SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K

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

    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 193
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
                                       OR

  [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
               FOR THE TRANSITION PERIOD FROM ______ TO __________

                        Commission file number 000-21770

                          SIGNAL TECHNOLOGY CORPORATION
             (Exact Name Of Registrant As Specified In Its Charter)
<TABLE>
<CAPTION>
<S>                                                        <C>
                     Delaware                                           04-2758268
 (State Or Other Jurisdiction Of Incorporation Or          (I.R.S. Employer Identification No.)
                  Organization)

         222 Rosewood Drive, Danvers, MA                                 01923-450
     (Address of principal executive offices)                           (Zip Code)

       Registrant's telephone number, including area code: (978) 774-2281

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

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

                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                (Title of class)
</TABLE>
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|

On March 17, 2000,  the aggregate  fair value of the  Registrant's  Common Stock
held by non-affiliates was $133,151,508. On March 17, 2000, there were 7,770,096
shares of the Registrant's Common Stock issued and outstanding.


<PAGE>

                       Documents Incorporated By Reference

Part  III  incorporates  information  by  reference  from the  definitive  Proxy
Statement in connection with the Registrant's  Annual Meeting of Shareholders to
be held on May 16, 2000. Certain exhibits are incorporated by reference from the
Registrant's  Registration Statement on Form S-1, as amended (File No. 33-61124)
and Form 8-K dated November 24, 1993.


                                       2
<PAGE>
<TABLE>

                                            Signal Technology Corporation and Subsidiary

                                                 INDEX TO ANNUAL REPORT ON FORM 10-K
<CAPTION>

                                                               PART I
                                                                                                                            Page

<S>                 <C>                                                                                                       <C>
Item 1.             Business                                                                                                   4
Item 2.             Properties                                                                                                 9
Item 3.             Legal Proceedings                                                                                         10
Item 4.             Submission of Matters to a Vote of Security Holders                                                       11

                                                            PART II

Item 5.             Market for the Registrant's Common Equity and Related Stockholder Matters                                 11
Item 6.             Selected Consolidated Financial Data                                                                      12
Item 7.             Management's Discussion and Analysis of Financial Condition and Results of Operations                     12
Item 7A.            Quantitative and Qualitative Disclosures About Market Risk                                                17
Item 8.             Financial Statements and Supplementary Data                                                               18
Item 9.             Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                      38

                                                              PART III

Item 10.            Directors and Executive Officers of the Registrant                                                        38
Item 11.            Executive Compensation                                                                                    38
Item 12.            Security Ownership of Certain Beneficial Owners and Management                                            38
Item 13.            Certain Relationships and Related Transactions                                                            38

                                                            PART IV

Item 14:            Exhibits, Financial Statement Schedules and Reports on Form 8-K                                           39
                    Signatures                                                                                                42

</TABLE>

                                                                 3
<PAGE>


                                     PART I

Item I      Business

General

Signal Technology  Corporation (the "Company") designs,  develops,  manufactures
and markets sophisticated electronic components and subsystems that are utilized
in a broad  range of  advanced  defense,  space and  wireless  telecommunication
applications.  The  budget  down  cycle  appears  to have  ended in the  defense
industry  and we  intend  to  take  advantage  of  being  one  of the  remaining
independent  merchant  suppliers  in defense  electronics.  In  addition  to the
Company's  commitment  to  grow  its  core  defense  electronics  business,  the
Company's  parallel  strategy for growth is to continue its penetration into the
rapidly growing wireless telecommunication market through a balanced combination
of internal new product development and selective  acquisitions of complementary
businesses and product lines. One year into implementing its strategic vision to
diversify to the broadband wireless infrastructure market the Company now serves
two separate customer bases with complementary technology.

The  Company's  core  technology  involves  precision  control,  management  and
generation of radio,  microwave and  millimeterwave  frequencies  and electrical
currents.  Principal uses for the Company's products include  telecommunications
networks,  satellite communications,  electronic  countermeasures,  intelligence
guidance systems and radar subsystems.

The Company's major defense  customers are prime  government  contractors  which
integrate  the Company's  products into complex  systems sold to agencies of the
United States government and to foreign countries.  In recent years,  changes in
the global  political  situation have resulted in reductions in defense  budgets
and an apparent increase in United States military  reliance upon  sophisticated
electronic  equipment.  However, it appears the defense downturn has ceased with
budget  forecasts flat to slightly  increasing in the coming years. In addition,
military  agencies are seeking to maximize  resources by enhancing and upgrading
existing systems and platforms.  The Company believes that its products are well
positioned to take advantage of current  defense  trends due to its  substantial
incumbency on key existing programs and platforms.

In the  commercial  wireless  markets  the  Company's  principal  customers  are
world-wide major  telecommunication  corporations  which integrate the Company's
products into a variety of complex  digital radio products  employed in wireless
transport  infrastructure  applications.  The advent of  wireless  communication
(cellular/PCSA)  and wireless  data  transfer has created a  millimeterwave  and
microwave  based  industry  that is  experiencing  enormous  growth.  While  the
transport  segment  is  still  in its  early  product  life  cycle,  high  speed
(broadband)  internet  access is just now  emerging and is  anticipated  to be a
significantly  larger  market.  On December  23,  1999,  the  Company  purchased
substantially  all  of  the  assets  of  Advanced   Frequency  Products  LLC,  a
manufacturer of high-frequency millimeterwave and microwave transceivers for the
broadband wireless infrastructure  marketplace.  During January 2000 the company
created the Signal Wireless Group to focus on this growth market.

The Company integrates acquired businesses and product lines where possible with
existing  operations,  reducing  redundancies  in  administration,   operations,
facilities  and other  areas.  In  addition,  the  Company is  diversifying  its
customer  base by  directing  marketing  and product  development  resources  to
commercial wireless applications in both domestic and international markets. The
Company  has  embarked on a company  wide Lean  Enterprise  initiative  which is
focused on streamlining  operations,  reducing cycle time throughout the company
and establishing low cost, value-added business models for its customers.

Structure and Organization

The Company was  incorporated  in 1982 and became a public  company in 1993. The
company  has  six  operating  divisions;  referred  to as  Arizona,  California,
Systems,  Advanced  Frequency  Products,  Keltec and  Olektron  and  reports its
operations within three segments:  Microwave Components and Subsystems



                                        4
<PAGE>

(Arizona, California, Advanced Frequency Products and Systems), Power Management
Products (Keltec) and Radio Frequency (RF) Components and Subsytems (Olektron).

Products and Customers

The  Company's  products  are  integrated  into complex  electronic  systems and
subsystems that require precision  control,  management and generation of radio,
microwave and millimeterwave frequencies and electrical currents. The Company is
dedicated to supplying high quality and highly reliable products that meet rigid
customer  requirements for performance and on-time  delivery,  while at the same
time being competitively priced.

<TABLE>
The  following  table sets forth  information  concerning  net sales by business
segment for years ending December 31:
<CAPTION>

                                                            ------------------------- ---------------------- -----------------------
(amounts in thousands)                                                1999                    1998                   1997
----------------------                                      ------------------------- ---------------------- -----------------------
<S>                                                                   <C>                    <C>                   <C>
Microwave Components & Subsystems                                     $44,950                $51,858               $59,362
Power Management Products                                              25,403                 24,262                25,298
RF Components & Subsystems                                             12,096                 15,963                17,579
------------------------------------------------------------------------------------------------------------------------------------
     Total                                                            $82,449                $92,083              $102,239
====================================================================================================================================
</TABLE>

For selected financial data by business segment see ("Segment Information") Note
15 to the  consolidated  financial  statements.  Each of the Company's  business
segments market products to one or more of the following industries.

Defense

The   Company   continues   to  be  a   leading   supplier   of   sophisticated,
state-of-the-art   electronic  components  and  systems  for  missile  guidance,
airborne  and  ground  based  radars,  electronic   countermeasures  (ECM),  and
electronic  intelligence  (ELINT). The Company supplies products on key missiles
programs such as the AMRAAM, Tomahawk,  Sparrow,  Standard Missile (SM), BAT and
PAC3/Patriot  missile system.  Key programs in ECM include the ALQ-99,  ALQ-131,
ALQ-135,  ALQ-156,  ALQ-165 (ASPJ),  ALQ-172,  ALQ-184,  ALQ-211 (SIRFC), IDECM,
APR-48A  (RFIS),  APR-39,  ALR-66/67  and  Salamandre.  Radar  programs  include
MILSTAR, ARINE, GRIFO and a number of active electronically scanned array (AESA)
programs.  The Company provides  microwave and RF components and subsystems that
primarily  generate,  manage and  control  frequencies  in the range of 1 Khz to
40Ghz.  A  typical  example  is a radar  jamming  system  which  incorporates  a
microwave oscillator that generates a signal to render enemy radar ineffective.

Power supply products are typically used for direct electric  current (DC) to DC
conversion or alternating  electric  current (AC) to DC conversion,  and high or
low voltage power at varied currents.  For example,  power  management  products
would be used to convert 400 Hz AC current generated by an aircraft's generators
into the high voltage high current required for the aircraft's radar.

Space

The Company  provides  products for  spacecraft and launch  vehicles.  Principal
space applications include satellite communications,  intelligence, surveillance
and sensing. The Company designs, develops and manufactures frequency components
such as isolators,  circulators,  oscillators and power components such as DC to
DC converters. The Company's products are used on satellite-based  communication
systems such as Astrolink,  Beam Link,  Globalstar (TM), Tempo (TM), GPS (Global
Positioning  System),  SBIRS (Space Based  Infared  Sensor),  HESSI (High Energy
Solar Spectroscopic Imager), N.E.A.R. (Near Earth Asteriod Rendezvous),  Milstar
II and others. Such systems are designed to offer various combinations of voice,
data,   video,   paging  and  facsimile  to  telephones   and  data   terminals,
environmental  astrological  experiment results and phenomena data,  positioning
and locating data and threat detection and warning.

                                        5
<PAGE>

Telecommunications

The Company is currently  supplying the  world-wide  telecommunication  industry
with a large selection of communication products including complex microwave and
millimeterwave  transceivers,  IF  conversion  modules  (a device  which  allows
signals  to be  converted  from  low  frequency  to  high  through  intermediate
staging),  phase  locked  oscillators,  synthesizers,  power  supplies,  digital
switching equipment,  digitally tunable notch filters (a device which allows for
the selection of a specific  signal from an array of signals) as well as a large
portfolio of single function microwave components.  The Company's  communication
products cover a diverse range of  applications  such as cellular phone backhaul
systems,  fixed wireless local loop (WLL),  terrestrial & space based  satellite
communications  (SATCOM)/(VSAT)  and  local/wide  area  networks.  The Company's
products  are  generally  marketed  directly  to   telecommunication   equipment
providers  who  in  turn  support  the  end  use  service  providers.   In  some
applications, the Company's current customers are end use service providers.

The Company's principal customers are prime contractors and military agencies of
the United States government and certain foreign  countries.  With the exception
of Raytheon Company,  which accounted for 18%, 23%, and 20% of the Company's net
sales in 1999, 1998, and 1997, respectively,  the Company believes that the loss
of any single customer would not have a material adverse effect on the Company.

<TABLE>
The following table sets forth information concerning net sales of the Company's
products  to  categories  of  customers  and  geographic   markets.   The  sales
information  includes  direct sales by the Company to the customer or market and
indirect sales to prime contractors selling to the customer or market.
<CAPTION>

                                                                       Year Ended December 31,

                                     -----------------------------------------------------------------------------------------------
                                               1999                          1998                             1997
                                     -------------------------- ------------------------------- ------------------------------------
(dollars in thousands)                     $            %             $               %                $                %
------------------------------------ -------------- ----------- --------------- --------------- ----------------- ------------------
<S>                                        <C>           <C>           <C>             <C>               <C>              <C>
U.S. government
      Military                             $54,830       66%           $64,599         70%               $77,117          75%
      Non-Military                           3,063        4              1,262          1                    792           1
U.S. Commercial                              7,422        9              7,639          9                  7,510           7
International
      Military                              14,924       18             16,689         18                 14,420          15
      Commercial                             2,210        3              1,894          2                  2,400           2
------------------------------------------------------------------------------------------------------------------------------------
Total                                      $82,449      100%           $92,083        100%              $102,239         100%
====================================================================================================================================
</TABLE>


Government Contracts

A substantial portion of the Company's business is conducted under United States
government contracts and subcontracts.  These contracts are either competitively
bid or sole source  contracts.  Competitively  bid contracts are awarded after a
formal bid and proposal  competition among suppliers.  Sole source contracts are
awarded when a single  contractor  is deemed to have an expertise or  technology
that is superior to that of competing contractors.

Virtually  all  of  the  Company's  United  States   government   contracts  and
subcontracts are fixed price contracts,  pursuant to which the Company agrees to
develop a product or to  manufacture a product for a fixed price and assumes the
risk of cost overruns.  Substantially all of the Company's net sales are derived
from fixed price manufacturing  contracts. The Company believes that the risk of
cost  overruns is lower on fixed  price  manufacturing  contracts  than it is on
fixed price product development contracts.

Sales and Marketing

The Company  markets its  products  through its own sales force and a network of
knowledgeable independent sales representatives and distributors.  The Company's
sales force is comprised of  divisional  Vice  Presidents,  Marketing;  regional
sales  managers;sales  personnel and support staff.  The Company has independent
sales representatives in the U.S. and numerous foreign countries.

                                        6
<PAGE>

The Company's sales managers are responsible  for  coordinating  the independent
sales  representatives  and for having  extensive  knowledge of  government  and
commercial  programs in their respective  regions.  They also keep the Company's
engineering,  manufacturing and management  personnel advised of possible future
trends and requirements of customers.

The key to the Company's  sales and  marketing  strategy is the  development  of
long-term  relationships  with its customers  and to have its products  designed
into its  customers'  systems.  This is achieved by regular  communications  and
meetings between Company  personnel at all levels and their  counterparts in the
customer's  organization.  The Company is active in forming strategic  alliances
and buying agreements.

Product Engineering, Manufacturing and Development

The Company  believes that a principal  reason for its success is the quality of
its product design, engineering,  manufacturing and testing capabilities.  These
capabilities  enable the Company to design and  engineer  products  that meet or
exceed its customers'  demanding  specifications for performance and reliability
and to manufacture the products at competitive prices.

The Company maintains engineering,  product design and manufacturing  operations
and related support systems at all of its operating facilities. In addition, all
operations utilize computer systems for product design and product documentation
and to control product  performance  testing.  A key to the Company's ability to
reduce  manufacturing  cost has been the  reduction of direct labor  through the
introduction of automated or  semi-automated  manufacturing  and product testing
systems and processes.

<TABLE>
The Company invests in product development, principally engineering, to meet and
anticipate  customer  requirements  for new products or enhancements of existing
products.  In  addition,  the  Company  undertakes   customer-sponsored  product
development  contracts.   Accordingly,  the  Company's  development  activities,
whether Company-funded or  customer-sponsored,  are generally product or program
specific. The Company retains rights from  customer-sponsored  development work.
The amounts of company-funded and customer-sponsored  development work performed
in each of the last three years are as follows:

<CAPTION>
                                                               Year Ended December 31,
                                           ----------------------------------------------------------------
(dollars in thousands)                            1999                    1998                    1997
-----------------------------------------------------------------------------------------------------------
<S>                                             <C>                      <C>                     <C>
Company-funded                                  $1,786                   $ 274                   $ 777
Customer-sponsored                               1,607                   1,794                   1,787
-----------------------------------------------------------------------------------------------------------
Total                                           $3,393                  $2,068                  $2,564
===========================================================================================================
</TABLE>

Sources of Raw Materials

The  raw  materials  and  sub-components  that  the  Company  requires  for  the
manufacture of its products are generally  available from several  sources.  The
Company  purchases some raw materials and components  from single  sources,  but
believes it could purchase  similar or comparable raw materials from alternative
sources  of  supply  on  comparable  terms.  From  time  to  time,  the  Company
experiences  minor delays in obtaining raw materials  and  components;  however,
such delays have not materially affected its operations.

Backlog

At  December  31,  1999 and  December  31,  1998,  the  Company had a backlog of
unshipped orders of $83,439  thousand and $64,803  thousand,  respectively.  The
Company expects to ship all of the December 31, 1999 backlog within 2000, except
for approximately $33,800 thousand which will be shipped in later periods.



                                       7
<PAGE>

Competition

Reduced  defense  spending,  by the  United  States  government  and many of its
allies, has intensified  competition in defense electronics.  Competition in the
commercial  wireless  industry is global,  and consequently the company competes
with both domestic and  international  companies in this market.  Competition in
both the defense and commercial  segments is based  primarily on price,  product
performance,  reliability  and customer  support.  The Company  believes that it
competes effectively in all of these areas. The Company's continued success will
depend in part on its ability to develop  and  introduce  innovative,  low cost,
quality products that meet or exceed customers' specifications.

The Company believes its technological  legacy and financial  strength will make
it a strong competitor in both the defense  electronics and commercial  wireless
markets.  There is no single competitor that competes with the Company in all of
its product lines. Some of the Company's  competitors have greater financial and
operating  resources  than the Company.  In addition,  certain of the  Company's
customers have  technological  capabilities  in the Company's  product areas and
could choose to manufacture  certain  products  themselves  rather than purchase
from suppliers such as the Company.

Employees

As of December 31, 1999, the Company had 657 full-time  employees at its various
divisions.  No employees are  represented  by unions.  The Company  believes its
relations with its employees are good.

Intellectual Property

The Company  holds  patents  issued in the United  States and  certain  European
countries.  While the Company  considers  its  patents to be of some value,  the
Company  believes  that its  technological  position  depends  primarily  on the
technical  competence and the creative  ability of its engineering  staff in the
areas of product design and  manufacturing  processes.  All of the Company's key
personnel are subject to confidentiality  agreements. The Company also relies on
a combination of copyright and trademark  protection  with respect to certain of
its intellectual property.

Government Regulation

All of the  Company's  operations  are  subject to  compliance  with  regulatory
requirements of federal, state and municipal authorities,  including regulations
concerning employment  obligations and affirmative action,  workplace safety and
protection of the environment.  While compliance with applicable regulations has
not  adversely  affected the Company's  operations in the past,  there can be no
assurance  that the Company will  continue to be in  compliance in the future or
that these regulations will not change.

In particular,  the Company must comply with detailed government procurement and
contracting  regulations and with United States government security regulations,
certain of which carry  substantial  penalty  provisions for  nonperformance  or
misrepresentation  in the  course of  negotiations.  Failure  of the  Company to
comply with its  government  procurement,  contracting  or security  obligations
could  result  in  penalties  or  suspension  of  the  Company  from  government
contracting, which would have a material adverse effect on the Company's results
of operations.

The Company is required to maintain a United States government facility security
clearance at each of its locations. This clearance could be suspended or revoked
if the  Company  is  found  not to be in  compliance  with  applicable  security
regulations.  Any such  revocation  or  suspension  would  delay  the  Company's
delivery of its products to customers. Although the Company has adopted policies
directed at assuring its compliance with  applicable  regulations and there have
been no suspensions or  revocations  of any of its  facilities,  there can be no
assurance  that the approved  status of the Company's  facilities  will continue
without interruption. United States government regulations require a license for
the export of advanced  weapons  systems.  Changes in United  States  government
policies   towards  the  export  of  these  systems  may  impact  the  Company's
international business.



                                       8
<PAGE>

Item 2            Properties

The Company's principal executive offices are located in Danvers, Massachusetts.
The Company's principal operating facilities, containing light manufacturing and
associated engineering and support services are located in four states:

Arizona:              The Company owns a modern  84,260  square foot building in
                      Chandler.

California:           The Company leases a modern 54,280 square foot building in
                      Sunnyvale.   The  lease   does  not   include   utilities,
                      maintenance and repairs,  insurance and real estate taxes.
                      The lease  expires in 2003.  The  current  annual  rent is
                      $670,896   with   an   average   annual    escalation   of
                      approximately 6.6% through the term of the lease.

Florida:              The Company owns a modern  68,000  square foot building in
                      Fort Walton Beach.

Massachusetts:        The Company owns a modern  25,000  square foot building in
                      Webster  and a  modern  40,350  square  foot  building  in
                      Beverly. The Company leases 10,760 square feet in a modern
                      building  in  Andover,   MA.  The  lease  includes  water,
                      maintenance  of common  areas and real estate  taxes.  The
                      lease  expires July 31, 2000.  The Company does not expect
                      to renew the lease and the  balance  of rent to be paid is
                      $75,887.

The Company  believes that its properties  are in good  operating  condition and
repair  and  considers  its  facilities  to be  suitable  and  adequate  for the
Company's  current and reasonably  foreseeable  future  activities.  The Company
believes that there is capacity at the Company's  facilities to absorb  acquired
businesses  of a certain size and product  lines  and/or  internal  growth.  The
properties  owned  by the  Company  are  all  subject  to  either  mortgages  or
industrial revenue bond financing.


                                       9
<PAGE>


Item 3            Legal Proceedings

The  Company  is  involved  from time to time in  litigation  incidental  to its
business. Ongoing legal proceedings are as follows:

Weymouth Environmental Contamination

In  April  1996,  the  Company  sold its  manufacturing  facility  in  Weymouth,
Massachusetts  but  retained  the  environmental  liability  and  responsibility
associated  with  groundwater  contaminants  present at and associated  with the
site.  This  site  has  been  classified  as a  Tier  1A  disposal  site  by the
Massachusetts  Department of Environmental  Protection  ("DEP"),  as a result of
past releases of petroleum  based  solvents.  Environmental  assessment  reports
prepared by independent  consultants  indicate that contaminants  present in the
Town of Weymouth  well field  across the street from the facility are similar to
those  reportedly  released at the site and still present in the  groundwater at
the site;  however,  these reports also indicate  that the  contaminants  do not
exceed safe drinking water levels in the finished water after normal  treatment.
Other  contaminants  which  did not  originate  at the  facility  have also been
detected in the well field.

In accordance with the applicable  provisions of the  Massachusetts  Contingency
Plan, the Company has completed its  investigation of the Site and has submitted
an  evaluation of remedial  alternatives  to the DEP. The  recommended  remedial
alternative involves continued operation of the currently operating  groundwater
remediation  system with the addition of a supplemental well. It is not possible
at this stage of the  proceedings  to predict  whether the DEP will  approve the
recommended alternative, and if not, the specific remedial actions, if any, that
it will require.

Sunnyvale Indemnification Claim

Eaton Corporation has filed a suit against the Company in United States District
Court, Northern District of California,  alleging that it has a contractual duty
to indemnify Eaton  Corporation for costs incurred as a result of  environmental
contamination  and subsequent  remediation.  The claim is based upon allegations
that  the  Company  assumed  certain  liabilities  when it  acquired  one of the
divisions of Eaton Corporation. The indemnification claim was recently dismissed
at the trial level, but is now being appealed by Eaton  Corporation.  The matter
is pending  before the Ninth  Circuit of the United  States Court of Appeals and
the outcome as to the results is uncertain.

DeCoursey v. Signal Technology Corporation

The case was filed on August 25, 1998 in the United  States  District  Court for
the District of  Massachusetts.  Plaintiffs  allege that they  purchased  Common
Stock of the  Company  between  April 28,  1997 and August 17,  1998 and seek to
represent the class of all persons purchasing during that period. The Complaint,
which was  amended on March 29,  1999,  alleges  that the Company and its former
Chief Executive Officer, Dale Peterson, violated Section 10(b) of the Securities
Exchange  Act of 1934 and Rule 10b-5 and seeks  monetary  damages.  The  Amended
Complaint  alleges that various public statements by the Company during 1997 and
1998 were false or misleading as a result of alleged accounting  irregularities.
On June 11, 1999,  the Company filed a motion to dismiss the Amended  Complaint.
Subsequently,  the  parties  reached an  agreement-in-principle  to settle.  The
agreement-in-principle  is  subject  to a  number  of  customary  contingencies,
including court approval of the settlement. During the third quarter of 1999 the
Company  took a charge to earnings of $1,250  thousand  in  connection  with the
agreement-in-principle to settle the lawsuit.

L3 Communications Corporation v. Signal Technology Corporation, et al

This case was filed on September 3, 1998 in the Superior Court in Fulton County,
Georgia.   The  Complaint   alleges  that  certain   former   employees  of  L-3
Communications   now  working  for  the   Company   unlawfully   misappropriated
confidential  and  trade  secret  information  on  behalf  of  the  Company  and
unlawfully induced other L-3 Communications  employees to join the Company.  L-3
Communications  has brought claims for civil conspiracy,  tortuous  interference
with  prospective and contractual  relations,  under both the Georgia


                                       10
<PAGE>

Deceptive  Trade  Practices  Act and the  Uniform  Trade  Secrets  Act and seeks
monetary damages. The complaint was dismissed in October 1999 without prejudice.

Transistor Devices, Inc. v. Signal Technology Corporation

On October 29, 1999,  Transistor Devices,  Inc. filed suit in the Superior Court
in Morris County, New Jersey, against the Company's Keltec division. The Company
removed the case to the United  States  District  Court for the  District of New
Jersey,  where it is currently  pending.  The  complaint  alleges that Keltec is
liable for defamation and intentional  interference  with contractual  relations
based on alleged  statements made by Keltec's  President to  representatives  of
Lockheed Martin Corporation in connection with Lockheed Martin's solicitation of
bids for the design and  manufacture  of a certain  power  supply unit in August
1999.  Transistor  Devices claims that the alleged  statements  were intended to
injure  its  reputation  and  interfere  with its bid and  prospective  economic
advantage with Lockheed Martin.

In December 1999,  Keltec denied the  allegations set forth in the complaint and
filed counterclaims against Transistor Devices for breach of contract and breach
of the  implied  covenant  of good faith and fair  dealing.  Keltec  claims that
Transistor Devices' bid to Lockheed Martin directly  contravenes the non-compete
provisions in an Asset  Purchase  Agreement  executed by Transistor  Devices and
Keltec on December 6, 1996. The case is being defended by the Company's insurer.

Item 4            Submission of Matters to a Vote of Security Holders

None.

                                     PART II

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

<TABLE>
The Company's  Common Stock is listed on the American Stock  Exchange  ("AMEX"),
under  the  symbol  STZ.  The high and low  closing  prices  for  shares  of the
Company's Common Stock for the past two years were as follows:

<CAPTION>
                                                                    1999                                1998
                                                       -----------------------------------------------------------------------------
                                                             High             Low              High                Low
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>             <C>               <C>                <C>
First Quarter                                             $  4-3/4        $  2-9/16         $  7               $  4-3/4
Second Quarter                                               5-7/8           3-11/16           6-1/2              5-1/4
Third Quarter                                                5-3/4           5                 6-3/8              3-1/2
Fourth Quarter                                               9-5/8           4                 3-1/2              2-1/2
====================================================================================================================================
</TABLE>

There were  approximately  85 holders of record of the Company's Common Stock on
March 17, 2000.  The closing  price per share of the  Company's  Common Stock on
March 17, 2000 as reported on the AMEX was $ 23.

The  Company  has never paid cash  dividends  on its Common  Stock.  The Company
currently  anticipates  that it  will  retain  all  available  funds  for use in
operations and expansion of its business and does not anticipate paying any cash
dividends in the foreseeable future.


                                       11
<PAGE>


Item 6            Selected Consolidated Financial Data

<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
<CAPTION>
(in thousands, except per share amounts
 and employees at year-end)                                        1999          1998           1997          1996          1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>           <C>            <C>            <C>           <C>
OPERATIONS
Net Sales                                                       $  82,449     $  92,083      $ 102,239      $ 113,064     $  89,728
Operating income (loss) (1)                                         5,565        (6,600)            76          4,252         1,040
Income (loss) before taxes                                          3,947        (7,497)          (994)         2,907          (123)
Net Income (loss)                                                   4,476        (7,173)          (657)         1,698          (269)
Net income (loss) per share (1):
    Basic                                                            0.59         (0.97)         (0.09)          0.24         (0.04)
    Diluted                                                     $    0.56     $   (0.97)     $   (0.09)     $    0.22     $   (0.04)

Shares used in calculating net income
  (loss) per share:
    Basic                                                           7,587         7,365          7,268          7,076         6,880
    Diluted                                                         7,986         7,365          7,268          7,676         6,880
                              (1) In 1995, includes restructuring expense of $779 or $(0.07) per share
------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION

Current assets                                                  $  32,434     $  30,707      $  42,670      $  47,096     $  46,421
Current liabilities                                                18,818        11,006         13,631         16,065        15,682
Total assets                                                       57,601        48,983         62,840         65,644        66,117
Long-term debt, less current maturities                             5,573         9,928         13,408         13,408        17,283
Total debt                                                          9,178        10,408         13,888         14,729        17,658
Stockholders' equity                                               31,686        26,487         34,274         34,362        31,944
Shares outstanding at year-end                                      7,676         7,349          7,417          7,172         6,949
Book value per share                                            $    4.13     $    3.60      $    4.62      $    4.79     $    4.60
------------------------------------------------------------------------------------------------------------------------------------
SELECTED DATA

Orders                                                          $  95,171     $  68,187      $ 101,875      $ 103,829     $ 110,656
Year-end backlog                                                $  83,439     $  64,803      $  88,699      $  89,063     $  92,837
Employees at year-end                                                 657           754            817            993           894
Net sales per employee                                          $     125     $     122      $     125      $     114     $     100
</TABLE>

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

Cautionary Note

The Annual Report on Form 10-K may contain  "forward-looking  statements" within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section 21E of the Securities Exchange Act of 1934, as amended,  including,  but
not limited to, (i) trends in the federal  defense budget and military  reliance
upon  sophisticated  electronic  equipment,  (ii) the impact upon the Company of
loss of customers or sales,  (iii) the impact and effects of competition and the
Company's continued ability to compete in its markets,  (iv) the suitability and
adequacy of the Company's  properties  for its intended  uses, (v) the Company's
anticipated policy with respect to dividends,  (vi) the incidence,  materiality,
and frequency of  fluctuations  in the Company's  operating  results,  (vii) the
Company's optimism about improvements in its operating deficiencies,  (viii) the
impact on the Company and effects of the expansion of the Company's  business in
the  wireless  infrastructure  market  place,  (ix)  the  Company's  ability  to
successfully  intergrate  acquisitions into its operations and (x) certain other
statements   identified  or  qualified  by  words  such  as  "likely",   "will",
"suggests",  "may",  "would",  "could",  "should",   "expects",   "anticipates",
"estimates", "plans", "projects",  "believes", "is optimistic about", or similar
expressions (and variants of such words or expressions).


                                       12
<PAGE>

Investors  are  cautioned   that   forward-looking   statements  are  inherently
uncertain.  These forward-looking  statements represent the best judgment of the
Company  as on the date of this  Annual  Report on Form  10-K,  and the  Company
cautions  readers  not to  place  undue  reliance  on  such  statements.  Actual
performance and results of operations may differ materially from those projected
or  suggested  in the  forward-looking  statements  due  to  certain  risks  and
uncertainties including,  without limitation, risks associated with fluctuations
in the  Company's  operating  results,  volume  and  timing of orders  received,
changes in the mix of products sold, competitive pricing pressure, the Company's
ability to meet or  renegotiate  customer  demands,  the  ability to  anticipate
changes in the market,  the Company's ability to finance its operations on terms
that are  acceptable,  the  Company's  ability to attract  and retain  qualified
personnel  including the Company's  management,  changes in the global  economy,
changes  in  regulatory  processes,  the  dependence  on certain  key  customers
(including the U.S.  government),  the Company's  ability to realize  sufficient
margins on sales of its products, the availability and timing of funding for the
Company's current products and the development of future products.

Overview

The Company's  principal  business is the design,  development,  manufacture and
marketing of sophisticated  electronic components and subsystems.  The Company's
principal  strategy for growth is to pursue existing  business  opportunities at
its current  operations  in the defense,  space and  wireless  telecommunication
markets and acquire complementary businesses and product lines.

The Company has  experienced  and expects to continue to experience  significant
fluctuations  in its results of  operations.  Factors that affect the  Company's
results of operations include the volume and timing of orders received,  changes
in the mix of products  sold,  competitive  pricing  pressures and the Company's
ability to meet  customer  requirements.  As a result of the  foregoing or other
factors, there can be no assurance that the Company will not experience material
fluctuations  in the future  operating  results on a quarterly or annual  basis,
which would  materially and adversely affect the Company's  business,  financial
condition and results of operations.

Results of Operations for the Years Ended December 31, 1999, 1998 and 1997

Net sales for 1999 totaling $82.4 million decreased 10.5% from 1998 net sales of
$92.1 million.  Backlog increased to $83.4 million at the end of 1999 from $64.8
million at the end of 1998 on orders of $95.2  million in 1999 compared to $68.2
million in 1998.  Included in 1999 backlog was $5.8 million  resulting  from the
purchase of Advanced  Frequency  Products  LLC. A reduction in orders during the
last  six  months  of 1998 at the  Microwave  and RF  components  and  subsystem
businesses was the primary reason for the overall decreased sales in 1999.

1998 net sales of  $92.1 million decreased  10.0%  from 1997 net sales of $102.2
million.  Backlog  decreased  to $64.8  million  at the end of 1998  from  $88.7
million at the end of 1997 on orders of $68.2 million in 1998 compared to $101.9
million in 1997. A reduction in orders was the primary  reason for the decreased
sales in 1998.  Orders  throughout  the  Company  were  moderately  affected  by
economic conditions in Asia. Government sanctions placed on certain shipments to
India and Pakistan cancelled shipments and delayed orders.

Gross profit  during 1999  increased  $12.4  million as compared to 1998.  Gross
profit was adversely effected during 1998 by contract  adjustments and inventory
write-downs  at the  Company's  Keltec  Operation  and to a lesser extent at its
Microwave Components and Subsystems businesses.  The impact of these adjustments
in 1998 was approximately  $8.2 million and were a result of an investigation by
Corporate  management  with the aid of its  independent  accountants and outside
counsel  into  contract  and  inventory   accounting  practices  at  its  Keltec
Operation.  For 1999 gross profit as a percentage of sales was 31.8% as compared
to 15.1% in 1998.  The improved  performance  over 1998 is  attributable  to the
Company's  corrective  actions taken  including a new management team at Keltec,
strengthening    performance   assessment,    tightening   financial   controls,
streamlining operations as well as favorable changes in contract mix.

                                       13
<PAGE>

For the year ended 1998 gross profit as a percentage of sales decreased to 15.1%
from 17.6% in 1997. The decrease in gross profit  percentage is  attributable to
the Company  recognizing losses on contracts and inventory  write-downs taken at
the  Keltec  Operation  and to a lesser  extent  the  Microwave  Components  and
Subsystems business.

Selling, general and administrative expenses decreased to $18.9 million for 1999
from $20.2  million in 1998.  The $1.3 million  decrease is  primarily  due to a
reduction in commissions and selling expenses.

Selling, general and administrative expenses increased to $20.2 million for 1998
from $17.1  million in 1997.  The $3.1  million  increase  is in part due to the
Company  taking a charge for  environmental  remediation  costs at the  Weymouth
facility due to a settlement with the state of  Massachusetts  and a revision to
its estimates for future remediation costs. In addition,  the Company recognized
increased legal and accounting costs  associated with the Company's  restatement
of its 1996 and 1997  financial  statements  as well as expenses  related to the
relocation of new executive  employees  and severance  paid to former  executive
employees.

Company-funded  research and development  for 1999 was $1.8 million  compared to
$.3 million in 1998 and $.8 million in 1997. The company  instituted an enhanced
research and development program for 1999.

Other expense of $1.3 million in 1999 is a charge to earnings in connection with
reaching an agreement-in-principle to settle the pending securities class action
lawsuit.

Business Segments

The  Company  has  six   operating   divisions   engaged  in  the   engineering,
manufacturing  and marketing of electronic  components and subsystems.  The four
operating  divisions  aggregated  into the Microwave  Components  and Subsystems
segment have similar products, production processes and types of customers.

Microwave Components and Subsystems

Engaged  in  the  design  and  manufacture  of  microwave  and  millimeter  wave
transceivers,  oscillators,  frequency  synthesizers  and microwave  amplifiers,
microwave  switch  matrices  and a wide  range  of  single  function  components
including ferrite circulators and isolators, mixers and filters.

Power Management Products

Engaged in the design  and  manufacture  of  military  and space  based DC to DC
converters,  high and low  voltage  power  supplies,  and  military  high  power
amplifiers and transmitters for use in radar systems.

Radio Frequency Components and Subsystems

Engaged  in the design  and  manufacture  of radio  frequency  and  intermediate
frequency signal processing components,  integrated  multi-function devices, and
switching  systems  for  the  defense,  space  and  wireless  telecommunications
markets.



                                       14
<PAGE>

<TABLE>
The following  tables display net sales and operating income by business segment
for each of the three years ending  December 31 which  correspond to the segment
information presented in Note 15 to the consolidated financial statements.
<CAPTION>

(amounts in thousands)                                         1999            1998              1997
-----------------------------------------------------------------------------------------------------------
Net Sales
                                                            -----------------------------------------------
<S>                                                            <C>             <C>                 <C>
Microwave Components & Subsystems                              $ 44,950        $ 51,858            $59,362
Power Management Products                                        25,403          24,262             25,298
RF Components & Subsystems                                       12,096          15,963             17,579
                                                            -----------------------------------------------
                                                               $ 82,449         $92,083           $102,239


Operating Income
                                                            -----------------------------------------------
Microwave Components & Subsystems                               $ 4,618         $ 2,265            $ 2,856
Power Management Products                                         4,025         (7,401)            (3,676)
RF Components & Subsystems                                          310           2,127              2,300
Other (1)                                                       (3,388)         (3,591)            (1,404)
                                                            -----------------------------------------------
                                                                $ 5,565        $(6,600)             $   76
                                                            -----------------------------------------------

<FN>

(1)      Other is primarily the portion of corporate headquarters expenses that have not been allocated to the business segments.
</FN>
</TABLE>

Microwave Components and Subsystems

Net sales of  Microwave  Components  and  Subsystems  decreased by 13.3% in 1999
compared  to 1998 and  decreased  12.6% in 1998  compared  to 1997.  The primary
reason  for the 1999  decrease  in sales was a  reduction  in  second  half 1998
orders. The principal reason for the 1998 reduction in sales in this segment was
a $6.5 million  reduction in sales at the Arizona operation caused mainly by the
completion of two large contracts in 1997.

Operating  income of  Microwave  Components  and  Subsystems  increased  by $2.4
million in 1999  compared to 1998 and  decreased by $.6 million or 20.6% in 1998
compared  to 1997.  Gross  profit was  adversely  effected  in 1998 by  contract
adjustments  and  inventory  write-downs  of  approximately  $1.9  million.  The
reduction  in 1998  income  compared  to 1997  was  due to the  above  mentioned
contract  adjustments and sales volume reductions  partially offset by increases
in income at the Arizona and Systems operations.

Power Management Products

Net sales of Power  Management  Products  increased by 4.7% in 1999  compared to
1998 and decreased by 4.0% in 1998 compared to 1997.  The primary reason for the
increase  was  a  focused  effort  by  the  new  management   team  to  increase
efficiencies in  manufacturing  and ship delinquent  orders during the first six
months  of 1999.  The  reduction  in 1998  sales  was  caused  by late  contract
deliveries.

Operating income of Power Management Products increased by $11.4 million in 1999
compared to 1998 and decreased by $3.7 million in 1998  compared to 1997.  Gross
profit was  adversely  effected in 1998 by contract  adjustments  and  inventory
write-downs  of  approximately  $6.3  million.  Contributing  to the increase in
operating  income in 1999 was increased  sales volume,  greater  efficiencies in
manufacturing  as well as changes in contract  mix. The reduction in 1998 income
is  primarily  attributable  to the above  mentioned  contract  adjustments  and
inventory write-downs.

RF Components and Subsystems

Net sales of RF Components and Subsystems decreased by 24.2% in 1999 compared to
1998 and  decreased  9.2% in 1998 compared to 1997.  The primary  reason for the
decreased  sales in 1998 and 1999 was a reduction in orders  during the last six
months of 1998 and first quarter 1999.

                                       15
<PAGE>

Operating  income of RF Components and  Subsystems  decreased by $1.8 million in
1999  compared to 1998 and  decreased by $.2 million or 7.5% in 1998 compared to
1997. The decrease in 1999 operating income is mainly  attributable to the above
mentioned decrease in sales volume, technical problems on the Sparrow program as
well as changes in contract  mix.  The  reduction  in 1998  operating  income is
mainly attributable to the above mentioned sales volume reductions.

Interest  expense in 1999  decreased to $.4 million from $.9 million in 1998 and
from $1.1 million in 1997. The decreased  interest expense reflects lower levels
of borrowing during  1999. Total debt decreased to $9.2 million at year end 1999
from $10.4 million at the end of 1998.

The benefit for income  taxes in 1999 was $.5 million  compared to an income tax
benefit of $.3  million in 1998.  The 1999  benefit for income  taxes  primarily
relates to the full  reversal of the  valuation  allowance  on the  deferred tax
asset, which the Company believes is more likely than not to be realized,  based
on the  Company's  earnings  performance.  The 1998 benefit  reflects loss carry
backs to the extent available. The effective income tax rate was (13.4%) benefit
in 1999 as compared to a (4.3%) benefit in 1998 and (33.9%) benefit in 1997

Liquidity and Capital Resources

The Company's  primary source of liquidity  during 1999,  1998 and 1997 was cash
flow from  operations  totaling  $12.0  million,  $6.9  million and $4.9 million
respectively.

The Company's  borrowing  arrangement  requires the Company to maintain  certain
minimum  balances  and  ratios,  the  most  significant  of which  requires  the
maintenance  of a minimum  tangible net worth.  At December 31, 1999 the Company
was not in  compliance  with the net worth  covenant as a result of the Advanced
Frequency  Products  LLC  acquisition  and the  Company  obtained a waiver  with
respect to such  non-compliance.  The Company and its bank have amended the loan
agreement  as of March 9,  2000  including  a change  to the  minimum  net worth
covenant.  The amount available for borrowing still may not exceed $15.0 million
but the borrowing limit is no longer based on the Company's receivables.

At December 31, 1999 the Company had working capital of $13.6 million, including
cash of $3.6 million,  as compared to working  capital and cash of $19.7 million
and $2.4  million,  respectively  at December  31,  1998.  In 1999 cash used for
acquisitions  and related  costs was $8.0 million and  accounted for most of the
cash used for investing  activities compared to no expenditures for acquisitions
and  related  costs  during  1998 or 1997.  In 1999 cash used for  additions  to
property,  plant and equipment was $1.9 million compared to $1.6 million in 1998
and $5.4 million in 1997. The $5.4 million includes  approximately  $2.4 million
for the purchase of its Beverly,  Massachusetts facility,  formerly under lease.
In 1999, the Company paid back borrowings  under the Company's  revolving credit
facility of $1.0  million  compared to $3.0  million in 1998 and $2.5 million in
1997.

On February 17, 2000,  the Company  entered into a non-binding  letter of intent
pursuant to which the Company proposes to acquire  Logimetrics,  Inc. (Note 17).
The Company has loaned  approximately  $2.0  million to  Logimetrics,  Inc.  for
working  capital  and other  purposes.  Logimetrics  granted to the  Company the
option  to  purchase  Logimetrics   high-power  amplifier  business,   currently
conducted at  Logimetrics  facility in Bohemia,  New York, for $2.0 million less
the unpaid portion of any loans made by the Company to Logimetrics. In addition,
the Company assumed  management of Logimetrics'  Bohemia,  New York business and
has assumed all current liabilities. The Company is responsible for all expenses
incurred and is entitled to retain all revenues generated in connection with its
operation  of that  business.  The  Company  has also  agreed  to make  interest
payments on Logimetrics'  outstanding bank indebtedness  during the period it is
operating the Bohemia, New York business.

The Company continues to investigate acquisition  opportunities in complementary
businesses, product lines and markets. The Company believes that it has adequate
cash, working capital and available  financing to meet its operating and capital
requirements in the foreseeable future and to pursue acquisition opportunities.

                                       16
<PAGE>

Impact of Year 2000,

Management is aware of the potential software and hardware anomalies  associated
with  the  date  change  commonly  known  as the  Year  2000  problem  (Y2K).  A
comprehensive  review of the Company's  computer systems,  software and internal
embedded systems was completed during 1999 and management  believes at this time
that Year 2000 issues have been addressed and resolved.

The Company has evaluated all of its product lines and has found no product with
embedded  date  functions  that the Company  feels in any way might have any Y2K
exposure.

The Company incurred expenses of approximately $441 thousand associated with the
Company's  overall plan to achieve Y2K compliance.  These costs include internal
labor,  outside  consultants and, to a lesser extent,  new computer hardware and
software required to achieve Y2K compliance.

Risks associated with the Y2K problem include,  among other things,  (i) failure
of systems and software used by the Company's  customers which will impact their
financial ability to purchase products from the Company, (ii) failure of systems
and software used by vendors and  third-party  service  providers upon which the
Company relies for outsource services and products,  (iii) Y2K problems with the
Company's  suppliers  which could  negatively  impact the  Company's  ability to
fulfill its own orders promptly, and (iv) errors or failures of systems in which
the Company's devices are implemented which could result in improper interfacing
or operation of such devices.

Accounting Pronouncements

In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting  Bulletin  No. 101 ("SAB  101"),  "Revenue  Recognition  in Financial
Statements."  SAB 101 summarizes the SEC's view in applying  generally  accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's  second quarter of the
fiscal  year 2000.  The  effects of  applying  this  guidance,  if any,  will be
reported as a cumulative effect adjustment resulting from a change in accounting
principle. The Company's evaluation of SAB 101 is not yet complete.

Item 7A.          Quantitative and Qualitative Disclosures About Market Risk

The Company  does not engage in trading  market risk  sensitive  instruments  or
purchasing  hedging  instruments  or "other than trading"  instruments  that are
likely to expose the Company to market  risk,  whether  interest  rate,  foreign
currency  exchange,  commodity  price or equity price risk.  The Company has not
purchased  options or entered  into swaps or forward or futures  contracts.  The
Company's  primary  market  risk  exposure  is that  of  interest  rate  risk on
borrowings under its revolving  credit  facility,  which are subject to interest
rates  based  on the  bank's  base  rate  plus  1/2% . The  Company  also  has a
collateralized  real  estate  loan at the  bank's  base rate and a change in the
applicable  interest  rate on these  loans  would  affect  the rate at which the
Company could borrow funds.

                                       17
<PAGE>

Item 8            Financial Statements and Supplementary Data

<TABLE>

                           Signal Technology Corporation and Subsidiaries
                                Consolidated Statements of Operations

<CAPTION>
                                                                       Year ended December 31,
(dollar amounts in thousands, except per share data)              1999          1998           1997
---------------------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>           <C>
Net sales                                                          $ 82,449      $ 92,083      $ 102,239
Cost of sales                                                        56,215        78,203         84,247
---------------------------------------------------------------------------------------------------------
Gross profit                                                         26,234        13,880         17,992
Selling, general and administrative expenses                         18,883        20,206         17,139
Research and development expenses                                     1,786           274            777
---------------------------------------------------------------------------------------------------------
Operating income (loss)                                               5,565        (6,600)            76
Other expense                                                         1,250             -              -
Interest expense                                                        368           897          1,070
---------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                     3,947        (7,497)          (994)
---------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes                                   (529)         (324)          (337)
---------------------------------------------------------------------------------------------------------
Net income (loss)                                                   $ 4,476      $ (7,173)        $ (657)
=========================================================================================================

Net income (loss) per share
   Basic                                                             $ 0.59       $ (0.97)       $ (0.09)
   Diluted                                                           $ 0.56       $ (0.97)       $ (0.09)
=========================================================================================================

Shares used in calculating net income (loss) per share
   Basic                                                              7,587         7,365          7,268
   Diluted                                                            7,986         7,365          7,268
=========================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>



                                       18
<PAGE>


<TABLE>


                                      Signal Technology Corporation and Subsidiaries
                                                 Consolidated Balance Sheets
<CAPTION>

                                                                                                  December 31,
                                                                                     ----------------------------------------
(dollar amounts in thousands)                                                              1999                  1998
------------------------------------------------------------------------------------ ----------------- --- ------------------
<S>                                                                                          <C>                    <C>
ASSETS
Current assets:

Cash and cash equivalents                                                                    $  3,571               $  2,366
Accounts receivable, net of allowance for doubtful
     accounts of $199 in 1999 and $332 in 1998                                                 13,299                 12,894
Inventories, net of progress payments                                                          10,446                 11,358
Deferred income taxes                                                                           4,134                  1,562
Refundable income taxes                                                                           638                  2,319
Prepaid expenses and other current assets                                                         346                    208
------------------------------------------------------------------------------------ ----------------- --- ------------------
Total current assets                                                                           32,434                 30,707
------------------------------------------------------------------------------------ ----------------- --- ------------------

Property, plant and equipment, net                                                             14,954                 14,935
Intangibles assets, net                                                                         9,365                  2,505
Other assets                                                                                      848                    836
------------------------------------------------------------------------------------ ----------------- --- ------------------
Total assets                                                                                 $ 57,601               $ 48,983
------------------------------------------------------------------------------------ ----------------- --- ------------------

LIABILITIES
Current liabilities:

Current maturities of long-term debt                                                         $  3,605                $   480
Accounts payable                                                                                3,292                  3,067
Accrued expenses                                                                               10,318                  7,456
Customer advances                                                                               1,603                      3
------------------------------------------------------------------------------------ ----------------- --- ------------------
Total current liabilities                                                                      18,818                 11,006
------------------------------------------------------------------------------------ ----------------- --- ------------------

Deferred income taxes                                                                           1,524                  1,562
Long-term debt, net of current maturities                                                       5,573                  9,928

Commitments and contingencies (Note 10)

STOCKHOLDERS' EQUITY

Preferred  stock,  $0.01 par value;  5,000,000  shares  authorized;  none issued
Common stock, $0.01 par value; 30,000,000 authorized;
     7,828,189  shares in 1999 and 7,501,323 shares in 1998 issued and 7,676,089
     shares in 1999 and 7,349,223 shares
     in 1998 outstanding                                                                         78                       75
Additional paid-in-capital                                                                   13,667                   12,947
Retained earnings                                                                            18,841                   14,365
----------------------------------------------------------------------------------- ---------------- ----- ------------------
                                                                                             32,586                   27,387
Less treasury stock; 152,100 shares in both 1999 and 1998 at cost                             (900)                    (900)
----------------------------------------------------------------------------------- ---------------- ----- ------------------
Total stockholders' equity                                                                   31,686                   26,487
----------------------------------------------------------------------------------- ---------------- ----- ------------------
Total liabilities and stockholder's equity                                                 $ 57,601                 $ 48,983
----------------------------------------------------------------------------------- ---------------- ----- ------------------
<FN>

The  accompanying  notes  are an  integral  part of the  consolidated  financial statements.
</FN>
</TABLE>

                                                                 19
<PAGE>

<TABLE>
                                           Signal Technology Corporation and Subsidiaries
                                        Consolidated Statements of Stockholders' Equity

<CAPTION>
                                                                  Years ended December 31, 1999, 1998 and 1997
                                 -------------------------------------------------------------------------------------------
                                           Common Stock                                    Treasury Stock
                                 --------------------------- Additional               -------------------------   Total
                                     Shares                   Paid-in      Retained                  Amount    Stockholders'
 (dollar amounts in thousands)       Issued       Amount      Capital      Earnings     Shares      at Cost       Equity
----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>              <C>      <C>          <C>         <C>            <C>        <C>
December 31, 1996                     7,171,506        $ 72     $ 12,095     $ 22,195           -          $ -     $ 34,362
Exercise of stock options               246,534           2          566                                                568
Issuance of common stock                  5,000           -           32                                                 32
Stock repurchase program                                                                   (6,000)         (31)         (31)
Net loss                                                                         (657)                                 (657)
----------------------------------------------------------------------------------------------------------------------------
December 31, 1997                     7,423,040          74       12,693       21,538      (6,000)         (31)      34,274
Exercise of stock options                36,599           1           74                                                 75
Issuance of common stock                 41,684           -          180                                                180
Stock repurchase program                                                                 (146,100)        (869)        (869)
Net loss                                                                       (7,173)                               (7,173)
----------------------------------------------------------------------------------------------------------------------------
December 31, 1998                     7,501,323          75       12,947       14,365    (152,100)        (900)      26,487
Exercise of stock options               233,305           2          376                                              $ 378
Issuance of common stock                 93,561           1          216                                                217
Stock compensation expense                                           128                                                128
Net income                                                                      4,476                                 4,476
----------------------------------------------------------------------------------------------------------------------------
December 31, 1999                     7,828,189        $ 78     $ 13,667     $ 18,841    (152,100)      $ (900)    $ 31,686
============================================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements.
</FN>
</TABLE>


                                                                 20
<PAGE>



<TABLE>

                                           Signal Technology Corporation and Subsidiaries
                                             Consolidated Statements of Cash Flows

<CAPTION>

                                                                                     Years ended December 31,
                                                                      --------------------------------------------------
(dollar amounts in thousands)                                              1999            1998             1997
------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>                  <C>
Cash flows from operating activities:
Net income (loss)                                                             $ 4,476       $ (7,173)            $ (657)
Adjustments to reconcile net income (loss) to net cash provided
        by operations:
  Depreciation                                                                  2,754          3,028              3,292
  Amortization                                                                    444            419                422
  Compensation charge on stock options                                            128              -                  -
 (Gain) or loss on disposal of property, plant and equipment                       17             (4)                10
  Deferred taxes                                                               (2,610)           800                380
Changes in operating assets and liabilities:
  Accounts receivable                                                             316          3,007              2,482
  Inventory                                                                     1,566          8,847              2,898
  Refundable income taxes                                                       1,681            305             (2,205)
  Prepaid expenses and other current assets                                      (137)           278               (154)
  Accounts payable                                                               (770)        (2,287)                65
  Accrued expenses                                                              2,560            836             (1,787)
  Customer advances                                                             1,560         (1,174)               129
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                      11,985          6,882              4,875
------------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
Acquisitions and associated costs                                              (7,977)             -                  -
Additions to property, plant and equipment                                     (1,928)        (1,608)            (5,404)
Proceeds from disposal of property, plant and equipment and other                  10             59                 58
------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                          (9,895)        (1,549)            (5,346)
------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Proceeds from exercise of stock options                                           378             75                568
Proceeds from issuance of stock                                                   217            180                 32
Purchase of treasury stock                                                          -           (869)               (31)
Borrowings on bank term note                                                        -              -              2,980
Borrowings under bank revolving credit facilities                               7,600         26,950             33,700
Repayment of borrowings under bank revolving credit facilities                 (8,600)       (29,950)           (36,200)
Payments of long-term debt                                                       (480)          (480)            (1,321)
------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities                                 (885)        (4,094)              (272)
------------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash                                                 1,205          1,239               (743)
Cash, beginning of year                                                         2,366          1,127              1,870
------------------------------------------------------------------------------------------------------------------------
Cash, end of year                                                             $ 3,571        $ 2,366            $ 1,127
========================================================================================================================
<FN>
The accompanying notes are an integral part of the consolidated financial statements
</FN>
</TABLE>

                                                                 21
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)

1.       NATURE OF OPERATIONS

The Company designs, develops, manufactures and markets sophisticated electronic
components  and  subsystems  that are  utilized  in a broad  range  of  advanced
defense, space and wireless telecommunications applications. The Company has six
operating divisions and reports its operations within three segments:  Microwave
Components and Subsystems,  Power  Management  Products and Radio Frequency (RF)
Components and Subsystems.

The  Company's  core  technology  involves  precision  control,  management  and
generation of radio,  microwave and  millimeterwave  frequencies  and electrical
currents.  Principal uses for the Company's products include  telecommunications
networks, satellite communications, electronic countermeasures, intelligence and
guidance systems and radar subsystems.

The Company's major defense  customers are prime  government  contractors  which
integrate  the Company's  products into complex  systems sold to agencies of the
United States government and to foreign countries.

In the  commercial  wireless  markets  the  Company's  principal  customers  are
world-wide major  telecommunication  corporations  which integrate the Company's
products into a variety of complex  digital radio products  employed in wireless
transport infrastructure  applications.  During January 2000 the company created
the Signal Wireless Group to focus on this market.

2.       SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated  financial statements include the accounts of Signal Technology
Corporation and its wholly-owned  subsidiaries,  (collectively,  the "Company").
Intercompany accounts and transactions have been eliminated.

Use of Estimates

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

Revenue Recognition

The Company records revenue on a percentage of completion  basis generally using
units of  delivery  as the basis to  measure  the  contract  work which has been
completed.  Estimated  losses on contracts are  recognized in full in the period
they become  known.  A provision is made  currently  for  estimated  returns and
warranty costs.

Research and Development

Research and development expenditures are charged to operations as incurred.



                                       22
<PAGE>

Income Taxes

Deferred tax assets and liabilities consist of differences between the tax basis
of assets and liabilities and their basis for financial  reporting  purposes and
are measured based on the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. Deferred tax assets are stated at their
estimated realizable value. The provision for income taxes consists of estimated
federal and state income taxes  currently  payable  adjusted for changes between
periods in the measurement of deferred tax assets and liabilities.

Earnings per Share

The Company presents basic and diluted earnings per share ("EPS").  Basic EPS is
computed by dividing  income  available to common  stockholders  by the weighted
average  number of common  shares  outstanding  for the  period.  Diluted EPS is
computed  giving  effect  to all  dilutive  potential  common  shares  that were
outstanding  during the period.  Dilutive potential common shares consist of the
incremental  common  shares  issuable upon the exercise of stock options for all
periods using the treasury stock method.

Comprehensive Income (Loss)

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 130,
Reporting Comprehensive Income ("SFAS 130"), effective January 1, 1998. SFAS 130
requires that items defined as  comprehensive  income,  such as foreign currency
translation  adjustments,  be separately  classified in the financial statements
and that the  accumulated  balance  of other  comprehensive  income be  reported
separately from retained  earnings and additional  paid-in capital in the equity
section of the  balance  sheet.  There were no  differences  between  net income
(loss) and  comprehensive  income (loss) for the years ended  December 31, 1999,
1998 and 1997.

Inventories

Inventories,  other than  inventoried  costs relating to contracts and programs,
are stated at the lower of cost  (principally  first-in,  first-out)  or market.
Inventoried  costs  relating to  contracts  are stated at the actual  production
cost,  including  overhead  incurred to date reduced by amounts  identified with
revenue recognized on units delivered or progress  completed.  Inventoried costs
relating to long-term contracts and programs are reduced by charging any amounts
in excess of estimated realizable value to cost of sales.

In accordance with industry  practice,  inventories may include amounts relating
to contracts and programs  having  production  cycles longer than one year and a
portion thereof will not be realized within one year.

Property, Plant and Equipment

Property,  plant and equipment are carried at cost, and depreciation is provided
using the  straight-line  method over the estimated useful life of the asset, as
follows:

                   Buildings                          33 years
                   Building improvements              15 years
                   Machinery and equipment             7 years
                   Furniture and fixtures            5-7 years

Leasehold  improvements  are amortized  over the lesser of their useful lives or
the life of the  lease.  Maintenance  and  repairs  are  charged  to  expense as
incurred; improvements are capitalized. Upon retirement or sale, the cost of the
assets disposed of and the related accumulated depreciation are removed from the
accounts; any resulting gain or loss is credited or charged to income.

Intangible Assets

Intangible assets which consist  principally of goodwill and are being amortized
on a  straight  line  basis  over  periods  of three to  twenty  years.  At each
reporting  date,   management  assesses  whether  there  has  been  a  permanent
impairment  in the  value  of its  long-term  assets  and  the  amount  of  such
impairment by comparing  anticipated  undiscounted  future operating income from
acquired  business  units with the carrying value of the related  goodwill.  The
factors considered by management in performing this assessment


                                       23
<PAGE>

include current operating results,  trends and prospects, as well as the effects
of demand, competition and other economic factors. At December 31, 1999 and 1998
accumulated amortization was $2,174 and $1,730 respectively.

Accounting Pronouncements

In December 1999, the  Securities and Exchange  Commission  ("SEC") issued Staff
Accounting  Bulletin  No. 101 ("SAB  101"),  "Revenue  Recognition  in Financial
Statements."  SAB 101 summarizes the SEC's view in applying  generally  accepted
accounting principles to selected revenue recognition issues. The application of
the guidance in SAB 101 will be required in the Company's  second quarter of the
fiscal  year 2000.  The  effects of  applying  this  guidance,  if any,  will be
reported as a cumulative effect adjustment resulting from a change in accounting
principle. The Company's evaluation of SAB 101 is not yet complete.

Concentrations of Risk

The market for the Company's  products is largely  dependent on the availability
of new contracts from U.S. Government  authorities to prime contractors to which
the Company provides  components.  Any decline in expenditure by U.S. government
authorities may have an adverse effect on the Company's  financial  performance.
The Company generally extends credit to customers and, therefore,  collection of
receivables is affected by the defense  industry  economy.  The Company  closely
monitors extensions of credit, maintaining reserves for potential credit losses,
and such losses have been within management's expectations.

Also,  the  Company's  international  sales are  denominated  in U.S.  currency.
Consequently,  changes in exchange rates that  strengthen the U.S.  dollar could
increase  the price in local  currencies  of the  Company's  products in foreign
markets  and  make  the  Company's  products   relatively  more  expensive  than
competitors'  products that are  denominated in local  currencies,  leading to a
reduction in sales or profitability  in those foreign  markets.  The Company has
not taken any protective  measures against exchange rate  fluctuations,  such as
purchasing hedging instruments with respect to such fluctuations.

The amounts  reported  for cash  equivalents,  receivables  and other  financial
instruments  are considered to be approximate  fair values based upon comparable
market information  available at the respective  balance sheet dates.  Financial
instruments that  potentially  subject the Company to  concentrations  of credit
risks consist principally of cash and note and trade receivables.  Substantially
all of the Company's cash is deposited in a single bank.

The Company must comply with detailed  government  procurement  and  contracting
regulations and with United States government security  regulations,  certain of
which   carry   substantial    penalty    provisions   for   nonperformance   or
misrepresentation  in the  course of  negotiations.  Failure  of the  Company to
comply with its  government  procurement,  contracting  or security  obligations
could  result  in  penalties  or  suspension  of  the  Company  from  government
contracting, which would have a material adverse effect on the Company's results
of operations.

The Company's inventories include  high-technology parts and components that may
be specialized in nature or subject to rapid technology obsolescence.  While the
Company has programs to minimize the required  inventories on hand and considers
technology  obsolescence in estimating  reserves to reduce  recorded  amounts to
market values, such estimates could change in the future.

3.       ACQUISITIONS AND DISPOSALS

In December 1999, the Company paid $7,977 for substantially all of the assets of
Advanced Frequency Products LLC a manufacturer of high-frequency millimeter wave
and   microwave   transceivers   for  the  broadband   wireless   infrastructure
marketplace.  The purchase was financed with $4,977 in cash and



                                       24
<PAGE>

borrowing of $3,000 on the Company's  revolving credit  facitility (Note 9). The
transaction was accounted for as a purchase and results of operations  since the
acquisition date are included in the consolidated statements of income.

The assets and  liabilities  recorded  in  connection  with the  acquisition  of
Advanced  Frequency  Products LLC are based upon  estimates  of fair value.  The
assets and  liabilities  recorded  were  $2,117 and  $1,444,  respectively.  The
identifiable  intangible  assets of $2,300  consist  of the  Advanced  Frequency
Products workforce, tradename and completed technology and is being amortized on
a straightline  basis over the estimated  useful life of 3-7 years.  Goodwill of
$5,004 is being  amoritized on a  straightline  basis over the estimated  useful
life of 10 years.

Assuming the  acquisition  described above had been made on January 1, 1998, the
Company's unaudited pro forma condensed results of operations would have been as
follows:

                                                       Years ended December 31,
                                                       1999              1998
--------------------------------------------------------------------------------
Net sales                                          $   86,023        $   96,691
Net income (loss)                                  $    3,231        $   (7,918)
Net income (loss) per share:

    Basic                                          $     0.43        $    (1.08)
    Diluted                                        $     0.40        $    (1.08)

The pro forma  results have been prepared for  comparative  purposes only and do
not purport to be indicative  of what would have  occurred had the  acquisitions
been made on January 1, 1998, or of results which may occur in the future.

4.       OTHER ASSETS

At December 31, 1999 and 1998 other assets includes a mortgage receivable in the
amount of $820 and $831,  respectively.  In April 1996,  the Company  issued the
mortgage  related  to the sale of its former  operating  facility  in  Weymouth,
Massachusetts  and retained an environmental  liability present at the site. The
mortgage  receivable  matures on September 1, 2023,  and  principal and interest
payments  of  approximately  $6 are due  monthly  (see Note 10  Commitments  and
Contingencies).  The Company earns interest on the mortgage receivable at a rate
of 8.0% per annum and  interest  income for the years ended  December  31, 1999,
1998 and 1997 amounted to $66, $63 and $61, respectively.

5.       STATEMENTS OF CASH FLOWS

                                                      Years ended December 31,
                                                    ----------------------------
                                                       1999      1998       1997
--------------------------------------------------------------------------------
Cash paid during period for:
         Interest                                    $  471     $ 842     $1,063
         Taxes                                          303      --        1,227
Non-cash investing and financing activity:
         Capital lease equipment                     $  148      --         --



                                       25
<PAGE>

6.       INVENTORIES

                                                                December 31,
                                                           ---------------------
                                                              1999       1998
--------------------------------------------------------------------------------
Raw materials                                              $  2,914    $  3,595
Work in progress                                              9,739      10,936
Finished goods                                                  587         279
--------------------------------------------------------------------------------
                                                             13,240      14,810
Less: unliquidated progress payments                         (2,794)     (3,452)
--------------------------------------------------------------------------------
                                                           $ 10,446    $ 11,358
================================================================================




7.       PROPERTY, PLANT AND EQUIPMENT

                                                             December 31,
                                                   -----------------------------
                                                       1999              1998
--------------------------------------------------------------------------------
Land                                                   $    992        $    992
Building and improvements                                10,132           9,986
Machinery and equipment                                  27,162          25,570
Furniture and fixtures                                    3,487           3,025
--------------------------------------------------------------------------------
                                                         41,773          39,573
Less: accumulated depreciation                          (26,819)        (24,638)
--------------------------------------------------------------------------------
Net property, plant and equipment                      $ 14,954        $ 14,935
================================================================================


8.       ACCRUED EXPENSES

                                                               December 31,
                                                        ------------------------
                                                               1999      1998
--------------------------------------------------------------------------------
Payroll & employee benefits                                  $ 2,439   $ 2,248
Vacation                                                       1,497     1,129
Warranty                                                       1,084     1,249
Commissions                                                      942       934
Litigation                                                     1,250      --
Environmental                                                  1,125       981
Other                                                          1,981       915
--------------------------------------------------------------------------------
                                                             $10,318   $ 7,456
================================================================================

<TABLE>
9.       LONG-TERM DEBT AND NOTES PAYABLE
<CAPTION>

                                                                                               December 31,
                                                                                   -------------------------------------
                                                                                          1999               1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>                <C>
Massachusetts Industrial Revenue Bond,
     maturing  in 2009,  interest  at 62% of the  prime  rate plus 1/2%
     effective  interest  rate  of 4.5%  and  4.6%  in  1999  and  1998
     respectively, payable in annual principal payments of $80                             $  728             $  808
Capital lease obligations(Note 10)                                                            250                  -
Bank revolving credit facility                                                              3,000              4,000
Bank real estate term loan facility                                                         5,200              5,600
---------------------------------------------------------------------------------------------------------------------
                                                                                            9,178             10,408
Less: current maturities                                                                  (3,605)              (480)
---------------------------------------------------------------------------------------------------------------------
                                                                                          $ 5,573            $ 9,928
=====================================================================================================================

</TABLE>

                                       26
<PAGE>

The Massachusetts  Industrial Revenue Bond is collateralized by real estate with
a net book value of $1,412 at December 31, 1999.

The  Company  has a $15,000  unsecured  bank  revolving  credit  facility,  (the
"Revolver").  The  Revolver  expires in June 2000,  and amounts may be borrowed,
paid and reborrowed at the election of the Company through the expiration  date.
In the event that the  facility  is not  extended or  renegotiated,  any amounts
borrowed would become due at the expiration  date.  Amounts  available under the
Revolver are reduced by actual borrowings and outstanding letters of credit. The
Company has the option of borrowing  under one or more  differing  interest rate
formulas and at December 31, 1999 and 1998, the weighted  average  interest rate
was 8.06% and 7.64% respectively.  The Company also pays a quarterly  commitment
fee at an  annual  rate of 3/8% on the  amount  of the  unused  facility.  After
reduction for outstanding letters of credit under the Revolver,  the Company has
approximately $12,000 available as of December 31, 1999.

The Real Estate Loan is  collateralized  by real estate with a net book value of
$4,475 at December 31, 1999. Maturing in January,  2003, the Real Estate Loan is
payable in quarterly  principal  payments of $100,  plus  interest at the bank's
base rate (8.50% at December 31, 1999),  with the last installment  equal to the
remaining unpaid loan balance.

The Real Estate Loan and the  Revolver  contains  certain  covenants  related to
tangible net worth and interest  coverage,  as defined.  Default on any covenant
may  affect  the  commitment  by the  bank to  continue  to  lend,  and,  if not
corrected,  could  accelerate  the maturity of any  borrowings  outstanding.  At
December 31, 1999 the Company was not in compliance  with the tangible net worth
covenant as a result of the Advanced  Frequency Products LLC acquisition and the
Company obtained a waiver with respect to such  non-compliance.  The Company and
its bank have amended the loan  agreement as of March 9, 2000 including a change
to the minimum net worth covenant and the amount  available for borrowing  still
may not  exceed  $15,000  but the  borrowing  limit  is no  longer  based on the
Company's receivables.

10.      COMMITMENTS AND CONTINGENCIES

Lease Obligations:

The Company leases real estate and equipment under operating  leases expiring at
various dates through 2003.  The leases include  provisions for rent  escalation
which are inflationary in nature,  renewals and purchase options and the Company
is generally  responsible for taxes,  maintenance and repairs.  Aggregate rental
expense included in operations amounted to $900 in 1999, $907 in 1998 and $1,256
in 1997. Additionally,  the Company leased equipment under leases that have been
accounted for as capital leases.

Equipment under capital leases included in property,  plant and equipment are as
follows:

                                                               December 31,
                                              ----------------------------------
                                                            1999         1998
                                              ----------------------------------
Machinery and equipment                                     $ 425            --
Less accumulated amortization                               ($117)           --
                                              ----------------------------------
Net capital lease assets                                    $ 308



                                       27
<PAGE>


The following is a schedule by year of future minimum lease payments at December
31, 1999:

                                                       Capital         Operating
                Fiscal Year                             Leases           Leases
                -----------                             ------           ------
                       2000                              $140           $1,015
                       2001                                47              930
                       2002                                36              905
                       2003                                36              723
                       2004                                33                -
                                                   -----------       ----------
                                                         $292           $3,573

Less amounts representing interest                         42
                                                   -----------

Present   value   of   minimum   lease   payments
(includes current portion of $125)                       $250
                                                   -----------




Weymouth Environmental Contamination:

The  Company  is subject  to  extensive  and  changing  federal  state and local
environmental  laws and  regulations,  and has made provisions for the estimated
financial impact of environmental cleanup related costs.

The Company is subject to certain  indemnification  obligations under agreements
with a previously sold facility located in Weymouth, Massachusetts for potential
environmental  liabilities  associated with groundwater  contaminants present at
and associated with the site.

In accordance with the applicable  provisions of the  Massachusetts  Contingency
Plan, the Company has completed its  investigation of the Site and has submitted
an  evaluation  of remedial  alternatives  to the  Massachusetts  Department  of
Environmental  Protection ("DEP"). The recommended remedial alternative involves
continued  operation of the currently operating  groundwater  remediation system
with the addition of a  supplemental  well.  It is not possible at this stage of
the  proceedings  to  predict  whether  the DEP  will  approve  the  recommended
alternative,  and if not, the specific  remedial  actions,  if any, that it will
require. The Company has been informed by its insurers that no recovery of costs
incurred in the treatment of the ground water at the facility is possible  under
existing insurance  arrangements.  During the fourth quarter of 1998 the Company
took a charge for  environmental  remediation costs due to a settlement with the
Commonwealth  of  Massachusetts  and a  revision  to its  estimates  for  future
remediation costs at the site.

At  December  31,  1999 the Company had  recorded  liabilities  of $1.1  million
calculated on the  discounted  cash flow method using an 8% discount  rate,  for
anticipated  costs including legal and consulting  fees, site studies and design
and implementation of remediation plans, post-remediation monitoring and related
activities to be performed during the next 20 years.

Sunnyvale Indemnification Claim:

Eaton Corporation has filed a suit against the Company in United States District
Court, Northern District of California,  alleging that it has a contractual duty
to indemnify Eaton  Corporation for costs incurred as a result of  environmental
contamination  and subsequent  remediation.  The claim is based upon allegations
that  the  Company  assumed  certain  liabilities  when it  acquired  one of the
divisions of Eaton Corporation. The indemnification claim was recently dismissed
at the trial level, but is now being appealed by Eaton



                                       28
<PAGE>

Corporation. The matter is pending before the Ninth Circuit of the United States
Court of Appeals and the outcome as to the results is uncertain.

DeCoursey v. Signal Technology Corporation:

The case was filed on August 25, 1998 in the United  States  District  Court for
the District of  Massachusetts.  Plaintiffs  allege that they  purchased  Common
Stock of the  Company  between  April 28,  1997 and August 17,  1998 and seek to
represent the class of all persons purchasing during that period. The Complaint,
which was  amended on March 29,  1999,  alleges  that the Company and its former
Chief Executive Officer, Dale Peterson, violated Section 10(b) of the Securities
Exchange  Act of 1934 and Rule 10b-5 and seeks  monetary  damages.  The  Amended
Complaint  alleges that various public statements by the Company during 1997 and
1998 were false or misleading as a result of alleged accounting  irregularities.
On June 11, 1999,  the Company filed a motion to dismiss the Amended  Complaint.
Subsequently,  the  parties  reached an  agreement-in-principle  to settle.  The
agreement-in-principle  is  subject  to a  number  of  customary  contingencies,
including court approval of the settlement. During the third quarter of 1999 the
Company   took  a  charge  to  earnings  of  $1,250  in   connection   with  the
agreement-in-principle to settle the lawsuit.

L3 Communications Corporation v. Signal Technology Corporation, et al:

This case was filed on September 3, 1998 in the Superior Court in Fulton County,
Georgia.   The  Complaint   alleges  that  certain   former   employees  of  L-3
Communications   now  working  for  the   Company   unlawfully   misappropriated
confidential  and  trade  secret  information  on  behalf  of  the  Company  and
unlawfully induced other L-3 Communications  employees to join the Company.  L-3
Communications  has brought claims for civil conspiracy,  tortuous  interference
with  prospective and contractual  relations,  under both the Georgia  Deceptive
Trade  Practices  Act and the  Uniform  Trade  Secrets  Act and  seeks  monetary
damages. The complaint was dismissed in October 1999 without prejudice.

Transistor Devices, Inc. v. Signal Technology Corporation:

On October 29, 1999,  Transistor Devices,  Inc. filed suit in the Superior Court
in Morris County, New Jersey, against the Company's Keltec division. The Company
removed the case to the United  States  District  Court for the  District of New
Jersey,  where it is currently  pending.  The  complaint  alleges that Keltec is
liable for defamation and intentional  interference  with contractual  relations
based on alleged  statements made by Keltec's  President to  representatives  of
Lockheed Martin Corporation in connection with Lockheed Martin's solicitation of
bids for the design and  manufacture  of a certain  power  supply unit in August
1999.  Transistor  Devices claims that the alleged  statements  were intended to
injure  its  reputation  and  interfere  with its bid and  prospective  economic
advantage with Lockheed Martin.

In December 1999,  Keltec denied the  allegations set forth in the complaint and
filed counterclaims against Transistor Devices for breach of contract and breach
of the  implied  covenant  of good faith and fair  dealing.  Keltec  claims that
Transistor Devices' bid to Lockheed Martin directly  contravenes the non-compete
provisions in an Asset  Purchase  Agreement  executed by Transistor  Devices and
Keltec on December 6, 1996. The case is being defended by the Company's insurer.

T-3 Contract:

The  Company  is  currently  committed  to a long term  contract  at its  Keltec
division (the T-3 contract) for  amplifiers for Raytheon.  The current  contract
value is $764. If Raytheon  exercises all of its options  within this  contract,
the total  value  could be in  excess  of  $19,000.  Based on an  assessment  by
management in 1998, if all options are exercised at current  estimated costs and
prices,  the  Company's  loss  could  total up to  $4,000.  In 1999 the  Company
negotiated new prices and  specifications  for the same  amplifiers  under a new
contract and the Company believes prices are at Keltec's manufacturing cost. The
Company believes that other future orders and options for T-3 amplifiers will be
renegotiated.



                                       29
<PAGE>

11.      INCOME TAXES

                                                    Years ended December 31,
                                               ---------------------------------
                                                1999        1998        1997
--------------------------------------------------------------------------------
Current (benefit) provision
     Federal                                   $   569    $(1,121)   $  (717)
     State                                          25         --         --
     Foreign Sales Corporation                      11         --         --
--------------------------------------------------------------------------------
Deferred (benefit) provision
     Federal                                       845       (936)       317
     State                                         234       (480)        63
--------------------------------------------------------------------------------
Less: Valuation allowance
     Federal                                    (1,544)     1,544         --
     State                                        (669)       669         --
--------------------------------------------------------------------------------
(Benefit) provision for income taxes           $  (529)   $  (324)   $  (337)
================================================================================

The  benefit  for income  taxes  primarily  relates to the full  reversal of the
valuation  allowance on the deferred  tax asset,  which the Company  believes is
more likely than not to be realized based on the Company's earnings performance.

The Company's  effective tax rate differs from the statutory  federal income tax
rate as follows:

                                                       Years ended December 31,
                                                    ----------------------------
                                                       1999     1998      1997
--------------------------------------------------------------------------------
Statutory federal income tax rate                     34.0%    (34.0)%   (34.0)%
State income taxes, net of federal benefit             6.5      (4.2)     (7.8)
Benefit from foreign sales corporation                (0.5)      --        --
Non-deductible expenses and other                      2.7       4.4       7.9
Change in valuation allowance                        (56.1)     29.5       --
--------------------------------------------------------------------------------
     Effective tax rate                              (13.4)%    (4.3)%   (33.9)%
================================================================================

The  non-deductible  expenses  consist  principally  of goodwill  resulting from
certain of the Company's  acquisitions  and other amounts not deductible for tax
purposes.

The tax effect of temporary  differences  that give rise to the net deferred tax
asset and liability are as follows:

                                                     December 31,
                                                   1999        1998
--------------------------------------------------------------------
Deferred tax asset:
     Net operating losses and credits             $   25      $  972
     Vacation accrual                                514         293
     Inventories                                   1,458         792
     Warranty                                        414         222
     Deferred compensation                            83         267
     Environmental reserve                           433         388
     Contract reserves and other                   1,207         841
--------------------------------------------------------------------
Gross deferred tax asset                           4,134       3,775
Less: valuation allowance                           --         2,213
--------------------------------------------------------------------
Net deferred tax asset                            $4,134      $1,562
Deferred tax liability:
     Depreciation                                 $1,524      $1,562
--------------------------------------------------------------------
Deferred tax liability                            $1,524      $1,562
====================================================================

As of December 31, 1999, the Company has state net operating loss carry forwards
of $154 which expire at various dates through 2019.

                                       30
<PAGE>


12.      STOCKHOLDERS' EQUITY

The Company  has stock  option  plans (the  "Plans")  under which  options for a
maximum of 3,167 shares of the  Company's  common  stock may be granted.  During
1999 the Company recorded  compensation  expense of $89 for options issued below
fair market value. Options vest in increments and over periods determined by the
Company's Compensation Committee and expire not more than ten years from date of
grant.  At December  31, 1999,  1,754  shares of common stock were  reserved for
future  issuance  under the  plans  and 171 were  available  for  future  grant.
Additionally,  non-qualified  options  to  purchase a total of 110 shares of the
Company's  common  stock  have  been  granted  to  certain  directors  and other
non-employees.  These options were generally granted at the fair market value of
the Company's  common stock at the date of option grant,  vest  generally over a
five year  period and expire  between  1999 and 2003.  During  1999 the  Company
recorded compensation expense of $39 for options granted to non-employees.

<TABLE>
Information concerning the plans and non-qualified stock options is as follows:

<CAPTION>
                                                  Available       Option      Option Price          Weighted Avg.
                                                  for Grant       Shares        per Share          Exercise Price
---------------------------------------------- ------------- ------------ ---------------------- --------------------
<S>                                                 <C>           <C>        <C>                        <C>
December 31, 1996                                     502         1,042      $1.57  -     $8.25         $3.65
Options granted                                      (175)          250       4.94  -      7.63          6.96
Options canceled                                      238          (238)      4.25  -      8.25          5.19
Options exercised                                     ---          (246)      1.57  -      5.75          2.31
---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
December 31, 1997                                     565           808       1.57  -      8.25          4.63
---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
Options granted                                      (656)          656       2.50  -      6.25          2.82
Options canceled                                      217          (249)      2.36  -      8.25          6.65
Options exercised                                       -           (37)      1.58  -      5.75          2.00
---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
December 31, 1998                                     126         1,178       1.58  -      8.25          3.27
---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
Options granted                                      (544)          544       4.00  -      5.44          4.39
Options canceled                                       89           (98)      1.58  -      7.63          5.76
Options exercised                                       -          (233)      1.58  -      4.19          1.63
Increase in available options, 1992                   500             -          -  -         -             -
   Plan

---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
December 31, 1999                                     171         1,391     $1.80  -     $8.25         $3.80
---------------------------------------------- -------------- ----------- --------- -- --------- --------------------
</TABLE>

A total of 539 options were exercisable at December 31, 1999
A total of 544 options were exercisable at December 31, 1998
A total of 488 options were exercisable at December 31, 1997

<TABLE>

The  following  table  summarizes  information  with  respect  to stock  options
outstanding as of December 31, 1999:
<CAPTION>

         Range of              Outstanding       Weighted-Average         Weighted-Average        Exercisable      Weighted-Average
      Exercise Prices             as of        Remaining Contractual       Exercise Price            as of          Exercise Price
                                12/31/99               Life                                         12/31/99
---------------------------- ---------------- ------------------------ ------------------------ ----------------- -----------------
<S>                              <C>                <C>                    <C>                      <C>               <C>
     $1.5700 -      $1.8000               45             2.0                    $1.8000                    45           $1.8000
     $2.0000 -      $3.9400              610             8.7                     2.5130                   321            2.5052
     $4.0000 -      $5.7500              576             8.2                     4.4323                    67            4.5359
     $6.0600 -      $7.0000              103             2.6                     6.4421                    67            6.4213
     $7.2500 -      $8.2500               57             1.7                     7.8718                    39            7.8876
--------------- ------------ ---------------- --------------- -------- ------------------------ ----------------- -----------------
Total                                  1,391             7.6                                              539           $3.5781
=============== ============ ================ =============== ======== ======================== ================= =================
</TABLE>

                                       31
<PAGE>

The following  information  concerning  the Company's  stock option and employee
stock  purchase plans is provided in accordance  with SFAS No. 123,  "Accounting
for Stock-Based Compensation." The Company accounts for such plans in accordance
with APB No. 25 and related Interpretations.

<TABLE>
The fair  value of each  option  grant has been  estimated  on the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions are as follows:

<CAPTION>
                                                                 1999                       1998                1997
                                                          ------------------- ----- ---------------------- ----------------
<S>                                                              <C>                        <C>                 <C>
                      Risk-free Interest Rates                   4.5%                       5.3%                6.2%
                      Expected Life                           6.8 years                   4.5 years           4.4 years
                      Volatility                                 0.66                       0.65                0.65
                      Dividend Yield                              --                         --                   -
</TABLE>

The weighted  average fair value of those options granted in 1999, 1998 and 1997
was $2.95, $1.60 and $4.03 respectively.

The  following  pro forma income  information  has been  prepared  following the
provisions of SFAS No. 123:

                                           Years ended December 31,
                                 -----------------------------------------------
                                     1999            1998            1997
--------------------------------------------------------------------------------
Net income (loss):
     As reported                       $ 4,476       $ (7,173)          $ (657)
     Pro forma                           3,812         (7,821)          (1,102)

Basic EPS:
     As reported                       $  0.59        $ (0.97)         $ (0.09)
     Pro forma                            0.50          (1.06)           (0.15)

Diluted EPS:
     As reported                       $  0.56        $ (0.97)         $ (0.09)
     Pro forma                            0.48          (1.06)           (0.15)



                                       32
<PAGE>

<TABLE>
13.      EARNING PER SHARE

A reconciliation  of the numerator and denominator of both basic and diluted EPS
is provided as follows:

<CAPTION>
                                                             1999                   1998                 1997
                                                      ------------------- -- ------------------- -- ---------------
<S>                                                              <C>                  <C>                  <C>
Numerator - Basic and Diluted EPS
         Net income (loss)                                       $ 4,476              $ (7,173)            $ (657)

Denominator - Basic EPS
         Common shares outstanding                                 7,587                 7,365              7,268
                                                      ===================    ===================    ===============
         Basic earnings (loss) per share                         $  0.59              $  (0.97)           $ (0.09)
                                                      ===================    ===================    ===============

Denominator - Diluted EPS
         Denominator - Basic EPS                                   7,587                 7,365              7,268

         Effect of Dilutive Securities
           Common Stock Options                                      399                    --                 --

Denominator - Diluted EPS                                          7,986                 7,365              7,268
                                                      ===================    ===================    ===============
         Diluted earnings (loss) per share                       $  0.56              $  (0.97)           $ (0.09)
                                                      ===================    ===================    ===============
</TABLE>

As of December 31, 1998 and 1997 the number of dilutive  shares was 238 and 423,
respectively and such shares have not been included in above calculations as the
effect would be anti-dilutive.

14.      EMPLOYEE BENEFIT PLANS

The Company maintains a 401(k) plan covering substantially all of its employees.
Eligible  employees may  contribute up to 15% of their annual  compensation,  as
defined,  to this plan. The Company may also make a discretionary  contribution.
The Company's  contributions to this plan totaled $377 in 1999, $378 in 1998 and
$401 in 1997.

The Company has an Employee  Stock  Purchase  Plan ("the  Purchase  Plan") under
which 300  shares of common  stock have been  reserved  for  issuance.  Eligible
employees  may  designate  not more than 10% of their  cash  compensation  to be
deducted  each pay period for the  purchase of common  stock under the  Purchase
Plan, and participants may purchase not more than $25 of common stock in any one
calendar year. On the last business day of each six month offering period shares
of common stock are purchased with the employees'  payroll  deductions  over the
immediately  preceding  six  months at a price per share of 85% of the lesser of
the market price of the common stock on the purchase date or the market price on
the first day of the period.  The Purchase Plan will  terminate on June 30, 2002
unless its term is extended.  Common stock issued under the Purchase Plan was 94
in 1999, 42 in 1998 and 5 in 1997.

15.      SEGMENT INFORMATION

The  Company is engaged  in the  engineering,  manufacturing  and  marketing  of
electronic  components and subsystems.  The Company has six operating divisions;
referred to as Arizona, California, Systems, Advanced Frequency Products, Keltec
and  Olektron  and reports  its  operations  within  three  segments:  Microwave
Components and Subsystems  (Arizona,  California,  Advanced Frequency  Products,
Systems), Power Management Products (Keltec) and Radio Frequency (RF) Components
and  Subsystems  (Olektron).   The  operations  aggregated  into  the  Microwave
Components and Subsystems  segment have similar products,  production  processes
and types of customers.

                                       33
<PAGE>

The Company's reportable segments are as follows:

Microwave Components and Subsystems

Engaged  in  the  design  and   manufacture  of  microwave  and   millimeterwave
transceivers,  oscillators,  frequency  synthesizers  and microwave  amplifiers,
microwave  switch  matrices  and a wide  range  of  single  function  components
including ferrite circulators & isolators, mixers and filters.

Power Management Products

Engaged in the design  and  manufacture  of  military  and space  based DC to DC
converters,  high and low  voltage  power  supplies,  and  military  high  power
amplifiers and transmitters for use in radar systems.

Radio Frequency Components and Subsystems

Engaged  in the design  and  manufacture  of radio  frequency  and  intermediate
frequency signal processing components,  integrated  multi-function devices, and
switching  systems  for  the  defense,  space  and  wireless  telecommunications
markets.

The accounting  policies of the segments are the same as those  described in the
"Summary of Significant Accounting Policies". Segment data includes a charge for
allocating a portion of  corporate-headquarters  costs. The table below presents
selected financial data by business segment for the years ending December 31:

Selected Financial Data by Business Segment

(amounts in thousands)                           1999         1998         1997
-----------------------------------------   ---------    ---------    ---------
Net Sales

Microwave Components & Subsystems           $  44,950    $  51,858    $  59,362
Power Management Products                      25,403       24,262       25,298
RF Components & Subsystems                     12,096       15,963       17,579
                                            ---------    ---------    ---------
                                            $  82,449    $  92,083    $ 102,239

Operating Income

Microwave Components & Subsystems           $   4,618    $   2,265    $   2,856
Power Management Products                       4,025       (7,401)      (3,676)
RF Components & Subsystems                        310        2,127        2,300
Other                                          (3,388)      (3,591)      (1,404)
                                            ---------    ---------    ---------
                                            $   5,565    $  (6,600)   $      76

Total Assets

Microwave Components & Subsystems           $  28,571    $  22,890    $  29,799
Power Management Products                      12,099       12,173       20,129
RF Components & Subsystems                      7,504        7,110        7,170
Other                                           9,427        6,810        5,742
                                            ---------    ---------    ---------
                                            $  57,601    $  48,983    $  62,840

Long-lived Assets - net

Microwave Components & Subsystems           $  16,045    $   8,944    $  10,218
Power Management Products                       4,478        4,762        5,486
RF Components & Subsystems                      3,529        3,606        3,583
Other                                             267          128           37
                                            ---------    ---------    ---------
                                            $  24,319    $  17,440    $  19,324

Long Lived Asset Additions

Microwave Components & Subsystems           $   8,205    $     679    $   1,882
Power Management Products                         599          329          709
RF Components & Subsystems                        375          467        2,790
Other                                             196          133           23
                                            ---------    ---------    ---------
                                            $   9,375    $   1,608    $   5,404


Depreciation and Amoritization Expense

Microwave Components & Subsystems           $   1,766    $   1,922    $   2,212
Power Management Products                         928        1,050        1,008
RF Components & Subsystems                        448          440          467
Other                                              56           35           27
                                            ---------    ---------    ---------
                                            $   3,198    $   3,447    $   3,714


                                       34
<PAGE>


Net Sales by Customer Category
(amounts in thousands)                         1999         1998         1997
-----------------------------------------   ---------    ---------    ---------
U.S. Government Military

Microwave Components & Subsystems           $  23,907    $  33,819    $  43,258
Power Management Products                      21,537       17,709       18,739
RF Components & Subsystems                      9,386       13,071       15,120
                                            ---------    ---------    ---------
                                            $  54,830    $  64,599    $  77,117

U.S. Government Non-Military

Microwave Components & Subsystems           $   2,635    $     949    $     348
Power Management Products                        --           --           --
RF Components & Subsystems                        428          313          444
                                            ---------    ---------    ---------
                                            $   3,063    $   1,262    $     792

U.S. Commercial

Microwave Components & Subsystems           $   6,239    $   6,485    $   6,107
Power Management Products                          59          179          515
RF Components & Subsystems                      1,124          975          888
                                            ---------    ---------    ---------
                                            $   7,422    $   7,639    $   7,510

International Military

Microwave Components & Subsystems           $  10,139    $   9,389    $   8,340
Power Management Products                       3,802        5,926        5,109
RF Components & Subsystems                        983        1,374          971
                                            ---------    ---------    ---------
                                            $  14,924    $  16,689    $  14,420

International Commercial

Microwave Components & Subsystems           $   2,030    $   1,216    $   1,376
Power Management Products                           5          448          807
RF Components & Subsystems                        175          230          217
                                            ---------    ---------    ---------
                                            $   2,210    $   1,894    $   2,400
                                            ---------    ---------    ---------
Total                                       $  82,449    $  92,083    $ 102,239
                                            =========    =========    =========

Significant Customer

Revenue of  approximately  $14,770  (18%),  $21,474  (23%) and $20,456 (20%) was
attributable to Raytheon Company for the years ended December 31, 1999, 1998 and
1997  respectively.  At December  31, 1999 and 1998,  accounts  receivable  from
Raytheon  Company  accounted  for  approximately  $1,638 (12%) and $2,447 (19%),
respectively, of the total amount of accounts receivable due to the Company.

                                       35
<PAGE>

<TABLE>
16.      UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following quarterly financial information should be read in conjunction with
Notes 1 and 2. The first three  quarters in each year  consist of thirteen  week
periods with the fourth quarter ending on December 31.
<CAPTION>

                                                          First              Second             Third              Fourth
       1999:                                             Quarter            Quarter            Quarter            Quarter
       -------------------------------------------- ------------------ ------------------- ----------------- -------------------
<S>                                                      <C>               <C>                <C>                 <C>
       Net sales                                         $     20,436      $       20,934     $      20,819       $      20,260
       Gross profit                                             5,889               6,142             6,809               7,394
       Operating income                                           801                 946             1,480               2,337
       Net income                                                 639                 825             1,428               1,584
       Net income per share:
            Basic                                        $       0.09      $         0.11     $        0.19       $        0.21
            Diluted                                      $       0.08      $         0.10     $        0.18       $        0.20
       Shares used in calculating Net income per share:
            Basic                                               7,503               7,585             7,652               7,673
            Diluted                                             7,824               8,032             8,106               8,065
       -------------------------------------------- ------- ---------- ------ ------------ ----- ----------- ------- -----------
       1998:
       -------------------------------------------- ------- ---------- ------ ------------ ----- ----------- ------- -----------
       Net sales                                         $     23,687      $       22,190     $      22,766       $      23,440
       Gross profit                                             5,503             (3,315)             5,903               5,789
       Operating income (loss)                                    593             (8,049)               286                 570
       Net income (loss)                                          203             (7,832)                85                 371
       Net income (loss) per share:
            Basic                                        $       0.03      $       (1.07)     $        0.01       $        0.05
            Diluted                                      $       0.03      $       (1.07)     $        0.01       $        0.05
       Shares used in calculating
          Net income (loss) per share:
            Basic                                               7,411               7,335             7,349               7,349
            Diluted                                             7,663               7,335             7,618               7,480

</TABLE>

                                       36
<PAGE>



17.      SUBSEQUENT EVENTS

On February 17, 2000,  the Company  entered into a non-binding  letter of intent
pursuant  to  which  the  Company   proposes   to  acquire   Logimetrics,   Inc.
("Logimetrics").

In connection  with the letter of intent,  the Company has loaned  approximately
$2,000 to  Logimetrics  for  working  capital  and other  purposes.  Logimetrics
granted to the Company the option to purchase Logimetrics'  high-power amplifier
business, currently conducted at Logimetrics' facility in Bohemia, New York (the
"New York  Business"),  for $2,000 less the unpaid  portion of any loans made by
the Company to Logimetrics.

Upon  execution  of the  letter of  intent,  the  Company,  through  its  Keltec
division,  assumed the management and operation of the New York Business and has
assumed  all  current  liabilities  of the New York  Business.  The  Company  is
responsible  for all  expenses  incurred  and is entitled to retain all revenues
generated in connection  with its operation of that  business.  The Company also
has  agreed  to  make  interest   payments  on  Logimetrics'   outstanding  bank
indebtedness during the period it is operating the New York Business.

Logimetrics is obligated under certain circumstances to re-pay all loans made by
the Company,  together with a prepayment penalty, and to pay certain termination
fees and costs in the event that  Logimetrics  enters into a letter of intent or
similar  agreement  for an  acquisition  transaction  with  a  third  party.  In
addition,  if Logimetrics  enters into an acquisition  transaction  with a third
party, under certain circumstances the Company has the right to retain ownership
of the New York Business for no additional consideration.

The consummation of the proposed merger is subject to the satisfaction or waiver
of a number  of  customary  conditions  precedent,  including  the  satisfactory
completion  of due  diligence  investigation  of the business and affairs of one
another.  No assurances  can be given that the merger will be consummated on the
terms summarized above or at all.


                                       37
<PAGE>


Item 9           Changes in and Disagreements with Accountants on Accounting and
                 Financial Disclosure

                  None

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

                                    PART III

Item 10  Directors and Executive Officers of the Registrant

Item 11  Executive Compensation

Item 12  Security Ownership of Certain Beneficial Owners and Management

Item 13  Certain Relationships and Related Transactions

All information  required by Items 10, 11, 12 and 13 is  incorporated  herein by
reference to the Company's  definitive proxy statement for its annual meeting of
stockholders to be held on May 16, 2000, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A.


                                       38
<PAGE>



                                     PART IV

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

(a)(1)           Index to Financial Statements and Financial Statement Schedules

<TABLE>
<CAPTION>
                                                                                                         Page
<S>                                                                                                       <C>
         Financial  Statements for the Years Ended  December 31, 1998,  1997 and 1996:
                  Consolidated Statements of Operations                                                   18
                  Consolidated Balance Sheets                                                             19
                  Consolidated Statements of Stockholders' Equity                                         20
                  Consolidated Statements of Cash Flows                                                   21

         Notes to Consolidated Financial Statements                                                       22

         Report of Independent Accountants                                                                43

         Schedule II       Valuation and Qualifying Accounts                                              44

         All other schedules are omitted  because they are not  applicable,  not
         required under the instructions, or all the information required is set
         forth in the consolidated financial statements or notes thereto.
</TABLE>

<TABLE>
   (2) The  following  described  exhibits  are filed  herewith or  incorporated
herein by reference indicated:

<CAPTION>
Exhibit
Number   Description
--------------------------------------------------------------------------------------------------------------------------------
<S>               <C>
3.1               Certificate of Incorporation of Registrant, as amended to date.*

3.2               By-Laws of Registrant, as amended to date.***

10.1              Amended and Restated Credit Agreement among The First National Bank of Boston, the Registrant and its
                  subsidiaries, dated as of April 14, 1992.*

10.0.1            Second Amendment and Restatement of Credit Agreement with First National Bank of Boston, dated as of
                  September 30, 1993.***

10.4              Employee Incentive Stock Option Plan-1982 of the Registrant.*

10.5              1992 Equity Incentive Plan of the Registrant.*

10.6              Signal Technology Corporation 401(k) Plan.*

10.8              Lease dated as of October 18, 1990 by and between Benecia Associates and ST Microwave Corp.*

10.18             Asset Purchase and Sale Agreement by and between Adaptive Power Solutions, L.L.C. and Keltec Corporation
                  dated October 12, 1995. *****

10.19             Trade License and Purchase and Sale Agreement by and between Western Microwave, Inc. and ST Microwave
                  Corporation, a wholly owned subsidiary of Signal Technology Corporation, dated July 21, 1995. *****

10.20             Purchase and Sale Agreement by and between Tecnetics, Incorporated and Keltec Corporation, dated September
                  7, 1995. *****

10.22             Amendment  agreement No.1 to the Second Amendment and Restated  Credit Agreement,  dated as of September 30, 1993,
                  with the First  National  Bank of  Boston,  dated as of July 20,  1995. *****

                                       39
<PAGE>

Exhibit
Number Description
--------------------------------------------------------------------------------------------------------------------------------

10.23             Amendment agreement No.2 to the Second Amendment and Restated Credit Agreement dated as of September 30,1993, with
                  the First National Bank of Boston, dated as of September 30, 1995. *****

10.24             Amendment agreement No. 3 to the Second Amendment and Restated Credit Agreement, dated as of September 30,
                  1993, with the First National Bank of Boston, dated as of March 29, 1996. *******

10.25             Amendment agreement No. 4 to the Second Amendment and Restated Credit Agreement, dated as of September 30,
                  1993, with the First National Bank of Boston, dated as of March 10, 1997. *******

10.26             Asset Purchase Agreement by and between Transistor Devices Inc. and ST Keltec Corporation, a wholly owned
                  subsidiary of Signal Technology Corporation, dated as December 6, 1996. *******

10.27             Asset Purchase Agreement by and between Pulau Electronics Corporation and ST Microwave (Arizona) Corporation, a
                  wholly owned subsidiary of ST Microwave Corporation, dated as of June 14, 1996. *******

10.28             Agreement and instrument of purchase and sale by and between Communications & Power Industries, Inc. and ST
                  Microwave Corporation, a wholly owned subsidiary of Signal Technology Corporation, dated as of May 24,1996.
                  *******

10.29             First Amendment to lease, dated as of September 9, 1996, by and between Benicia Associates and Signal Technology
                  Corporation. *******

10.30             Employee Stock Purchase Plan. ******

10.31             Amendment No. 5 to the second and restated credit agreement, dated as of September 30, 1993, with the First
                  National Bank of Boston, dated as of December 15, 1997.********

10.32             Purchase and sale agreement by and between Communications and Power Industries, Inc. (Seller)
                  and Signal Technology Corporation (Buyer) dated July 25, 1997 for all real estate at 26-28 Tozer Road,
                  Beverly Massachusetts.********

10.33             Sublease Agreement as of October 1, 1998 by and between Copyright Clearance Center, Inc. and Signal Technology
                  Corporation.*********

10.34             Amendment Agreement No. 6 to Second Amended and Restated Credit Agreement, dated as of September 30, 1993, with
                  BankBoston, N.A., formerly known as the First National Bank of Boston, dated as of October 20, 1998.*********

10.35             Amendment Agreement No. 7 to Second Amended and Restated Credit Agreement, dated as of September 30, 1999, with
                  Fleet National Bank, formerly known as BankBoston, N.A., formerly known as the First National Bank of Boston,
                  dated as of March 9, 2000

21.1              Schedule of Registrant's subsidiaries.

23.1              Consent of Independent Accountants

*                 Incorporated by reference to the corresponding exhibit filed as part of the Registrant's registration statement on
                  Form S-1, as amended (File No. 33-61124).

***               Incorporated by reference to the  corresponding  exhibit filed
                  as part of the Registrant's 1993 Annual Report on Form 10-K.

****              Incorporated by reference to the  corresponding  exhibit filed
                  as part of the Registrant's 1994 Annual Report on Form 10-K.

*****             Incorporated by reference to the corresponding exhibit filed as part of the Registrant's 1995 Annual Report on
                  Form 10-K.

******            Incorporated by reference to the definitive Proxy Statement to be filed with the SEC in connection with Company's
                  Annual Meeting of Shareholders to held on May 6, 1997.



                                                                 40
<PAGE>

*******           Incorporated by reference to the correspondence exhibit filed as part of the registrant's 1996 Annual Report on
                  Form 10-K.

********          Incorporated by reference to the correspondence exhibit filed as a part of the registrants 1997 Annual Report on
                  Form 10-K.

*********         Incorporated by reference to the correspondence exhibit filed as a part of the registrant 1998 Annual Report on
                  Form 10-K.

</TABLE>
(b)      Reports on Form 8-K

         During the first quarter 2000,  the Company made the following  filings
         on Form 8-K:

         Signal Technology Corporation Current Report on Form 8-K filed with the
         Securities  and Exchange  Commission  on January 5, 2000 related to the
         acquisition of Advanced Frequency Products LLC.

         Signal Technology Corporation Current Report on Form 8-K filed with the
         Securities  and Exchange  Commission on March 20, 2000,  related to the
         letter of intent with Logimetrics, Inc.


                                                                 41

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                       <C>

                                   SIGNATURES

Pursuant to the  requirements  of Section 13 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.

                              SIGNAL TECHNOLOGY CORPORATION

                              By: /s/  Robert Nelsen

                              -----------------------------------------------------------------------
                              Chief Financial Officer and Principle Accounting Officer

Date:  March 30, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the date indicated.

       /s/       George E. Lombard                                          March 30, 2000
       --------------------------------------------------------
       Chairman, Chief Executive Officer and Principle Executive Officer

       /s/        Robert Nelsen                                             March 30, 2000
       --------------------------------------------------------
       Chief Financial Officer

       /s/      Bernard P. O'Sullivan                                       March 30, 2000
       --------------------------------------------------------
       Bernard P. O'Sullivan
       Director

       /s/      Harvey C. Krentzman                                         March 30, 2000
       --------------------------------------------------------
       Harvey C. Krentzman
       Director

       /s/      Joseph S. Schneider                                         March 30, 2000
       --------------------------------------------------------
       Joseph S. Schneider
       Director

       /s/      Larry L. Hansen                                             March 30, 2000
      --------------------------------------------------------
       Larry L. Hansen
       Director

       /s/      Thomas McInerney                                            March 30, 2000
       --------------------------------------------------------
       Director

       /s/      Thomas Skelly                                               March 30, 2000
       --------------------------------------------------------
       Director


</TABLE>

                                       42
<PAGE>


                        Report of Independent Accountants

To the Board of Directors and Stockholders
of Signal Technology Corporation

         In our opinion,  the consolidated  financial  statements  listed in the
index appearing under Item 14 (a) present fairly, in all material respects,  the
financial  position of Signal  Technology  Corporation  and its  subsidiaries at
December 31, 1999 and 1998,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  1999,  in
conformity with accounting  principles  generally accepted in the United States.
In addition,  in our opinion,  the financial  statement  schedule  listed in the
index appearing under Item 14(a) presents fairly in all material  respects,  the
information  set  forth  therein  when  read in  conjunction  with  the  related
consolidated  financial  statements.  These  financial  statements and financial
statement  schedule are the  responsibility  of the  Company's  management;  our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial  statement  schedule  based on our audits.  We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United  States, which  require  that we plan and  perform  the  audit to  obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
Boston, Massachusetts
February 22, 2000, except as to Note 9 which is as of March 9, 2000


                                       43
<PAGE>

<TABLE>
Schedule II  Valuation and Qualifying Accounts
<CAPTION>
                                                            Years ended December 31, 1998, 1997 and 1996
------------------------------------------------------------------------------------------------------------------------------------
                                                             Balance at         Charged to           Charged to         Balanced at
                                                             Beginning          Costs and              Other                End
Description                                                  of Period          Expenses              Accounts           of Period
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>                 <C>                  <C>
1997

Inventory reserve                                            2,384,000          1,933,000           (2,588,000)(2)       1,729,000

Allowance for doubtful accounts                                170,000             (8,000)              (3,000)(1)         159,000

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

1998

Inventory reserve                                            1,729,000          5,823,000           (1,624,000)(2)       5,928,000

Allowance for doubtful accounts                                159,000            196,000              (23,000)(1)         332,000

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

1999

Inventory reserve                                            5,928,000          1,643,000           (2,764,000)(2)       4,807,000

Allowance for doubtful accounts                                332,000             73,000             (206,000)(1)         199,000

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

<FN>
Notes

(1) Write-off of bad debts

(2) Charged to inventory accounts from previously established reserved amounts
</FN>
</TABLE>
                                                                 44