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          December 31, 2000
                      ------------------------------------
Commission File Number 000-02324


                                   ----------

                              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.

February 12, 2001    58,401,579 shares (excluding 4,388 shares held in treasury)
--------------------------------------------------------------------------------
      (Date)                              (Number of Shares)

NOTE:  THIS IS PAGE 1 OF A DOCUMENT CONSISTING OF      23      PAGES.
                                                     ------
<PAGE>
                              AEROFLEX INCORPORATED

                                AND SUBSIDIARIES


                                      INDEX
                                      -----




                                                                            PAGE
                                                                            ----
PART I:  FINANCIAL INFORMATION
------   ---------------------

CONSOLIDATED BALANCE SHEETS
 December 31, 2000 and June 30, 2000                                         3-4

CONSOLIDATED STATEMENTS OF EARNINGS
 Six Months Ended December 31, 2000 and 1999                                  5

CONSOLIDATED STATEMENTS OF EARNINGS
 Three Months Ended December 31, 2000 and 1999                                6

CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months Ended December 31, 2000 and 1999                                  7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                  8-14

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
  CONDITION AND RESULTS OF OPERATIONS
    Six and Three Months Ended December 31, 2000 and 1999                  15-21

PART II:  OTHER INFORMATION                                                  22
-------   -----------------

SIGNATURES                                                                   23












                                       -2-
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                            December 31,       June 30,
                                               2000              2000
                                            ------------    ---------------
                                            (Unaudited)    (Restated, Note 2)
                                                    (In thousands)

<S>                                           <C>              <C>
ASSETS

Current assets:
 Cash and cash equivalents                    $ 36,746          $ 54,732
 Marketable securities                          25,735            11,512
 Accounts receivable, less allowance for
   doubtful accounts of $523,000 and $509,000   44,765            51,777
 Inventories                                    45,178            37,367
 Deferred income taxes                           5,774             5,317
 Prepaid expenses and other current assets       3,760             2,859
                                              --------          --------
   Total current assets                        161,958           163,564

Property, plant and equipment, net              59,662            52,251
Intangible assets acquired in connection with
  the purchase of businesses, net               15,152            12,839
Cost in excess of fair value of net assets
  of businesses acquired, net                   15,975            13,380
Deferred income taxes                           15,014             3,094
Other assets                                     5,431             4,367
                                              --------          --------
   Total assets                               $273,192          $249,495
                                              ========          ========

<FN>
                See notes to consolidated financial statements.
</FN>
</TABLE>

                                    -3-
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                   (continued)

<TABLE>
<CAPTION>

                                              December 31,       June 30,
                                                 2000             2000
                                              ------------   ----------------
                                              (Unaudited)   (Restated, Note 2)
                                                      (In thousands)

<S>                                                <C>           <C>

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt                $  1,711      $  2,102
  Accounts payable                                    9,037         9,711
  Accrued expenses and other current liabilities     16,648        18,165
                                                   --------      --------
    Total current liabilities                        27,396        29,978

Long-term debt                                       12,278        12,983
Other long-term liabilities                           4,961         4,890
                                                   --------      --------
    Total liabilities                                44,635        47,851
                                                   --------      --------
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 80,000; none issued                      -             -
 Common Stock, par value $.10 per share;
  authorized 80,000,000 shares; issued
   58,018,000 and 28,110,000 shares                   5,802         2,811
 Additional paid-in capital                         203,290       190,141
 Accumulated other comprehensive income (loss)          (57)           82
 Retained earnings                                   19,536         8,690
                                                   --------      --------
                                                    228,571       201,724

 Less:  Treasury stock, at cost (4,000 and
 25,000 shares)                                          14            80
                                                   --------      --------
    Total stockholders' equity                      228,557       201,644
                                                   --------      --------
    Total liabilities and stockholders' equity     $273,192      $249,495
                                                   ========      ========

<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>
                                       -4-
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>

                                               Six Months Ended
                                                 December 31,
                                               ----------------
                                             2000               1999
                                        -------------    ----------------
                                                        (Restated, Note 2)
                                                   (Unaudited)
                                       (In thousands, except per share data)

<S>                                        <C>               <C>
Net sales                                  $109,576          $ 84,547
Cost of sales                                65,284            55,765
                                           --------          --------
  Gross profit                               44,292            28,782
                                           --------          --------
Selling, general and administrative costs    20,293            15,945
Research and development costs                7,478             5,200
Acquired in-process research and
  development (Note 2)                        1,500              -
                                           --------          --------
                                             29,271            21,145
                                           --------          --------
  Operating income                           15,021             7,637
                                           --------          --------
Other expense (income)
  Interest expense                              758             1,297
  Other expense (income)                     (1,951)              236
                                           --------          --------
    Total other expense (income)             (1,193)            1,533
                                           --------          --------
Income before income taxes                   16,214             6,104
Provision for income taxes                    5,500             2,300
                                           --------          --------
Income before cumulative effect
  of a change in accounting                  10,714             3,804
Cumulative effect of a change
  in accounting, net of tax (Note 4)            132              -
                                           --------          --------
Net income                                 $ 10,846          $  3,804
                                           ========          ========
Net income per common share:
  Basic
    Income before cumulative effect          $.19               $.08
    Cumulative effect of a change
      in accounting                           -                  -
                                             ----               ----
    Net income                               $.19               $.08
                                             ====               ====
  Diluted
    Income before cumulative effect          $.18               $.08
    Cumulative effect of a change
      in accounting                           -                  -
                                             ----               ----
    Net income                               $.18               $.08
                                             ====               ====
Weighted average number of
  common shares outstanding:
    Basic                                    57,136            46,871
                                           ========          ========
    Diluted                                  60,808            49,153
                                           ========          ========

<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>
                                       -5-
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
                                                Three Months Ended
                                                   December 31,
                                                ------------------
                                             2000               1999
                                          ----------      ----------------
                                                         (Restated, Note 2)
                                                   (Unaudited)
                                         (In thousands, except per share data)

<S>                                        <C>               <C>
Net sales                                  $ 58,448          $ 41,912
Cost of sales                                33,621            28,377
                                           --------          --------
  Gross profit                               24,827            13,535
                                           --------          --------
Selling, general and administrative costs    10,828             8,501
Research and development costs                4,454             2,646
Acquired in-process research and
  development (Note 2)                        1,500              -
                                           --------          --------
                                             16,782            11,147
                                           --------          --------
  Operating income                            8,045             2,388
                                           --------          --------
Other expense (income)
  Interest expense                              388               666
  Other expense (income)                       (843)              (28)
                                           --------          --------
    Total other expense (income)               (455)              638
                                           --------          --------
Income before income taxes                    8,500             1,750
Provision for income taxes                    2,875               725
                                           --------          --------
Net income                                 $  5,625          $  1,025
                                           ========          ========
Net income per common share:
  Basic                                      $.10               $.02
                                             ====               ====
  Diluted                                    $.09               $.02
                                             ====               ====
Weighted average number of
  common shares outstanding:
    Basic                                    57,658            46,728
                                           ========          ========
    Diluted                                  61,601            48,051
                                           ========          ========


<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>
                                       -6-
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                      Six Months Ended
                                                         December 31,
                                                  -------------------------
                                                    2000           1999
                                                  --------        --------
                                                              (Restated, Note 2)
                                                         (Unaudited)
                                                       (In thousands)
<S>                                                <C>             <C>
Cash Flows From Operating Activities:
 Net income                                        $ 10,846        $  3,804
 Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
   Acquired in-process research and development       1,500            -
   Depreciation and amortization                      5,381           4,513
   Amortization of deferred gain                       (547)           (294)
   Tax benefit of stock option
     exercises (Note 8)                               6,042             134
   Deferred income taxes                               (474)           (164)
   Other, net                                           153             209
 Change in operating  assets and  liabilities,
   net of effects from  purchase of businesses:
   Decrease (increase) in accounts receivable         8,916           2,642
   Decrease (increase) in inventories                (2,926)         (3,081)
   Decrease (increase) in prepaid expenses
    and other assets                                 (1,128)           (127)
   Increase (decrease) in accounts payable, accrued
    expenses and other liabilities                   (5,231)         (2,933)
   Increase (decrease) in income taxes payable         (120)            452
                                                   --------        --------
Net Cash Provided By Operating Activities            22,412           5,155
                                                   --------        --------
Cash Flows From Investing Activities:
  Payment for purchase of businesses, net of
    cash acquired                                   (14,724)           -
  Capital expenditures                               (6,921)         (3,009)
  Purchase of marketable securities                 (19,644)           -
  Proceeds from sale of marketable securities         5,356            -
  Proceeds from sale of property, plant and equipment  -              1,687
  Other, net                                              1             (34)
                                                   --------        --------
Net Cash Used In Investing Activities               (35,932)         (1,356)
                                                   --------        --------
Cash Flows From Financing Activities:
  Borrowings under debt agreements                      542             294
  Debt repayments                                    (3,222)         (3,158)
  Proceeds from the exercise of stock options
    and warrants                                      2,424             827
  Amounts paid for withholding taxes on stock
    option exercises                                (17,442)            (47)
  Withholding taxes collected for stock option
    exercises                                        13,232              45
  Purchase of treasury stock                           -             (1,990)
                                                   --------        --------
Net Cash Used In Financing Activities                (4,466)         (4,029)
                                                   --------        --------
Net Increase (Decrease) In Cash
  And Cash Equivalents                              (17,986)           (230)
Cash And Cash Equivalents At Beginning Of Period     54,732           2,747
                                                   --------        --------
Cash And Cash Equivalents At End Of Period         $ 36,746        $  2,517
                                                   ========        ========
<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>
                                       -7-
<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  December  31,  2000 and the  related  consolidated
     statements of earnings for the six and three months ended December 31, 2000
     and 1999 and the  consolidated  statements of cash flows for the six months
     ended  December 31, 2000 and 1999 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 December 31, 2000 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, 2000 annual report to  shareholders.  There have been no
     changes of  significant  accounting  policies since June 30, 2000 except as
     disclosed in Note 4. Certain reclassifications have been made to previously
     reported financial statements to conform to current classifications.

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

2.   Acquisition of Businesses
     -------------------------

     RDL
     ---

     On October 23, 2000, the Company  acquired all of the outstanding  stock of
     RDL,  Inc.  ("RDL")  for $14.0  million of  available  cash.  RDL  designs,
     develops  and  manufactures  advanced  commercial  communications  test and
     measurement  products and defense  subsystems.  The acquired  company's net
     sales were approximately $15.0 million for the year ended March 31, 2000.

     The Company  evaluated the acquired  tangible and  identifiable  intangible
     assets  to serve as a basis  for  allocation  of the  purchase  price.  The
     Company  allocated  the  purchase  price,  including  acquisition  costs of
     approximately $100,000, as follows:
<TABLE>
<CAPTION>
                                                            (In thousands)
               <S>                                             <C>

               Net tangible assets                             $ 6,879
               Existing technology                               2,970
               Excess costs over fair value of net assets
                 acquired                                        2,751
               In-process research and development               1,500
                                                               -------
                                                               $14,100
                                                               =======
</TABLE>

     The existing technology and costs in excess of fair value of net assets are
     being  amortized  on a  straight-line  basis  over 7  years.  The  acquired
     in-process  research and  development  was not  considered  to have reached
     technological  feasibility  and,  in  accordance  with  generally  accepted
     accounting  principles,  the value of such has been expensed in the quarter
     ended December 31, 2000.



                                       -8-
<PAGE>

     Summarized  below are the  unaudited pro forma results of operations of the
     Company as if RDL had been acquired at the beginning of the fiscal  periods
     presented. The $1.5 million write-off has been included in the December 31,
     2000 pro forma  income but not the  December  31, 1999 pro forma  income in
     order to provide comparability to the respective historical periods.
<TABLE>
<CAPTION>
                                             Pro Forma
                                          Six Months Ended
                                             December 31,
                                         -------------------
                                         2000           1999
                                         ----           ----
                                (In thousands, except per share data)
     <S>                                <C>           <C>

     Net Sales                          $114,458      $ 92,210
     Income before
       cumulative effect
       of a change in
       accounting                         10,270         3,497

     Income before
       cumulative effect
       of a change in
       accounting per share:
       Basic                              $ .18        $ .07
       Diluted                              .17          .07

</TABLE>

     The pro forma  financial  information  presented  above is not  necessarily
     indicative of either the results of operations that would have occurred had
     the acquisition taken place at the beginning of the periods presented or of
     future operating results of the combined companies.

     Altair
     ------

     On October 16, 2000, the Company  issued 550,000 (after  adjustment for the
     2-for-1 stock split  effective in November 2000) shares of its common stock
     for all the  outstanding  common  stock  of  Altair  Aerospace  Corporation
     ("Altair").  Altair designs and develops advanced  object-oriented  control
     systems software based upon a proprietary  software  engine.  This business
     combination  has  been  accounted  for  as  a   pooling-of-interests   and,
     accordingly,  for  all  periods  prior  to the  business  combination,  the
     Company's historical  consolidated  financial statements have been restated
     to include the accounts and results of operations  of Altair.  The acquired
     company's  net sales were  approximately  $3.0  million  for the year ended
     December 31, 2000.

     For  periods   preceding  the  combination,   there  were  no  intercompany
     transactions  which required  elimination  from the combined  consolidating
     results of operations  and there were no  adjustments  necessary to conform
     the accounting practices of the two companies.

     Amplicomm
     ---------

     Effective  September 7, 2000, Aeroflex  Amplicomm,  Inc.  ("Amplicomm") was
     formed as a wholly-owned  subsidiary of the Company. On September 20, 2000,
     Amplicomm acquired certain equipment and intellectual property from a third
     party for approximately  $300,000,  entered into employment agreements with
     this third  party's  former owners and issued 25% of the stock of Amplicomm
     to  them.  Amplicomm  designs  and  develops  fiber  optic  amplifiers  and
     modulator drivers used by manufacturers of advanced fiber optic systems. On
     a pro forma  basis,  had the  Amplicomm  acquisition  taken place as of the
     beginning of the periods presented, results of operations for those periods
     would not have been materially affected.


                                       -9-
<PAGE>
     Europtest
     ---------

     Effective  September  1, 1998,  the  Company  acquired  90% of the stock of
     Europtest,  S.A.  (France) for  approximately  $1.1  million.  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.  In October 1999, the Company purchased an
     additional 3.4% of Europtest's stock for approximately  $54,000.  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 $1.9 million 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.

3.   Earnings Per Share
     ------------------

     In  accordance  with  Statement of Financial  Accounting  Standards No. 128
     "Earnings Per Share", net income per common share ("Basic EPS") is computed
     by dividing net income by the weighted  average common shares  outstanding.
     Net income per common share,  assuming dilution ("Diluted EPS") is computed
     by dividing net income by the weighted  average  common shares  outstanding
     plus potential dilution from the exercise of stock options and warrants.

A reconciliation of the numerators and denominators of the Basic EPS and Diluted
EPS calculations is as follows:
<TABLE>
<CAPTION>
                                                   Six Months
                                               Ended December 31,
                                            -----------------------
                                              2000          1999
                                              ----          ----
                                       (In thousands, except per share data)
<S>                                         <C>           <C>

Income before cumulative effect
  of a change in accounting                 $10,714       $ 3,804
Cumulative effect of a change in
  accounting, net of tax                        132          -
                                            -------       -------
Net income                                  $10,846       $ 3,804
                                            =======       =======
Computation of Adjusted Weighted
  Average Shares Outstanding:
Weighted average shares outstanding          57,136        46,871
Add: Effect of dilutive options and
  warrants outstanding                        3,672         2,282
                                            -------       -------
Weighted average shares and common
  share equivalents used for computation
  of diluted earnings per common share       60,808        49,153
                                            =======       =======
Income per share - Basic:
  Income before cumulative effect             $.19          $.08
  Cumulative effect of a change in
    accounting                                 -             -
                                              ----          ----
  Net income                                  $.19          $.08
                                              ====          ====
Income per share - Diluted:
  Income before cumulative effect             $.18          $.08
  Cumulative effect of a change in
    accounting                                 -             -
                                              ----          ----
  Net income                                  $.18          $.08
                                              ====          ====

</TABLE>
                                     -10-
<PAGE>
<TABLE>
<CAPTION>
                                                  Three Months
                                               Ended December 31,
                                               ------------------
                                              2000          1999
                                              ----          ----
                                       (In thousands, except per share data)

<S>                                         <C>           <C>

Net income                                  $ 5,625       $ 1,025
                                            =======       =======
Computation of Adjusted Weighted
  Average Shares Outstanding:
Weighted average shares outstanding          57,658        46,728
Add: Effect of dilutive options and
  warrants outstanding                        3,943         1,323
                                            -------      --------
Weighted average shares and common
  share equivalents used for computation
  of diluted earnings per common share       61,601        48,051
                                            =======      ========
Income per share:
  Basic                                       $.10          $.02
                                              ====          ====
  Diluted                                     $.09          $.02
                                              ====          ====
</TABLE>

     Stock Split
     -----------

     On November 2, 2000, the Company's Board of Directors  authorized a 2-for-1
     stock split of the Common Stock, effective November 16, 2000. The share and
     per share amounts in these consolidated financial statements give effect to
     the stock split.

4.   Accounting for Derivative Instruments and Hedging Activities
     ------------------------------------------------------------

     Effective July 1, 2000, the Company  adopted SFAS No. 133,  "Accounting for
     Derivative  Instruments and Hedging Activities," as amended. 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.  The impact of this statement did not have a material effect on the
     Company's consolidated  financial statements.  The cumulative effect of the
     adoption of this  accounting  policy was a $132,000,  net of tax, credit in
     the quarter ended  September 30, 2000 which  represents the net of tax fair
     value of certain interest rate swap agreements at July 1, 2000.

5.   Comprehensive Income
     --------------------

     The net of tax  components  of  comprehensive  income for the six and three
     months ended December 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
                                   Six Months                 Three Months
                                Ended December 31,           Ended December 31,
                                ------------------           ------------------
                               2000           1999          2000           1999
                               ----           ----          ----           ----
   <S>                        <C>           <C>           <C>            <C>

   Net income                 $10,846       $ 3,804       $ 5,625        $ 1,025

   Unrealized gain (loss) on
     interest rate swap
     agreement                    (26)         -              (86)          -

   Unrealized investment
     gain (loss)                  (71)         -              (25)          -

   Foreign currency
     translation adjustment       (42)         -                4           -
                              -------       -------       -------        -------
   Total comprehensive income $10,707       $ 3,804       $ 5,518        $ 1,025
                              =======       =======       =======        =======
</TABLE>
                                      -11-
<PAGE>
6.   Bank Loan Agreements
     --------------------

     As of February 25, 1999, the Company  replaced a previous  agreement with a
     revised revolving credit,  term loan and mortgage  agreement with two banks
     which is secured by substantially all of the Company's assets not otherwise
     encumbered.  The  agreement  provided for a revolving  credit line of $23.0
     million,  a term loan of $20.0  million  and a  mortgage  on its  Plainview
     property for $4.5 million.  The revolving  credit loan facility  expires in
     December  2002.  The term loan was fully  paid with the  proceeds  from the
     Company's  sale of its  Common  Stock in May  2000.  The  interest  rate on
     borrowings  under this agreement is at various rates depending upon certain
     financial ratios, with the current rate substantially  equivalent to 30-day
     LIBOR  (approximately  6.4% at December 31, 2000) plus 1% on the  revolving
     credit  borrowings.  The Company  paid a facility  fee of  $100,000  and is
     required to pay a  commitment  fee of .25% per annum of the average  unused
     portion of the credit line. The mortgage is payable in monthly installments
     of  approximately  $26,000 through March 2008 and a balloon payment of $1.6
     million in April 2008.  The Company has entered into an interest  rate swap
     agreement  for the  outstanding  amount  under the  mortgage  agreement  at
     approximately  7.6% in order to reduce the  interest  rate risk  associated
     with these borrowings.

     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  of $2.0  million.  At
     December  31,  2000,  the  Company's  available  unused  line of credit was
     approximately $21.0 million after consideration of the letter of credit.

7.   Inventories
     -----------

     Inventories consist of the following:
<TABLE>
<CAPTION>

                                     December 31,        June 30,
                                        2000               2000
                                     ------------        --------
                                            (In thousands)
                    <S>               <C>                <C>
                    Raw Materials     $ 25,049           $ 20,392
                    Work in Process     16,062             12,783
                    Finished Goods       4,067              4,192
                                      --------           --------
                                      $ 45,178           $ 37,367
                                      ========           ========
</TABLE>
8.   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.

     The Company  recorded  credits of $17.5  million and $134,000 to additional
     paid-in capital  during the six months  ended  December 31, 2000 and 1999,
     respectively,  in connection  with the tax benefit  related to compensation
     deductions  on the exercise of stock  options,  including  $6.0 million and
     $134,000,  respectively, which reduced the current tax payable. The balance
     was recorded as a net operating loss deferred tax asset.





                                      -12-
<PAGE>
 9.  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.

10.  Business Segments
     -----------------

     The  Company's  business  segments  and  major  products  included  in each
     segment, are as follows:

     Microelectronics:                       Test, Measurement and
     a)Microelectronic Modules                   Other Electronics:
     b)Thin Film Interconnects               a)Instrument Products
     c)Integrated Circuits                   b)Motion Control Systems

     Isolator Products

<TABLE>
<CAPTION>
                                                       For The Six Months Ended
                                                             December 31,
                                                     ---------------------------
     Business Segment Data:                              2000             1999
                                                         ----             ----
                                                             (In thousands)
     <S>                                             <C>                <C>
     Net sales:
       Microelectronics                              $  66,716          $  49,872
       Test, Measurement and
         Other Electronics                              33,761             25,641
       Isolator Products                                 9,099              9,034
                                                     ---------          ---------
         Net sales                                   $ 109,576          $  84,547
                                                     =========          =========
     Operating income:
       Microelectronics                              $  16,827          $   8,368
       Test, Measurement and
         Other Electronics                               2,859                264
       Isolator Products                                   897                992
       General corporate expenses                       (4,062)            (1,987)
                                                     ---------          ---------
                                                        16,521              7,637

     Acquired in-process research
       and development (1)                              (1,500)              -
     Interest expense                                     (758)            (1,297)
     Other income(expense), net                          1,951               (236)
                                                     ---------          ---------
         Income before income taxes                  $  16,214          $   6,104
                                                     =========          =========
</TABLE>

                                      -13-
<PAGE>
<TABLE>
<CAPTION>
                                                      For The Three Months Ended
                                                              December 31,
                                                     ----------------------------
     Business Segment Data: (continued)                  2000             1999
                                                         ----             ----
                                                             (In thousands)
     <S>                                             <C>                <C>
     Net sales:
       Microelectronics                              $  34,443          $  24,836
       Test, Measurement and
         Other Electronics                              19,617             12,535
       Isolator Products                                 4,388              4,541
                                                     ---------          ---------
         Net sales                                   $  58,448          $  41,912
                                                     =========          =========
     Operating income:
       Microelectronics                              $   8,727          $   3,433
       Test, Measurement and
         Other Electronics                               2,627               (449)
       Isolator Products                                   402                464
       General corporate expenses                       (2,211)            (1,060)
                                                     ---------          ---------
                                                         9,545              2,388

     Acquired in-process research
       and development (1)                              (1,500)              -
     Interest expense                                     (388)              (666)
     Other income (expense), net                           843                 28
                                                     ---------          ---------
         Income before income taxes                  $   8,500          $   1,750
                                                     =========          =========
<FN>
(1)  The  charge  for the  write-off  of  in-process  research  and  development
     acquired in the purchase of RDL is allocable fully to the Test, Measurement
     and Other Electronics segment.
</FN>
</TABLE>
11.  Recent Accounting Pronouncements
     --------------------------------

     The SEC has issued  Staff  Accounting  Bulletin  ("SAB") No. 101,  "Revenue
     Recognition   in  Financial   Statements,"   which   provides  the  Staff's
     interpretations   of  the   application  of  generally   accepted   revenue
     recognition accounting principles.  The Company must adopt SAB 101 by April
     1, 2001.  Management does not expect the adoption to have a material effect
     on its consolidated financial statements.

                                      -14-
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     We use our advanced  design,  engineering  and  manufacturing  abilities to
produce microelectronic, integrated circuit, interconnect and testing solutions.
Our products are used in fiber optic,  broadband  cable,  wireless and satellite
communications  markets.  We also design and manufacture  motion control systems
and  shock  and  vibration  isolation  systems  which  are used for  commercial,
industrial  and defense  applications.  Our  operations  are grouped  into three
segments:

     --   microelectronics
     --   test, measurement and other electronics
     --   isolator products

     Our  consolidated  financial  statements  include the  accounts of Aeroflex
Incorporated  and  all  of  our  subsidiaries.   All  of  our  subsidiaries  are
wholly-owned, except for Europtest, S.A. which is 93.4% owned by us and Aeroflex
Amplicomm, Inc., which is 75% owned by us.

     Our microelectronics segment has been designing,  manufacturing and selling
state-of-the-art  microelectronics  for the electronics  industry since 1974. In
January 1994, we acquired  substantially  all of the net operating assets of the
microelectronics  division  of Marconi  Circuit  Technology  Corporation,  which
manufactures  a wide variety of  microelectronic  assemblies.  In March 1996, we
acquired MIC Technology  Corporation which designs,  develops,  manufactures and
markets microelectronics  products in the form of passive thin film circuits and
interconnects.   Effective  July  1,  1997,  MIC  Technology   acquired  certain
equipment,  inventory,  licenses  for  technology  and  patents of two of Lucent
Technologies'  telecommunications  component units - multi-chip modules and film
integrated  circuits.  These  units  manufacture   microelectronic  modules  and
interconnect  products.  In February  1999,  we acquired all of the  outstanding
stock of UTMC  Microelectronic  Systems,  Inc.  consisting of UTMC's  integrated
circuit business. In September 2000, we acquired all of the net operating assets
of  AmpliComm,  Inc.,  which  designs and develops  fiber optic  amplifiers  and
modulator drivers used by manufacturers of advanced fiber optic systems.

     Our  test,  measurement  and  other  electronics  segment  consists  of two
divisions:  (1)  instruments  and (2) motion  control  products,  including  the
following product lines:

     --   Comstron, a leader in radio frequency and microwave technology used in
          the  manufacture of fast  switching  frequency  signal  generators and
          components,  which we acquired in November 1989. Comstron is currently
          an operating division of Aeroflex Laboratories,  Incorporated,  one of
          our wholly-owned subsidiaries;

     --   Lintek,  a leader in high speed  instrumentation  antenna  measurement
          systems, radar systems and satellite test systems which we acquired in
          January 1995;


                                      -15-
<PAGE>
     --   Europtest, S.A. (France), of which we acquired 90% effective September
          1, 1998, under a purchase  agreement which requires us to purchase the
          remaining 10% of Europtest pro rata over a three-year period at prices
          determined  based  upon net sales of  Europtest  products.  In October
          1999, we purchased an additional  3.4%.  Europtest  develops and sells
          specialized software-driven test equipment used primarily in cellular,
          satellite and other communications applications.

     --   Altair,    which   we    acquired   on   October   16,   2000   in   a
          pooling-of-interests business combination. Altair designs and develops
          advanced   object-oriented  control  systems  software  based  upon  a
          proprietary software engine.

     --   RDL, which we acquired on October 23, 2000. RDL designs,  develops and
          manufactures  advanced commercial  communications test and measurement
          products and defense subsystems.

     --   Our  motion  control  products   division  has  been  engaged  in  the
          development and manufacture of  electro-optical  scanning devices used
          in infra-red night vision since 1975.  Additionally,  it is engaged in
          the design,  development  and  production  of  stabilization  tracking
          devices and systems and magnetic  motors used in satellites  and other
          high reliability applications.

     Our isolator products segment has been designing, developing, manufacturing
and selling  severe  service shock and vibration  isolation  systems since 1961.
These devices are primarily  used in defense  applications.  In October 1983, we
acquired  Vibration  Mountings & Controls,  Inc.,  which  manufactures a line of
off-the-shelf  rubber and spring  shock,  vibration  and  structure  borne noise
control  devices used in commercial  and  industrial  applications.  In December
1986,  we acquired  the  operating  assets of Korfund  Dynamics  Corporation,  a
manufacturer of an industrial line of heavy duty spring and rubber shock mounts.

     Our revenue is recognized based upon shipments or billings. We record costs
on our long-term  contracts  using  percentage-of-completion  accounting.  Under
percentage of  completion  accounting,  costs are  recognized on revenues in the
same relation that total  estimated  manufacturing  costs bear to total contract
value.  Estimated costs at completion are based upon  engineering and production
estimates.  Provisions for estimated losses or revisions in estimated profits on
contracts-in-process  are  recorded  in the  period  in  which  such  losses  or
revisions are first determined.

     Approximately  33% of our  sales for  fiscal  2000 and 42% of our sales for
fiscal 1999 were to agencies of the United States Government or to prime defense
contractors  or  subcontractors  of the United  States  Government.  Our overall
dependence  on the  military has been  declining  due to a focusing of resources
towards developing standard products for commercial markets.

     We  believe  that  potential   reductions  in  defense  spending  will  not
materially  affect our  operations.  In certain  product areas, we have suffered
reductions  in sales  volume due to cutbacks in the  military  budget.  In other
product areas, we have  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 our operations.



                                   -16-
<PAGE>
Six Months  Ended  December 31, 2000  Compared to Six Months Ended  December 31,
1999

     Net Sales.  Net sales  increased 29.6% to $109.6 million for the six months
ended December 31, 2000 from $84.5 million for the six months ended December 31,
1999. Net sales in the microelectronics segment increased 33.8% to $66.7 million
for the six months ended December 31, 2000 from $49.9 million for the six months
ended   December  31,  1999  due   primarily   to  increased   sales  volume  in
microelectronic  modules  and thin  film  interconnects.  Net sales in the test,
measurement and other  electronics  segment increased 31.7% to $33.8 million for
the six months  ended  December  31, 2000 from $25.6  million for the six months
ended  December 31, 1999  primarily  due to increased  sales volume in frequency
synthesizers   (primarily  shipments  of  the  FS-1000  for  use  in  commercial
communications  test systems) and the acquisition of RDL, Inc. in October,  2000
offset,  in part, by reductions  in sales in high speed  automatic  test systems
(primarily due to the completion of satellite  payload test equipment for Hughes
Space and Communications).  Net sales in the isolator products segment were $9.1
million for the six months ended  December 31, 2000 and $9.0 million for the six
months ended December 31, 1999.

     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 53.9% to $44.3
million for the six months ended  December  31, 2000 from $28.8  million for the
six months ended December 31, 1999.  Gross margin increased to 40.4% for the six
months ended  December 31, 2000 from 34.0% for the six months ended December 31,
1999.  The increases  were  primarily a result of the increased  sales volume in
both the microelectronics segment and in frequency synthesizers offset, in part,
by reduced margins in high speed automatic test systems.

     Selling,   General  and   Administrative   Costs.   Selling,   general  and
administrative costs include office and management salaries, fringe benefits and
commissions.  Selling, general and administrative costs increased 27.3% to $20.3
million  (18.5% of net sales) for the six months  ended  December  31, 2000 from
$15.9 million  (18.9% of net sales) for the six months ended  December 31, 1999.
The increase was primarily due to both higher  corporate  expenses and increased
expenses in microelectronics as a result of this segment's increased growth.

     Research and  Development  Costs.  Research and  development  costs include
material, engineering labor and allocated overhead. Our self-funded research and
development  costs  increased  43.8% to $7.5 million (6.8% of net sales) for the
six months ended December 31, 2000 from $5.2 million (6.2% of net sales) for the
six months ended  December 31, 1999. The increase was primarily due to increased
costs in frequency synthesizers and high speed automatic test systems.

     Acquired  In-Process  Research  and  Development.  In  connection  with the
acquisition  of RDL,  Inc., we allocated  $1.5 million of the purchase  price to
incomplete  research and development  projects.  This allocation  represents the
estimated  fair value based on future cash flows that have been  adjusted by the
projects'  completion  percentage.  At the acquisition  date, the development of
these projects had not yet reached  technological  feasibility  and the research
and  development in progress had no  alternative  future uses.  Accordingly,  we
expensed  these costs as of the  acquisition  date.  The value  assigned to this
asset was  determined by  identifying  significant  research  projects for which
technological feasibility had not been established.



                                      -17-
<PAGE>
     The research and development  projects are associated with the introduction
of several new products as well as specific significant enhancements to existing
products.  Valuation of development efforts in the future has been excluded from
the research and development appraisal.

     The nature of the efforts to develop  the  acquired  in-process  technology
into a  commercially  viable  product  relate to the completion of all planning,
designing,  prototyping  and testing  activities that are necessary to establish
that the  proposed  technologies  meet  their  design  specifications  including
functional, technical and economic performance requirements.

     The value  assigned to purchased  in-process  technology  was determined by
estimating the contribution of the purchased in-process technology in developing
a commercially viable product,  estimating the resulting net cash flows from the
expected sales of such a product,  and  discounting  the net cash flows to their
present value using an appropriate discount rate.

     Revenue growth rates for RDL were estimated  based on a detailed  forecast,
as well as discussions with the finance,  marketing and engineering personnel of
RDL.  Allocation  of total RDL  projected  revenues to  in-process  research and
development  was based on  discussions  with  RDL's  management.  A  significant
portion of RDL's future  revenues  was  expected to  originate  from the sale of
products that were not yet completed at  acquisition.  However,  RDL's  existing
products and technologies are expected to generate sales through 2007.

     Selling,  general and administrative  expenses and profitability  estimates
were  determined  based  on  forecasts  as well  as an  analysis  of  comparable
companies' margin expectations.

     The  projections  utilized in the  transaction  pricing and purchase  price
allocation exclude the potential synergetic benefits related specifically to our
ownership.  Due to the relatively early stage of the development and reliance on
future, unproven products and technologies,  the cost of capital (discount rate)
for RDL was estimated using venture  capital rates of return.  Due to the nature
of the  forecast  and  the  risks  associated  with  the  projected  growth  and
profitability  of the  development  projects,  a discount rate of 25 percent was
used to discount cash flows from the in-process products. This discount rate was
commensurate  with RDL's  market  position,  the  uncertainties  in the economic
estimates described above, the inherent  uncertainty  surrounding the successful
development  of the  purchased  in-process  technology,  the useful life of such
technology,  the  profitability  levels of such technology,  and the uncertainty
related to technological advances that could render even RDL's development stage
technologies obsolete.

     We  believe  that the  foregoing  assumptions  used in the  forecasts  were
reasonable at the time of the acquisition.  No assurance can be given,  however,
that the underlying  assumptions  used to estimate sales,  development  costs or
profitability,  or the events  associated  with such projects will  transpire as
estimated. For these reasons, actual results may vary from projected results.

     Remaining  development  efforts for RDL's research and development  include
various phases of design,  development and testing. Funding for such projects is
expected to come from internally generated sources.


                                      -18-
<PAGE>
     As evidenced by the continued support of the development of RDL's projects,
we believe we have a reasonable  chance of successfully  completing the research
and development  programs.  However, as with all of our technology  development,
there  is  risk  associated  with  the  completion  of the  RDL's  research  and
development projects, and there is no assurance that technological or commercial
success will be achieved.

     If the development of RDL's in-process  research and development project is
unsuccessful,  our sales and profitability  may be adversely  affected in future
periods. Commercial results are also subject to certain market events and risks,
which  are  beyond  our  control,  such as  trends  in  technology,  changes  in
government regulation, market size and growth, and product introduction or other
actions by competitors.

     Other Expense (Income).  Interest expense decreased to $758,000 for the six
months  ended  December  31,  2000 from $1.3  million  for the six months  ended
December 31, 1999,  primarily due to reduced levels of borrowings.  Other income
of $2.0 million for the six months ended December 31, 2000 consists primarily of
$2.1 million of interest income offset by a $206,000  decrease in the fair value
of our  interest  rate swap  agreements.  Other  expense of $236,000 for the six
months ended December 31, 1999 consisted primarily of a $300,000 expense for the
settlement  of a  lawsuit  and  $49,000  of  interest  income.  Interest  income
increased due to increased levels of cash  equivalents.  The decreased levels of
borrowings and the increased  levels of cash  equivalents  resulted from the net
proceeds of $68.5  million from stock issued in a public  offering  completed in
May 2000.

     Provision for Income Taxes.  Income taxes increased  139.1% to $5.5 million
(an  effective  income tax rate of 33.9%) for the six months ended  December 31,
2000 from $2.3  million  (an  effective  income  tax rate of 37.7%)  for the six
months ended  December 31, 1999.  The income tax  provisions for the two periods
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.

Three Months Ended December 31, 2000 Compared to Three Months Ended December 31,
1999

     Net Sales.  Net sales increased 39.5% to $58.4 million for the three months
ended  December 31, 2000 from $41.9 million for the three months ended  December
31, 1999. Net sales in the  microelectronics  segment  increased  38.7% to $34.4
million for the three months ended  December 31, 2000 from $24.8 million for the
three months ended December 31, 1999 due primarily to increased  sales volume in
microelectronic  modules  and thin  film  interconnects.  Net sales in the test,
measurement and other  electronics  segment increased 56.5% to $19.6 million for
the three months ended December 31, 2000 from $12.5 million for the three months
ended  December  31,  1999  primarily  due to the  acquisition  of RDL,  Inc. in
October,  2000 and increased sales volume in frequency  synthesizers  (primarily
shipments  of the FS-1000 for use in  commercial  communications  test  systems)
offset,  in part, by reductions  in sales in high speed  automatic  test systems
(primarily due to the completion of satellite  payload test equipment for Hughes
Space and Communications).  Net sales in the isolator products segment were $4.4
million for the three  months  ended  December 31, 2000 and $4.5 million for the
three months ended December 31, 1999.

     Gross Profit.  Gross profit  increased 83.4% to $24.8 million for the three
months  ended  December  31, 2000 from $13.5  million for the three months ended
December  31, 1999.  Gross margin  increased to 42.5% for the three months ended
December 31, 2000 from 32.3% for the three months ended  December 31, 1999.  The
increases  were  primarily a result of the  increased  sales  volume in both the
microelectronics segment and in frequency synthesizers.


                                      -19-
<PAGE>
     Selling,   General  and   Administrative   Costs.   Selling,   general  and
administrative  costs  increased 27.4% to $10.8 million (18.5% of net sales) for
the three months ended  December 31, 2000 from $8.5 million (20.3% of net sales)
for the three months ended  December 31, 1999. The increase was primarily due to
higher corporate expenses, increased expenses in microelectronics as a result of
this segment's increased growth and the addition of the expenses of RDL.

     Research and Development  Costs.  Our self-funded  research and development
costs  increased  68.3% to $4.5 million (7.6% of net sales) for the three months
ended  December  31,  2000 from $2.6  million  (6.3% of net sales) for the three
months  ended  December 31, 1999.  The increase was  primarily  due to increased
costs in frequency  synthesizers  and high speed  automatic test systems and the
addition of the expenses of RDL, Inc.

     Acquired  In-Process  Research  and  Development.  In  connection  with the
acquisition  of RDL,  Inc., we allocated  $1.5 million of the purchase  price to
incomplete  research and development  projects.  This allocation  represents the
estimated  fair value based of future cash flows that have been  adjusted by the
projects'  completion  percentage.  At the acquisition  date, the development of
these projects had not yet reached  technological  feasibility  and the research
and  development in progress had no  alternative  future uses.  Accordingly,  we
expensed these costs as of the acquisition date.

     Other  Expense  (Income).  Interest  expense  decreased to $388,000 for the
three  months ended  December 31, 2000 from  $666,000 for the three months ended
December 31, 1999,  primarily due to reduced levels of borrowings.  Other income
of $843,000 for the three months ended  December 31, 2000 consists  primarily of
$960,000 of interest  income offset by a $133,000  decrease in the fair value of
our interest rate swap agreements.  Other income of $28,000 for the three months
ended December 31, 1999 consisted primarily of interest income.  Interest income
increased due to increased levels of cash  equivalents.  The decreased levels of
borrowings and the increased  levels of cash  equivalents  resulted from the net
proceeds of $68.5  million from stock issued in a public  offering  completed in
May 2000.

     Provision for Income Taxes.  Income taxes increased  296.6% to $2.9 million
(an effective  income tax rate of 33.8%) for the three months ended December 31,
2000 from $725,000 (an effective  income tax rate of 41.4%) for the three months
ended December 31, 1999. The income tax provisions for the two periods  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

     As of December  31, 2000,  we had $134.6  million in working  capital.  Our
current  ratio was 5.9 to 1 at December  31, 2000.  As of February 25, 1999,  we
replaced a previous  agreement with a revised  revolving  credit,  term loan and
mortgage  agreement with two banks which is secured by substantially  all of our
assets not otherwise  encumbered.  The agreement provided for a revolving credit
line of $23.0  million,  a term  loan of $20.0  million  and a  mortgage  on our
Plainview property for $4.5 million.  The revolving credit loan facility expires
in  December  2002.  The term loan was fully paid in May 2000 with the  proceeds
from the sale of our Common Stock.  The interest  rate on borrowings  under this
agreement is at various rates depending upon certain financial ratios,  with the
current rate  substantially  equivalent to 30-day LIBOR  (approximately  6.4% at
December 31, 2000) plus 1% on the revolving credit  borrowings.  The mortgage is
payable in monthly installments of approximately  $26,000 through March 2008 and
a balloon  payment  of $1.6  million  in April  2008.  We have  entered  into an
interest  rate swap  agreement  for the  outstanding  amount  under the mortgage
agreement  at  approximately  7.6% in order to  reduce  the  interest  rate risk
associated with these borrowings.

                                      -20-
<PAGE>
     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,  we have a
letter of credit of $2.0 million.

     Our backlog of orders was $147.0  million at  December  31, 2000 and $100.0
million at December 31, 1999.

     For the six months ended December 31, 2000, our operations provided cash of
$22.4 million from our continued  profitability,  the  collection of receivables
and the tax benefit of stock  option and warrant  exercises.  For the six months
ended  December 31, 2000,  our investing  activities  used cash of $35.9 million
including  $14.7  million for  purchases of  businesses,  $19.6  million for the
purchase  of   available-for-sale   securities  and  $6.9  million  for  capital
expenditures  offset,  in part,  by $5.4  million of  proceeds  from the sale of
available-for-sale  marketable securities. For the six months ended December 31,
2000,  our  financing  activities  used cash of $4.5 million  primarily  for the
withholding  taxes paid on the exercise of stock options offset, in part, by the
proceeds  from and taxes  withheld  on the  exercise  of such stock  options and
warrants.

     We believe that existing cash, cash  equivalents and marketable  securities
coupled with  internally  generated  funds and available lines of credit will be
sufficient for our working capital  requirements,  capital expenditure needs and
the servicing of our debt for at least the next twelve  months.  At December 31,
2000, our available unused line of credit was $21.0 million after  consideration
of the letter of credit.

Market Risk

     We are exposed to market risk related to changes in interest  rates and, to
an immaterial extent, to foreign currency exchange rates. Most of our debt is at
fixed  rates of  interest  or at a  variable  rate  with an  interest  rate swap
agreement  which  effectively  converts the  variable  rate debt into fixed rate
debt. Therefore,  if market interest rates increase by 10 percent from levels at
December 31, 2000,  the effect on our net income would not be material.  Most of
our invested cash and  marketable  securities are at variable rates of interest.
If market  interest  rates  decrease by 10 percent  from levels at December  31,
2000,  the  effect  on our net  income  would be a  reduction  of  approximately
$240,000 per year.

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 our financial position,  business strategy and plans and objectives of
our management for future operations, are forward-looking  statements. When used
in this Report on Form 10-Q, words such as "anticipate,"  "believe," "estimate,"
"expect,"  "intend"  and  similar  expressions,  as  they  relate  to us or  our
management,   identify  forward-  looking   statements.   Such   forward-looking
statements  are based on the beliefs of our  management,  as well as assumptions
made by and information  currently  available to our 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 our current views with respect to future events and are subject to these
and  other  risks,  uncertainties  and  assumptions  relating  to our  financial
condition, results of operations, growth strategy and liquidity.


                                      -21-
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES
                           PART II - OTHER INFORMATION


Item 1. Legal Proceedings

        None

Item 2. Changes in Securities

        None

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

            None

       (b)  Reports on Form 8-K

            None





                                      -22-
<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)



February 14, 2001                By: s/Michael Gorin
                                     ------------------------------
                                       Michael Gorin
                                   President, Chief Financial Officer
                                     and Principal Accounting Officer



                                      -23-