Exhibit 13.1
Management's Discussion and Analysis
of Financial Condition and Results of Operation


                                    OVERVIEW

Since the Company's  inception in 1973,  revenues have been generated  primarily
from sales to agencies of the U.S.  Government,  including the DoD, the U.S. Air
Force,  Army and  Navy,  NASA and the FAA,  or  their  prime  contractors.  Such
revenues  are  generated  from  many  contracts   including  programs  requiring
multi-year hardware and software  development and limited production of products
and systems.  The  Company's  contracts  often  require the design,  production,
operation and maintenance of  sophisticated  equipment and systems and provision
of system integration services in the digital  telecommunications  and satellite
communications  fields. A substantial portion of the digital  telecommunications
and satellite  communications  research and development performed by the Company
since its inception has been funded by its customers and recorded as revenues by
the Company.  Accordingly,  the cost of performing this customer-funded research
and  development  is included in "Cost of Revenues" in the  Company's  financial
statements. The Company's government contracts are generally  cost-reimbursement
plus profit or fixed-price contracts.  The Company generally recognizes revenues
from its long-term government contracts on a percentage-of-completion basis.

Commencing  in  the  late  1980's,   the  Company  began  to  pursue  commercial
opportunities  using its digital  telecommunications  technology  developed  and
enhanced by the Company since its inception. Commercial revenues have risen from
less than 6% of total revenues in fiscal year 1989 to approximately 38% of total
revenues in fiscal year 1998. During fiscal year 1998, commercial revenues which
amounted to approximately  $57.7 million  included:  (i) contract  manufacturing
revenues from the Company's electronics assembly business ($25.5 million);  (ii)
sales of ASICs, circuit boards and subsystems to the telecommunications industry
($14.2 million);  and (iii) other commercial systems and product business ($18.0
million).  Future commercial revenues are anticipated from existing products and
products to be  introduced in the coming  fiscal year.  The Company  includes in
commercial  revenues  sales of  standardized  or  off-the-shelf  products to any
customers, including government customers.

Over the last two fiscal years,  the Company has greatly  increased its level of
independent  research and  development  expenditures.  Research and  development
expenses  increased  from $8.4  million in fiscal year 1996 to $11.9  million in
fiscal  year 1997 and $13.6  million in fiscal year 1998.  The Company  believes
that this increase is necessary to successfully develop competitive products for
the commercial telecommunications market. During fiscal year 1998, approximately
$10.0  million,  or 72% of the  Company's  R&D was  invested in these  strategic
commercial  initiatives.  The  Company  has  applied  much of its  research  and
development  expenditures to commercial products and initiatives in the areas of
wireless and cable broadband communications.

The Company's  operating results have from time to time been adversely  affected
by non-recoverable  cost overruns on certain  fixed-price  contracts,  primarily
fixed-price  development  contracts that have included  significant software and
hardware development.  The Company has instituted additional management controls
to more closely  monitor its bidding  process and costs  incurred on fixed-price
development contracts,  however, no assurance can be given that the Company will
not  incur  losses on  future  fixed-price  contracts  or  additional  losses on
existing  contracts.  The Company  believes  that  development  contracts are an
important  element in  maintaining  its  technological  leadership  position  in
digital telecommunications. As a result, the Company may incur losses on certain
fixed-price contracts. Such losses will be charged against results of operations
in the period when they first become known, typically near the initiation of the
contract  and may have a material  adverse  effect on the  Company's  results of
operations.


                              CAUTIONARY STATEMENTS

In the interest of providing the Company's  shareholders and potential investors
with certain  Company  information,  including  management's  assessment  of the
Company's future potential,  certain  statements set forth herein (a) contain or
are  based on  projections  of  revenue,  income,  earnings  per share and other
financial items or (b) relate to management's  future plans and objectives or to
the Company's future economic performance.  Such statements are "forward-looking
statements"  within the meaning of Section 27A(i) of the Securities Act of 1933,
as amended,  and in Section  21E(i) of the  Securities  Exchange Act of 1934, as
amended.

Although any forward-looking  statements contained herein or otherwise expressed
by or on behalf of the Company are to the  knowledge  and in the judgment of the
officers and  directors  of the  Company,  expected to prove true and to come to
pass,  management  is not able to predict  the future with  absolute  certainty.
Accordingly,  shareholders  and potential  investors are hereby  cautioned  that
certain events or circumstances  could cause actual results to differ materially
from those  projected or predicted  herein.  In  addition,  the  forward-looking
statements  herein are based on  management's  knowledge  and judgment as of the
date  hereof,  and the  Company  does not intend to update  any  forward-looking
statements to reflect events occurring or circumstances existing hereafter.

For further  information  on the  foregoing,  reference is made to the Company's
Securities and Exchange Commission reports including its recent reports on Forms
10-Q and 10-K.

                                       22

<PAGE>

                              RESULTS OF OPERATIONS

The following  tables set forth, for the periods  indicated,  certain items from
the Company's  Statements  of Income  expressed as a percentage of the Company's
total revenues:

                                                             Year ended March 31
                                                1998         1997         1996
--------------------------------------------------------------------------------
Revenues                                      100.0%        100.0%       100.0%
Cost of revenues                               76.1%         76.3%        80.0%
                                              ------        ------       ------
   Gross profit                                23.9%         23.7%        20.0%
                                              ------        ------       ------
Expenses
   Research and development                     8.9%          7.1%         5.8%
   Marketing and administrative                11.3%         10.1%         8.4%
                                              ------        ------       ------
   Total expenses                              20.2%         17.2%        14.2%
Operating income                                3.7%          6.5%         5.8%
Interest income, net                            1.2%          0.8%         0.6%
                                              ------        ------       ------
Income before provision for income taxes        4.9%          7.3%         6.4%
Provision for income taxes                     (1.5)%        (2.5)%       (2.1)%
                                              ------        ------       ------
Net income                                      3.4%          4.8%         4.3%
                                              ------        ------       ------


                         COMPARISION OF THE FISCAL YEARS

Revenues.  Revenues were $145.1  million,  $167.0  million and $153.3 million in
fiscal years 1996,  1997,  and 1998,  respectively,  representing a year-to-year
increase in fiscal year 1997 of 15% and a year-to-year  decrease of 8% in fiscal
year 1998.  The  increase in revenues  from fiscal year 1996 to fiscal year 1997
was primarily  attributable  to increases in the Company's  government  business
sector.  Revenues  generated by its government  business  sector  increased from
approximately  $79.0 million in fiscal year 1996 to $98.5 million in fiscal year
1997.  The  decrease in  revenues  from fiscal year 1997 to fiscal year 1998 was
primarily  the  result  of  a  decrease  in  commercial  revenues  significantly
attributable to an $8.6 million,  or 25%,  reduction in sales from the Company's
commercial manufacturing services from fiscal year 1997. Revenues generated from
commercial products and services were $66.2 million,  $68.5 and $57.7 million in
fiscal  years  1996,  1997 and 1998,  respectively.  Revenues  generated  by its
government  business sector  decreased from $98.5 million in fiscal year 1997 to
$95.6 million in fiscal year 1998.


Although the Company  experienced a slight  decrease in its government  business
revenues  during  fiscal year 1998,  the Company  did win four  significant  new
government  contracts  during the fiscal year. As such, the Company  anticipates
that its revenue from its government  customers may increase in future  periods.
However,  we believe  budgetary  pressures will continue to affect Department of
Defense,  FAA and NASA. All contracts with the government may be canceled at any
time for the  convenience  of the  government.  The  Company is not aware of the
cancellation  or  proposed  cancellation  of any of its current  contracts.  The
Company plans to continue to selectively pursue government business where it has
a competitive  advantage,  can be the sole provider or can be a prime contractor
rather than a subcontractor.

The Company's commercial business  represented  approximately 46% in fiscal year
1996, 41% in fiscal year 1997, and 38% in fiscal year 1998. The reduction in the
Company's commercial business sector in fiscal year 1998 was mainly attributable
to a decrease in the Company's commercial manufacturing services. The Company is
currently  pursuing  commercial  opportunities in satellite,  wireless and cable
broadband communication products. The Company expects that the percentage of its
overall   business   represented  by  commercial   sales  will  increase  if  it
successfully  develops,   markets  and  sells  those  products  currently  under
development.

Cost of  Revenues.  Cost of revenues  were $116.0  million,  $127.4  million and
$116.6 million in fiscal years 1996, 1997 and 1998,  respectively,  representing
80.0%,  76.3% and 76.1% of  revenues.  The  decrease  in cost of  revenues  as a
percentage of revenues in fiscal year 1997 relative to 1996 can be  attributable
to a profitable completion of the final phases of certain commercial development
programs and increased margins on both commercial and government contracts.  The
decrease in cost of revenues in fiscal year 1998 relative to 1997 was the result
of  recognition  of costs on lower  revenues  and a  reduction  in lower  margin
commercial electronic manufacturing revenues.

                                       23

<PAGE>

Management's  Discussion  and Analysis continued


Gross Profit. Gross profit was $29.1 million, $39.6 million and $36.6 million in
fiscal years 1996, 1997 and 1998,  respectively.  Gross profit  increased during
fiscal  year 1997  relative  to  fiscal  year  1996 as the  Company  experienced
operational  efficiencies  as a  result  of its  expanding  business  base,  and
increased  margins on its  Government  sales,  commercial  catalog  products and
certain  commercial  programs.  The decrease in gross profit  during fiscal year
1998 relative to fiscal year 1997 is primarily due to a lower revenue base.

Research and Development.  Research and development expenses,  including bid and
proposal  expenses were $8.4 million,  $11.9 million and $13.6 million in fiscal
year 1996, 1997 and 1998,  respectively.  The Company's research and development
expenses include bid and proposal expenses associated with government  contracts
and certain  large  commercial  programs.  The  Company has applied  much of its
research and development  expenditures to commercial products and initiatives in
the areas of wireless and cable broadband communications. The Company's research
and  development  expenses were $5.7 million,  $9.5 million and $11.3 million in
fiscal years 1996, 1997 and 1998, respectively. The Company expects research and
development expenses in fiscal year 1999 to decrease slightly as a percentage of
revenues  compared to the  percentage  experienced  in fiscal year 1998. Bid and
proposal  expenditures are largely the initial advanced  technology  development
efforts  directed  toward a  specific  product or  technical  task for which the
Company must show technical viability.  Bid and proposal expenses have decreased
since  fiscal year 1996 as the Company has focused its  available  research  and
development funds on the development of commercial products.

Marketing and Administrative.  Marketing and administrative  expenses were $12.2
million,  $16.8 million and $17.3 million in fiscal years 1996,  1997, and 1998.
The increase in costs from fiscal year 1996 to fiscal year 1997 was  primarily a
result  of  hiring  additional   technical  marketing  personnel  and  increased
marketing expenses in pursuit of commercial opportunities. The increase in costs
from fiscal year 1997 to fiscal year 1998 is a result of increase legal expenses
primarily  associated with a patent  infringement case brought by the Company in
December  1996  and  increased  marketing  expenses  in  pursuit  of  commercial
opportunities.

Operating  Income.  Operating income was $8.4 million,  $10.9 million,  and $5.7
million for fiscal years 1996,  1997 and 1998.  The increase in fiscal year 1997
was  primarily  attributable  to  operational  efficiencies  experienced  as the
Company  expanded its business  base, the avoidance of material cost overruns on
its contracts and increased  margins on its  commercial  catalog  products.  The
decrease  in  operating  income  from  fiscal  year 1997 to fiscal year 1998 was
primarily  the result of a decrease in  revenues,  an  increase in research  and
development, and an increase in marketing and administrative expenses.

Interest Income,  Net.  Interest income,  net was $.8 million,  $1.3 million and
$1.9 million in fiscal years 1996, 1997 and 1998, respectively.  In fiscal years
1997 and 1998,  the Company has  increased  its  interest  income over  previous
periods as a result of  maintaining  a higher  overall  average  balance in U.S.
Treasury instruments and money market accounts.

Provision  for income Taxes.  Provision for income taxes was $3.1 million,  $4.2
million and $2.3 million in fiscal years 1996, 1997 and 1998, respectively. This
represents an effective tax rate of 33.5% for fiscal year 1996, 34.5% for fiscal
year 1997 and 31.0% for fiscal year 1998. The increase in the effective tax rate
in fiscal year 1997 was primarily attributable to a non-recurring reduction of a
valuation  allowance in fiscal year 1996. The decrease in the effective tax rate
during  fiscal year 1998  compared to fiscal year 1997  results  primarily  from
increased  Research and Development (R&D) tax credits and other state income tax
credits. The Company anticipates that its effective tax rate in fiscal year 1999
will be  approximately  the same as  experienced  in fiscal  year 1998  assuming
continued extension of the federal R&D tax credit.

Bookings and Backlog.  Funded bookings were $155.0  million,  $168.5 million and
$163.0  million in fiscal years 1996,  1997 and 1998,  respectively.  Government
contract  bookings were $79.7  million,  $103.5 and $102.8 million during fiscal
years 1996, 1997 and 1998,  respectively Commercial contract bookings were $75.3
million,  $65.0  million  and $60.2  during  fiscal  year  1996,  1997 and 1998,
respectively  The Company's  backlog  increased from $82.4 million at the end of
fiscal  year 1996 to $83.9  million at the end of fiscal year 1997 and a further
12% to $93.6 million at the end of fiscal year 1998.

                                       24

<PAGE>


Summary.  The  Company's  revenues  and  results of  operations  are  subject to
fluctuation  from  period to  period.  Factors  that could  cause the  Company's
revenues and operating  results to vary from period to period  include:  timing,
bidding activity and delivery of significant commercial and government contracts
and orders; mix of products and systems sold, and services provided; disruptions
in delivery of components or  subsystems;  underestimating  costs on fixed-price
contracts  particularly  for software and hardware  development;  termination of
contracts;  regulatory developments;  and general economic conditions.  Research
and development  expenses include both research and development costs as well as
bid and proposal  expenses.  Bid and proposal expenses vary  significantly  from
period to period  based on the number of proposals  being  prepared at any time.
These  requests for proposals are not received  evenly during the year or in any
predictable pattern.


                         LIQUIDITY AND CAPITAL RESOURCES

Working capital  increased from $56.5 million to $66.4 million at March 31, 1996
and March 31, 1997,  respectively,  and  increased to $73.1 million at March 31,
1998. The increases in working capital at March 31, 1997 and March 31, 1998 were
primarily  attributable  to cash  generated  from net income and  proceeds  from
transactions under stock plans.

Net cash  provided by operating  activities  for the years ended March 31, 1996,
1997 and 1998 was $8.7 million,  $18.6  million and $4.4 million,  respectively.
The  increase  from 1996 to fiscal  year 1997 can be  largely  attributed  to an
increase in net income and the  reduction  of  inventories.  The  decrease  from
fiscal  year 1997 to fiscal  year 1998 is the  result of lower net income and an
increase in inventories to support future delivery of commercial products.

The Company used its cash for the purchase of property  and  equipment  totaling
$4.5 million,  $5.5 million and $5.9 million in fiscal year 1996, 1997 and 1998,
respectively. Capital expenditures in recent years are primarily attributable to
increased  investments  in the  Company's  commercial  activities  and leasehold
improvements in the Company's facilities in order to support its growth.

During fiscal years 1996,  1997 and 1998,  $1.1  million,  $1.6 million and $1.6
million respectively,  of net cash was provided by financing  activities.  These
amounts  represent  primarily  the proceeds  from  transactions  under the stock
plans.

The Company has a bank credit  commitment  of $15.0 million which it has used to
augment  cash flow needs and to secure term loans or standby  letters of credit.
Available  borrowings  under this line at March 31,  1998,  were $15.0  million.
Under this credit line, the Company must maintain certain  financial  covenants.
The Company was in compliance with all covenants throughout fiscal year 1998. At
March  31,  1998,  the  Company's  long-term   obligations   (including  current
maturities) and capital lease obligations totaled  approximately $.1 million. At
March  31,  1998,  cash  and  cash   equivalents  of  $13.9  million  were  held
significantly  in money market  accounts  and  short-term  investments  of $19.5
million were held in U.S. Government Treasury instruments.

The Company  believes  that its current  cash  position,  funds  generated  from
operations and funds available from its existing bank credit agreement,  will be
adequate  to meet  the  Company's  requirements  for  working  capital,  capital
expenditures and debt service for the next fiscal year.

The Company is in the process of  identifying  anticipated  costs,  problems and
uncertainties  associated  with  making both the  Company's  products as well as
internal-use software applications Year 2000 compliant.  In general, the Company
plans to  resolve  Year 2000  issues  associated  with its own  products  either
through  Company  and/or  customer  paid  upgrades.  In the case of third party,
internal-use  software,  the Company is planning to obtain Year 2000  compliance
certifications from the suppliers and, where necessary, replace or upgrade those
software packages which are not compliant.  Although  management does not expect
Year 2000 issues to have a material  impact on its business or future results of
operations,  there can be no assurances that there will not be  interruptions or
other  limitations  of system  functionality  or that the Company will not incur
significant costs to avoid such interruptions or limitations.

                                       25

<PAGE>


Report of Independent Public Accountants

To Stanford Telecommunications, Inc.:

We have audited the accompanying balance sheets of Stanford  Telecommunications,
Inc. (a  Delaware  Corporation)  as of March 31, 1998 and 1997,  and the related
statements of income,  shareholders' equity and cash flows for each of the three
years in the period ended March 31, 1998.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial  position of Stanford  Telecommunications,
Inc.  as of March 31, 1998 and 1997 and the  results of its  operations  and its
cash flows for each of the three  years in the period  ended  March 31,  1998 in
conformity with generally accepted accounting principles.


                                                   /s/ Arthur Andersen LLP
                                                   -----------------------------
                                                       ARTHUR ANDERSEN LLP
                                      San Jose, California, April 22, 1998


Statements of income

                                                             Year ended March 31
(In thousands, except per share amounts)              1998       1997       1996
--------------------------------------------------------------------------------
Revenues                                          $153,260   $167,002   $145,100
Cost of revenues                                   116,629    127,432    116,014
                                                  --------   --------   --------
   Gross profit                                     36,631     39,570     29,086
                                                  --------   --------   --------
Expenses
   Research and Development                         13,647     11,868      8,429
   Marketing and Administrative                     17,321     16,808     12,213
                                                  --------   --------   --------
      Total expenses                                30,968     28,676     20,642
                                                  --------   --------   --------
Operating income                                     5,663     10,894      8,444
Interest income, net                                 1,896      1,336        839
                                                  --------   --------   --------
Income before provision for income taxes             7,559     12,230      9,283
Provision for income taxes                           2,343      4,219      3,110
                                                  --------   --------   --------
Net income                                        $  5,216   $  8,011   $  6,173
                                                  ========   ========   ========
Earnings per share--basic and diluted             $   0.40   $   0.61   $   0.49
                                                  ========   ========   ========
Weighted average number of common
  and potential common shares outstanding:

     Basic                                          12,953     12,775     12,556
                                                  ========   ========   ========
     Diluted                                        13,179     13,070     12,702
                                                  ========   ========   ========

   The accompanying notes are an integral part of these financial statements.

                                       26

<PAGE>


Balance Sheets


                                                             Year ended March 31
(In thousands)                                               1998           1997
--------------------------------------------------------------------------------
ASSETS
Current assets:
   Cash and cash equivalents                            $  13,914     $   8,235
   Short-term investments                                  19,493        25,074
   Accounts receivable                                     26,958        25,856
   Unbilled receivables                                    20,911        19,754
   Inventories, net of related progress billings           14,276         6,011
   Prepaid expenses and other                               1,919         4,201
                                                        ---------     ---------
      Total current assets                                 97,471        89,131
                                                        ---------     ---------
Property and equipment at cost:
   Electronic test equipment                               46,768        42,797
   Furniture and fixtures                                   3,887         3,613
   Leasehold improvements                                   3,996         3,722
                                                        ---------     ---------
                                                           54,651        50,132
                                                        ---------     ---------
   Less: Accumulated depreciation and amortization        (40,516)      (36,019)
                                                        ---------     ---------
      Net property and equipment                           14,135        14,113
                                                        ---------     ---------
Other assets                                                  535           274
                                                        ---------     ---------
                                                        $ 112,141     $ 103,518
                                                        =========     =========


LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Current maturities of long-term obligations          $      44     $      88
   Accounts payable                                        10,739         5,902
   Advance payments from customers                          1,909         1,581
   Accrued liabilities                                      8,218        10,601
   Accrued income taxes                                     3,462         4,549
                                                        ---------     ---------
       Total current liabilities                           24,372        22,721
                                                        ---------     ---------
Long-term obligations, less current maturities                 41            30
                                                        ---------     ---------
Other long-term liabilities                                   855         1,061
                                                        ---------     ---------
Commitments and contingencies (Notes 3 and 7)
Shareholder' equity
   Common stock -- par value $01; 25,000
   shares authorized; 12,975 and 12,833
   shares issued and outstanding in 1998
   and 1997, respectively                                     130           128
Paid-in capital                                            42,359        40,410
Retained earnings                                          44,384        39,168
                                                        ---------     ---------
   Total shareholders' equity                              86,873        79,706
                                                        ---------     ---------
                                                        $ 112,141     $ 103,518
                                                        =========     =========

   The accompanying notes are an integral part of these financial statements.

                                       27

<PAGE>


<TABLE>
Statements of Shareholders' Equity

<CAPTION>

                                                                                                                           Total
                                                                      Common Stock           Paid-in      Retained     Shareholders'
(In thousands)                                                   Shares        Amount        Capital      Earnings        Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>          <C>           <C>           <C>           <C>    
BALANCE, MARCH 31, 1995                                           12,468       $   125       $36,988       $24,984       $62,097
Sale of common stock under Employee Stock
   Purchase Plan                                                      70             1           539          --             540
Sale of common stock under Employee Stock
   Option Plan                                                       110             1           479          --             480
Issuance of common stock as awards to employees                        8          --              74          --              74
Tax benefits from employee stock transactions                       --            --             225          --             225
Net income                                                          --            --            --           6,173         6,173

                                                                 -------       -------       -------       -------       -------
BALANCE, MARCH 31, 1996                                           12,656       $   127       $38,305       $31,157       $69,589
Sale of common stock under Employee Stock
   Purchase Plan                                                      67          --             959          --             959
Sale of common stock under Employee Stock
   Option Plan                                                       105             1           729          --             730
Issuance of common stock as awards to employees                        5          --             102          --             102
Tax benefits from employee stock transactions                       --            --             315          --             315
Net income                                                          --            --            --           8,011         8,011

                                                                 -------       -------       -------       -------       -------
BALANCE, MARCH 31, 1997                                           12,833       $   128       $40,410       $39,168       $79,706
Sale of common stock under Employee Stock
   Purchase Plan                                                      91             1         1,198          --           1,199
Sale of common stock under Employee Stock
   Option Plan                                                        49             1           417          --             418
Issuance of common stock as awards to employees                        2          --              50          --              50
Tax benefits from employee stock transactions                       --            --             284          --             284
Net income                                                          --            --            --           5,216         5,216

                                                                 -------       -------       -------       -------       -------
BALANCE, MARCH 31, 1998                                           12,975       $   130       $42,359       $44,384       $86,873
                                                                 =======       =======       =======       =======       =======

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

                                                                 28

<PAGE>

<TABLE>

Statements of Cash Flows

<CAPTION>
                                                                                                                Year ended March 31
(In thousands)                                                                                       1998         1997         1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                              <C>          <C>          <C>     
Cash flows from operating activities
     Net income                                                                                  $  5,216     $  8,011     $  6,173
     Adjustments to reconcile net income to net cash provided by operating activities:
         Depreciation and amortization                                                              5,807        5,558        5,009
         Issuances of stock to employees under award plans                                             50          102           74
         Change in provision for losses on receivables, contracts and inventories                  (2,041)       1,388          857
         Loss on disposition of property and equipment                                                 20          305          143
     (Increase) decrease in assets:
         Receivables billed and unbilled                                                           (1,549)     (11,803)       5,634
         Inventories                                                                               (6,934)      11,446       (3,492)
         Prepaid expenses and other assets                                                          2,021          724       (1,238)
     Increase (decrease) in liabilities:
         Accounts payable, advance payments and accrued expenses                                    2,782        1,489       (5,851)
         Other long-term liabilities                                                                  (55)         (76)          59
         Accrued and deferred income taxes                                                           (954)       1,463        1,304
                                                                                                 --------     --------     --------
               Net cash provided by operating activities                                            4,363       18,607        8,672
                                                                                                 --------     --------     --------

Cash flows from investing activities:
     Proceeds from maturities (purchase) of short-term investments, net                             5,581      (10,947)      (4,220)
     Purchases of property and equipment                                                           (5,852)      (5,501)      (4,482)
     Proceeds from sale of property and equipment                                                       3           25          438
                                                                                                 --------     --------     --------
               Net cash used in investing activities                                                 (268)     (16,423)      (8,264)
                                                                                                 --------     --------     --------

Cash flows from financing activities:
     Payments on capital lease obligations                                                            (33)         (47)        (154)
     Proceeds from transactions under stock plans                                                   1,617        1,689        1,245
                                                                                                 --------     --------     --------
                  Net cash provided by financing activities                                         1,584        1,642        1,091
                                                                                                 --------     --------     --------

Net increase in cash and cash equivalents                                                           5,679        3,826        1,499

Cash and cash equivalents at beginning of year                                                      8,235        4,409        2,910
                                                                                                 --------     --------     --------
Cash and cash equivalents at the end of year                                                     $ 13,914     $  8,235     $  4,409
                                                                                                 ========     ========     ========
</TABLE>


                                            1998          1997          1996
--------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes
     Interest                              $   19        $    7        $   12
     Income taxes                          $  942        $1,736        $3,987

   The accompanying notes are an integral part of these financial statements.

                                       29

<PAGE>


Notes to Financial Statements


       NOTE 1: THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company. Stanford  Telecommunications,  Inc. (the Company),  incorporated in
Delaware,  designs,  manufactures and markets advanced digital telecommunication
products  and systems to  establish or enhance  communications  via  satellites,
terrestrial  wireless and cable.  The  Company's  technical  strengths  include:
system design, communication waveforms,  modulation and demodulation techniques,
ASIC design  Radio  Frequency  (RF)  antennas and  downconverters,  software and
firmware,  Asynchronous  Transfer  Mode (ATM) design and advanced  manufacturing
techniques and processes.  The Company's  government revenues are generated from
U.S.  government  contracts where the Company may be either the prime contractor
or  a  subcontractor.   The  Company's   commercial  revenues  include  contract
manufacturing  revenues,  sales  of  integrated  circuits,  circuit  boards  and
subsystems,  and development programs.  In addition to the U.S. government,  the
principle markets for the Company's products are primarily located in the U.S.

Fiscal Year.  The Company's  fiscal year is comprised of four 13-week  quarters,
each of which ends on the Thursday closest to the corresponding calendar quarter
end. For  convenience,  the Company has  presented  its fiscal year as ending on
March 31.

Use of Estimates.  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that effect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported  amounts of revenues and expenses during the period.
The Company prepares and evaluates  on-going cost to complete estimates in order
to monitor its project costs.  These  estimates  form the basis for  calculating
revenues and gross margins for each project  under the  percentage-of-completion
method of accounting.  Due to uncertainties  inherent in the estimation process,
estimated total costs are subject to revision on an on-going basis as additional
information  becomes  available.  The estimates are subject to change and actual
results could be materially different from these estimates.

Cash  Equivalents.  The Company  considers  all highly  liquid  securities  with
original maturities of 90 days or less to be cash equivalents.

Short-Term  lnvestments.  Short-term investments are accounted for in accordance
with Statement of Financial  Accounting Standard (SFAS) No. 115, "Accounting for
Certain  Investments  in Debt and Equity  Securities."  At March 31,  1998,  the
Company's short-term  investments consisted of U.S. Treasury securities totaling
$19,493,000  at cost with  unrealized  gains of $270,000.  At March 31, 1997 the
Company's short-term  investments consisted of U.S. Treasury securities totaling
$25,074,000 at cost with unrealized gains of $246,000.  The securities mature at
various dates within one year.

Receivables.  The  Company  provides  a  reserve  for  doubtful  accounts  where
circumstances indicate that one is necessary. As of March 31, 1998 and 1997, the
Company's   reserve  for  doubtful   accounts   was  $711,000  and   $1,023,000,
respectively.

Unbilled   Receivables.   Unbilled  receivables  represent  differences  between
billings and revenues  recognized.  At March 31, 1998,  approximately 70% of the
unbilled  receivables  represent  revenues  recognized on fixed price  contracts
under the percentage-of-completion method of accounting which exceed the amounts
that  are  billable   according  to  contract  terms  and  are  expected  to  be
significantly  collected within one year. In general,  the Company is authorized
to bill between 75% to 100% of the costs  expended on a contract.  The remaining
portion of unbilled receivables at March 31, 1998 represents differences between
actual  indirect  rates and  government  approved  billing  rates  which are not
billable until  approval of final indirect rates by the respective  governmental
agencies.  The Company has received  final  indirect  rate  approval for charges
through fiscal 1995.

Inventories.  Inventories are stated at the lower of cost (first-in,  first-out)
or market. Cost includes materials, labor and related indirect expenses. General
and  administrative   costs  are  only  included  in  inventory  for  government
contracts,  as such  costs are  reimbursed  by the  government.  Work-in-process
mainly  represents  costs  incurred on short-term  contracts.  The components of
inventory are as follows:


(in thousands)                                         1998               1997
--------------------------------------------------------------------------------
Work-in process                                     $ 11,176            $ 3,721
Finished goods                                         3,066              2,318
Allocated general and administrative costs               136                118
Less: Progress billings                                 (102)              (146)
                                                    --------            -------
                                                    $ 14,276            $ 6,011
                                                    ========            =======


The Company purchases certain inventories that have long purchase lead times and
may be single sourced.  Although there are a limited number of  manufacturers of
these particular inventory items, management believes that other suppliers could
provide similar inventory on comparable  terms. A change in suppliers,  however,
could cause a delay in  manufacturing  and a possible  loss of sales,  which may
affect operating results adversely.

Depreciation and  Amortization.  Depreciation and amortization are provided over
the estimated  useful lives of the assets (3 to 7 years or the term of the lease
if shorter), using the straight-line method.

                                       30

<PAGE>


Accrued Liabilities. Accrued liabilities consist of the following:  

                                                             Year ended March 31
(In thousands)                                           1998               1997
--------------------------------------------------------------------------------
Compensation and employee benefits                   $  6,543            $ 8,003
Accrued contract cost                                     956              2,054
Other                                                     719                544
                                                     --------           --------
                                                     $  8,218           $ 10,601
                                                     ========           ========


Revenue Recognition.  The Company principally uses the  percentage-of-completion
method of accounting for contract revenues. The percentage-of-completion  method
is based on total costs  incurred to date  compared with  estimated  total costs
upon completion of contracts.  Certain contracts provide for milestone  billings
which are recorded as revenues when the defined  milestones are met. The Company
recognizes revenues for standard,  off-the-shelf products and certain commercial
products  upon  shipment  to the  customer.  The  Company  charges all losses on
contracts to cost of sales in the period when the loss is known.  The  principal
government  agencies to which the Company  sells are the  Department  of Defense
(DoD),  NASA and the FAA.  The DoD  accounted  for  33%,  33%,  and 31% of total
revenues in 1998, 1997, and 1996, respectively.

Earnings Per Share.  Effective  December 15, 1997, the Company adopted Statement
of Financial  Accounting  Standard No. 128 ("SFAS  128"),  "Earnings Per Share."
SFAS 128  requires  companies  to  compute  earnings  per  share  following  two
different methods, basic and diluted. Basic earnings per share is computed based
on the weighted  average number of common shares  outstanding.  Diluted earnings
per share is computed  based on the  weighted  average  number of common  shares
outstanding plus dilutive  potential common shares calculated in accordance with
the treasury stock method.  The Company's  dilutive  potential common shares are
stock options.  Options to purchase 86,000,  75,000,  and 56,000 weighted shares
outstanding  during 1998,  1997 and 1996  respectively  were  excluded  from the
computation of diluted  earnings per share because the options'  exercise prices
were greater than the average market price of the Company's  common stock during
those  years.  Basic  and  diluted  earnings  per  share  for  the  Company  are
substantially  the same.  Accordingly  they have been  reported  together in the
Statements of Income.

Concentration of Credit Risk.  Financial  instruments which potentially  subject
the  Company  to  concentrations  of credit  risk  consist  principally  of cash
equivalents,  short-term investments,  and trade receivables.  Concentrations of
credit risk with respect to trade  receivables are limited due to a balanced mix
of  receivables  due from the U.S.  government  and  other  customers  which are
dispersed across different industries and geographic regions.

Classification.  Consistent  with  industry  practice,  assets  and  liabilities
relating to government  long-term contracts are classified as current although a
portion of these amounts is not expected to be realized within one year.


                             NOTE 2: LINE OF CREDIT

On December 12, 1997, the Company amended its bank line agreement  extending the
expiration  date until December 18, 1998. The Company has  $15,000,000 in credit
under this line, all of which is available at March 31, 1998. Under this line of
credit the Company must maintain certain  financial  covenants.  As of March 31,
1998, the Company was in compliance with all such covenants.


                               NOTE 3: COMMITMENTS

The  Company  leases  its  buildings  and other  equipment  under  noncancelable
operating  lease  agreements  that expire at various  dates  through  2008.  The
Company also leases certain office  equipment  under capital leases which expire
during 2003.  The terms of several of the Company's  leases provide for deferral
of cash  rental  payments  over  various  periods.  Rental  expense  under these
agreements  is  recognized on a  straight-line  basis.  As of March 31, 1998 the
Company has accrued approximately  $717,000 in related expense which is included
in other long-term  liabilities in the accompanying  balance sheet.  Approximate
future minimum lease payments under these leases are as follows (in thousands):

Year Ended March 31                          Operating Leases     Capital Leases
--------------------------------------------------------------------------------
1999                                                 $ 4,617            $    45
2000                                                   5,021                 25
2001                                                   5,006                  8
2002                                                   3,471                  8
2003                                                   3,380                  6
Thereafter                                            12,619                 --
                                                    --------            --------
Total minimum lease payments                        $ 34,114                 92
                                                    ========            --------
Less: Interest                                                               (7)
                                                                        --------
                                                                             85
                                                                        --------
Less: Current portion                                                       (44)
                                                                        --------
                                                                        $    41
                                                                        ========


Lease  payments  and  other  rental  expenses  charged  to  operations   totaled
approximately $4,676,000,  $4,279,000,  and $4,272,000 for the years ended March
31, 1998, 1997, and 1996, respectively.  During 1998, 1997, and 1996 the Company
acquired equipment under capital in the amounts of $41,000, $30,000, and $8,000,
respectively.

                                       31

<PAGE>


                             NOTE 4: RETIREMENT PLAN

The Company  maintains a defined  contribution  plan covering  substantially all
employees.  Amounts  contributed are based on a percentage of eligible employees
annual compensation.  Percentages  contributed equaled 3% in 1998 and 4% in 1997
and  1996  respectively.   The  Company's  contributions  totaled  approximately
$1,403,000 in 1998,  $1,566,000 in 1997,  and  $1,425,000 in 1996. The Plan also
permits  eligible  employees  to  make  voluntary   before-tax  salary  deferral
contributions.


                              NOTE 5: INCOME TAXES

The  provision  for income  taxes  charged to  operations  was  comprised of the
following:

                                                             Year ended March 31
(In thousands)                                 1998          1997          1996
--------------------------------------------------------------------------------
Provision for (benefit from) income taxes:
Current
   Federal                                  $ 1,570       $ 3,602       $ 4,422
   State                                        176           555           233
Deferred, net
   Federal                                      647            96        (1,470)
   State                                        (50)          (34)          (75)
                                            -------       -------       -------
Net tax provision                           $ 2,343       $ 4,219       $ 3,110
                                            =======       =======       =======


The  provision for income taxes for the three years ended March 31, 1998 differs
from the U.S. statutory rate principally as follows:

                                                             Year ended March 31
                                                    1998       1997       1996
--------------------------------------------------------------------------------
Statutory Federal income tax rate                   34.0%      35.0%      34.0%
State income taxes, net of Federal benefit           1.5%       2.8%       1.7%
Research and development credits                    (7.3)%     (3.6)%     (1.0)%
Other                                                2.8%        .3%       1.0%
Change in valuation allowance                         --         --       (2.2)%
                                                    ----       ----       ---- 
Effective income tax rate                           31.0%      34.5%      33.5%
                                                    ====       ====       ==== 


The major  components  of deferred tax assets and  liabilities  consisted of the
following:

                                                             Year ended March 31
(In thousands)                                                1998         1997
--------------------------------------------------------------------------------
Deferred tax asset
Reserves and accruals not currently
  deductible for tax purposes                              $ 3,235      $ 4,644
Tax credits                                                    373          256
Accelerated depreciation                                       223          --
                                                           -------      -------
     Total deferred tax asset                                3,831        4,900
                                                           -------      -------
Deferred tax liability:
Accelerated depreciation                                       --          (151)
Percentage of completion contract accounting                  (610)        (931)
                                                           -------      -------
     Total  deferred tax liability                            (610)      (1,082)
                                                           =======      ========
Net deferred tax asset                                     $ 3,221      $ 3,818
                                                           =======      ========


The  $3,221,000 net deferred tax asset as of March 31, 1998 was allocated on the
accompanying  balance sheet with $223,000  included in other assets,  $1,361,000
included in prepaid  expenses and other,  and the remaining amount of $1,637,000
is netted against accrued income taxes.

                                       32

<PAGE>

                              NOTE 6: COMMON STOCK

On January 29, 1997,  the  Company's  Board of Directors  declared a two-for-one
split  of the  Company's  common  stock  effected  in the  form of a 100%  stock
dividend  distributed  on  February  28,  1997 to  shareholders  of record as of
February 10, 1997.  Approximately 6.4 million shares of common stock were issued
in connection with the split. The stated par value of each share was not changed
from $.01.  A total of  $64,000  was  reclassified  from the  Company's  paid-in
capital account to the Company's  common stock account.  All share and per share
amounts   included  in  these   financial   statements  have  been  restated  to
retroactively reflect the stock split.

On June 26, 1996, the Company's  stockholders approved an amendment to Article 4
of  the  Company's  Certificate  of  Incorporation,  increasing  the  number  of
authorized  shares of common  stock  with a par  value  $.01 per share  ("common
stock"),  from  15,000,000  to  25,000,000.  On  February  6, 1997,  the Company
registered the additional authorized shares.

On May 9, 1995, the Board of Directors  adopted a Stockholder's  Rights Plan and
declared a dividend of one Common Share  Purchase  Right (the  "Right") for each
share of the  Company's  common stock  outstanding  on May 25, 1995.  Each Right
entitles the holder thereof to purchase one share of the Company's  common stock
for $30.  The Rights will be  exercisable  if a person or group  acquires 15% or
more of the Company's  common stock.  Upon such  acquisition,  each Right (other
than those held by the acquiring  person or group) will be  exercisable  for the
number of shares of the  Company's  common  stock  having a market value at that
time of twice the  exercise  price of the  Right.  If the  Company  subsequently
enters into certain business combinations,  each Right (other than those held by
the acquiring  person or group) will be exercisable for that number of shares of
common  stock of the other  party to the  business  combination  having a market
value of two times the  exercise  price of the Right.  The Rights are subject to
redemption at the option of the Board of Directors at a price of $.01 per Right.
The Rights expire on May 9, 2005.

The  Company's  1991 Stock  Option  Plan  provides  for the  issuance  of either
incentive  or  non-qualified  options  to  employees  and  certain  non-employee
directors.  Incentive  options can be granted at an exercise price not less than
fair market value of the stock on the date of grant.  Non-qualified  options can
be granted at an exercise  price not less than 85% of the fair  market  value of
the  stock  on the date of the  grant.  Options  granted  under  the  1991  Plan
generally vest 25% one year after the date of grant and rateably thereafter over
three years and options  generally  expire ten years from the date of grant. The
1991 Plan will expire in the year 2001.


Information with respect to this plan is as follows:

                                              1991 Stock Option Plan
                                     -------------------------------------------
                                                                       Average
                                     Available                         Option
                                     for Grant        Outstanding      Prices
--------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995                393,470          549,084       $    6.66
                                     ---------        ---------       ---------
Additional authorized                1,000,000               --              --
Granted                               (365,442)         365,442            7.85
Exercised                                   --         (101,358)           4.53
Terminated                             115,802         (115,802)           7.30
                                     ---------        ---------       ---------
BALANCE, MARCH 31, 1996              1,143,830          697,366       $    7.49
Granted                               (375,300)         375,300           16.54
Exercised                                   --          (64,534)           7.65
Terminated                              45,711          (45,711)          10.39
                                     ---------        ---------       ---------
BALANCE, MARCH 31, 1997                814,241          962,421       $   10.92
Granted                               (167,900)         167,900           16.57
Exercised                                   --          (49,409)           8.51
Terminated                              45,222          (45,222)          13.08
                                     ---------        ---------       ---------
BALANCE, MARCH 31, 1998                691,563        1,035,690       $   11.85
                                     =========        =========       =========

                                       33

<PAGE>

<TABLE>
Under the 1991 Stock Option Plan the options outstanding are as follows:

<CAPTION>
                                            1991 Stock Options Outstanding        1991 Stock Options Exercisable
                               -------------------------------------------------- -----------------------------
                                               Weighted Average
                                  Number          remaining      Weighted Average   Number     Weighted Average
March 31, 1998                 Outstanding     Contractual Life   Exercise Price  Exercisable   Exercise Price
---------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>                <C>           <C>             <C>   
Range of exercise prices:
$2.50--$7.25                       274,578         6.l3 years         $ 6.74        266,078         $ 6.75
$7.38--$18.69                      211,652         2.41 years         $ 7.93        148,991         $ 8.02
$9.06--$14.88                      273,010         7.30 years         $13.51        103,860         $12.77
$15.25--$21.00                     251,450         8.78 years         $17.71         69,000         $20.52
$23.00--$31.50                      25,000         8.l3 years         $24.22         21,250         $23.36
                                 ---------                                          -------
     Total                       1,035,690                                          609,179
                                 =========                                          =======
</TABLE>


Pro Forma  Information.  The Company  applies APB No. 25  "Accounting  for Stock
Issued to Employees"  and related  interpretations  in accounting  for the stock
compensatory  plans (the  Plans).  Accordingly,  no  compensation  cost has been
recognized for the Plans. If compensation cost for the Plans had been determined
consistent  with SFAS No. 123 "Accounting  for  Stock-Based  Compensation",  the
Company's  net income and  earnings per share would have been reduced to the pro
forma amounts indicated below:


(In thousands, except per share data)            1998      1997      1996
--------------------------------------------------------------------------
Net income
   As reported                                 $ 5,216   $ 8,011   $ 6,173
   Pro forma                                   $ 4,037   $ 6,755   $ 5,615

Earning per share -- basic and diluted
   As reported                                 $  0.40   $  0.61   $  0.49
   Pro forma                                   $  0.31   $  0.52   $  0.44


Because the method of accounting  prescribed by SFAS No.123 has not been applied
to options granted prior to April 1, 1995, and because the Black-Scholes  option
valuation  model was  developed  for traded  options and  requires  the input of
subjective  assumptions,  the resulting pro forma  compensation  cost may not be
representative of that to be expected in future years

The fair  value of each  option  grant is  estimated  based on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for 1998,  1997 and 1996:  risk-free  interest rates of  approximately  6.6% for
1998, 6.0% for 1997 and 6.1% for 1996,  dividend yields of 0%, volatility factor
of the  expected  market  price of the  Company's  common  stock  of 73%,  and a
weighted average  expected life of an option of  approximately  three (3) years.
The weighted  average fair values of options  granted in fiscal years 1998, 1997
and 1996 respectively were $8.33, $7.34 and $3.37.

Under the 1992 Employee  Stock  Purchase  Plan,  the Company makes  offerings of
common  stock to its  employees  at such time and of such  duration as its Board
determines.  A total of 400,000  shares of common  stock has been  reserved  for
issuance.  In fiscal  years  1998,  1997 and 1996,  the  Company has sold 90,631
shares,  66,512 shares and 70,788  shares.  The weighted  average fair values of
such  shares for fiscal  years 1998,  1997 and 1996 were $4.88,  $5.27 and $2.41
respectively.  As of March  31,  1998,  75,20l  shares  remained  available  for
purchase.


                      NOTE 7: LITIGATION AND CONTINGENCIES

The Company is  contingently  liable with respect to lawsuits and other  matters
which  arise in the normal  course of  business.  The  Company  must comply with
detailed  government  procurement and contracting  regulations.  The Company has
prepared and presented  documentation  and support to a customer  addressing its
post-award audit  recommendations.  Management believes that the outcome of such
contingencies will not have a material adverse effect on the Company's financial
position or results of operations.

                                       34

<PAGE>


<TABLE>
Selected Financial Data

<CAPTION>
                                                                                                                 Year ended March 31
(In thousands, except per share data)                                 1998          1997          1996          1995          1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>           <C>           <C>           <C>           <C>     
SUMMARY OF OPERATIONS
Revenues                                                            $153,260      $167,002      $145,100      $114,384      $ 98,055
Operating income                                                       5,663        10,894         8,444         1,620         4,498
Income before change in accounting method                              5,216         8,011         6,173           131         2,836
Cumulative effect of change in accounting method                          --            --            --            --           700
Net income                                                             5,216         8,011         6,173           131         3,536
Earnings per share before change in
accounting method-- diluted                                             0.40          0.61          0.49          0.01          0.27
Cumulative effect of change in accounting method                          --            --            --            --          0.07
Weighted average number of common
   and potential common shares outstanding                            13,179        13,070        12,702        12,484        10,394


FINANCIAL POSITION
Current assets                                                      $ 97,471      $ 89,131      $ 76,152      $ 71,994      $ 60,125
Current liabilities                                                   24,372        22,721        19,657        24,035        11,466
Working capital                                                       73,099        66,410        56,495        47,959        48,659
Current ratio                                                            4.0           3.9           3.9           3.0           5.2
Property and equipment, net                                           14,135        14,113        14,500        15,608        14,005
Total assets                                                        $112,141      $103,518      $ 90,948      $ 88,005      $ 74,503
Long-term debt                                                            41            30            85           161           235
Shareholders' equity                                                  86,873        79,706        69,589        62,097        61,367
Common stock outstanding                                              12,975        12,833        12,656        12,468        12,362
Book value per share                                                $   6.70      $   6.21      $   5.50      $   4.98      $   4.96
</TABLE>


                                QUARTERLY RESULTS

<TABLE>
Statements of Operations  Data. The following  table  presents  summaries of the
Company's  financial  results by quarter  for fiscal  year 1998,  1997 and 1996.
These quarterly  financial results are unaudited.  In the opinion of management,
however,  they have been  prepared  on the same basis as the  audited  financial
information and include all adjustments necessary for a fair presentation of the
information  set forth  therein.  The operating  results for any quarter are not
necessarily  indicative  of the  results  that may be  expected  for any  future
period.

<CAPTION>
(In thousands, except per share data)                                                                                           1998
------------------------------------------------------------------------------------------------------------------------------------
                                                                1st Quarter        2nd Quarter        3rd Quarter        4th Quarter
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                <C>                <C>                <C>    
Revenues                                                            $35,331            $36,838            $40,713            $40,378
Gross profit                                                          8,901              9,373              9,935              8,422
Net income                                                            1,382                928              1,577              1,329
Earnings per share-- diluted                                        $  0.11            $  0.07            $  0.12            $  0.10

                                                                                                                                1997
------------------------------------------------------------------------------------------------------------------------------------
                                                                1st Quarter        2nd Quarter        3rd Quarter        4th Quarter
------------------------------------------------------------------------------------------------------------------------------------
Revenues                                                            $40,843            $41,058            $42,028            $43,073
Gross profit                                                          8,850             10,169              9,723             10,828
Net income                                                            1,888              1,911              1,960              2,252
Earnings per share-- diluted                                        $  0.14            $  0.15            $  0.15            $  0.17


                                                                                                                                1996
------------------------------------------------------------------------------------------------------------------------------------
                                                                1st Quarter        2nd Quarter        3rd Quarter        4th Quarter
------------------------------------------------------------------------------------------------------------------------------------
Revenues                                                            $35,952            $35,597            $36,384            $37,168
Gross profit                                                          6,076              7,382              7,462              8,167
Net income                                                            1,126              1,403              1,613              2,031
Earnings per share-- diluted                                        $  0.09            $  0.11            $  0.13            $  0.16
</TABLE>

                                                                 35

<PAGE>

Selected Financial Data


                           SELECTED COMMON STOCK DATA

Stanford  Telecommunications,  Inc.  Common  Stock was  offered to the public on
October 6, 1983,  and since that date has been traded on the NASDAQ stock market
under the symbol STII.  During January 1994,  the Company  completed a secondary
offering of its common  stock.  The price per share  reflected  in the table has
been adjusted for a two-for-one  split of the Company's common stock distributed
to  shareholders  on February 28, 1997 and  represents the closing prices in the
NASDAQ National Market System. The quotations represent inter-dealer quotations,
without  retail  markups,  markdowns  or  commissions,  and may not  necessarily
represent actual transactions.

The  Company  has  not  paid  cash  dividends  on its  Common  Stock  since  its
incorporation  and anticipates that for the foreseeable  future it will continue
to retain its earnings  for use in its  business.  A covenant  under the current
Line of Credit would require prior approval of any cash dividend by the bank.

On March 31,  1998,  there  were  approximately  1,609  holders of record of the
Company's Common Stock.

                                         1998                    1997
                                    -----------------     ------------------
Fiscal year                         High       Low        High         Low
--------------------------------------------------------------------------------
First Quarter                       20 1/4     14 1/8     32 7/8      13 3/8
Second Quarter                      28         15         30          18 5/8
Third Quarter                       26         15         26 3/4      11 1/4
Fourth Quarter                      20 1/2     14         21 1/16     14 1/2


                              NASDAQ TRADING VOLUME

Fiscal year                                1998                        1997
--------------------------------------------------------------------------------
Shares                                  20,213,599                   13,475,504


<TABLE>
<CAPTION>
                                                 NASDAQ MARKET MAKERS
<S>                                           <C>                                          <C>
Oppenheimer & Company, Inc.                   Sherwood Securities Corporation              Herzog, Heine, Geduld, Inc.
Mayer & Schweitzer, Inc.                      Dain Rauscher, Inc.                          Troster Singer Corporation
John G. Kinnard & Co., Inc.                   Knight Securities LP                         First Albany Corporation
</TABLE>

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