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




                                    FORM 10-Q



              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended      September 30, 1998
                      ------------------------------
Commission File Number 1-8037



                              AEROFLEX INCORPORATED

             (Exact name of Registrant as specified in its Charter)

          DELAWARE                                             11-1974412
(State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                          Identification No.)

    35 South Service Road
        Plainview, N.Y.                                          11803
(Address of principal executive offices)                       Zip Code)
                                 (516) 694-6700
              (Registrant's telephone number, including area code)




*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,  and (2) has been  subject to such filing
requirements for the past 90 days.

                         Yes   X                      No

  Indicate the number of shares  outstanding of each of the issuer's  classes of
common stock as of the latest practicable date.

November 6, 1998    7,558,526  shares (excluding 39,159 shares held in treasury)
--------------------------------------------------------------------------------
     (Date)                      (Number of Shares)

           NOTE: THIS IS PAGE 1 OF A DOCUMENT CONSISTING OF 15 PAGES.

<PAGE>



                              AEROFLEX INCORPORATED

                                AND SUBSIDIARIES


                                      INDEX



                                                               PAGE

PART I:  FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS
      September 30, 1998 and June 30, 1998                      3-4

CONSOLIDATED STATEMENTS OF OPERATIONS
      Three Months Ended September 30, 1998 and 1997             5

CONSOLIDATED STATEMENTS OF CASH FLOWS
      Three Months Ended September 30, 1998 and 1997             6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      7-9

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS
    Three Months Ended September 30, 1998 and 1997             10-13

PART II:  OTHER INFORMATION

ITEM 2 Changes in Securities                                    14

ITEM 6 Exhibits and Reports on Form 8-K                         14

SIGNATURES                                                      15




















                                        2

<PAGE>



                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                   September 30,      June 30,
                                                      1998             1998
                                                         (In thousands)

<S>                                                 <C>             <C>
ASSETS
Current assets:
    Cash and cash equivalents                       $ 19,885        $ 24,408
    Accounts receivable, less allowance for
      doubtful accounts of $368,000 and $317,000      19,567          19,853
    Inventories                                       31,515          29,851
    Deferred income taxes                              2,132           1,861
    Prepaid expenses and other current assets          1,862           1,197
                                                    --------         -------

       Total current assets                           74,961          77,170

Property, plant and equipment, at cost, net           28,826          26,994
Intangible assets acquired in connection with
  the purchase of businesses, net                      8,304           7,578
Cost in excess of fair value of net assets
  of businesses acquired, net                          9,744           9,827
Other assets                                           2,485           2,532
                                                    --------        --------

      Total assets                                  $124,320        $124,101
                                                   =========        ========


                 See notes to consolidated financial statements.
</TABLE>

                                        3

<PAGE>




                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                   (continued)

<TABLE>
<CAPTION>
                                                  September 30,        June 30,
                                                      1998               1998
                                                           (In thousands)

<S>                                                <C>                 <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt                $  1,636            $  1,755
  Accounts payable                                    7,080               6,668
  Accrued expenses and other current liabilities     10,752              12,932
  Income taxes payable                                2,373               1,850
                                                  ---------            --------
    Total current liabilities                        21,841              23,205

Long-term debt                                        9,479               9,726
Deferred income taxes                                 1,067               1,156
Other long-term liabilities                           2,557               2,978
                                                  ---------            --------

    Total liabilities                                34,944              37,065
                                                  ---------            --------

Stockholders' equity:
 Preferred Stock, par value $.10 per share;
  authorized 1,000,000 shares:
   Series A Junior  Participating  Preferred
   Stock,  par value  $.10 per share,
   authorized 25,000 and 150,000 shares,
   none issued                                         -                   -
 Common Stock, par value $.10 per share;
  authorized 25,000,000 shares; issued
  17,466,000 and 17,378,000 shares                    1,747               1,738
 Additional paid-in capital                         100,893             100,481
 Accumulated deficit                                (12,920)            (15,178)
                                                   ---------          ---------
                                                     89,720              87,041

 Less:  Treasury stock, at cost (39,000 and
  1,000 shares)                                         344                   5
                                                  ---------            --------

    Total stockholders' equity                       89,376              87,036
                                                  ---------            --------

    Total liabilities and stockholders' equity     $124,320            $124,101
                                                  =========            ========

</TABLE>
                 See notes to consolidated financial statements.



                                        4

<PAGE>




                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                   Three Months Ended
                                                      September 30,

                                                 1998                1997
                                            ------------         -----------
                                           (In thousands, except per share data)

<S>                                           <C>                 <C>
Net sales                                     $ 31,629            $ 23,885
Cost of sales                                   20,504              15,673
                                              ---------            --------
  Gross profit                                  11,125               8,212
                                              ---------            --------

Selling, general and administrative costs        5,630               4,606
Research and development costs                   1,991                 998
                                              ---------            --------
                                                 7,621               5,604
                                              ---------            --------
  Operating income                               3,504               2,608
                                              ---------            --------

Other expense (income)
  Interest expense                                 299                 723
  Other expense (income)                          (303)                 83
                                               ---------           --------
    Total other expense (income)                    (4)                806
                                               ---------           --------
Income before income taxes                       3,508               1,802

Provision for income taxes                       1,250                 650
                                              ---------            --------
Net income                                    $  2,258            $  1,152
                                              =========            ========

Net income per common share:
    -  Basic                                   $ .13                $ .09
                                               ======               =====
    -  Diluted                                 $ .12                $ .08
                                               ======               =====

Weighted average number of common
 shares and common share equivalents
 outstanding:
    -  Basic                                   17,447               12,746
                                             =========             ========
    -  Diluted                                 18,562               15,364
                                             =========             ========
</TABLE>

                 See notes to consolidated financial statements.



                                        5

<PAGE>



                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                            September 30,
                                                       1998              1997
                                                    ----------         -------
                                                            (In thousands)
<S>                                                <C>              <C>
Cash Flows From Operating Activities:
 Net income                                        $  2,258          $  1,152
 Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
   Depreciation and amortization                      1,427             1,249
   Amortization of deferred gain                       (147)             (317)
   Deferred income taxes                               (289)              (56)
   Other, net                                            53                51
 Change in operating assets and liabilities,
  net of effects from purchase of business:
   Decrease (increase) in accounts receivable           430             2,799
   Decrease (increase) in inventories                (1,458)           (5,137)
   Decrease (increase) in prepaid expenses
    and other assets                                   (618)           (1,186)
   Increase (decrease) in accounts payable, accrued
    expenses and other long-term liabilities         (2,637)            2,426
   Increase (decrease) in income taxes payable        1,014               501
                                                   ---------         --------

Net Cash Provided By (Used In)
 Operating Activities                                    33             1,482
                                                   ---------         --------
Cash Flows From Investing Activities:
  Payment for purchase of business, net of cash        (929)             -
  Purchase of equipment, inventory and
    technology rights from Lucent Technologies          -              (4,435)
  Capital expenditures                               (3,877)             (331)
  Proceeds from sale of equipment                       967              -
  Other, net                                            164                11
                                                  ---------          --------
Net Cash Provided By (Used In)
 Investing Activities                               (3,675)            (4,755)
                                                   --------          ---------
Cash Flows From Financing Activities:
  Borrowings under debt agreements                     -                6,232
  Debt repayments                                     (558)            (2,738)
  Proceeds from the exercise of stock options
    and warrants                                        20                249
  Purchase of treasury stock                          (343)              -
                                                  ---------             -----
Net Cash Provided By (Used In)
 Financing Activities                                 (881)             3,743
                                                  ---------          --------
Net Increase (Decrease) In Cash
  And Cash Equivalents                              (4,523)               470
Cash And Cash Equivalents At Beginning Of Period    24,408                600
                                                 ---------           --------
Cash And Cash Equivalents At End Of Period        $ 19,885           $  1,070
                                                 =========           ========
</TABLE>

              See notes to consolidated financial statements.

                                        6

<PAGE>




                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     1.   Basis of Presentation
          ---------------------

          The  consolidated  balance  sheet of  Aeroflex  Incorporated  and
          Subsidiaries  ("the Company") as of September 30, 1998 and the related
          consolidated  statements  of  operations  for the three  months  ended
          September  30, 1998 and 1997 and the  consolidated  statements of cash
          flows for the three months ended September 30, 1998 and 1997 have been
          prepared  by  the  Company  and  are  unaudited.  In  the  opinion  of
          management,   all   adjustments   (which  include   normal   recurring
          adjustments)  necessary  to  present  fairly the  financial  position,
          results of operations and cash flows at September 30, 1998 and for all
          periods  presented have been made.  Certain  information  and footnote
          disclosures  normally  included in  financial  statements  prepared in
          accordance  with generally  accepted  accounting  principles have been
          omitted. It is suggested that these consolidated  financial statements
          be read in conjunction with the financial statements and notes thereto
          included in the Company's June 30, 1998 annual report to shareholders.
          There have been no changes of  significant  accounting  policies since
          June 30, 1998. Certain  reclassifications have been made to previously
          reported financial  statements to conform to current  classifications.

          Results of operations for the three month periods are not  necessarily
          indicative of results of operations for the corresponding years.

 2.      Common Stock Offering
         ---------------------
         In March 1998, the Company sold 2,597,000 shares of its Common Stock in
         a public offering for $31,285,000,  net of an underwriting  discount of
         $1,973,000  and  issuance  costs of  $496,000.  Of these net  proceeds,
         $9,639,000 was used to repay bank indebtedness.  The balance of the net
         proceeds, which is included in cash and cash equivalents,  will be used
         for general  corporate  purposes,  including  working capital,  capital
         expenditures, facilities expansion and potential acquisitions.

 3.      Earnings Per Share
         ------------------
         The  Company  adopted  Statement  of  Financial   Accounting  Standards
         ("SFAS") No. 128 "Earnings Per Share" during the quarter ended December
         31, 1997.  In accordance  with SFAS No. 128,  earnings per common share
         ("Basic  EPS") is  computed  by  dividing  net  income by the  weighted
         average common shares outstanding.  Earnings per common share, assuming
         dilution  ("Diluted EPS") is computed by dividing net income plus a pro
         forma  addback of  debenture  interest by the weighted  average  common
         shares  outstanding  plus  potential  dilution  from the  conversion of
         debentures and the exercise of stock options and warrants. Earnings per
         share  amounts for prior  periods have been restated to conform to SFAS
         No. 128.




                                        7

<PAGE>



         A  reconciliation  of the numerators and  denominators of the Basic EPS
         and Diluted EPS calculations is as follows:

<TABLE>
<CAPTION>
                                                            Three Months
                                                           Ended September 30,
                                                            1998         1997
                                                  (In thousands, except per share data)


         <S>                                            <C>          <C>
         Computation of Adjusted Net Income:
         Net income for basic earnings per common share  $  2,258     $  1,152
         Add:  Debenture interest and amortization
           expense, net of income taxes                      -             104
                                                        ---------     --------
         Adjusted net income for diluted
           earnings per common share                     $  2,258     $  1,256
                                                        =========     ========
         Computation of Adjusted Weighted Average
           Shares Outstanding:
         Weighted average shares outstanding               17,447       12,746
         Add:  Shares assumed to be issued upon
           conversion of debentures                          -           1,552
         Add:  Effect of dilutive options and warrants
           outstanding                                      1,115        1,066
                                                        ---------     --------
         Weighted average shares and common share
           equivalents used for computation of
           diluted earnings per common share               18,562       15,364
                                                        =========     ========
         Net Income Per Common Share:
           Basic                                          $ .13         $ .09
                                                          ======        =====
           Diluted                                        $ .12         $ .08
                                                          ======        =====
</TABLE>

 4.      Acquisition of Business
        -----------------------
         Effective  September 1, 1998, the Company  acquired 90% of the stock of
         Europtest,  S.A.  (France) for approximately  $1,100,000.  The purchase
         agreement also requires that the Company  purchase the remaining 10% of
         Europtest pro rata over a three year period at prices  determined based
         upon net sales of  Europtest  products.  Europtest  develops  and sells
         specialized  software-driven test equipment used primarily in cellular,
         satellite and other communications applications. The acquired company's
         net sales were  approximately  $1,900,000  for the year ended March 31,
         1998. On a pro forma basis, had the Europtest  acquisition  taken place
         as of the beginning of the periods presented, results of operations for
         those periods  would not have been  materially  affected.  The purchase
         price has been allocated to the assets acquired and liabilities assumed
         based on their fair values.

5.       Bank Loan Agreements
         --------------------
         As of March 31, 1998, the Company replaced a previous  agreement with a
         revised  revolving  credit agreement with two banks which is secured by
         substantially all of the Company's assets. The agreement provides for a
         revolving credit line of $27,000,000,  which expires on March 31, 2001.
         The  interest  rate on  borrowings  under this  agreement is at various
         rates depending upon certain  financial  ratios,  with the present rate
         substantially  equivalent  to the prime rate  (8.25% at  September  30,
         1998). The Company has entered into an interest rate swap agreement for
         the $4,720,000 then outstanding under the revolving credit line at 7.6%
         in order to  reduce  the  interest  rate  risk  associated  with  these
         outstanding borrowings.  The Company paid a facility fee of $20,000 and
         is required to pay a commitment fee of

                                        8

<PAGE>



         1/4% per annum of the average unused portion of the credit line.

         The terms of the agreement  require  compliance with certain  covenants
         including minimum consolidated  tangible net worth and pretax earnings,
         maintenance  of  certain  financial  ratios,   limitations  on  capital
         expenditures  and  indebtedness  and prohibition of the payment of cash
         dividends. In connection with the purchase of certain materials for use
         in  manufacturing,  the  Company  has a letter  of credit  facility  of
         $2,000,000.  At September 30, 1998, the Company's available unused line
         of credit was  approximately  $20,000,000  after  consideration  of the
         letter of credit.

 6.      Inventories
         -----------
         Inventories consist of the following:
<TABLE>
<CAPTION>
                                            September 30,           June 30,
                                                1998                  1998
                                                      (In thousands)
                 <S>                         <C>                   <C>
                 Raw Materials               $ 14,835              $ 12,012
                 Work in Process               12,279                12,737
                 Finished Goods                 4,401                 5,102
                                            ---------              --------
                                             $ 31,515              $ 29,851
</TABLE>
                                            =========              ========

 7.      Income Taxes
         ------------
         The Company is undergoing  routine audits by various taxing authorities
         of several of its state and local income tax returns  covering  periods
         from 1994 to 1996.  Management  believes  that the probable  outcome of
         these various  audits  should not  materially  affect the  consolidated
         financial statements of the Company.

 8.      Contingencies
         -------------
         A subsidiary of the Company whose operations were discontinued in 1991,
         is  one  of  several  defendants  named  in a  personal  injury  action
         initiated in August, 1994, by a group of plaintiffs. The plaintiffs are
         seeking damages which cumulatively  exceed $500 million.  The complaint
         alleges, among other things, that the plaintiffs suffered injuries from
         exposure to substances  contained in products sold by the subsidiary to
         one of its customers. This action is in the discovery stage. Based upon
         available  information and considering its various  defenses,  together
         with its product liability  insurance,  in the opinion of management of
         the Company,  the outcome of the action against its subsidiary will not
         have  a  materially  adverse  effect  on  the  Company's   consolidated
         financial statements.

 9.      Conversion of 7-1/2% Debentures
         -------------------------------
         On September 8, 1997,  the Company  called for the redemption of all of
         its  outstanding  7-1/2%  Senior  Subordinated  Convertible  Debentures
         ($9,981,000) at 104-1/2% of the principal  amount.  As of October 1997,
         all of the principal amount outstanding was converted into Common Stock
         at $5-5/8 per share.  In connection with the  conversions,  $599,000 of
         deferred  bond  issuance  costs  were  charged  to  additional  paid-in
         capital.


                                        9

<PAGE>



                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Overview

      Aeroflex,  founded in 1937, utilizes its advanced design,  engineering and
manufacturing  capabilities to provide state-of-the-art  microelectronic module,
interconnect  and  testing  solutions  used in  communication  applications  for
commercial  and defense  markets.  Its products are used in satellite,  personal
wireless,  cable television ("CATV") and defense communications markets. It also
designs  and  manufactures  motion  control  systems  and  shock  and  vibration
isolation systems used for commercial,  industrial and defense applications. The
Company's  operations are grouped into three segments:  Microelectronics;  Test,
Measurement  and  Other  Electronics;   and  Isolator  Products.  The  Company's
consolidated  financial  statements  include the  accounts  of Aeroflex  and its
subsidiaries, all of which are wholly-owned,  except for Europtest, as discussed
below.

      Effective  September  1, 1998,  the Company  acquired  90% of the stock of
Europtest,  S.A. (France) for approximately  $1,100,000.  The purchase agreement
also requires that the Company  purchase the remaining 10% of Europtest pro rata
over a three year period at prices  determined based upon net sales of Europtest
products.   Europtest  develops  and  sells  specialized   software-driven  test
equipment  used  primarily  in  cellular,  satellite  and  other  communications
applications. The acquired company's net sales were approximately $1,900,000 for
the year ended March 31, 1998.

      Approximately 42% and 50% of the Company's sales for fiscal years 1998 and
1997, respectively, were to agencies of the United States Government or to prime
defense  contractors  or  subcontractors  of the United States  Government.  The
Company's  overall  dependence  on the defense  market has been  declining  as a
result of the growth of MIC Technology  Corporation,  which is more commercially
oriented,  and a focusing of resources towards developing  standard products for
the commercial market.

      Management believes that potential reductions in defense spending will not
materially  affect its  operations.  In certain  product areas,  the Company has
suffered  reductions in sales volume due to cutbacks in the military budget.  In
other product areas, the Company has experienced increased sales volume due to a
realignment of government spending towards upgrading existing systems instead of
purchasing  completely  new  systems.  The overall  effect of the  cutbacks  and
realignment has not been material to the Company.

      In June 1997, the Financial  Accounting  Standards  Board ("FASB")  issued
Statement of Financial  Accounting Standards ("SFAS") No. 131, "Disclosure About
Segments of an  Enterprise  and Related  Information",  which is  effective  for
fiscal years beginning after December 15, 1997.

                                       10

<PAGE>



This statement  establishes  standards for reporting information about operating
segments and related  disclosures about products and services,  geographic areas
and major customers.  The Company adopted this standard  effective July 1, 1998,
as required,  and does not believe the adoption will result in a material change
to its segment disclosures in its fiscal 1999 annual financial statements.

      In June 1998,  the FASB issued SFAS No. 133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities,"  which is  effective  for  fiscal  years
beginning  after June 15,  1999.  This  statement  requires  companies to record
derivatives  on the balance sheet as assets or  liabilities at their fair value.
In  certain  circumstances  changes  in the  value  of such  derivatives  may be
required to be recorded as gains or losses.  Management believes that the impact
of this statement will not have a material effect on the Company's  consolidated
financial statements.

Market Risk

      The Company is exposed to market risk related to changes in interest rates
and, to an immaterial  extent,  to foreign currency  exchange rates. Most of the
Company's  debt is at fixed  rates of  interest  or at a  variable  rate with an
interest rate swap  agreement to  effectively  make it a fixed rate of interest.
That debt which is subject to a floating rate of interest  (30-day LIBOR) and is
not hedged by an interest  rate swap  amounts to  approximately  $5.4 million at
September 30, 1998. If market  interest rates increase by 10 percent from levels
at September 30, 1998, the effect on the Company's  results of operations  would
not be material.

Year 2000 Compliance

      Management has initiated a company-wide program and has developed a formal
plan of  implementation  to prepare the Company for the Year 2000. This includes
taking  actions  designed to ensure that the  Company's  information  technology
("IT") systems, products and infrastructure are Year 2000 compliant and that its
customers,  suppliers  and service  providers  have taken  similar  action.  The
Company is in the  process of  evaluating  its  internal  issues - all of its IT
systems, products,  equipment and other facilities systems - and modifying items
that are not  compliant.  With  respect  to its  external  issues  -  customers,
suppliers  and  service  providers  - the Company is  surveying  them  primarily
through written correspondence.

      The Company  expects to incur internal staff costs,  as well as consulting
and other expenses, and believes the total costs to be incurred for all internal
Year 2000  compliance  related  projects will not have a material  impact on the
Company's  business,  results of operations or financial  condition.  Management
expects to complete its  investigation,  remediation  and  contingency  planning
activities for all mission  critical  systems and areas by early 1999,  although
there can be no assurance that it will. At this time,  Management  believes that
the Company does not have any internal mission critical Year 2000 issues that it
cannot remedy. With respect to mission critical third parties,

                                       11

<PAGE>



in some  instances the Company has  protection  under  contracts and the Company
intends to create  contingency  plans to mitigate its exposure in the event such
third  parties  are not Year 2000  compliant.  Despite its efforts to survey its
customers,  suppliers and service providers,  Management cannot be certain as to
the actual Year 2000  readiness  of these  third  parties or the impact that any
non-compliance  on their  part may have on the  Company's  business,  results of
operations or financial condition.


Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997

      Net Sales. Net sales increased 32.4% to $31.6 million for the three months
ended September 30, 1998 from $23.9 million for the three months ended September
30, 1997. Net sales in the  Microelectronics  segment  increased  48.6% to $21.5
million for the three months ended September 30, 1998 from $14.5 million for the
three months ended September 30, 1997 due to increased sales volume in both thin
film  interconnects  and  microelectronic   modules.  Net  sales  in  the  Test,
Measurement and Other  Electronics  segment  increased 16.0% to $5.7 million for
the three months ended September 30, 1998 from $4.9 million for the three months
ended  September  30,  1997  primarily  due to  increased  sales  volume in both
frequency  synthesizers  and high speed automatic test systems offset in part by
decreased sales volume in stabilization and tracking  devices.  Net sales in the
Isolator  Products  segment  decreased 1.6% to $4.4 million for the three months
ended  September 30, 1998 from $4.5 million for the three months ended September
30, 1997.

      Gross Profit. Cost of sales includes materials,  direct labor and overhead
expenses such as engineering labor, fringe benefits,  allocable occupancy costs,
depreciation and manufacturing  supplies.  Gross profit increased 35.5% to $11.1
million for the three months ended  September 30, 1998 from $8.2 million for the
three months ended September 30, 1997.  Gross margin  increased to 35.2% for the
three  months  ended  September  30, 1998 from 34.4% for the three  months ended
September 30, 1997. The increase was primarily a result of increased  margins in
the  Microelectronics  segment  reflecting  the greater  efficiencies  of higher
volume and a favorable sales mix in that segment.

      Selling,   General  and  Administrative   Costs.   Selling,   general  and
administrative  costs include office and management  salaries,  fringe benefits,
commissions and advertising costs.  Selling,  general and  administrative  costs
increased  22.2% to $5.6 million (17.8% of net sales) for the three months ended
September  30, 1998 from $4.6 million  (19.3% of net sales) for the three months
ended  September  30,  1997.  The increase was  primarily  due to labor  related
expenses, including salaries for additional hires.

      Research and Development Costs.  Research and development costs consist of
material,  engineering labor and allocated overhead.  Company sponsored research
and  development  costs  increased 99.5% to $2.0 million (6.3% of net sales) for
the three months ended  September 30, 1998 from $998,000 (4.2% of net sales) for
the three months ended September 30,

                                       12

<PAGE>



1997. The increase was primarily  attributable to the costs for development of a
new low-cost,  high speed, high performance  frequency  synthesizer intended for
commercial communication test systems.

      Other Expense  (Income).  Interest  expense  decreased to $299,000 for the
three months ended  September  30, 1998 from $723,000 for the three months ended
September 30, 1997, primarily due to reduced levels of borrowings.  Other income
was $303,000 for the three months ended  September 30, 1998  including  interest
income of  $297,000.  Other  expense  was  $83,000  for the three  months  ended
September 30, 1997 comprised primarily of $102,000 of debenture redemption costs
net of $14,000 of interest  income.  Interest income  increased due to increased
levels of cash  equivalents.  The reduced levels of borrowings and the increased
levels of cash equivalents  resulted from the net proceeds of $31.3 million from
stock issued in a public offering completed in March 1998.

      Provision for Income Taxes. Income taxes recorded by the Company increased
92.3% to $1.3  million  (an  effective  income  tax rate of 35.6%) for the three
months ended  September 30, 1998 from $650,000 (an effective  income tax rate of
36.1%) for the three months ended  September 30, 1997. The income tax provisions
for the two  quarters  differed  from the amount  computed by applying  the U.S.
Federal income tax rate to income before income taxes primarily due to state and
local income taxes and research and development credits.

Liquidity and Capital Resources

      In March 1998, the Company sold 2,597,000  shares of its Common Stock in a
public offering for $31,285,000,  net of an underwriting  discount of $1,973,000
and issuance  costs of $496,000.  Of these net proceeds,  $9,639,000 was used to
repay bank indebtedness.  The balance of the net proceeds,  which is included in
cash  and  cash  equivalents,  will  be used  for  general  corporate  purposes,
including  working  capital,  capital  expenditures,  facilities  expansion  and
potential acquisitions. As of September 30, 1998, the Company had $53,120,000 in
working capital.

      As of March 31, 1998,  the Company  replaced a previous  agreement  with a
revised   revolving  credit  agreement  with  two  banks  which  is  secured  by
substantially  all  of  the  Company's  assets.  The  agreement  provides  for a
revolving  credit line of  $27,000,000,  which  expires on March 31,  2001.  The
interest rate on borrowings  under this agreement is at various rates  depending
upon certain financial ratios, with the present rate substantially equivalent to
the prime rate (8.25% at September  30,  1998).  The Company has entered into an
interest  rate swap  agreement for the  $4,720,000  then  outstanding  under the
revolving  credit  line at 7.6% in  order  to  reduce  the  interest  rate  risk
associated with these outstanding borrowings. The Company paid a facility fee of
$20,000 and is required to pay a commitment fee of 1/4% per annum of the average
unused portion of the credit line.

      The terms of the  agreement  require  compliance  with  certain  covenants
including  minimum   consolidated   tangible  net  worth  and  pretax  earnings,
maintenance of certain financial ratios, limitations on capital expenditures and
indebtedness and prohibition of the payment of cash

                                       13

<PAGE>



dividends.  In  connection  with the  purchase of certain  materials  for use in
manufacturing,  the Company has a letter of credit  facility of  $2,000,000.  At
September  30,  1998,  the  Company's   available  unused  line  of  credit  was
approximately $20,000,000 after consideration of the letter of credit.

      During June 1994, the Company  completed a sale of $10.0 million principal
amount of 7-1/2% Senior Subordinated Convertible Debentures  ("Debentures").  On
September 8, 1997,  the Company  called for  redemption  all of its  outstanding
Debentures at 104-1/2% of the principal amount.  The Debentures were convertible
into the Company's  Common Stock at a price of $5-5/8 per share through  October
6,  1997.  As of October  1997,  all of the  principal  amount  outstanding  was
converted into Common Stock.

      The  Company's  order  backlog at  September  30,  1998 and 1997 was $78.5
million and $52.1 million, respectively.

      The Company's net cash  provided by operating  activities  was $33,000 for
the three  months  ended  September  30,  1998  which  was due to the  continued
profitability of the Company which was offset, in part, by reductions in accrued
expenses and increases in inventories. Net cash used in investing activities was
$3.7 million for the three months ended September 30, 1998, consisting primarily
of $3.9  million  for  capital  expenditures  (including  $2.5  million  for the
acquisition of a previously leased operating  facility in Pearl River, New York)
and $929,000 used to purchase  Europtest  offset,  in part, by the proceeds from
the sale of equipment of $1.0 million. Net cash used in financing activities was
$881,000 for the three months ended September 30, 1998,  consisting primarily of
debt payments and the purchase of treasury stock.

      Management of the Company  believes that  internally  generated  funds and
available   lines  of  credit  will  be  sufficient  for  its  working   capital
requirements,  capital  expenditure  needs and the  servicing of its debt for at
least the next twelve months.

Forward-Looking Statements

     All statements  other than  statements of historical  fact included in this
Report on Form 10-Q, including without limitation statements under "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
regarding  the Company's  financial  position,  business  strategy and plans and
objectives   of   management   of  the  Company  for  future   operations,   are
forward-looking  statements.  When used in this  Annual  Report,  words  such as
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as they  relate  to the  Company  or its  management,  identify  forward-looking
statements.  Such  forward-looking  statements  are based on the  beliefs of the
Company's  management,  as well as assumptions made by and information currently
available to the Company's  management.  Actual results could differ  materially
from  those  contemplated  by the  forward-looking  statements,  as a result  of
certain  factors,  including but not limited to competitive  factors and pricing
pressures, changes in legal and regulatory requirements, technological change or
difficulties,  product  development  risks,  commercialization  difficulties and
general economic  conditions.  Such statements  reflect the current views of the
Company with respect to future  events and are subject to these and other risks,
uncertainties and assumptions relating to the operations, results of operations,
growth strategy and liquidity of the Company.

                                       14

<PAGE>




                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES
                           PART II - OTHER INFORMATION


Item 1.       Legal Proceedings

              None

Item 2.       Changes in Securities

              On August 13, 1998, the Company  declared a dividend  distribution
              of one Preferred  Share Purchase Right on each share of its common
              stock (the "New  Preferred  Purchase  Rights").  The  dividend was
              effective on the  expiration  of the  Company's  then  outstanding
              Preferred  Share Purchase  Rights.  Upon the occurrence of certain
              events, the New Preferred  Purchase Rights enable  stockholders to
              buy  one-thousandth  of a share of a new series of preferred stock
              (the "New Series A Preferred"). In connection with the adoption of
              the  New  Preferred  Purchase  Rights,  the  Company  amended  its
              Certificate of Incorporation  to provide for the  establishment of
              the New Series A  Preferred.  The New Series A Preferred  replaced
              the then  authorized  preferred  stock.  The Company has  reserved
              25,000 shares of New Series A Preferred for issuance upon exercise
              of the New Preferred  Purchase  Rights.  No shares of New Series A
              Preferred stock are issued and outstanding.

Item 3.       Defaults upon Senior Securities

              None

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

              None

Item 5.       Other Information

              None

Item 6.       Exhibits and Reports on Form 8-K

              (a)      Exhibits:

                       27 - Financial Data Schedule

              (b)      Reports on Form 8-K

                       None






                                       15

<PAGE>






                                   SIGNATURES


Pursuant  to the  requirements  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.



                                                 AEROFLEX INCORPORATED
                                                      (REGISTRANT)




November 6, 1998                            By:       s/Michael Gorin
                                                       Michael Gorin
                                             President, Chief Financial Officer
                                               and Principal Accounting Officer



                                      16