EXHIBIT 13.1
     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                                  OF OPERATION

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 utilizing 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 41% of total
revenues in fiscal year 1997. During fiscal year 1997, commercial revenues which
amounted to  approximately  $68 million  included:  (i)  contract  manufacturing
revenues from the Company's  electronics  assembly business ($34 million);  (ii)
sales of ASICs, circuit boards and subsystems to the telecommunications industry
($17  million);  and (iii) other  commercial  systems and product  business ($17
million).  Over the last two fiscal years,  the Company has focused on investing
its own funds in certain  strategic  commercial  initiatives,  rather  than paid
development.  During  fiscal year 1997  approximately  75%, or $9 million of the
Company's  IR&D was  invested in these  strategic  commercial  initiatives.  The
Company  anticipates that these commercial products will produce revenues during
the next fiscal  year.  The Company  includes in  commercial  revenues  sales of
standardized  or  off-the-shelf  products such as the GPS  simulators  and other
communications   related  products  to  any  customers,   including   government
customers.

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 which have included significant software and
hardware development. The Company's net income in fiscal year 1995 was adversely
affected due to losses on a number of  fixed-price  development  contracts.  The
Company has instituted  additional  management  controls to more closely monitor
its bidding  process and costs

<PAGE>

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.  The Company plans to selectively bid on
programs  where  it  would be the sole  provider  or its  technology  leadership
provides a competitive  advantage.  In addition,  in order to position itself in
the commercial  marketplace,  the Company may  selectively  enter into contracts
with  customers to deliver  products where the Company will be funding a portion
of the development  costs. 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.

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
                                               -------------------
                                          1995         1996         1997
                                          ----         -----        ----

Revenues                                  100.0%       100.0%       100.0%
Cost of revenues                           83.6         80.0         76.3
                                           ----         ----         ----
     Gross profit                          16.4         20.0         23.7
                                           ----         ----         ----
Research and development                    6.8          5.8          7.1
Marketing and administrative                8.2          8.4         10.1
                                            ---          ---         ----
     Total expenses                        15.0         14.2         17.2
Operating income                            1.4          5.8          6.5
Interest income, net                        0.6          0.6          0.8
Arbitration settlement charge              (1.8)         -            -
                                           -----        -----        -----
Income before provision for income taxes    0.2          6.4          7.3
Provision for income taxes                 (0.1)        (2.1)        (2.5)
                                           -----        -----        -----
     Net income                             0.1%         4.3%         4.8%
                                            ----         ----         ----

<PAGE>


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 contain or are
based on projections of revenue,  income, earnings per share and other financial
items or 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.

Comparison of Fiscal Years 1995, 1996 and 1997

Revenues.  Revenues were $114.4  million,  $145.1  million and $167.0 million in
fiscal  year  1995,  1996,  and 1997,  respectively,  representing  year-to-year
increases  of 27% in fiscal year 1996 and 15% in fiscal year 1997.  The increase
in  revenues  from  fiscal  year 1995 to fiscal  year 1996 was  attributable  to
increases in the  Company's  commercial  operations,  including  its  commercial
telecommunication   products  and  services  and  its  commercial  manufacturing
services  as well as  increases  in its  government  business  sector.  Revenues
generated by its government  business sector  increased from  approximately  $79
million  in fiscal  year 1995 and 1996 to $98.5  million  in fiscal  year  1997.
Revenues  generated  from  commercial  products and services were $35.4 million,
$66.2  million,   and  $68.5  million  in  fiscal  year  1995,  1996  and  1997,
respectively.  The  increase  in  commercial  revenues  in  fiscal  year 1996 is
significantly  attributable  to two commercial  development  programs.  Contract
manufacturing  services  significantly  accounted for the increase in commercial
revenues in fiscal year 1997.

<PAGE>

Although the Company experienced an increase in its government business revenues
during  fiscal year 1997,  the Company  expects that  budgetary  pressures  will
continue to affect  Department  of Defense,  FAA and NASA  budgets.  The Company
anticipates  that its revenues from these  government  customers may remain flat
and could decline in future  periods.  All  contracts  with the  government  are
cancelable 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 31% in fiscal year
1995, 46% in fiscal year 1996,  and 41% in fiscal year 1997.  Although there was
an overall increase in commercial revenues during fiscal 1997, the percentage of
revenue decreased as a result of the revenue growth in the Company's  government
sector business.  The Company is currently pursuing commercial  opportunities in
satellite,  wireless and cable 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 $95.7 million, $116.0 million and $127.4
million in fiscal year 1995, 1996 and 1997,  respectively,  representing  83.6%,
80.0% and 76.3% of revenues in fiscal  year 1995,  1996 and 1997,  respectively.
For fiscal year 1995,  the Company  announced a reserve of $2.8 million  against
the  completion of a development  contract with Intelsat and incurred  losses on
several other development  contracts totaling $1.4 million. The decrease in cost
of revenues as a percentage  of revenues in fiscal year 1996  relative to fiscal
year 1995 is  attributable  primarily to the avoidance of material cost overruns
on its contracts  and  increased  margins on its  commercial  catalog  products.
During fiscal year 1996 the Company recognized revenues on the Intelsat contract
and a U.S. Army satellite  terminal contract totaling $16.2 million in which the
cost of revenues  approximated the revenues recognized.  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.   In  fiscal  year  1995,  1996  and  1997,  the  Company
experienced   losses  totaling   $4.2million,   $.2  million  and  $.9  million,
respectively on a number of fixed-price development contracts.

Gross Profit.  Gross profit was $18.7 million,  $29.1 million, and $39.6 million
in fiscal year 1995, 1996 and 1997, respectively.  Gross profit increased during
fiscal year 1996 and 1997 as a  percentage  of revenues  relative to fiscal year
1995 and 1996, respectively, 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.

<PAGE>


Research  and  Development.  The  Company's  research and  development  expenses
include bid and proposal  expenses  associated  with  government  contracts  and
certain large commercial programs. 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 1995 as the Company
has focused its available  research and development  funds on the development of
commercial  products.  Research  and  development  expenses,  including  bid and
proposal  expenses were $7.7  million,  $8.4 million and $11.9 million in fiscal
year 1995, 1996 and 1997, respectively. Excluding bid and proposal expenses, the
Company's  research and development  expenses  applied to the development of its
products were $4.4  million,  $5.7 million and $9.5 million in fiscal year 1995,
1996 and  1997  respectively.  The  Company  expects  research  and  development
expenses in fiscal year 1998 to be approximately the same percentage of revenues
experienced in fiscal year 1997.

Marketing and  Administrative.  Marketing and administrative  expenses were $9.4
million,  $12.2 million and $16.8 million in fiscal year 1995,  1996,  and 1997,
respectively,  representing  year-to-year  increases of 30% in fiscal year 1996,
and 37% in fiscal year 1997.  These  increases were primarily a result of hiring
additional  technical  marketing  personnel and increased  marketing expenses in
pursuit of commercial  opportunities.  In addition, the Company has expanded its
patent activities and has experienced  increased legal costs associated with the
prosecution of its patent activities.

Operating  Income.  Operating  income was $1.6  million,  $8.4 million and $10.9
million for fiscal year 1995, 1996 and 1997,  respectively,  an increase of 425%
in fiscal year 1996, and an increase of 29% in fiscal year 1997. The increase in
fiscal year 1996 and 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 Company has entered  into and may  continue to enter into certain
fixed-price  development  contracts  which it believes are essential to maintain
and strengthen its competitive market position.

Interest Income,  Net. Interest income,  net was $.7 million,  $.8 million,  and
$1.3 million in fiscal year 1995,  1996 and 1997,  respectively.  During  fiscal
year 1997 the Company  increased the amount of cash  available for investment by
generating  positive  cash from its  operations  which it  invested  in interest
bearing short-term investments.

Arbitration  Settlement Expenses.  During the third quarter of fiscal year 1995,
the Company received an unfavorable decision in an arbitration hearing involving
an alleged default under a 1990 joint product development agreement. A charge of
$1.6 million  associated with the award to the prevailing party and other direct
arbitration costs of $.5 million were recognized.

<PAGE>


Provision  for Income Taxes.  Provision  for income taxes was $.1 million,  $3.1
million and $4.2 million in fiscal year 1995, 1996 and 1997, respectively.  This
represents an effective  tax rate of 35.0% for fiscal year 1995,  33.5% tax rate
for fiscal  year 1996,  and 34.5% for fiscal  year  1997.  The  decrease  in the
effective  tax rate during fiscal year 1996 compared to fiscal year 1995 results
primarily from increased  Research and  Development  (R&D) tax credits and other
state income tax credits.  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 Company  anticipates  that its effective tax
rate in future fiscal years will fall within the range of rates experienced over
the past three years assuming continued extension of the federal R&D tax credit.

Bookings and Backlog.  Funded bookings were $127.8  million,  $155.0 million and
$168.5 million in fiscal year 1995,  1996 and 1997,  respectively,  representing
year-to-year  increases  of 21% in fiscal  year 1996 and 9% in fiscal year 1997.
Government  contract  bookings  were $87.3  million,  $79.7  million  and $103.5
million  during  fiscal  year  1995,  1996 and  1997,  respectively.  Commercial
contract  bookings were $40.5  million,  $75.3 million and $65.0 million  during
fiscal year 1995,  1996 and 1997,  respectively.  The  increase in bookings  has
resulted in the Company's  backlog  increasing  from $72.5 million at the end of
fiscal year 1995 to $82.4 million at the end of fiscal year 1996, an increase of
14% and a further increase to $83.9 million at the end of fiscal year 1997.

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:
underestimating  costs on fixed-price  contracts  particularly  for software and
hardware  development;  timing,  bidding  activity and  delivery of  significant
contracts  and orders;  termination  of  contracts;  mix of products and systems
sold,  and  services   provided;   disruptions  in  delivery  of  components  or
subsystems;  regulatory developments; and general economic conditions.  Revenues
have generally increased on a quarterly basis since fiscal year 1995 as a result
of increasing  commercial  activities  during the past three years and increased
government related activities experienced during fiscal year 1997. The Company's
results of operation are adversely affected by losses on fixed-price development
contracts.  Direct and indirect costs were adversely affected  throughout fiscal
year  1995  by cost  overruns  on  certain  fixed-price  development  contracts.
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.

Quarterly Results

The  following  table  presents the Company's  financial  results by quarter for
fiscal  year  1995,  1996  and  1997.  These  quarterly  financial  results  are
unaudited. In the opinion of management, however, they have been

<PAGE>

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.

<TABLE>

                                                      Statement of Operations Data
                                              Quarter Ended (in thousands, except per share data)
<CAPTION>

                                         Fiscal year 1995                            Fiscal year 1996
                               June 30    Sept. 30   Dec. 31    Mar. 31    June 30    Sept. 30   Dec. 31    Mar. 31
<S>                            <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>    
Revenues                       $24,645    $28,319    $26,499    $34,921    $35,952    $35,597    $36,384    $37,168
Costs of revenues               19,244     22,633     24,689     29,113     29,876     28,215     28,922     29,001
                               -------    -------    -------    -------    -------    -------    -------    -------
    Gross profit                 5,401      5,686      1,810      5,808      6,076      7,382      7,462      8,167
                               -------    -------    -------    -------    -------    -------    -------    -------

Expenses:
    Research and                 2,032      2,302      1,345      2,044      1,793      2,050      2,046      2,541
    development
    Marketing and                2,000      2,423      2,166      2,773      2,659      3,239      3,104      3,211
    administrative             -------    -------    -------    -------    -------    -------    -------    -------
       Total expenses            4,032      4,725      3,511      4,817      4,452      5,289      5,150      5,752

Operating income (loss)          1,369        961    (1,701)        991      1,624      2,093      2,312      2,415
Interest income, net               180        156        191        130        178        152        164        345
Arbitration settlement             -          -      (2,075)        -          -          -          -          -
expenses                       -------    -------    -------    -------    -------    -------    -------    -------

Income (loss) before             1,549      1,117    (3,585)      1,121      1,802      2,245      2,476      2,760
(provision) credit for
income taxes
(Provision) credit for           (557)      (403)      1,282      (393)      (676)      (842)      (863)      (729)
income taxes                   -------    -------    -------    -------    -------    -------    -------    -------

Net income (loss)            $     992  $     714   $(2,303)  $     728   $  1,126   $  1,403   $  1,613   $  2,031
                             =========  =========   ========  =========   ========   ========   ========   ========
Earnings (loss) per share    $    0.08  $    0.05 $   (0.18)  $    0.06  $    0.09  $    0.11  $    0.13  $    0.16
                             =========  ========= ==========  =========  =========  =========  =========  =========
Weighted average common         12,442     12,488     12,512     12,504     12,544     12,692     12,722     12,818
shares and equivalents
</TABLE>

                              Quarter Ended (in thousands, except per
                                            share data)
                                         Fiscal year 1997
                             June 30    Sept. 30   Dec. 31    Mar. 31
Revenues                       $40,843    $41,058    $42,028    $43,073
Costs of revenues               31,993     30,889     32,305     32,245
                              --------   --------   --------   --------
    Gross profit                 8,850     10,169      9,723     10,828
                              --------   --------   --------   --------

Expenses:
    Research and                 2,229      3,444      2,903      3,292
    development
    Marketing and                4,022      4,105      4,170      4,511
    administrative            --------   --------   --------   --------
       Total expenses            6,251      7,549      7,073      7,803

Operating income (loss)          2,599      2,620      2,650      3,025
Interest income, net               284        298        342        412
Arbitration settlement             -          -          -          -
expenses                      --------   --------   --------   --------

Income (loss) before             2,883      2,918      2,992      3,437
(provision) credit for
income taxes
(Provision) credit for           (995)    (1,007)    (1,032)    (1,185)
income taxes                  --------   --------   --------   --------

Net income (loss)             $  1,888   $  1,911   $  1,960   $  2,252
                              ========   ========   ========   ========
Earnings (loss) per share    $    0.14  $    0.15  $    0.15  $    0.17
                             =========  =========  =========  =========
Weighted average common         13,048     13,098     13,042     13,040
shares and equivalents

<PAGE>


Liquidity and Capital Resources

Working capital  increased from $48.0 million to $56.5 million at March 31, 1995
and March 31, 1996,  respectively,  and  increased to $66.4 million at March 31,
1997. The increases in working capital at March 31, 1996 and March 31, 1997 were
primarily attributable to cash generated from net income from operations.

Net cash  provided by operating  activities  for the years ended March 31, 1995,
1996 and 1997 was $1.2 million,  $8.7 million and $18.6  million,  respectively.
The increase in cash provided by operating  activities  from fiscal year 1995 to
fiscal  year 1996 was  largely  attributable  to an increase in net income and a
decrease in billed and unbilled  receivables.  The increase  from 1996 to fiscal
year  1997 can be  largely  attributed  to an  increase  in net  income  and the
reduction of inventories.

The  Company  utilized  its cash for the  purchase  of  property  and  equipment
totaling $6.2 million,  $4.5 million and $5.5 million in fiscal year 1995,  1996
and 1997, respectively. Capital expenditures in recent years are 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 1995,  1996 and 1997,  $.5  million,  $1.1 million and $1.6
million,  respectively, of net cash was provided by financing activities. During
fiscal year 1995, the Company received proceeds of $.6 million from transactions
under stock plans and made payments of $.1 million on capital lease obligations.
During  fiscal year 1996,  the Company  received  proceeds of $1.3  million from
transactions  under the stock plans and made  payments of $.2 million on capital
lease  obligations.  During fiscal year 1997, the Company  received  proceeds of
$1.7  million  from  transactions  under  stock  plans and made  payments of $.1
million on capital lease obligations.

The Company has a bank credit  commitment of $15.0 million which it has utilized
to  augment  cash flow  needs and to secure  term  loans or  standby  letters of
credit.  Available  borrowings  under  this line at March 31,  1997,  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 1997. At March 31, 1997,  the Company's  long-term  obligations  (including
current  maturities) and capital lease  obligations  totaled  approximately  $.1
million.  At March 31, 1997, cash and cash equivalents of $8.2 million were held
in money market  accounts and short-term  investments of $25.1 million were held
in U.S. Government Treasury instruments.

                           
<PAGE>

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.

In February 1997, the Financial  Accounting  Standard Board issued SFAS No. 128,
"Earnings  per Share," which will be adopted by the Company in fiscal year 1998.
The Company does not believe  that this  pronouncement  will have a  significant
effect on previously stated earnings per share.

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, 1997 and 1996,  and the related
statements of income,  shareholders' equity and cash flows for each of the three
years in the period ended March 31, 1997.  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, 1997 and 1996 and the  results of its  operations  and its
cash flows for each of the three  years in the period  ended  March 31,  1997 in
conformity with generally accepted accounting principles.


ARTHUR ANDERSEN LLP
San Jose, California
April 22, 1997

                                      

<PAGE>
<TABLE>

Statements of Income
(in thousands, except for per share amounts)
<CAPTION>
                                                            Year Ended March 31
                                                            -------------------

                                                  1997             1996              1995
                                                --------        ---------          ------
<S>                                             <C>              <C>               <C>     
Revenues                                        $167,002         $145,100          $114,384
Costs of revenues                                127,432          116,014            95,679
                                                 -------          -------            ------
    Gross profit                                  39,570           29,086            18,705
                                                  ------           ------           -------
    Research and development                      11,868            8,429             7,723
    Marketing and administrative                  16,808           12,213             9,362
                                                  ------           ------             -----
      Total expenses                              28,676           20,642            17,085
                                                  ------           ------            ------
    Operating income                              10,894            8,444             1,620
Interest income, net                               1,336              839               657
Arbitration settlement charge                         --               --            (2,075)
                                                --------          -------         ----------
    Income before provision for income taxes      12,230            9,283               202
Provision for income taxes                         4,219            3,110                71
                                                 -------          -------         ---------

Net income                                      $  8,011         $  6,173         $     131
                                                ========         ========         =========
Earnings per share                              $    .61         $    .49         $     .01
                                                ========         ========         =========
Weighted average number
of common and common equivalent
shares outstanding                                13,070           12,702            12,484
                                                ========         ========          ========
</TABLE>

<PAGE>

<TABLE>

Balance Sheets
(in thousands)
<CAPTION>

                                                                    March 31
                                                            -------------------------
                                                              1997               1996
                                                            ---------          -------
<S>                                                        <C>              <C>       
Assets
Current assets:
    Cash and cash equivalents                              $   8,235        $    4,409
    Short-term investments                                    25,074            14,127
    Accounts receivable                                       25,856            22,018
    Unbilled receivables                                      19,754            11,993
    Inventories, net of related progress billings              6,011            18,702
    Prepaid expenses and other                                 4,201             4,903
                                                            --------          --------
      Total current assets                                    89,131            76,152
                                                            --------          --------

Property and equipment at cost:
    Electronic test equipment                                 42,797            39,541
    Furniture and fixtures                                     3,613             2,967
    Leasehold improvements                                     3,722             3,657
                                                            --------          --------

                                                             50,132            46,165
    Less: Accumulated depreciation and amortization         (36,019)          (31,665)
                                                            --------         ---------
       Net property and equipment                            14,113             14,500
                                                            --------         ---------
Other assets                                                    274                296
                                                            --------         ---------

                                                            $103,518         $  90,948
                                                            ========         =========

Liabilities and Shareholders' Equity
Current liabilities:
    Current maturities of long-term obligations            $      88        $       80
    Accounts payable                                           5,902             6,097
    Advance payments from customers                            1,581               515
    Accrued liabilities                                       10,601            10,044
    Accrued income taxes                                       4,549             2,921
                                                            --------         ---------
       Total current liabilities                              22,721            19,657
                                                            --------         ---------
Long-term obligations, less current maturities                    30                85
                                                            --------         ---------
Other long-term liabilities                                      910               986
                                                            --------         ---------
Deferred income taxes                                            151               631
                                                            --------         ---------
Commitments and contingencies (Notes 3 and 8)
Shareholders' equity:
    Common stock - par value $.01; 25,000 shares
     authorized;  12,833 and 12,656
     shares issued and outstanding
     in 1997 and 1996, respectively                              128               127
    Paid-in capital                                           40,410            38,305
    Retained earnings                                         39,168            31,157
                                                           ---------        ----------
       Total shareholders' equity                             79,706            69,589
                                                           ---------        ----------
                                                            $103,518         $  90,948
</TABLE>
                                      
<PAGE>

<TABLE>

Statements of Shareholders' Equity
(in thousands)
<CAPTION>
                                                                                                                     Total
                                                                    Common Stock                                     Share-
                                                                 -------------------      Paid-In     Retained      holders'
                                                                 Shares       Amount      Capital     Earnings       Equity
                                                                 ------       ------      -------     --------      --------
<S>                                                              <C>          <C>       <C>          <C>          <C>      
Balance, March 31, 1994                                          12,362       $  124    $  36,390    $  24,853    $  61,367
   Sale of common stock under
      Employee Stock Purchase Plan                                   72            1          429           --          430
   Sale of common stock under
      Employee Stock Option Plan,
      net of shares exchanged                                        28           --           86           --           86
   Issuance of common stock as awards to employees                    6           --           42           --           42
   Tax benefits from employee stock transactions                     --           --           41           --           41
   Net income                                                        --           --           --          131          131
                                                               --------         ----    ---------   ----------    ---------
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
                                                                 ======       ======     ========     ========     ========
</TABLE>
                                      
<PAGE>


<TABLE>
Statements of Cash Flows
(in thousands)
<CAPTION>


                                                                          Year Ended March 31
                                                                  ------------------------------------
                                                                     1997       1996        1995
                                                                  ----------  ---------   -----------
<S>                                                               <C>         <C>         <C>        
Cash flows from operating activities:
     Net income                                                   $  8,011    $  6,173    $    131
     Adjustments to reconcile net income to net cash
       provided by operating activities:

        Depreciation and amortization                                5,558       5,009       4,330
        Issuances of stock to employees under award plans              102          74          42
        Change in provision for losses on receivables,
          contracts and inventories                                  1,388         857       3,073
        Loss on disposition of property and equipment                  305         143         210
     (Increase) decrease in assets:
        Receivables billed and unbilled                            (11,803)      5,634      (8,355)
        Inventories                                                 11,446      (3,492)     (6,888)
        Prepaid expenses and other assets                              724      (1,238)     (2,018)
     Increase (decrease) in liabilities:
        Accounts payable, advance payments and accrued expenses      1,489      (5,851)      9,484
        Other long-term liabilities                                    (76)         59         301
        Accrued and deferred income taxes                            1,463       1,304         874
                                                                  --------    --------    --------
           Net cash provided by operating activities                18,607       8,672       1,184
                                                                  --------    --------    --------

     Cash used in investing activities:
        (Purchases) maturities of short-term investments           (10,947)     (4,220)      1,559
        Purchases of property and equipment                         (5,501)     (4,482)     (6,210)
        Proceeds from sale of property and equipment                    25         438          67
                                                                  --------    --------    --------
           Net cash used in investing activities                   (16,423)     (8,264)     (4,584)
                                                                  --------    --------    --------

     Cash flows from financing activities:
        Payments on capital lease obligations                          (47)       (154)        (87)
        Proceeds from transactions under stock plans                 1,689       1,245         557
                                                                  --------    --------    --------

           Net cash provided by financing activities                 1,642       1,091         470
                                                                  --------    --------    --------

Net increase (decrease) in cash and cash equivalents                 3,826       1,499      (2,930)

Cash and cash equivalents at beginning of year                       4,409       2,910       5,840

Cash and cash equivalents at end of year                          $  8,235    $  4,409    $  2,910
                                                                  ========    ========    ========

Supplemental Cash Flow Information:

Cash paid for interest and income taxes                               1997        1996        1995
                                                                  --------    --------    --------

        Interest                                                  $      7    $     12    $     51
        Income taxes                                              $  1,736    $  3,987    $    769

                                      

</TABLE>

<PAGE>


Notes to Financial Statements
March 31, 1997

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 also produces  communication systems
networking  solutions and GPS  navigation  products.  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   include
telecommunications and electronics markets 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  Investments.  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,  1997,  the
Company's short-term investments consisted of U.S. Treasury securities totalling
$25,074,000  at cost with  unrealized  gains of $246,000.  At March 31, 1996 the
Company's short-


                                      
<PAGE>


term investments  consisted of U.S. Treasury securities totalling $14,127,000 at
cost with unrealized gains of $109,000.  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, 1997and 1996, the
Company's   reserve  for  doubtful   accounts  was   $1,023,000   and  $920,000,
respectively.

Unbilled   Receivables.   Unbilled  receivables  represent  differences  between
billings and revenues  recognized.  At March 31, 1997,  approximately 85% 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, 1997 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 1993.

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):

                                                                 March 31
                                                            1997           1996
                                                         --------      ---------
Raw materials and supplies                               $   --        $    158

Work-in-process                                             3,721        18,615
Finished goods                                              2,318         1,850
Allocated general and administrative costs                    118           808
Less: Progress billings                                      (146)       (2,729)
                                                         --------      --------
                                                         $  6,011      $ 18,702
                                                         ========      ========

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.

                                      
<PAGE>

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.

Income Taxes . Income taxes are provided for in  accordance  with SFAS No. 109 ,
"Accounting  for Income  Taxes," which  provides for a liability  approach under
which deferred  income taxes are based on enacted tax laws and rates  applicable
to the periods in which the taxes become payable.

Accrued Liabilities
          Accrued liabilities consist of the following (in thousands):


                                                                  March 31
                                                            1997           1996
                                                          -------        -------
Compensation and employee benefits                        $ 8,003        $ 7,221
Accrued contract cost                                       2,054          2,125
Other                                                         544            698
                                                          -------        -------
                                                          $10,601        $10,044
                                                          =======        =======

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%,  31%,  and 44% of total
revenues in 1997, 1996, and 1995, respectively.

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.

                                      
<PAGE>

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.

2.     Line of Credit

On December 5, 1996, the Company  amended its bank line agreement  extending the
expiration date until December 1997. The Company has $15,000,000 in credit under
this  line,  all of which is  available  at March 31,  1997.  Under this line of
credit the Company must maintain certain  financial  covenants.  As of March 31,
1997, the Company was in compliance with all such covenants.

3.     Commitments

The  Company  leases  its  buildings  and other  equipment  under  noncancelable
operating  lease  agreements  that expire at various  dates  through  2004.  The
Company also leases certain office  equipment  under capital leases which expire
during 2000.  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, 1997 the
Company has accrued approximately  $835,000 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 Ending March 31                         Operating Leases     Capital Leases
--------------------                         ----------------     --------------
1998                                             $  3,683              $     85
1999                                                3,619                    34
2000                                                3,090                    15
2001                                                2,112                  --
2002                                                  825                  --
Thereafter                                            768                  --
                                                 --------              --------
Total minimum lease payments                     $ 14,097                   134
                                                 --------              --------
Less:interest                                                               (16)
                                                                       --------
                                                                            118
                                                                       --------
Less:current portion                                                        (88)
                                                                       --------
                                                                       $     30
                                                                       ========

                                      
<PAGE>

Rental  expenses  charged  to  operations  totaled   approximately   $4,279,000,
$4,272,000,  and $3,432,000 for the years ended March 31, 1997,  1996, and 1995,
respectively.  During 1997, 1996, and 1995 the Company acquired  equipment under
capital leases in the amounts of $30,000, $8,000, and $81,000, respectively.

4.     Earnings per Share

In accordance with Accounting  Principles  Board (APB) No. 15 earnings per share
is computed  using the  weighted  average  number of shares of common  stock and
common stock equivalents  outstanding during the reporting periods. Common stock
equivalents  consist of the dilutive  effect of outstanding  options to purchase
common stock.  Fully dilutive  earnings per share is  substantially  the same as
reported  earnings  per  share.  In  February  1997,  the  Financial  Accounting
Standards Board (FASB) issued SFAS No. 128,  "Earnings per Share," which will be
adopted by the Company in fiscal year 1998.  SFAS No. 128 requires  companies to
compute earnings per share under two different methods,  basic and diluted,  and
to disclose  the  methodology  used for the  calculation.  The Company  does not
believe that this  pronouncement  will have a  significant  effect on previously
stated earnings per share.

5.    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 4% in 1997 and 1996 and 3%
in 1995. The Company's  contributions totaled approximately  $1,566,000 in 1997,
$1,425,000  in 1996,  and  $1,037,000  in 1995.  The Plan also permits  eligible
employees to make voluntary before-tax salary deferral contributions.

<TABLE>
6.     Income Taxes

The  provision  for income  taxes  charged to  operations  was  comprised of the
following (in thousands):
<CAPTION>

                                                          Year Ended March 31
                                                          -------------------
                                                      1997        1996       1995
                                                      ----        ----       ----
<S>                                                  <C>        <C>        <C>    
Provision for (benefit from) income taxes
Current
     Federal                                         $ 3,602    $ 4,422    $ 1,870
     State                                               555        233        503
Deferred, net
     Federal                                              96     (1,470)    (1,817)
     State                                               (34)       (75)      (485)
                                                     -------    --------   -------
Net tax provision                                    $ 4,219    $ 3,110    $    71
                                                     =======    =======    ========
</TABLE>

                                      
<PAGE>

The  provision for income taxes for the three years ended March 31, 1997 differs
from the U.S. statutory rate principally as follows:

                                                  Year Ended March 31
                                                  -------------------
                                               1997     1996      1995
                                               ----     ----      ----
Statutory Federal income tax rate              35.0%    34.0%    34.0%
State income taxes, net of Federal benefit      2.8      1.7      5.3
Research and development credits               (3.6)    (1.0)    (5.0)
Other                                            .3      1.0      0.7
Change in valuation allowance                   --      (2.2)     --
                                               ----     ----     ----

Effective income tax rate                      34.5%    33.5%    35.0%
                                               ====     ====     ====

The major  components  of deferred tax assets and  liabilities  consisted of the
following (in thousands):

                                                          Year Ended March 31
                                                          -------------------
                                                           1997       1996
                                                         -------    --------
Deferred tax asset:
Reserves and accruals not currently deductible for tax   $ 4,644    $ 4,232
  purposes
Tax credits                                                  256        395
                                                         -------    -------
  Total deferred tax asset                                 4,900      4,627

Deferred tax liability:
Accelerated depreciation                                    (151)      (631)
Percentage of completion contract accounting                (931)      (116)
                                                         -------    -------
  Total deferred tax liability                            (1,082)      (747)
                                                         -------    -------
Net deferred tax asset                                   $ 3,818    $ 3,880
                                                         =======    =======

The  $3,818,000 net deferred tax asset as of March 31, 1997 was allocated on the
accompanying balance sheet with $151,000 included in long-term liabilities,  and
the remaining $3,969,000 included in prepaid expenses and other.

7.     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.

                                      

<PAGE>

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 $60 (pre  split).  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.

In  August  1990,  the  Board of  Directors  authorized  the  purchase  of up to
$2,500,000  of the  Company's  common stock on the open market.  Common stock of
$1,501,000 has been repurchased as of March 31, 1997.

The 1982 Stock Option Plan expired on January 26, 1991  precluding  the issuance
of option  grants under that plan.  On March 31, 1997 no options  remained to be
issued or exercised.

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.



<PAGE>
<TABLE>


Information with respect to these plans is as follows:
<CAPTION>

                                   1982 Stock Option Plan                1991 Stock Option Plan
                                 --------------------------        ----------------------------
                                                   Average       Available                       Average
                                 Outstanding    Option Prices    for Grant      Outstanding   Option Prices
                                 -----------    -------------    ---------      -----------   -------------
<S>                                 <C>           <C>              <C>             <C>          <C>      
Balance at March 31, 1994            79,000       $    5.44        645,004         306,872      $    5.73
                                     ------       ---------        -------         -------      ---------
Granted                                 --              --        (256,334)        256,334      $    7.74
Exercised                          (31,500)       $    5.40             --         (9,332)      $    4.58
Terminated                              --              --            4,800        (4,800)      $    7.24
                                     ------          ------        --------      ---------      ---------
Balance at March 31, 1995            47,500       $    5.47         393,470        549,084      $    6.66

Additional Authorized                   --              --        1,000,000            --             --
Granted                                 --              --        (365,442)        365,442      $    7.85
Exercised                           (7,500)       $    2.72             --       (101,358)      $    4.53
Terminated                              --              --          115,802      (115,802)      $    7.30
                                     ------          ------        --------     ----------      ---------
Balance at March 31, 1996            40,000       $    5.98       1,143,830        697,366      $    7.49

Granted                                 --              --        (375,300)        375,300      $   16.54
Exercised                          (40,000)       $    5.98             --        (64,534)      $    7.65
Terminated                              --              --           45,711       (45,711)       $  10.39
                                    -------         -------       ---------      ---------       --------
Balance at March 31, 1997               --              --          814,241        962,421       $  10.92
                                    =======         =======         =======        =======       ========
</TABLE>

<TABLE>

Under the 1991 Stock Option Plan the options  outstanding on March 31, 1997 were
as follows:
<CAPTION>

                                          Options Outstanding                                Options Exercisable
                                           Weighted Average
      Range of               Number            remaining        Weighted Average         Number         Weighted Average
      Exercise           Outstanding at   Contractual Life in       Exercise          Exercisable at        Exercise
        Prices              3/31/97             Years               Price              3/31/97              Price
      ---------           ----------        --------------      --------------        -----------         ---------
<S>                         <C>                  <C>                <C>                  <C>                 <C>    
$  2.50 - $  5.63           53,062               6.04               $  4.50              35,892              $  4.42
$  6.38 - $ 10.00          548,859               5.29               $  7.82             353,769              $  7.65
$ 13.63 - $ 20.00          275,500               9.23               $ 14.96                --                    --
$ 21.00 - $ 31.50           85,000               9.12               $ 21.95                --                    --
                            ------                                                     ---------
            Total          962,421                                                      389,661
                           =======                                                      =======
</TABLE>

Pro Forma  Information.  The Company  applies APB No. 25  "Accounting  for Stock
Issued to Employees"  and related  interpretations  in accounting  for the stock
compensaton plans (the Plans) described above. 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

                                      
<PAGE>

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)
:

                                     Year Ended March 31
                                     -------------------
                                       1997       1996
                                     -------     ------
    Net income
         As reported                  8,011      6,173
         Pro forma                    6,755      5,615
    Earnings per share - primary
         As reported                    .61        .49
         Pro forma                      .52        .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 1997 and 1996:  risk-free  interest rates of approximately 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 76%, and a weighted average expected life
of an option of  approximately  3 years.  The  weighted  average  fair values of
options granted in fiscal year 1997 and 1996 respectively were $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 1997 and 1996, the Company has sold 66,512 shares and
70,788 shares at a weighted average fair value of $5.27 and $2.41  respectively.
As of March 31, 1997, 165,832 shares remained available for purchase.

8.     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.

                                      

<PAGE>

<TABLE>

Selected Financial Data
(in thousands, except for per share data)
<CAPTION>

                                                                          Year Ended March 31
Summary of Operations for the Fiscal Year                   1997        1996        1995        1994        1993
<S>                                                      <C>         <C>         <C>        <C>         <C>      
Revenues                                                 $167,002    $145,100    $114,384   $  98,055   $  92,821
Operating income                                           10,894       8,444       1,620       4,498       2,319
Income before change in accounting method                   8,011       6,173         131       2,836       1,159
Cumulative effect of change in accounting method               --          --          --         700          --
Net income                                                  8,011       6,173         131       3,536       1,159
Earnings per share before change in accounting method         .61         .49         .01         .27         .12
Cumulative effect of change in accounting method               --          --          --         .07          --
Weighted average shares                                    13,070      12,702      12,484      10,394       9,730
Net income as a percent of revenues                          4.8%        4.3%         .1%        3.6%        1.3%

Financial Position at End of Fiscal Year
Current assets                                          $  89,131   $  76,152   $  71,994   $  60,125    $  45,007
Current liabilities                                        22,721      19,657      24,035      11,466       18,792
Working capital                                            66,410      56,495      47,959      48,659       26,215
Current ratio                                                 3.9         3.9         3.0         5.2          2.4
Property and equipment, net                                14,113      14,500      15,608      14,005       12,226
Total assets                                             $103,518   $  90,948   $  88,005   $  74,503    $  57,492
Long-term debt                                                 30          85         161         235          358
Shareholders' equity                                       79,706      69,589      62,097      61,367       37,571
Common stock outstanding                                   12,833      12,656      12,468      12,362        9,728
Book value per share                                   $     6.21  $     5.50  $     4.98  $     4.96   $     3.86
</TABLE>

<TABLE>

Selected Common Stock Data
<CAPTION>
                                                                     <S>                     <C>         <C>          

Stanford Telecommunications, Inc. Common Stock was offered to the    Fiscal 1997               High        Low
public on October 6, 1983, and since that date has been traded on         First Quarter       32 7/8     13 3/8
the Nasdaq stock market under the symbol STII. During January 1994,       Second Quarter          30     18 5/8
the Company completed a secondary offering of its common stock. The       Third Quarter       26 3/4     11 1/4
price per share reflected in the table has been adjusted for a            Fourth Quarter     21 1/16     14 1/2
two-for-one  split of the Company's common stock  distributed to
shareholders on February 28, 1997 and represents the closing prices  Fiscal 1996
in the Nasdaq National Market System. The quotations represent            First Quarter        8 3/4      6 1/2
inter-dealer quotations, without retail markups, markdowns or             Second Quarter      12 7/8          7
commissions, and may not necessarily represent actual transactions.       Third Quarter     11 11/16          8
                                                                          Fourth Quarter      15 5/8      8 1/8
</TABLE>

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,  1997,  there  were  approximately  1,470  holders of record of the
Company's Common Stock.

Nasdaq Trading Volume

Fiscal 1997  -  13,475,504 shares  /  Fiscal 1996  - 6,327,091 shares

Nasdaq Market Makers

Montgomery  Securities Inc . o Mayer & Schweitzer  Inc. o Troster Singer Corp. o
John G. Kinnard & Co., Inc. o Oppenheimer & Co o Sherwood Securities Corp.