306 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.

   On March 20, 2000, the Company and Nick Price Group entered into a stock
option agreement. The option agreement allows Nick Price to purchase 150,000
shares of Common Stock at a purchase price of $1.63 per share. The shares are
not currently registered under the Plans. In return for the shares, the Company
is receiving the services of Nick Price at a guaranteed minimum value of $1.50
per share, or a minimum aggregate consideration of $225,000. The Company
recognized compensation expense and a liability of approximately $103,000 in
2000.

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
$48,000 in 2000 and $53,000 1999 and 1998.

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
$1,316,000, $1,245,000 and $1,046,000 for 2000, 1999 and 1998, respectively. As
of December 31, 2000, future minimum lease payments for all operating leases are
as follows (in thousands):

      2001                      $1,194
      2002                       1,068
      2003                         824
      2004                         654
      2005                         338
      Thereafter                   646
                                ------
                                $4,724
                                ======

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.


                                       35
<PAGE>

      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 21%, 12%, and 26% of net sales in 2000, 1999, and 1998,
respectively. Sales to a second customer represented 15%, 17%, and 15% of net
sales in 2000, 1999, and 1998, respectively. Sales to a third customer
represented 19% and 10% of net sales in 2000 and 1999, respectively.

(in thousands)
2000                                    Sales    Long-Lived Assets
----                                    -----    -----------------
United States                          $45,634             $71,140
Scotland                                   887                  --
England                                  3,529                  --
China                                    2,080               2,772
Mexico                                      --                 105
Other Foreign
Countries                                3,729                  --
                                       -------             -------
Total                                  $55,859             $74,017
                                       =======             =======

1999                                    Sales    Long-Lived Assets
----                                    -----    -----------------
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
                                       =======             =======

1998                                    Sales    Long-Lived Assets
----                                    -----    -----------------
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
                                       =======             =======


                                       36
<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, 2000 (in thousands, except per share
data):

<TABLE>
<CAPTION>
                                               Quarter Ended
                        ------------------------------------------------------------
                          March 31,       June 30,      September 30,   December 31,
                        ------------    ------------    ------------    ------------
<S>                     <C>             <C>             <C>             <C>
2000:
Net sales                    $16,713         $17,082         $10,820       $ $11,244
Gross profit                   2,986           5,705           2,643           2,268

Net income                       580           1,656              37             944
Net income per common
  share, assuming
  dilution                     $0.04           $0.10           $0.01           $0.06

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 loss per common
  share, assuming
  dilution                    $(0.02)          $0.00          $(0.05)         $(0.07)
</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 in 1999. The amount owed to CFT as of December 31, 2000 was
approximately $403,000.


                                       37
<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, 2000 and 1999 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 2000
and 1999 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.

Deloitte & Touche LLP
San Diego, California
February 7, 2001


                                       38
<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

        Signature                Title                                Date
        ---------                -----                                ----

  /s/ Peter R. Mathewson   Chief Executive Officer               March 22, 2001
-------------------------    and Director (Principal
      Peter R. Mathewson     Executive Officer)

   /s/ Robert J. Cierzan   Vice President, Finance               March 22, 2001
-------------------------    (Principal Financial Officer
       Robert J. Cierzan     and Principal Accounting Officer)

    /s/ Peter E. Bennett   Director                              March 22, 2001
------------------------
        Peter E. Bennett

/s/ Marvin M. Giles, III   Director                              March 22, 2001
------------------------
    Marvin M. Giles, III

  /s/ Vincent T. Gorguze   Director                              March 22, 2001
------------------------
      Vincent T. Gorguze

       /s/ John J. Henry   Director                              March 22, 2001
------------------------
           John J. Henry

        /s/ Chapin Nolen   Director                              March 22, 2001
------------------------
            Chapin Nolen

     /s/ Thomas A. Brand   Director                              March 22, 2001
------------------------
         Thomas A. Brand


                                       39
<PAGE>

                                  EXHIBIT INDEX

      Exhibit
       Number      Exhibit
       ------      -------

        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).


<PAGE>

      Exhibit
       Number      Exhibit
       ------      -------

      *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).

<PAGE>

      Exhibit
       Number      Exhibit
       ------      -------

      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. (Filed as Exhibit 10.17 to the Company's
                     Report on Form 10-K for the year ended December 31, 1999
                     and incorporated herein by reference.)



<PAGE>

      Exhibit
       Number      Exhibit
       ------      -------

      *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).

      10.23        1994 Stock Option Plan of the Company, as amended.
                     (Filed as attachment A-1 in the Company's 2000 Proxy
                     Statement and registered on the Company's Form
                     S-8 (Registration No. 333-57754) 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

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