SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 1999
                                       or
                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the transition period from _______ to _______

                           Commission File No. 1-8037

                              Aeroflex Incorporated
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

35 South Service Road, Plainview, New York                         11803
------------------------------------------                  --------------------
 (Address of Principal Executive Offices)                        (Zip Code)

Registrant's telephone number, including area code:           (516) 694-6700
                                                            --------------------

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

                                   Name of Each Exchange on
          Title of Class               Which Registered
          --------------           ------------------------
     Common Stock, $.10 par value            New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:         None
                                                            --------------------
                                                              (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
   Yes   X     No
        ---        ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].

State the aggregate market value of the voting stock held by  non-affiliates  of
the  registrant.  (The aggregate  market value shall be computed by reference to
the price at which the stock was sold,  or the average  bid and asked  prices of
such stock,  as of a specified date within 60 days prior to the date of filing).
As of September 9, 1999 approximately $301,892,000.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable  date  (applicable only to corporate
registrants).  Common  Stock,  par  value  $.10  per  share;  outstanding  as of
September 9, 1999 - 18,582,387 (excluding 43,345 shares held in treasury).

Documents  incorporated by reference:  Part III - Registrant's  definitive proxy
statement to be filed pursuant to Regulation 14A of the Securities Act of 1934.
<PAGE>
ITEM ONE - BUSINESS

Overview

We  produce   state-of-the-art   microelectronic  module,   integrated  circuit,
interconnect and testing  solutions using our advanced  design,  engineering and
manufacturing abilities. Our products are used in the following markets:

          .          satellite
          .          wireless and wireline communications
          .          cable television
          .          defense communications

As a result  of our  purchase  of MIC  Technology  in 1996 and the  interconnect
assets of Lucent  Technologies  Inc.  in 1997,  we  believe  we are the  largest
merchant  supplier  of thin  film  interconnect  products.  We also  design  and
manufacture  motion control systems,  and shock and vibration  isolation systems
used for commercial,  industrial and defense  applications.  Our major customers
include Lucent  Technologies,  Motorola,  Inc., Hughes Space and  Communications
Corporation,  Lockheed Martin Corporation, Raytheon Company and Northrop Grumman
Corporation.

Our operations are grouped into three segments:

           .         Microelectronics
           .         Test, Measurement and Other Electronics
           .         Isolator Products

These segments, their products and the markets they serve are described below.

Microelectronics

Silicon Integrated Circuits

In February 1999, we acquired UTMC Microelectronic  Systems, Inc. which designs,
develops,   manufactures   and   sells   semicustom,   military   standard   and
radiation-tolerant integrated circuits to aerospace and defense markets.

UTMC  Microelectronic  Systems is a fab-independent  supplier.  This means that,
through UTMC, we design and develop the integrated  circuit and have third-party
foundries   fabricate  the  silicon   wafers  using  their   processes  and  our
enhancements,  which are  proprietary.  We then test the chip and  complete  the
final assembly prior to shipment to our customers. Our traditional customers now
benefit from the increased technology and manufacturing  capabilities offered by
UTMC's multiple foundry partners.
<PAGE>
STANDARD PRODUCTS

We supply a broad range of standard products for avionics and space applications
including  microcontrollers,   logic,  programmable  logic,  memory  and  serial
communication  interfaces for  MIL-STD-1553 and 1773. Many devices are available
to a Standard  Microcircuit  Drawing  procurement,  which greatly simplifies the
procurement and allows UTMC to deliver  product off- the-shelf,  eliminating the
costly paperwork of source control drawings.

UTMC is a world leader in supplying  radiation-tolerant  integrated circuits for
space applications. UTMC supplies a complete line of standard products such as:

           .         databus
           .         transceivers
           .         memories
           .         microcontrollers
           .         logic
           .         board products

UTMC's new Embedded  Controller  Card provides the satellite  system  integrator
with a  commercial-off-the-shelf  solution that is radiation-tolerant  for space
and offers  highly  reliable  subsystem  interface  and  control  functionality.
Targeted for spaceborne applications,  UTMC's new LVDS (Low Voltage Differential
Signal)  transmitter and receiver  products will address an increasing demand to
move data quickly between points within a satellite.  Moving large quantities of
data requires an extremely  high  performance  solution that consumes low power,
generates little  electrical noise and is relatively  immune to such noise. LVDS
products from UTMC will provide high  performance,  low power, low noise and low
cost solutions to interface  problems commonly found in satellite launch vehicle
applications.  Also new,  the  UT82CRH51A  USART is  designed  to  provide  data
communication  between  subsystems.  UTMC recently  announced two low-cost 4Mbit
SRAMs which are ideal for space applications.

Satellites  such  as  the  Cassini,   Clementine,  EOS,  GPS,  Hubble,  Iridium,
Globalstar,  Mars Observer,  NEAR, Polar Observer,  Pathfinder and Space Station
all use UTMC radiation- hardened standard product.

SEMICUSTOM PRODUCTS

UTMC now offers  several  technologies  to meet a variety of ASIC needs.  UTMC's
newest ASIC  family,  the UT0.18 CRH,  is built in a  commercial  fab using UTMC
RadHard techniques with total dose hardness up to 300Krads.  The UT0.18 CRH ASIC
Family  offers up to 5,000,000  usable gates using gate array or standard  cell.
The UT0.18 CRH ASIC Family is available  in multiple  product  assurance  levels
including QML Q and V, military, industrial and customer specific. The UT0.6 CRH
Gate Array Family is built in a commercial fab using advanced Commercial RadHard
CMOS technology with usable gates up to 600,000 and 300Krad total dose hardness.
For  non-radiation  environments,  UTMC  offers  the UT0.18 and UT0.6 Gate Array
Family that is available in multiple  product  assurance  levels  including QML,
military, industrial and customer specific.

UTMC  ASICs  are  used  in  various  space  applications  such  as the  Cassini,
Pathfinder, GPS and International Space Station.
<PAGE>
Telecommunication Products

UTMC has developed a Content Addressable Memory (CAM) Engine, the UTCAM-Engine ,
which  is  beneficial  for  network  and  internet  address  processing,   image
processing,  pattern recognition,  artificial  intelligence learning systems and
database applications.  The UTCAM- Engine is based on 0.35 m technology, runs at
100 MHz and  delivers  association  matches in as little as 70ns when using fast
SRAM.

CIRCUIT CARD ASSEMBLY (CCA) CAPABILITY

The UTMC Circuit Card Assembly  capability  consists of full assembly,  test and
coat in a high mix/low to medium  volume  operation.  UTMC's  processes and test
capabilities  provide  for state-  of-the-art  manufacturing.  UTMC's  SpaceCard
combines  best  commercial  practices of the circuit card  assembly  with UTMC's
radiation-hardened   integrated  circuits  to  provide  CCA  solutions  for  the
commercial  space  industry.  UTMC's  CCA  operation  also  assembles  the UT131
Embedded  Controller  Card, a UTMC Standard Product Card. The UT131 ECC is ideal
for space applications.
<PAGE>
<TABLE>
<CAPTION>

           Products                              Applications
           --------                              ------------
<S>                                               <C>
Standard Products                                 Commercial and Military Satellites
MIL-STD-1553 Transceivers                         Avionics
MIL-STD-1553 Protocol Devices                     Missiles
MIL-STD-1773 Transceivers
MIL-STD-1773 Protocol Devices
Memory Modules
Microcontrollers
Logic Devices
Board Products (Circuit Card
Assembly)


Semi-custom Products                              Satellites
Application Specific Integrated                   Avionics
  Circuits
   -  Radiation tolerance up to
       300 kilorads
   -  Up to 5 million gates


Telecommunications Products                       Networks
Content Addressable Memory                        Internet Infrastructure
</TABLE>

Thin Film Circuits and Interconnects

We  design,  develop,  manufacture  and sell  passive  thin  film  circuits  and
interconnects.  Our advanced  microcircuit and interconnect  technology is a key
technology for electronic products which are
           .        small
           .        high frequency and
           .        high performance

These  products are used in rapidly  growing  markets such as  cellular/PCS  and
microwave data links. It continues to be an essential technology in

           .        fiber  optic  communications  interconnect
           .        CATV  amplifiers
           .        satellite based communication hardware
           .        leading edge military electronic products
<PAGE>
Thin  film  products  allow  dramatic  reductions  in the  size  and  weight  of
electronic  circuits and provide  superior  electrical and thermal  performance.
Growth in the use of thin film technology is expected to complement the advances
in  semiconductor  speed which have occurred in recent years.  Thin film removes
limitations  imposed  by other  interconnect  technologies  for high  clock rate
digital  circuits.  In the digital,  analog radio  frequency,  or RF,  microwave
domains,  thin film allows the  production  of hybrid  integrated  circuits with
lumped  elements at lower cost than full silicon or gallium  arsenide,  or GaAs,
integration while retaining outstanding performance.
<TABLE>
<CAPTION>
            PRODUCTS                                APPLICATIONS
            --------                                ------------
<S>                                          <C>
Simple Interconnect                          Avionics
                                             CATV circuitry
                                             Mobile radio power amplifiers
                                             Optical data transceivers
                                             Satellite communications systems
                                             Telephone switching systems

Advanced Interconnect                        Fiber optic products
                                             Hybrid microelectronics modules
                                             Missile systems
                                             Radar T/R modules
                                             Wireless handsets

High Density Digital                         High speed processor modules
                                             Interconnect
                                             instruments
                                             Test equipment modules

Mixed-Signal Interconnect                    Missile systems
                                             Radar T/R systems
                                             Satellite avionics
</TABLE>
In its most basic form,  simple  interconnect  incorporates (1) conductors,  (2)
resistors,  (3) plated vias and (4) selective  high  conductivity  traces.  This
results  in  high-volume,  low-cost,  DC, RF and  microwave  products.  Advanced
interconnect  incorporates  all passive elements in solid-state  form.  Advanced
interconnect   incorporates  (1)  microstrip  conductors,   (2)  resistors,  (3)
inductors,  (4)  capacitors,  (5)  air-bridges  and (6) filled thermal vias on a
single substrate.  High-density digital interconnect  substrates offer single or
double-sided,  controlled  impedance  signal routing to address  digital circuit
requirements. These substrates also offer integrated resistors and solid thermal
vias, if required,  for improved  performance.  We have incorporated features of
advanced  interconnect and high-density  digital interconnect in a single design
and created  PIMIC-Mixed  Signal  Interconnect  to address the  expanding use of
mixed  technologies.   Our  unique  PIMIC  process  allows  analog  and  digital
capabilities  to be integrated for use in  leading-edge  miniaturized  military,
satellite and commercial electronics.
<PAGE>
Microelectronic Modules

Multichip  Modules,  or MCMs, are a further  advancement of hybrid  microcircuit
technology.  MCMs perform  functions  similar to hybrids,  except MCMs emphasize
miniaturizing and synthesizing digital functions such as microprocessor  systems
and mass memories.

<TABLE>
<CAPTION>
           PRODUCTS                              APPLICATIONS
           --------                              ------------
<S>                                          <C>
Satellite                                    Commercial and
Power Hybrids                                   military satellites
Multiplexers
Quad Drivers

Multichip Modules                            Military avionics
RISC Microprocessor Family                   Military computer
Flash and SRAM                               Missile systems
Memory Modules

Data-bus                                     Boeing 777
ARINC 629                                    Military avionics
MIL-STD-1553 Transceivers                    Missiles
MIL-STD-1553 Protocol Devices                VME boards

Application Specific Modules                 Military avionics
Video Encoders
Quadrant Receivers
64 Channel Multiplexers
</TABLE>
Test, Measurement and Other Electronics

Instrumentation

Our  instrumentation  division  includes  frequency  synthesizers and high speed
automatic test systems.  Our synthesizers  operate in a broad frequency range of
10MHz to 40GHz with excellent  spectral  purity.  We manufacture  fast switching
frequency synthesizers, signal generators and components using our leading radio
frequency  and  microwave  technology.  We supply the fast  switching  frequency
synthesizers,  spread spectrum  modulators and arbitrary waveform generators for
CASS. CASS is the United States Navy's next generation automated test equipment.
Our synthesizers also  significantly  improve the performance and reliability of
existing radars. They also improve the performance of threat simulators, as well
as radar cross  section and antenna  measurement  systems.  The newly  developed
FS-1000  synthesizer  is used in  Automatic  Test  Systems  (ATE) by leading ATE
manufacturers  to allow for high-speed  verification and testing of wireless and
network communications mixed signal integrated circuits.

We are a leading  provider  of  high-speed  instrumentation  radar  systems  and
antenna measurement systems.  Instrumentation  radar systems are used to measure
the radar cross  sections of aircraft and other  objects using both scale models
and actual examples. In addition to the radar system hardware, we have developed
various analytical processing and display algorithms to help interpret the radar
data.  Using  expertise  gained  in  high-speed  data  acquisition  and  display
techniques  used  in   instrumentation   radar  products,   we  produce  antenna
measurement  systems used in the design,  manufacturing and testing of all types
of antennas.
<PAGE>
Our Satellite Test Instrumentation  system the STI-1000 is used for verification
and testing of satellite payload electronics.  This  instrumentation  allows for
fast, precise data collection, presentation and storage.

We also product test  equipment  for  measuring  and  evaluating  the quality of
communication  signals.  Our instruments  measure phase noise, timing jitter and
other  noise  and   distortion   induced   parameters   for  almost  the  entire
communications spectrum.

In September  1998,  we acquired  Europtest,  a European  company that  designs,
develops,  manufactures  and sells test equipment  primarily for phase noise and
related  measurements.  Phase noise is a corrupting  fluctuation inherent in all
signals and is often a limiting factor in the quality of communication  signals.
The ability to measure and control phase noise is an essential  means to enhance
capacity and quality of communications systems.

We  produce  test   equipment  for  measuring  and  evaluating  the  quality  of
communication  signals.  Our instruments  measure phase noise, timing jitter and
other  noise  and   distortion   induced   parameters   for  almost  the  entire
communications spectrum.

Motion Control Systems

Motion control  systems  includes three  divisions:  stabilization  and tracking
devices,  magnetic motors and scanning devices.  We design,  develop and produce
stabilization  tracking  devices and systems.  These  products play an important
role in high altitude aircraft,  as well as in other aircraft,  ships and ground
vehicles which require precise, highly stable mounting for cameras, antennae and
lasers.  Magnetic motors are utilized in our  stabilization and tracking systems
and in other  applications  where  precise  movement  is  required,  such as for
positioning  antennae,  optical systems,  mechanical  vanes and valves.  We make
electro-optical  scanning devices that are low cost, lightweight thermal imaging
devices  that  detect  targets  based on thermal  radiation  contrasts  with the
background.  These sights are intended for use on standard  issue United  States
Army assault rifles and crew served weapons.

Isolator Products

We design, develop,  manufacture and sell shock and vibration isolation systems.
Some of these  devices are  helically-wound  steel wire rope  contained  between
rugged metal  retainer bars,  which are primarily used in defense  applications.
They are also off-the-shelf rubber and spring shock, vibration and noise control
devices, which are used in commercial and industrial applications. Purchasers of
isolators  are  manufacturers  or  users of  equipment  sensitive  to shock  and
vibration who need to reduce shock/vibration to levels compatible with equipment
fragility  to extend  the useful  life of their  equipment.  There are  multiple
markets for isolation systems including commercial, industrial and defense.

Customers

We   have   hundreds   of   customers   in   the   communications,    satellite,
aerospace/defense,   transportation  and  construction  industries.  Except  for
Lockheed Martin (12.2%) and Lucent  Technologies  (11.4%) in fiscal 1999, Lucent
Technologies  (15.5%),  in fiscal 1998,  and Lockheed  Martin (13.3%) and Hughes
(11.7%),  in fiscal 1997, no one customer accounted for more than 10% of our net
sales. We are currently a party to three key strategic agreements:
<PAGE>
   . In July 1997, MIC entered into a strategic  agreement  under which MIC will
     supply Lucent  Technologies with film integrated circuits which are used in
     communications applications. The agreement expires December 31, 2000 and is
     subject to annual renewal  options.  In addition,  MIC purchased  automatic
     manufacturing  and test  equipment,  inventory  and  licenses  for advanced
     technologies  from two of  Lucent's  microelectronic  component  operations
     which  significantly  increased our manufacturing  capacity to produce film
     integrated circuits and MCMs.

   . In February  1997,  we entered into an  outsourcing  agreement  with the RF
     Semiconductor Division of Motorola under which we will supply virtually all
     of Motorola's  thin film  interconnects  for its RF  semiconductor  product
     lines,  supporting  component  applications in CATV,  cellular/PCS and land
     mobile  communications.  This agreement was renewed in February 1999 and is
     subject to annual renewal options.

   . In July 1996, we entered into a multi-year  volume purchase  agreement with
     Hughes  Electronics  to  supply  microelectronic  modules  for  use on both
     commercial and military satellites, and missile systems.

Marketing and Distribution

We use a team-based  sales  approach to assist our  personnel to closely  manage
relationships  at  multiple  levels of the  customer's  organization,  including
management,  engineering and purchasing personnel. Our integrated sales approach
involves  a team  consisting  of a  senior  executive,  a  business  development
specialist  and members of our  engineering  department.  Our use of experienced
engineering  personnel  as part of the  sales  effort  enables  close  technical
collaboration  with our customers during the design and  qualification  phase of
new  communications   equipment.  We  believe  that  this  is  critical  to  the
integration of our product into our customers' equipment. Our executive officers
are also involved in all aspects of our  relationships  with our major customers
and work  closely  with  their  senior  management.  We also use  manufacturers'
representatives and independent sales representatives as needed.

Research and Development

Our research and development efforts primarily involve:

           .  engineering   and  design  relating  to  developing  new  products
           .  improving   existing   products
           .  adapting  such  products  to  new applications
           .  developing  prototype  components to bid on specific programs

Several of our officers and almost all of our  engineers  have been  involved in
research  and  development  at  various  times and to varying  degrees.  Certain
product   development  and  similar  costs  are  recoverable  under  contractual
arrangements  and  those  that  are not  recoverable  are  expensed  in the year
incurred.  The costs of our self-funded  research  activities were approximately
$9.6 million for fiscal 1999,  $5.2 million for fiscal 1998 and $3.3 million for
fiscal 1997. The increases are primarily  attributable  to our  development of a
low-cost,  high speed,  high  performance  frequency  synthesizer  intended  for
commercial  communication  test systems and for fiscal 1999, the addition of the
expenses  of  UTMC  Microelectronic   Systems.   Also  in  connection  with  our
acquisition of UTMC  Microelectronic Systems in February 1999, we allocated $3.5
<PAGE>
million of the purchase price to incomplete  research and development  projects.
Since the  research  and  development  projects  had not  reached  technological
feasibility,  $3.5  million was charged to expense in fiscal 1999 in addition to
the $9.6 million, in accordance with generally accepted accounting principles.

We are currently focusing our research and development on:

   . developing a 4 million bit Static  Random  Access  Memory  (SRAM) chip that
     will  operate  in  radiation  environments  in space  for use in  satellite
     communication systems such as GPS, Astrolink, Teledesic and Ellipso.

   . developing  capabilities  for  customers to design  custom chips of up to 5
     million logic gates for use in satellite communication systems such as GPS,
     Astrolink, Teledesic and Ellipso.

   . developing  a  proprietary   crosspoint  switch  for  broadband   satellite
     communications  networks.  Our activity will focus on  enhancements  to the
     prototype  architecture   developed  in  late  fiscal  1999,   specifically
     developing a scaled-up version.  MIC's  MESFET-based  switch is designed to
     provide broadband,  high speed, high isolation switching with extremely low
     power consumption,  scalability and meeting the environmental  requirements
     of space deployment.

   . developing passive array component  technology including R/L/C networks and
     filters with our proprietary  integrated  passive  technology.  Preliminary
     networks are scheduled to be demonstrated by the beginning of calendar 2000
     using a newly  enhanced  process.  Development  of in-house ball grid array
     (BGA)  technology  will  continue  with  goals  of lower  cost  and  higher
     manufacturing throughput.

Backlog

We include in backlog firm purchase  orders or contracts  providing for delivery
of products and services.  At June 30, 1999, our order backlog was approximately
$93.8  million,  approximately  85% of which was scheduled to be delivered on or
before June 30, 2000.  Approximately 58% of this backlog  represents  commercial
contracts and approximately 42% of this backlog  represents  defense  contracts.
Generally,  government  contracts are  cancelable  with payment to us of amounts
which we have spent under the contract  together  with a reasonable  profit,  if
any, while commercial contracts are not cancelable.

At June 30,  1998,  our  backlog  of orders  was  approximately  $80.1  million.
Approximately   85%  was  scheduled  to  be  delivered  before  June  30,  1999.
Approximately  42% of this backlog  represented  orders for military or national
defense purposes.

Competition

In all phases of our operations,  we compete in both  performance and price with
companies,  some of which are  considerably  larger,  more  diversified and have
greater  financial  resources  and  sales  than  we do.  In the  manufacture  of
microelectronics,  we believe our primary competitors are NTK, Texas Instruments
and ILC/Data Devices Corp. In the manufacture of instrument products, we believe
our primary  competitors  are Hewlett  Packard and  Scientific  Atlanta.  In the
manufacture of motion control products,  we believe our primary  competitors are
MPC Products Corp. and Schaeffer Magnetics Inc. In the manufacture of isolators,
we believe our primary competitors are Barry Controls, Inc., Lord Kinematics and
Mason Industries.  We also experience significant  competition from the in-house
capabilities of our current and potential  customers.  We believe that in all of
our operations we compete favorably in the principal competitive areas of:
<PAGE>
           .   technology
           .   performance
           .   reliability
           .   quality
           .   customer service
           .   price

We believe  that to remain  competitive  in the  future,  we will need to invest
significant financial resources in research and development.

To the  extent  that we are  engaged in  government  contracts,  our  success or
failure, to a large measure,  is based upon our ability to compete  successfully
for  contracts  and  to  complete  them  at a  profit.  Government  business  is
necessarily  affected  by  many  factors  such  as  variations  in the  military
requirements of the government and defense budget allocations.

Government Sales

Approximately  41% of our sales for fiscal  1999 and 42% of our sales for fiscal
1998 were to  agencies  of the  United  States  Government  or to prime  defense
contractors  or  subcontractors  of the United  States  Government.  Our overall
dependence  on the military has been  declining due to our  acquisition  of MIC,
which  is more  commercially  oriented,  and a  focusing  of  resources  towards
developing standard products for the commercial  markets.  Our defense contracts
have been awarded either on a bid basis or after negotiation.  The contracts are
primarily fixed price contracts, though we also have defense contracts providing
for cost plus fixed fee. Our defense contracts contain customary  provisions for
termination at the convenience of the government  without cause. In the event of
such termination,  we are entitled to reimbursement for our costs and to receive
a reasonable profit, if any, on the work done prior to termination. Revenues and
costs on government contracts are recognized based upon shipments or billings.

In certain  product  areas,  we have suffered  reductions in sales volume due to
cutbacks in the military  budget.  In other product areas,  we have  experienced
increased  sales volume due to a  realignment  of  government  spending  towards
upgrading  existing  systems instead of purchasing  completely new systems.  The
overall effect of the cutbacks and realignment has not been material to us.

Manufacturing

We assemble,  test,  package and ship products at our  manufacturing  facilities
located in:

    .  Colorado Springs, Colorado,
    .  Boca Raton, Florida,
    .  Bloomingdale, New Jersey,
    .  Farmingdale,  New York,
    .  Pearl River, New York,
    .  Plainview, New York,
    .  Powell, Ohio and
    .  Richardson, Texas.
<PAGE>
We have been  manufacturing  products  for  defense  programs  for many years in
compliance with stringent military  specifications.  Our microelectronic  module
manufacturing is certified to the status of Class "K," which means qualified for
space.  We believe we have brought to the  commercial  market the  manufacturing
quality and discipline we have demonstrated in the defense market.  For example,
our Plainview and Farmingdale  manufacturing plants are ISO- 9001 certified,  as
well as certified to the more stringent  Boeing D1-9000  standard,  our Colorado
Springs  plant is  ISO-9000  certified  and all  three of these  plants  are QML
(Qualified Manufacturers List) suppliers at various levels.

Historically,  our volume production requirements for the defense market did not
justify  our  widespread   implementation  of  highly  automated   manufacturing
processes.  Over the last several years, we have expanded our use of high volume
manufacturing techniques for product assembly and testing. In 1997, we purchased
film integrated  circuit automatic  manufacturing and test equipment from Lucent
Technologies  and we expanded  our Pearl  River  facility  to  accommodate  this
equipment. We believe the Pearl River facility and UTMC's facilities in Colorado
Springs have the capacity required to handle  additional  future  outsourcing by
captive suppliers of thin film  communications  products and integrated circuits
and the growing demand for such products.

The principal materials we use to manufacture and assemble our products are:

           .   ceramic,
           .   magnetic materials,
           .   gold,
           .   steel,
           .   aluminum,
           .   rubber,
           .   iron and
           .   copper.

Many  of  the  component  parts  we  use in our  products  are  also  purchased,
including:

           .   semiconductors,
           .   transformers,
           .   amplifiers and
           .   bearings.

Although  we have  several  sole  source  arrangements,  all the  materials  and
components we use,  including  those  purchased from a sole source,  are readily
available and are or can be purchased  from time to time in the open market.  We
have no long-term commitments for their purchase. No supplier provides more than
10% of our raw materials.

Patents and Trademarks

We own several patents, patent licenses and trademarks.  In order to protect our
intellectual  property  rights,  we  rely  on a  combination  of  trade  secret,
copyright,  patent and trademark laws and employee and third-party nondisclosure
agreements.  We  also  limit  access  to and  distribution  of  our  proprietary
information.  While we believe that in the aggregate our patents and  trademarks
are important in to our  operations,  we do not believe that one or any group of
them is so important that its termination could materially affect us.
<PAGE>
Employees

As of June 30,  1999,  we had 1,100  employees,  of whom 550 were  employed in a
manufacturing   capacity,   and  550  were  employed  in   engineering,   sales,
administrative  or clerical  positions.  231 of our employees are covered by two
collective  bargaining  agreements.  We believe that our employee  relations are
satisfactory.

Regulation

Our operations are subject to various environmental,  health and employee safety
laws.  We have  spent  money  and  management  has  spent  time  complying  with
environmental,  health and worker safety laws which apply to our  operations and
facilities and we expect that we will continue to do so. Our principal  products
or  services  do  not  require  any  governmental   approval.   Compliance  with
environmental  laws  has  not  historically   materially  affected  our  capital
expenditures, earnings or competitive position. We do not expect compliance with
environmental laws to have a material effect on us in the future.

Because we  participate  in the defense  industry,  we are subject to audit from
time to time for our compliance with government regulations by various agencies,
including (1) the Defense Contract Audit Agency,  (2) the Defense  Investigative
Service  and (3) the  Defense  Logistics  Agency.  These and other  governmental
agencies  may  also,  from time to time,  conduct  inquiries  or  investigations
regarding a broad range of our activities.  Responding to any audits,  inquiries
or  investigations  may  involve   significant  expense  and  divert  management
attention. Also, an adverse finding in any audit, inquiry or investigation could
involve  penalties  that may have a  material  adverse  effect on our  business,
results of operation or financial condition.

We believe that we generally  comply with all applicable  environmental,  health
and worker safety laws and  governmental  regulations.  Nevertheless,  we cannot
guarantee that in the future we will not incur  additional  costs for compliance
or that those costs will not be material.

Financial Information About Industry Segments

The sales and operating  profits of each industry  segment and the  identifiable
assets  attributable to each industry segment for each of the three years in the
period  ended  June 30,  1999 are set forth in Note 14 of Notes to  Consolidated
Financial Statements.

ITEM TWO - PROPERTIES
           ----------
Our executive offices and the manufacturing  facilities of Aeroflex Laboratories
Incorporated,  one of our subsidiaries, are an aggregate of approximately 69,000
square feet and are located in premises which we own in Plainview,  Long Island,
New York.
<PAGE>
Aeroflex  Laboratories  Incorporated  also leases  manufacturing  facilities  in
Farmingdale,  Long Island, New York of approximately 20,000 square feet and Boca
Raton,  Florida of approximately  11,000 square feet. The annual rental of these
properties  is  approximately  $120,000  for  Farmingdale  and $157,000 for Boca
Raton.

Our subsidiary,  MIC Technology Corporation,  owns its manufacturing facility in
Pearl River, New York consisting of approximately 63,000 square feet. MIC leases
a  manufacturing  facility of  approximately  29,000 square feet in  Richardson,
Texas with an annual rent of approximately $180,000.

Our subsidiary,  Vibration Mountings and Controls,  Inc., conducts manufacturing
operations at a plant located in Bloomingdale,  New Jersey.  The plant, which we
own, is approximately 72,000 square feet.

Our subsidiary, Aeroflex Lintek Corp., occupies approximately 20,000 square feet
of space in Powell, Ohio, with an annual rental of approximately $214,000.

Our subsidiary,  UTMC  Microelectronic  Systems,  Inc.,  conducts  manufacturing
operations at a plant located in Colorado Springs, Colorado. The plant, which we
own, is approximately 102,000 square feet.

We believe  that our  facilities  are  adequate  for our current  and  presently
foreseeable needs.

Legal Proceedings

Our former subsidiary  Filtron Co. Inc.,was one of several defendants named in a
personal  injury action  initiated in 1994 by several  plaintiffs in the Supreme
Court of the State of New  York,  County of  Kings.  Filtron's  operations  were
discontinued in October 1991.

The  plaintiffs  in the action are current or former  employees  of a company to
whom Filtron sold RFI  filters/capacitors.  According to the  allegations of the
amended verified  complaint,  the plaintiffs and their dependents are seeking to
recover,  respectively,  directly  and  derivatively,  on  diverse  theories  of
negligence,  strict  liability  and breach of warranty,  for injuries  allegedly
suffered  from  exposure  to  a  liquid  substance  or  material  which  Filtron
incorporated  for a  period  of  time  in the RFI  filters/capacitors  which  it
manufactured.  The plaintiffs are seeking damages which  cumulatively may exceed
$500 million. This action is in the discovery stage. We intend to defend against
this action  vigorously.  We believe that,  considering our various defenses and
that we have product  liability  insurance,  the outcome of this action will not
have a material  adverse effect on us, however we cannot  guarantee that will be
the case.

We are involved in various other routine legal  matters.  We believe the outcome
of these matters will not have a material adverse effect on us.

ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            ---------------------------------------------------
Not applicable.
<PAGE>
                                     PART II
                                     -------
ITEM FIVE - MARKET FOR THE COMPANY'S COMMON EQUITY
            AND RELATED STOCKHOLDER MATTERS
            --------------------------------------
(a) Our common stock trades on the New York Stock Exchange under the symbol ARX.
The following table shows the quarterly range of the high and low closing prices
for the common stock, as reported by the National Quotation Bureau Incorporated,
for the calendar periods indicated.
<TABLE>
<CAPTION>
                                                 Common Stock
                                                ---------------
                                                High        Low
                                                ----        ---



<S>                                            <C>        <C>
1997
----
First Quarter................................  $ 4.88     $ 3.50
Second Quarter...............................    5.13       3.25
Third Quarter................................   11.25       4.44
Fourth Quarter...............................   12.06       7.13

1998
----
First Quarter................................   14.63       7.88
Second Quarter...............................   14.31       8.50
Third Quarter................................   11.56       6.69
Fourth Quarter...............................   15.13       7.50

1999
----
First Quarter................................   18.38      12.06
Second Quarter...............................   19.75      13.00
Third Quarter  (through September 9, 1999)...   21.56      15.94
</TABLE>


(b) As of September 9, 1999, there were  approximately 950 record holders of our
common stock.

(c) We have never declared or paid any cash dividends on our common stock. There
have been no stock  dividends  declared or paid on our common  stock  during the
past three years.  We currently  intend to retain any future earnings for use in
the  operation  and  development  of our  business  and  for  acquisitions  and,
therefore,  do not  intend to declare  or pay any cash  dividends  on our common
stock in the foreseeable  future. In addition,  our revolving credit,  term loan
and mortgage agreement, as amended, prohibits us from paying cash dividends.
<PAGE>

ITEM SIX - SELECTED FINANCIAL DATA
           -----------------------
(In thousands, except percentages, footnotes and per share data)
<TABLE>
<CAPTION>

                                                        Year ended June 30,
                                  -----------------------------------------------------------------
                                    1999         1998         1997         1996         1995
                                  -----------------------------------------------------------------
<S>                               <C>          <C>          <C>          <C>          <C>
Earnings Statement Data
-----------------------
  Net Sales...................... $157,104     $118,861     $ 94,299     $ 74,367     $ 71,113
  Income (Loss) from
    Continuing Operations........    9,757(1)     8,406        4,420      (17,420)(2)(3) 6,587(5)(6)
  Income from
    Discontinued Operations......     -            -            -            -             462
  Net Income (Loss)..............    9,757        8,406        4,420      (17,420)       7,049
  Income (Loss) from Continuing
    Operations Per Common Share
    and Common Share Equivalent
      Basic...................... $   .55(1)   $  .57       $  .36       $(1.46)(2)(3)$  .56(5)(6)
      Diluted....................     .51(1)      .51          .34              (4)      .52(5)(6)
  Net Income (Loss) Per Common
    Share and Common Share
    Equivalent
      Basic......................     .55         .57          .36        (1.46)         .60
      Diluted....................     .51         .51          .34              (4)      .56
  Weighted Average Number of
    Common Shares and Common
    Share Equivalents Outstanding
      Basic......................   17,784       14,802       12,446       11,971       11,733
      Diluted....................   19,128       16,527       14,620            (4)     14,052

                                                               June 30,
                                  -----------------------------------------------------------------
                                    1999         1998         1997         1996         1995
                                  -----------------------------------------------------------------
Balance Sheet Data
------------------
  Working Capital................ $ 50,366     $ 53,965     $ 25,872     $ 25,300     $ 31,721
  Total Assets...................  165,216      124,101       81,047       81,169       71,936
  Long-term Debt
    (including current portion)..   31,117       11,481       28,916       34,577       13,787
  Stockholders' Equity...........  102,093       87,036       35,040       30,472       46,344
Other Statistics
  After Tax Profit Margin (Loss)
    (from continuing operations)..   6.2%(1)      7.1%         4.7%        (23.4)%(2)(3)  9.3%(5)(6)
  Return on Average Stockholders'
    Equity (from continuing
    operations)..................   10.3%(1)     13.8%        13.5%        (45.4)%(2)(3) 15.3%(5)(6)
  Stockholders' Equity
    Per Share (7)                 $  5.54      $  5.01      $  2.81      $  2.49       $  3.95
</TABLE>
(1)  Includes  $3.5  million  ($.18 per  diluted  share and $.20  basic) for the
     write-off of  in-process  research and  development  acquired in connection
     with the purchase of UTMC Microelectronic Systems, Inc. in February 1999.
(2)  Includes  $23.2  million  ($1.94 per share) for the write-off of in-process
     research and  development  acquired in connection  with the purchase of MIC
     Technology Corporation in March 1996.
(3)  Includes  a  $437,000,  net of tax,  gain  ($.04 per  share) on the sale of
     securities.
(4)  As a result of the loss, all options,  warrants and convertible  debentures
     are anti-dilutive.
(5)  Includes  $2.0 million ($.14 per diluted share and $.17 basic) of insurance
     proceeds received on the death of the former chairman.
(6)  Includes a $1.5 million, net of tax, restructuring charge ($.11 per diluted
     share and $.13 basic) for the  consolidation  of the Company's Puerto Rican
     operations into its domestic facilities.
(7)  Calculated by dividing stockholders' equity, at the end of the year, by the
     number of shares outstanding at the end of the year.
<PAGE>
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
             FINANCIAL CONDITION AND RESULTS OF OPERATIONS
             ---------------------------------------------
Overview

We use our advanced design,  engineering and manufacturing  abilities to produce
state-of-the-art  microelectronic module,  integrated circuit,  interconnect and
testing  solutions.  Our  products  are used in  satellite,  wireless,  wireline
(including fiber optic),  cable television  ("CATV") and defense  communications
markets.  We also design and  manufacture  motion control  systems and shock and
vibration  isolation  systems  which  are used for  commercial,  industrial  and
defense applications. Our operations are grouped into three segments:

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

Our  consolidated   financial   statements  include  the  accounts  of  Aeroflex
Incorporated  and  all  of  our  subsidiaries.   All  of  our  subsidiaries  are
wholly-owned except for Europtest, S.A., of which we own 90%.

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

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

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

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

       .  Europtest,  which develops and sells specialized  software-driven test
          equipment   used   primarily   in   cellular,   satellite   and  other
          communications   applications.   We  acquired  90%  of  the  stock  of
          Europtest, S.A. (France) in September 1998.
<PAGE>
       .  Our  motion  control  products   division  has  been  engaged  in  the
          development and manufacture of  electro-optical  scanning devices used
          in infra-red  night vision  systems  since 1975.  Additionally,  it is
          engaged in the design,  development  and  production of  stabilization
          tracking  devices and systems and magnetic  motors used in  satellites
          and other high reliability applications.

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

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

Approximately 41% of our sales for fiscal 1999, 42% of our sales for fiscal 1998
and 50% of our sales for  fiscal  1997 were to  agencies  of the  United  States
Government  or to prime  defense  contractors  or  subcontractors  of the United
States Government. Our overall dependence on the military has been declining due
to the acquisition of MIC Technology, which is more commercially oriented, and a
focusing of resources  towards  developing  standard products for the commercial
markets.  Our  government  contracts  have been awarded either on a bid basis or
after negotiation. Our government contracts are primarily fixed price contracts,
although we also have or had government  contracts providing for cost plus fixed
fee. Our defense  contracts  have customary  provisions  for  termination at the
convenience of the government  without cause. In the event of such  termination,
we are  entitled  to  reimbursement  for our costs and to  receive a  reasonable
profit, if any, on the work done prior to termination.

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

Our  product  development  efforts  primarily  involve  engineering  and  design
relating to:

            .   developing new products
            .   improving existing products
            .   adapting existing products to new applications
            .   developing prototype components to bid on specific programs

Some of our development  efforts are reimbursed under contractual  arrangements.
Product  development and similar costs which we cannot recover under contractual
arrangements are expensed in the period incurred.

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No.  131,  "Disclosure  About  Segments  of an
Enterprise  and  Related  Information,"  which is  effective  for  fiscal  years
beginning  after  December 15, 1997.  This statement  establishes  standards for
reporting  information  about operating  segments and related  disclosures about
products and services,  geographic  areas and major  customers.  We have adopted
this standard effective July 1, 1998, as required.

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities,"  which is effective for fiscal years  beginning  after
June 15, 2000. This statement  requires  companies to record  derivatives on the
balance  sheet  as  assets  or  liabilities  at their  fair  value.  In  certain
circumstances  changes in the value of such  derivatives  may be  required to be
recorded as gains or losses.  We believe that the impact of this  statement will
not have a material effect on our consolidated financial statements.
<PAGE>
Statement of Operations

The following  table sets forth our net sales and  operating  income by business
segment for the periods  indicated.  Special  charge  represents  a $3.5 million
charge for the  write-off of  in-process  research and  development  acquired in
connection with the purchase of UTMC Microelectronic Systems in February 1999.

<TABLE>
<CAPTION>
                                   Years Ended June 30,
                            --------------------------------
                              1999         1998       1997
                              ----         ----       ----
                                     (In thousands)
<S>                         <C>          <C>         <C>
Net Sales:
  Microelectronics          $ 96,846     $ 74,263    $48,462
  Test, Measurement
    and Other Electronics     41,515       25,685     28,144
  Isolator Products           18,743       18,913     17,693
                            --------     --------    -------
    Net Sales               $157,104     $118,861    $94,299
                            ========     ========    =======
Operating Income:
  Microelectronics          $ 20,104     $ 14,147    $ 6,644
  Test, Measurement
    and Other Electronics      3,134          996      2,762
  Isolator Products            2,108        3,063      2,844
  General Corporate
    Expenses                  (4,262)      (3,348)    (2,514)
                            --------     --------    -------
                              21,084       14,858      9,736
  Special Charge              (3,500)        -          -
                            --------     --------    -------
    Operating Income        $ 17,584     $ 14,858    $ 9,736
                            ========     ========    =======
</TABLE>

The following table sets forth certain items from our statement of operations as
a percentage of net sales for the periods indicated. Special charge represents a
$3.5 million  charge for the  write-off of in-process  research and  development
acquired in  connection  with the  purchase of UTMC  Microelectronic  Systems in
February 1999.
<TABLE>
<CAPTION>
                                    Years Ended June 30,
                                 ---------------------------
                                  1999       1998       1997
                                  ----       ----       ----
<S>                              <C>        <C>        <C>

Net Sales                        100.0%     100.0%     100.0%

Cost of Sales                     62.8       65.0       66.9
                                 ------     ------     ------
Gross Profit                      37.2       35.0       33.1
                                 ------     ------     ------
Operating Expenses:
  Selling, General and
    Administrative Costs          17.7       18.1       19.3
  Research and Development Costs   6.1        4.4        3.5
  Special Charge                   2.2         -          -
                                 ------     ------     ------
      Total Operating Expenses    26.0       22.5       22.8
                                 ------     ------     ------
Operating Income                  11.2       12.5       10.3

Other Expense, Net                 0.4        1.4        3.0
                                 ------     ------     ------
Income Before Income Taxes        10.8       11.1        7.3
Provision For Income Taxes         4.6        4.0        2.6
                                 ------     ------     ------
Net Income                         6.2%       7.1%       4.7%
                                 ======     ======     ======
</TABLE>

<PAGE>
Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30, 1998

Net Sales.  Net sales  increased  32.2% to $157.1  million  in fiscal  1999 from
$118.9  million  in  fiscal  1998.  Net  sales in our  microelectronics  segment
increased  30.4% to $96.9  million in fiscal  1999 from $74.3  million in fiscal
1998  due to  increased  sales  volume  in  both  thin  film  interconnects  and
microelectronic  modules  and due to the  acquisition  of  UTMC  Microelectronic
Systems at the end of  February  1999.  Net sales in our test,  measurement  and
other  electronics  segment increased 61.6% to $41.5 million in fiscal 1999 from
$25.7  million in fiscal 1998  primarily  due to increased  sales volume in both
frequency synthesizers (including shipments under the new Navy CASS program) and
high speed automatic test systems  (primarily  satellite  payload test equipment
for Hughes Space and  Communications) and due to the acquisition of Europtest in
September  1998 offset in part by decreased  sales volume of  stabilization  and
tracking devices.  Net sales in our isolator products segment were $18.7 million
in fiscal 1999 and $18.9 million in fiscal 1998.

Gross  Profit.  Cost of sales  includes  materials,  direct  labor and  overhead
expenses such as engineering labor, fringe benefits,  allocable occupancy costs,
depreciation and manufacturing  supplies.  Gross profit increased 40.6% to $58.5
million in fiscal 1999 from $41.6 million in fiscal 1998. Gross margin increased
to 37.2% in fiscal 1999 from 35.0% in fiscal 1998.  This  increase was primarily
as a result of increased  margins in our  microelectronics  segment and Comstron
product line,  reflecting the greater  efficiency of higher volume, as well as a
favorable sales mix in our microelectronics segment.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  consist  of office  and  management  salaries,  fringe
benefits and commissions. Selling, general and administrative expenses increased
28.9% to $27.8  million  (17.7% of net sales) in fiscal 1999 from $21.5  million
(18.1% of net sales) in fiscal 1998.  The increase  was  primarily  due to labor
related expenses,  including  salaries for additional  personnel,  in connection
with  our  growth  and the  addition  of the  expenses  of UTMC  Microelectronic
Systems.

Research and  Development  Costs.  Research and  development  costs  consists of
material, engineering labor and allocated overhead. Our self-funded research and
development  costs increased 85.8% to $9.6 million (6.1% of net sales) in fiscal
1999 from $5.2  million  (4.4% of net sales) in fiscal 1998.  This  increase was
primarily  attributable to the addition of the expenses of UTMC  Microelectronic
Systems and the costs for continued development of a low-cost,  high speed, high
performance  frequency  synthesizer  intended for commercial  communication test
systems.

Acquired In-Process Research and Development. In connection with the acquisition
of UTMC Microelectronic Systems, we allocated $3.5 million of the purchase price
to incomplete research and development projects.  This allocation represents the
estimated  fair value based on future cash flows that have been  adjusted by the
projects'  completion  percentage.  At the acquisition  date, the development of
these projects had not yet reached  technological  feasibility  and the research
and  development in progress had no  alternative  future uses.  Accordingly,  we
expensed these costs as of the acquisition date.

We used an independent  third-party appraiser to assess and value the in-process
research and  development.  The value  assigned to this asset was  determined by
identifying  significant  research projects for which technological  feasibility
had not been  established.  In the case of UTMC  Microelectronic  Systems,  this
included the design,  development,  and testing  activities  associated with its
commercial  products,  data  bus  products,   radiation  hardened  products  and
application specific integrated circuits.  The research and development projects
are associated with the introduction of several new products as well as specific
significant enhancements to existing products.  Valuation of development efforts
in the future has been excluded from the research and development appraisal.

The nature of the efforts to develop the acquired  in-process  technology into a
commercially viable product relate to the completion of all planning, designing,
prototyping  and testing  activities  that are  necessary to establish  that the
proposed  technologies meet their design  specifications  including  functional,
technical and economic performance requirements.
<PAGE>
The  value  assigned  to  purchased  in-process  technology  was  determined  by
estimating the contribution of the purchased in-process technology in developing
a commercially viable product,  estimating the resulting net cash flows from the
expected sales of such a product,  and  discounting  the net cash flows to their
present value using an appropriate discount rate.

Revenue  growth rates for UTMC  Microelectronic  Systems  were  estimated by the
third party appraiser based on a detailed  forecast we prepared,  as well as the
appraiser's  discussions with our finance,  marketing and engineering  personnel
and  those  of  UTMC   Microelectronic   Systems.   Allocation   of  total  UTMC
Microelectronic   Systems'  projected   revenues  to  in-process   research  and
development was based on the appraiser's  discussions with UTMC  Microelectronic
Systems'  management  and us.  A  significant  portion  of UTMC  Microelectronic
Systems'  future  revenues was  expected to originate  from the sale of products
that  were not yet  completed  at  acquisition.  However,  UTMC  Microelectronic
Systems'  existing  products and  technologies  are  expected to generate  sales
through 2008.

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

The  projections   utilized  in  the  transaction  pricing  and  purchase  price
allocation exclude the potential synergetic benefits related specifically to our
ownership.  Due to the relatively early stage of the development and reliance on
future, unproven products and technologies,  the cost of capital (discount rate)
for UTMC  Microelectronic  Systems was estimated  using venture capital rates of
return.  Due to the nature of the  forecast  and the risks  associated  with the
projected growth and profitability of the development  projects, a discount rate
of 45 percent was used to discount cash flows from the in-process products. This
discount  rate  was  commensurate  with  UTMC  Microelectronic  Systems'  market
position,  the  uncertainties  in the economic  estimates  described  above, the
inherent  uncertainty  surrounding  the successful  development of the purchased
in-process  technology,  the useful life of such technology,  the  profitability
levels of such technology, and the uncertainty related to technological advances
that  could  render  even  UTMC   Microelectronic   Systems'  development  stage
technologies obsolete.

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

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

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

If the  development of UTMC  Microelectronic  Systems'  in-process  research and
development  project  is  unsuccessful,  our  sales  and  profitability  may  be
adversely  affected in future  periods.  Commercial  results are also subject to
certain market events and risks, which are beyond our control, such as trends in
technology,  changes in  government  regulation,  market  size and  growth,  and
product introduction or other actions by competitors.
<PAGE>
Other Expense  (Income).  Interest  expense  decreased to $1.5 million in fiscal
1999 from $2.0  million  in fiscal  1998,  primarily  due to  reduced  levels of
borrowings  throughout most of the current  period.  Other income of $777,000 in
fiscal 1999 and $309,000 in fiscal 1998 consisted  primarily of interest income.
Interest income increased due to increased levels of cash equivalents throughout
most of the current  period.  The reduced levels of borrowings and the increased
levels of cash equivalents  resulted from the net proceeds of $31.3 million from
stock issued in our public offering  completed in March 1998. In connection with
our acquisition of UTMC Microelectronic  Systems at the end of February 1999, we
used most of our cash equivalents and increased our borrowings by $20.0 million.

Provision for Income  Taxes.  Income taxes  increased  50.5% to $7.2 million (an
effective  income tax rate of 35.0%,  exclusive of the special charge) in fiscal
1999, from $4.8 million (an effective  income tax rate of 36.1%) in fiscal 1998.
The  income  tax  provisions  for the years  ended  June 30,  1999 and 1998 were
different from the amounts computed by applying the U.S. Federal income tax rate
to income before income taxes  primarily due to state and local income taxes and
research and development  credits,  and for the year ended June 30, 1999, due to
the non-deductibility of the $3.5 million special charge.

Fiscal Year Ended June 30, 1998 Compared to Fiscal Year Ended June 30, 1997

Net Sales. Net sales increased 26.0% to $118.9 million in fiscal 1998 from $94.3
million in fiscal  1997.  Net sales in our  microelectronics  segment  increased
53.2% to $74.3  million in fiscal 1998 from $48.5  million in fiscal 1997 due to
increased  sales  volume  in both thin film  interconnects  and  microelectronic
modules.  Sales  of  thin  film  interconnects  increased  primarily  due to the
commencement of a strategic supply contract with Lucent  Technologies  effective
July 1, 1997. Net sales in our test,  measurement and other electronics  segment
decreased 8.7% to $25.7 million in fiscal 1998 from $28.1 million in fiscal 1997
primarily  as a  result  of  reduced  sales  volume  of  frequency  synthesizers
partially offset by increased sales of high speed  instrumentation test systems.
Net sales in our isolator  products  segment  increased 6.9% to $18.9 million in
fiscal 1998 from $17.7  million in fiscal  1997  primarily  due to higher  sales
volume of industrial and commercial isolators.

Gross Profit.  Gross profit increased 33.3% to $41.6 million in fiscal 1998 from
$31.2  million in fiscal 1997.  Gross  margin  increased to 35.0% in fiscal 1998
from 33.1% in fiscal 1997.  This increase was primarily as a result of increased
margins in our  microelectronics  segment  reflecting the greater  efficiency of
higher volume.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative expenses increased 18.5% to $21.5 million (18.1% of net sales) in
fiscal  1998 from  $18.2  million  (19.3% of net  sales)  in fiscal  1997.  This
increase was  primarily  due to labor related  expenses  including  salaries for
additional  personnel,  recruitment and relocation  costs in connection with our
growth.

Research and  Development  Costs.  Our  self-sponsored  research and development
costs  increased  57.7% to $5.2 million  (4.4% of net sales) in fiscal 1998 from
$3.3 million  (3.5% of net sales) in fiscal 1997.  This  increase was  primarily
attributable  to the costs for development of a new low-cost,  high speed,  high
performance  frequency  synthesizer  intended for commercial  communication test
systems.

Other Expense  (Income).  Other expense was $1.7 million in fiscal 1998 compared
to $2.9 million in fiscal 1997.  Net interest  expense  decreased  43.9% to $1.6
million in fiscal 1998 from $2.9  million in fiscal  1997.  The  decrease in net
interest expense was primarily due to reduced levels of borrowings and increased
levels of cash  equivalents due to the conversion of $10.0 million of debentures
and net  proceeds of $31.3  million  from stock  issued in our public  offering.
Other expense included $102,000 of debenture redemption costs in fiscal 1998.
<PAGE>
Provision for Income  Taxes.  Income taxes  increased  95.1% to $4.8 million (an
effective  income  tax rate of  36.1%) in fiscal  1998  from  $2.4  million  (an
effective  income tax rate of 35.5%) in fiscal 1997.  The income tax  provisions
for the years  ended  June 30,  1998 and 1997 were  different  from the  amounts
computed by applying the U.S.  Federal  income tax rate to income  before income
taxes  primarily  due to state and local income  taxes,  and, for the year ended
June 30, 1998, due to research and development credits.

Market Risk

We are  exposed to market risk  related to changes in interest  rates and, to an
immaterial  extent,  to foreign currency  exchange rates. Some of our debt is at
fixed  rates of  interest  or at a  variable  rate  with an  interest  rate swap
agreement which effectively converts the variable rate debt into a fixed rate of
debt.  Our debt which is subject to a floating LIBOR rate of interest and is not
hedged by an interest rate swap amounts to  approximately  $22.4 million at June
30, 1999. If market  interest  rates  increase by 10 percent from levels at June
30, 1999,  the effect on our net income  would be a reduction  of  approximately
$100,000.

Year 2000 Readiness

We have  initiated a  company-wide  program and have  developed a formal plan of
implementation  to prepare us for the year 2000.  This includes  taking  actions
designed  to  ensure  that our  information  technology  systems,  products  and
infrastructure  are year 2000  compliant and that our  customers,  suppliers and
service providers have taken similar action. We have evaluated all of our:

           .  information technology systems
           .  products
           .  equipment
           .  other facilities systems

We have modified items that are not compliant.

We  have  completed  substantially  all of our  investigation,  remediation  and
contingency  planning  activities for all mission critical systems and areas. We
have incurred  internal staff costs, as well as consulting and other expenses in
connection  with our internal year 2000  compliance and expect to continue to do
so.  We have  spent an  aggregate  $54,000  on  third-party  costs for year 2000
compliance  and do not expect total costs to exceed  $100,000.  Accordingly,  we
believe the total costs  incurred and to be incurred for all internal  year 2000
readiness  related  projects  will not have a material  impact on our  business,
results of operations or financial condition.

We are surveying our customers,  suppliers and service providers through written
correspondence  regarding  their year 2000 readiness.  We have received  written
correspondence  from substantially all mission critical third parties indicating
their  compliance  but have also created  contingency  plans such as  increasing
inventory levels and identifying  alternative  sources.  Our risks involved with
not  solving  the  year  2000  problem  include,  but are not  limited  to,  the
following: loss of local or regional electrical power, loss of telecommunication
services,  delays  or  cancellations  of  merchandise  shipments,  manufacturing
shutdowns, delays in processing customer transactions,  bank errors and computer
errors by  suppliers.  Despite our efforts to survey  customers,  suppliers  and
service providers,  we cannot be certain as to the actual year 2000 readiness of
these  third  parties and because our year 2000  compliance  is  dependent  upon
certain third parties (including  infrastructure providers) also being year 2000
compliant on a timely basis, there is no assurance that our efforts will prevent
a material  adverse  impact on our business,  results of operations or financial
condition.
<PAGE>
Seasonality

Although our business is not affected by seasonality,  historically our revenues
and earnings increase sequentially from quarter to quarter within a fiscal year,
but the first quarter is less than the previous year's fourth quarter.

Liquidity and Capital Resources

As of June 30, 1999, we had $50.4 million in working capital.  Our current ratio
was 2.5 to 1 at June 30, 1999.  As of February 25, 1999,  we replaced a previous
agreement with a revised revolving credit, term loan and mortgage agreement with
two banks  which is secured  by  substantially  all of our assets not  otherwise
encumbered. The agreement provides for a revolving credit line of $23.0 million,
a term loan of $20.0 million and a mortgage on our  Plainview  property for $4.5
million.  The revolving  credit and term loans expire in December 2002. The term
loan is payable in quarterly  installments of $1.25 million beginning  September
30, 1999 with final  payment on December  31,  2002.  As of June 30,  1999,  the
outstanding  term loan was $17.5 million.  The interest rate on borrowings under
this agreement is at various rates depending upon certain financial ratios, with
the current rate substantially equivalent to 90-day LIBOR (approximately 5.4% at
June 30,  1999 and 5.7% at June 30,  1998)  plus 1.50% on the  revolving  credit
borrowings  and LIBOR plus 1.75% on the term loan  borrowings.  The  mortgage is
payable in monthly installments of approximately  $26,000 through March 2008 and
a balloon payment of $1.6 million in April 2008. The Company has entered into an
interest  rate swap  agreement  for the  outstanding  amount  under the mortgage
agreement  at  approximately  7.6% in order to  reduce  the  interest  rate risk
associated with these borrowings.

The terms of the agreement require  compliance with certain covenants  including
minimum  consolidated  tangible net worth and pretax  earnings,  maintenance  of
certain financial ratios,  limitations on capital  expenditures and indebtedness
and  prohibition  of the  payment  of cash  dividends.  In  connection  with the
purchase  of certain  materials  for use in  manufacturing,  we have a letter of
credit facility of $2.0 million.

During June 1994,  we  completed  a sale of $10.0  million  principal  amount of
7-1/2%  Senior  Subordinated  Convertible  Debentures  to non-U.S.  persons.  On
September 8, 1997, we called for the redemption of all of the outstanding 7-1/2%
Senior Subordinated  Convertible Debentures at 104-1/2% of the principal amount.
The Debentures were  convertible  into our Common Stock at a price of $5-5/8 per
share through  October 6, 1997. All of the principal  amount was  converted.  In
connection with the  conversions,  $599,000 of deferred bond issuance costs were
charged to additional paid-in capital.

Effective  July 1,  1997,  our  subsidiary,  MIC  Technology,  acquired  certain
equipment,  inventory,  licenses  for  technology  and  patents of two of Lucent
Technologies'  telecommunications  component units - multi-chip modules and film
integrated  circuits  - for  approximately  $4.4  million in cash.  These  units
manufacture  microelectronic modules and interconnect products. We also signed a
multi-year supply agreement to provide Lucent with film integrated  circuits for
use in the telecommunications industry. The purchase price has been allocated to
the assets acquired, based on their fair values, and certain obligations assumed
relating to the various agreements.

In March  1998,  we sold 2.6  million  shares  of our  Common  Stock in a public
offering for $31.3 million, net of an underwriting  discount of $2.0 million and
issuance  costs of  $496,000.  Of these net  proceeds,  $9.6 million was used to
repay bank indebtedness.  The balance of the net proceeds was used primarily for
our purchase of UTMC Microelectronic Systems in February 1999.
<PAGE>
Effective  September 1, 1998,  we acquired 90% of the stock of  Europtest,  S.A.
(France) for approximately  $1.1 million.  The purchase  agreement also requires
that we purchase  the  remaining  10% of  Europtest  pro rata over a  three-year
period  at  prices  determined  based  upon  net  sales of  Europtest  products.
Europtest  develops and sells  specialized  software-driven  test equipment used
primarily in cellular,  satellite  and other  communications  applications.  The
acquired  company's net sales were approximately $1.9 million for the year ended
March 31, 1998.

In December  1998, we financed the  acquisition  and  renovation of the land and
building of our Pearl River, NY facility and received proceeds amounting to $4.2
million.  These  borrowings are payable in annual  installments of approximately
$200,000 through 2019.

Effective  February 25, 1999, we acquired all of the  outstanding  stock of UTMC
Microelectronic   Systems,  Inc.  for  $42.5  million  of  cash.  Prior  to  the
acquisition,  UTMC  Microelectronic  Systems  distributed  by  dividend  to  its
then-parent, United Technologies Corporation, the assets and United Technologies
assumed  the   liabilities  of  the  circuit  card  assembly   portion  of  UTMC
Microelectronic  Systems  business.  The purchase  price was paid with available
cash of $22.5  million and  borrowings  under our bank loan  agreement  of $20.0
million.    UTMC   Microelectronic    Systems   is   a   leader   in   supplying
radiation-tolerant   integrated  circuits  for  satellite  communications.   The
acquired company's net sales, excluding the circuit card assembly business, were
approximately $33.4 million for the year ended December 31, 1998.

In fiscal 1999, our operations provided cash of $11.4 million from our continued
profitability,  partially offset by an increase in receivables due to our higher
sales volume and timing of billings.  In fiscal 1999,  our investing  activities
used cash of $51.6 million primarily for our acquisition of UTMC Microelectronic
Systems and for capital  expenditures.  In fiscal 1999, our financing activities
provided cash of $18.5 million primarily from bank financing for the acquisition
of UTMC Microelectronic Systems.

We believe that internally generated funds and available lines of credit will be
sufficient for our working capital  requirements,  capital expenditure needs and
the servicing of our debt for at least the next twelve months. At June 30, 1999,
our available unused line of credit was $21.0 million after consideration of the
letter of credit.

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

We are involved in various other routine legal  matters.  We believe the outcome
of these matters will not have a materially  adverse effect on our  consolidated
financial statements.

We are undergoing  routine audits by various taxing authorities of our state and
local income tax returns covering periods from 1994 to 1996. We believe that the
probable  outcome  of these  various  audits  should not  materially  affect our
consolidated financial statements.

Our backlog of orders was $93.8  million at June 30,  1999 and $80.1  million at
June 30, 1998.
<PAGE>
Forward-Looking Statements

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

ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
             -------------------------------------------
The financial statements and supplementary data listed in the accompanying Index
to Financial Statements and Schedules are attached as part of this report.

ITEM NINE - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
            ----------------------------------------------------
None.


                                    PART III
                                    --------

The  information  required  by Part  III is  incorporated  by  reference  to our
definitive proxy statement in connection with our Annual Meeting of Stockholders
scheduled to be held in November 1999.  The proxy  statement is to be filed with
the Securities and Exchange  Commission within 120 days following the end of our
fiscal year ended June 30, 1999.
<PAGE>
                                     PART IV
                                     -------

ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                AND REPORTS ON FORM 8-K
                ---------------------------------------
(a) See  Index to  Financial  Statements  at  beginning  of  attached  financial
statements.

(b) Reports on Form 8-K:
     -------------------
           None

(c)  Exhibits
     --------
3.1  Certificate of Incorporation, as amended. (Exhibit 3.1 to Form 10-K for the
     year ended June 30, 1998)

3.2  By-Laws,  as amended  (Exhibit 3 to  Quarterly  Report on Form 10-Q for the
     quarter ended March 31, 1998).

4.1  Fourth  Amended  and  Restated  Loan  and  Security  Agreement  dated as of
     February 25, 1999 among the Registrant,  certain of its  subsidiaries,  The
     Chase  Manhattan Bank (as successor to Chemical Bank) and Fleet Bank,  N.A.
     (as  successor  to  NatWest  Bank,  N.A.)  (Exhibit  10.5 to Form 8-K dated
     February 25, 1999)

10.1 1989  Non-Qualified  Stock Option Plan, as amended  (Exhibit 10.8 of Annual
     Report on Form 10-K for the year ended June 30, 1990).

10.2 1994  Non-Qualified  Stock Option Plan.  (Exhibit  10.2 of Annual Report on
     Form 10-K for the year ended June 30, 1994).

10.3 1994 Outside Directors Stock Option Plan. (Exhibit 10.3 of Annual Report on
     Form 10-K for the year ended June 30, 1994).

10.4 Employment  Agreement  between  Aeroflex  Incorporated  and  Harvey R. Blau
     (Exhibit 10.1 to Report on Form 10-Q for the quarter ended March 31, 1999).

10.5 Employment  Agreement  between  Aeroflex  Incorporated  and  Michael  Gorin
     (Exhibit 10.2 to Report on Form 10-Q for the quarter ended March 31, 1999).

10.6 Employment  Agreement  between  Aeroflex  Incorporated  and  Leonard  Borow
     (Exhibit 10.3 to Report on Form 10-Q for the quarter ended March 31, 1999).

10.7 Deferred Compensation Agreement between Aeroflex Incorporated and Harvey R.
     Blau (Exhibit 10.4 to Report on Form 8-K dated May 17, 1997).

10.8 Employment Agreement between Aeroflex Incorporated and Carl Caruso (Exhibit
     10.5 to Report on Form 8-K dated May 17, 1997).

10.9 1996  Stock  Option  Plan  (Exhibit  A to  Definitive  Schedule  14A  filed
     September 30, 1996).
<PAGE>
10.101998 Stock  Option Plan  (Exhibit 10 to  Quarterly  Report on Form 10-Q for
     the quarter ended March 31, 1998).

10.11Common Stock  Purchase  Agreement  made as of February 25, 1999 between the
     Registrant and United Technolgoies  Corporation acting through its Hamilton
     Standard Division as the owner of all of the issued and outstanding capital
     stock of UTMC  Microelectronic  Systems,  Inc..  (Exhibit  10.1 to Form 8-K
     dated February 25, 1999).

10.12Long  Term   Agreement   made  as  of  February  25,  1999  between  United
     Technologies  Corporation and UTMC Microelectronic  Systems,  Inc. (Exhibit
     10.2 to Form 8-K dated February 25, 1999).

10.13Facilities  Lease and  Services  Agreement  made as of  February  25,  1999
     between UTMC Microelectronic Systems, Inc., United Technologies Corporation
     and Hamilton Standard Electronics. (Exhibit 10.3 to Form 8-K dated February
     25, 1999).

10.14Assignment and License-Back  Agreement made as of February 25, 1999 between
     UTMC  Microelectronic  Systems,  Inc. and United Technologies  Corporation.
     (Exhibit 10.4 to Form 8-K dated February 25, 1999).

22   The following is a list of the Company's subsidiaries:

                                                 State of
                  Name                         Incorporation
                  ----                         -------------
        Aeroflex Laboratories Incorporated      Delaware
        Aeroflex Lintek Corp.                   Ohio
        Aeroflex Systems Corp.                  Delaware
        Europtest, S.A.                         France
        MIC Technology Corporation              Texas
        UTMC Microelectronic Systems, Inc.      Delaware
        Vibration Mountings and Controls, Inc.  New York

23   Consent of Independent Auditors

27   Financial Data Schedule

99   Undertakings

<PAGE>
Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 28th day of September 1999.

                            Aeroflex Incorporated

                            By: /s/ Harvey R. Blau
                               ------------------------------
                                 Harvey R. Blau, Chairman

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on September  28th,  1999 by the following  persons in the
capacities indicated:


/s/ Harvey R. Blau            Chairman of the Board
Harvey R. Blau                (Chief Executive Officer)

/s/ Michael Gorin             President and Director
Michael Gorin                 (Chief Financial Officer and Principal Accounting
                              Officer)

/s/ Leonard Borow             Executive Vice President, Secretary and Director
Leonard Borow                 (Chief Operating Officer)

/s/ Paul Abecassis            Director
Paul Abecassis

/s/ Milton Brenner            Director
Milton Brenner

/s/ Ernest E. Courchene, Jr.  Director
Ernest E. Courchene, Jr.

/s/ Donald S. Jones           Director
Donald S. Jones

/s/ Eugene Novikoff           Director
Eugene Novikoff

/s/ John S. Patton            Director
John S. Patton
<PAGE>
                              AEROFLEX INCORPORATED

                                AND SUBSIDIARIES

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

                       FINANCIAL STATEMENTS AND SCHEDULES

                 COMPRISING ITEM 8 OF ANNUAL REPORT ON FORM 10-K

                      TO SECURITIES AND EXCHANGE COMMISSION

                          AS OF JUNE 30, 1999 AND 1998

                                AND FOR THE YEARS

                       ENDED JUNE 30, 1999, 1998 AND 1997
<PAGE>
                       FINANCIAL STATEMENTS AND SCHEDULES



               I  N  D  E  X                                          PAGE
               -------------                                          ----

  ITEM FOURTEEN (a)
  -----------------
1.  FINANCIAL STATEMENTS:

     Independent auditors' report                                     S-1

     Consolidated financial statements:

        Balance sheets - June 30, 1999 and 1998                       S-2-3

     Statements of earnings - each of the three years
        in the period ended June 30, 1999                             S-4

     Statements of stockholders' equity - each of the
        three years in the period ended June 30, 1999                 S-5

     Statements of cash flows - each of the three years
        in the period ended June 30, 1999                             S-6

     Notes (1-14)                                                     S-7-20

     Quarterly financial data (unaudited)                             S-21


2.   FINANCIAL STATEMENT SCHEDULES:

     II - Valuation and qualifying accounts                           S-22



All other  schedules  have  been  omitted  because  they are  inapplicable,  not
required,  or the information is included elsewhere in the financial  statements
or notes thereto.
<PAGE>
                          Independent Auditors' Report
                          ----------------------------

The Board of Directors and Stockholders of Aeroflex Incorporated
Plainview, New York

We have  audited  the  accompanying  consolidated  balance  sheets  of  Aeroflex
Incorporated  and  subsidiaries  as of June 30,  1999  and 1998 and the  related
consolidated  statements of earnings,  stockholders'  equity, and cash flows for
each of the years in the three year period ended June 30, 1999.  Our audits also
included the financial  statement  schedule  listed in the Index at item 14(a)2.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule 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 consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial   position  of  Aeroflex
Incorporated  and  subsidiaries  as of June 30, 1999 and 1998 and the results of
their  operations  and their  cash flows for each of the years in the three year
period ended June 30, 1999, in conformity  with  generally  accepted  accounting
principles.  Also,  in our  opinion,  the  financial  statement  schedule,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.

                                        /s/ KPMG LLP
                                        KPMG LLP


Melville, New York
August 10, 1999
                                       S-1
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                     June 30,
                                                              ----------------------
                                      ASSETS                    1999         1998
                                                                ----         ----

<S>                                                           <C>          <C>
Current assets:
  Cash and cash equivalents...............................    $  2,714     $ 24,408

  Accounts receivable,  less allowance for doubtful
    accounts of $381 and $317 at June 30, 1999 and 1998,
    respectively..........................................      39,967       19,853

  Inventories, net........................................      32,637       29,851

  Deferred income taxes...................................       5,291        1,861

  Prepaid expenses and other current assets...............       2,314        1,197
                                                              --------     --------

       Total current assets...............................      82,923       77,170


Property, plant and equipment, net........................      50,802       26,994


Intangible assets acquired in connection with
  the purchase of businesses, net of accumulated
  amortization of $3,084 and $1,993 at June 30, 1999 and
  1998, respectively......................................      13,777        7,578

Cost in  excess  of fair  value of
  net  assets of  businesses  acquired,  net of accumulated
  amortization of $3,161 and $2,724 at June 30, 1999 and 1998,
  respectively............................................      14,019        9,827

Other assets..............................................       3,695        2,532
                                                              --------     --------

Total assets..............................................    $165,216     $124,101
                                                              ========     ========






<FN>
               See notes to consolidated financial statements.

</FN>
</TABLE>
                                       S-2
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                        June 30,
                                                                 --------------------
               LIABILITIES AND STOCKHOLDERS' EQUITY                1999        1998
                                                                 --------    --------
<S>                                                              <C>         <C>
Current liabilities:
  Current portion of long-term debt.......................       $  6,509    $  1,755

  Accounts payable........................................          8,070       6,668
  Accrued expenses and other current liabilities..........         16,923      12,932

  Income taxes payable....................................          1,055       1,850
                                                                 --------    --------
       Total current liabilities..........................         32,557      23,205


Long-term debt............................................         24,608       9,726
Deferred income taxes.....................................          3,582       1,156
Other long-term liabilities...............................          2,376       2,978
                                                                 --------    --------
Total liabilities.........................................         63,123      37,065
                                                                 --------    --------
Commitments and contingencies

Stockholders' equity:
  Preferred Stock, par value $.10 per share;
    authorized 1,000 shares:
    Series A Junior Participating  Preferred Stock,
    par value $.10 per share;  authorized 40 shares;
    none issued...........................................           -           -
  Common Stock, par value $.10 per share; authorized
    40,000 shares; issued 18,429 and 17,378 shares at
    June 30, 1999 and 1998, respectively..................          1,843       1,738
  Additional paid-in capital..............................        105,720     100,481
  Accumulated deficit.....................................         (5,421)    (15,178)
                                                                 --------    --------
                                                                  102,142      87,041
  Less:  Treasury stock, at cost (6 and 1 shares at
    June 30, 1999 and 1998, respectively).................             49           5
                                                                 --------    --------
Total stockholders' equity................................        102,093      87,036
                                                                 --------    --------
Total liabilities and stockholders' equity................       $165,216    $124,101
                                                                 ========    ========





<FN>
                See notes to consolidated financial statements.
</FN>
</TABLE>
                                       S-3
<PAGE>
                     AEROFLEX INCORPORATED AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS

                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                        Years Ended June 30,
                                            ----------------------------------------
                                              1999            1998             1997
                                              ----            ----             ----
<S>                                         <C>             <C>             <C>
Net sales................................   $157,104        $118,861        $ 94,299
Cost of sales............................     98,645          77,286          63,109
                                            --------        --------        --------
  Gross profit...........................     58,459          41,575          31,190
                                            --------        --------        --------
Operating costs:
  Selling, general and administrative
    costs................................     27,763          21,545          18,175
  Research and development costs.........      9,612           5,172           3,279
  Acquired in-process research and
    development (Note 2).................      3,500            -               -
                                            --------        --------        --------
       Total operating costs.............     40,875          26,717          21,454
                                            --------        --------        --------
Operating income ........................     17,584          14,858           9,736
                                            --------        --------        --------
Other expense (income):
  Interest expense.......................      1,454           2,011           2,974
   Other expense (income) (including
    interest income and dividends of
    $781, $389 and $84)..................       (777)           (309)            (93)
                                            --------        --------        --------
       Total other expense (income)......        677           1,702           2,881
                                            --------        --------        --------
Income before income taxes...............     16,907          13,156           6,855
Provision for income taxes...............      7,150           4,750           2,435
                                            --------        --------        --------
Net income ..............................   $  9,757        $  8,406         $ 4,420
                                            ========        ========        ========
Net income per common share and
  common share equivalent:
   Basic.................................     $ .55           $ .57           $ .36
                                              =====           =====           =====
   Diluted...............................     $ .51           $ .51           $ .34
                                              =====           =====           =====

 Weighted  average  number  of  common  shares
  and  common  share   equivalents
  outstanding:
   Basic.................................     17,784          14,802          12,446
   Diluted...............................     19,128          16,527          14,620










<FN>
                            See notes to consolidated financial statements.
</FN>
</TABLE>
                                       S-4
<PAGE>
                              AEROFLEX INCORPORATED
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                    Years Ended June 30, 1999, 1998 and 1997

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                Additional
                                                               Common Stock       Paid-in    Accumulated          Treasury Stock
                                               Total       Shares    Par Value    Capital      Deficit          Shares      Cost
                                             ---------     ------   ----------  -----------  -----------        ------   ----------
<S>                                          <C>           <C>      <C>         <C>          <C>                 <C>     <C>
Balance, July 1, 1996....................    $  30,472     12,380   $  1,238    $  57,820    $  (28,004)         129     $    (582)

Stock issued upon exercise
  of stock options.......................          586        278         28          290          -             (69)          268

Purchase of treasury
  stock..................................         (438)      -          -            -             -             109          (438)
Net income...............................        4,420       -          -            -            4,420          -             -
                                             ---------     ------   ----------  -----------  -----------        ------   ----------
Balance, June 30, 1997...................       35,040     12,658      1,266       58,110       (23,584)         169          (752)

Stock issued in public offering..........       31,285      2,597        260       31,025          -             -             -
Stock issued upon exercise
  of stock options and warrants..........        2,923        349         35        2,141          -            (168)          747

Stock issued upon conversion
  of debentures..........................        9,382      1,774        177        9,205          -             -             -
Net income...............................        8,406       -          -            -            8,406          -             -
                                             ---------     ------   ----------  -----------  -----------        ------   ----------
Balance, June 30, 1998...................       87,036     17,378      1,738      100,481       (15,178)           1            (5)


Stock issued upon exercise
  of stock options and warrants..........        4,967      1,051        105        4,563          -             (34)          299
Purchase of treasury stock...............         (343)      -          -            -             -              39          (343)
Deferred compensation....................          676       -          -             676          -             -             -
Net income...............................        9,757       -          -            -            9,757          -             -
                                             ---------     ------   ----------  -----------  -----------        ------   ----------
Balance, June 30, 1999...................    $ 102,093     18,429   $  1,843   $  105,720    $   (5,421)            6     $     (49)
                                             =========     ======   ========   ==========    ==========         ======   ==========






<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>
                                       S-5
<PAGE>

                     AEROFLEX INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                          Years Ended June 30,
                                                                 --------------------------------------
                                                                   1999          1998           1997
                                                                   ----          ----           ----

<S>                                                              <C>            <C>           <C>
Cash flows from operating activities:
  Net income ..................................................  $   9,757      $  8,406      $   4,420

  Adjustments  to  reconcile  net  income  to
    net cash provided by operating activities:
      Acquired in-process research and development.............      3,500          -              -

      Depreciation and amortization............................      6,554         4,884          4,322
      Amortization of deferred gain............................       (588)         (588)          -

      Deferred income taxes....................................      1,812         1,004            (10)
      Other....................................................        292           (10)            57
  Change in operating  assets and  liabilities,  net
    of effects from purchase of businesses:
      Decrease (increase) in accounts receivable...............    (16,365)        1,975          1,421

      Decrease (increase) in inventories.......................      3,825        (8,397)        (3,403)
      Decrease (increase) in prepaid
        expenses and other assets..............................     (2,238)         (633)           879
      Increase (decrease) in accounts payable, accrued expenses
        and other long-term liabilities........................      2,739         5,384            691

      Increase (decrease) in income taxes payable..............      2,090         1,648            668
                                                                  --------      --------       ---------
Net cash provided by operating activities......................     11,378        13,673          9,045
Cash flows from investing activities:                             --------      --------       ---------
  Payment for purchase of businesses,
    net of cash acquired.......................................    (43,656)         (249)          (162)
  Purchase of equipment, inventory and technology rights
    from Lucent Technolgies....................................       -           (4,435)          -
  Capital expenditures.........................................     (9,104)      (10,613)        (2,931)
  Proceeds from sale of property,
    plant and equipment........................................        967           209             16
  Proceeds from sale of securities.............................        198           110             81
                                                                  --------      --------       ---------
Net cash used in investing activities..........................    (51,595)      (14,978)        (2,996)
                                                                  --------      --------       ---------
Cash flows from financing activities:
  Borrowings under debt agreements.............................     24,191         6,231             58

  Debt repayments..............................................     (4,663)      (13,685)        (5,719)

  Bank debt financing costs....................................       (438)         -              -
  Proceeds from issuance of common shares in public offering...       -           31,781           -
  Costs in connection with public offering.....................       -             (496)          -
  Proceeds from the exercise of stock options and warrants.....      2,539         1,292            305

  Amounts paid for withholding taxes on stock option
    exercises..................................................     (5,434)       (1,512)          (663)
  Withholding taxes collected for stock option exercises.......      2,671         1,502            347
  Purchase of treasury stock...................................       (343)         -              (438)
                                                                  --------      --------       --------
Net cash provided by (used in)
  financing activities.........................................     18,523        25,113         (6,110)
Net increase (decrease) in cash and                               --------      --------       --------
  cash equivalents.............................................    (21,694)       23,808            (61)

Cash and cash equivalents at beginning of period...............     24,408           600            661
                                                                  --------      --------       ---------
Cash and cash equivalents at end of period.....................   $  2,714      $ 24,408       $    600
                                                                  ========      ========       =========









<FN>
                 See notes to consolidated financial statements.
</FN>
</TABLE>
                                       S-6

<PAGE>
                     AEROFLEX INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   Summary of Significant Accounting Principles and Policies

     Principles of Consolidation
     The accompanying  consolidated financial statements include the accounts of
     Aeroflex  Incorporated and its subsidiaries  (the "Company"),  all of which
     are  wholly-owned  with the exception of Europtest  which is 90% owned (see
     Note 2). All intercompany balances and transactions have been eliminated.

     Use of Estimates
     The  preparation  of financial  statements  in  conformity  with  generally
     accepted accounting principles requires that management of the Company make
     a number of estimates and  assumptions  relating to the reporting of assets
     and  liabilities and the disclosure of contingent  assets and  liabilities.
     Among the more significant  estimates included in the financial  statements
     are the estimated  costs to complete  contracts in process.  Actual results
     could differ from those estimates.

     Cash and Cash Equivalents
     The Company  considers all highly liquid  investments  having maturities of
     three months or less at the date of acquisition to be cash equivalents.

     Inventories
     Inventories  are  stated  at the  lower of cost  (first-in,  first-out)  or
     market.  Inventories  related to long-term  contracts  are recorded at cost
     less amounts expensed under percentage-of-completion accounting.

     Financial Instruments
     The fair values of all on-balance sheet financial  instruments,  other than
     long-term debt (see Note 7),  approximate  book values because of the short
     maturity of these instruments. Amounts receivable or payable under interest
     rate swap agreements are accounted for as adjustments to interest expense.

     Revenue and Cost Recognition on Contracts
     Revenue is recognized based upon shipments or billings. The Company records
     gross  profit on its  long-term  contracts  using  percentage-of-completion
     accounting  under  which  costs  are  recognized  on  revenues  in the same
     relation that total  estimated  manufacturing  costs bear to total contract
     value.  Estimated  costs at  completion  are  based  upon  engineering  and
     production  estimates.  Provisions  for  estimated  losses or  revisions in
     estimated  profits on  contracts-in-process  are  recorded in the period in
     which such losses or revisions are first determined.

     Property, Plant and Equipment
     Property,   plant  and  equipment  are  stated  at  cost  less  accumulated
     depreciation  computed on a straight-line  basis over the estimated  useful
     lives of the related assets.  Leasehold improvements are amortized over the
     life of the lease or the estimated life of the asset, whichever is shorter.

     Research and Development Costs
     All research and development costs are charged to expense as incurred.  See
     Note 2 for a discussion of acquired in-process research and development.

                                       S-7
<PAGE>
     Intangible Assets
     Intangible assets are recorded at cost, less accumulated amortization.  The
     excess of purchase price over the fair value of tangible assets acquired is
     being amortized on a straight-line basis over periods ranging from 15 to 40
     years except for certain costs allocated to existing technology,  assembled
     workforce, customer relationships and patents which are amortized over 6 to
     15 years, the estimated remaining lives of the intangibles at the time they
     were  acquired by the  Company.  The  Company  periodically  evaluates  the
     recoverability  of the  carrying  value of its  intangible  assets  and the
     related  amortization  periods.  The Company assesses the recoverability of
     unamortized goodwill based on the undiscounted projected future earnings of
     the related businesses.

     Income Per Share
     Beginning with the year ended June 30, 1998, the Company adopted  Statement
     of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share." In
     accordance  with SFAS No. 128,  income per common  share  ("Basic  EPS") is
     computed by  dividing  net income by the  weighted  average  common  shares
     outstanding.  Income per common share assuming dilution  ("Diluted EPS") is
     computed  by  dividing  net income  plus a pro forma  addback of  debenture
     interest by weighted  average  common  shares  outstanding  plus  potential
     dilution  from the  conversion  of  debentures  and the  exercise  of stock
     options and warrants.  Income per share amounts for prior periods have been
     restated to conform to the provisions of SFAS No. 128.

     Accounting for Stock-Based Compensation
     The Company  records  compensation  expense for employee and director stock
     options only if the current  market price of the  underlying  stock exceeds
     the exercise  price on the date of the grant.  Effective  July 1, 1996, the
     Company adopted SFAS No. 123,  "Accounting  for Stock-Based  Compensation."
     The Company has elected not to  implement  the fair value based  accounting
     method for employee and director stock options,  but instead has elected to
     disclose  the pro forma net  income  and pro forma net income per share for
     employee and director  stock option grants made beginning in fiscal 1996 as
     if such method had been used to account for stock-based  compensation  cost
     as described in SFAS No. 123.

     Income Taxes
     In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company
     measures  deferred tax assets and  liabilities  based upon the  differences
     between the financial accounting and tax bases of assets and liabilities.

     Reclassifications
     Reclassifications  have  been  made  to  the  1998  and  1997  consolidated
     financial statements to conform to the 1999 presentation.

     Recent Accounting Pronouncements
     Effective  July 1, 1998,  the  Company  adopted  SFAS No.  130,  "Reporting
     Comprehensive    Income."   This   statement   requires   presentation   of
     comprehensive  income and its components in the financial  statements.  The
     adoption  of  this  statement  did  not  have  a  material  effect  on  our
     consolidated financial statements.

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
     "Disclosure About Segments of an Enterprise and Related Information," which
     is  effective  for fiscal years  beginning  after  December 15, 1997.  This
     statement  establishes  standards for reporting information about operating
     segments and related  disclosures  about products and services,  geographic
     areas and major customers.  The Company has adopted this standard effective
     July 1, 1998, as required.

                                       S-8
<PAGE>
     In June 1998,  the Financial  Accounting  Standards  Board issued SFAS 133,
     "Accounting for Derivative  Instruments and Hedging  Activities,"  which is
     effective for fiscal years  beginning  after June 15, 2000.  This statement
     requires  companies to record derivatives on the balance sheet as assets or
     liabilities at their fair value.  In certain  circumstances  changes in the
     value  of such  derivatives  may be  required  to be  recorded  as gains or
     losses. Management believes that the impact of this statement will not have
     a material effect on the Company's consolidated financial statements.

2.   Acquisition of Businesses
     UTMC
     ----
     Effective  February 25, 1999, the Company  acquired all of the  outstanding
     stock of UTMC Microelectronic  Systems,  Inc. ("UTMC") for $42.5 million of
     cash.  The purchase price was paid with available cash of $22.5 million and
     borrowings  under the Company's bank loan agreement of $20.0 million.  UTMC
     is a supplier  of  radiation-tolerant  integrated  circuits  for  satellite
     communications.  The acquired company's net sales were approximately  $33.4
     million for the year ended December 31, 1998.

     The Company  commissioned an independent  asset valuation study of acquired
     tangible  and  identifiable  intangible  assets  to  serve  as a basis  for
     allocation  of the  purchase  price.  Based  on  this  study,  the  Company
     allocated the purchase price,  including acquisition costs of approximately
     $500,000, as follows:
<TABLE>
<CAPTION>
                                                           (In thousands)
              <S>                                              <C>
              Net tangible assets                              $28,771
              Identifiable intangible assets                     6,300
              Costs in excess of fair value of net assets        4,429
              In-process research and development                3,500
                                                               -------
                                                               $43,000
                                                               =======
</TABLE>
     The identifiable  intangible assets include existing  technology,  customer
     relationships  and assembled work force. The  identifiable  intangibles and
     costs in excess  of fair  value of net  assets  are  being  amortized  on a
     straight-line  basis over 6 to 15 years based on the study described above.
     The acquired in- process  research and  development  was not  considered to
     have reached  technological  feasibility  and, in accordance with generally
     accepted accounting principles, the value of such was expensed in the third
     quarter of fiscal 1999.

     Summarized  below are the  unaudited pro forma results of operations of the
     Company as if UTMC had been acquired at the beginning of the fiscal periods
     presented.  The $3.5 million  write-off  has been  included in the June 30,
     1999 pro forma  income but not the June 30, 1998 pro forma  income in order
     to provide comparability to the respective actual results.
<TABLE>
<CAPTION>
                                        Pro Forma Years Ended
                                               June 30,
                                 -----------------------------------
                                          1999            1998
                                          ----            ----
                                (In thousands, except per share data)

  <S>                                  <C>              <C>
  Net sales                            $  177,149       $  155,371
  Net income                                9,469           11,267

  Net income per share
   Basic                               $      .53       $      .76
    Diluted                                   .50              .69
</TABLE>

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

                                       S-9
<PAGE>
     Europtest
     ---------
     Effective  September  1, 1998,  the  Company  acquired  90% of the stock of
     Europtest,  S.A.  (France) for  approximately  $1.1  million.  The purchase
     agreement  also  requires  that the Company  purchase the  remaining 10% of
     Europtest pro rata over a three-year period at prices determined based upon
     net sales of Europtest  products.  Europtest develops and sells specialized
     software-driven  test equipment  used primarily in cellular,  satellite and
     other  communications  applications.  The acquired company's net sales were
     approximately  $1.9  million  for the year ended March 31,  1998.  On a pro
     forma basis, had the Europtest  acquisition taken place as of the beginning
     of the periods presented, results of operations for those periods would not
     have been materially affected. The purchase price has been allocated to the
     assets acquired and liabilities assumed based on their fair values.

     Lintek
     ------
     In  January  1995,  the  Company  acquired  substantially  all of  the  net
     operating  assets of Lintek,  Inc.  ("Lintek") for $537,000 plus contingent
     consideration  based on the next five  years'  earnings  to a maximum of an
     additional  $675,000.   Additional  consideration  of  $200,000,  $250,000,
     $162,000  and $63,000 was earned as of December 31,  1998,  1997,  1996 and
     1995 and  paid in  February  1999,  March  1998,  February  1997 and  1996,
     respectively.  Such  amounts  have been  treated  as cost in excess of fair
     value of net assets  acquired.  Lintek designs,  develops and  manufactures
     radar cross section and antenna pattern  measurement systems for commercial
     and military applications, as well as surface penetrating radars.

     The acquisitions have been accounted for as purchases and, accordingly, the
     acquired  assets  and  liabilities  assumed  have  been  recorded  at their
     estimated fair values at the respective dates of acquisition. The operating
     results of UTMC,  Europtest  and Lintek are  included  in the  consolidated
     statements of earnings from the respective acquisition dates.

3.   Acquisition of Assets From Lucent Technologies
     Effective July 1, 1997, the Company's  subsidiary,  MIC Technology ("MIC"),
     acquired certain equipment,  inventory, licenses for technology and patents
     of  two  of  Lucent  Technologies'   microelectronics  components  units  -
     multi-chip modules and film integrated circuits - for $4.4 million in cash.
     These units manufacture  microelectronic modules and interconnect products.
     The Company has also signed a multi-year supply agreement to provide Lucent
     with film integrated circuits for use in  telecommunications  applications.
     The  purchase  price has been  allocated to the assets  acquired,  based on
     their  fair  values,  and  certain  obligations  assumed  relating  to  the
     agreements.

4.   Inventories
     Inventories consist of the following:
<TABLE>
<CAPTION>
                                                  June 30,
                                          ------------------------
                                            1999            1998
                                          --------        --------
                                               (In thousands)
  <S>                                     <C>             <C>
  Raw materials....................       $ 18,441        $ 12,012
  Work-in-process..................         11,148          12,737
  Finished goods...................          3,048           5,102
                                          --------        --------
                                          $ 32,637        $ 29,851
                                          ========        ========
</TABLE>
     Inventories include  contracts-in-process of $9.6 million and $13.2 million
     at June 30, 1999 and 1998,  respectively,  which consist  substantially  of
     unbilled material, labor and overhead costs that are or were expected to be
     billed during the succeeding fiscal year.

                                      S-10
<PAGE>
5.  Property, Plant and Equipment
  Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
                                              June 30,             Estimated
                                    --------------------------
                                        1999            1998       Useful Life
                                        ----            ----
                                            (In thousands)           In Years
                                                                   -----------
<S>                                 <C>             <C>               <C>
  Land............................  $    4,725      $      725
  Building and leasehold
    improvements..................      32,353          17,479        2 to 40
  Machinery, equipment, tools
    and dies......................      37,727          29,400        3 to 10
  Furniture and fixtures..........       7,521           5,968        5 to 10
  Assets recorded under
    capital leases................       2,334           2,334        5 to 10
                                    ----------      ----------
                                        84,660          55,906
  Less accumulated depreciation
    and amortization..............      33,858          28,912
                                    ----------      ----------
                                    $   50,802      $   26,994
                                    ==========      ==========
</TABLE>
     In July 1998, the Company purchased a previously leased operating  facility
     in Pearl River, New York for $2.5 million in cash.

     Repairs and maintenance  expense on property,  plant and equipment was $2.3
     million,  $1.4  million and $1.1 million for the years ended June 30, 1999,
     1998 and 1997, respectively.

6.   Accrued Expenses and Other Current Liabilities
     Accrued expenses and other current  liabilities  include accrued  salaries,
     wages and other  compensation  of $7.1 million and $4.3 million at June 30,
     1999 and 1998, respectively.

7.   Long-Term Debt and Credit Arrangements
     Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                            June 30,
                                    -------------------------
                                      1999             1998
                                    --------         --------
                                         (In thousands)
  <S>                               <C>              <C>
    Revolving credit, term loan
    and mortgage agreement (a)..    $ 21,853         $  4,720
  Building mortgage (b).........       4,165             -
  Equipment loans (c)...........       4,877            5,624
  Capitalized lease
    obligations ................         124            1,019
  Other.........................          98              118
                                    --------         --------
                                      31,117           11,481
  Less current maturities.......       6,509            1,755
                                    --------         --------
                                    $ 24,608         $  9,726
                                    ========         ========
</TABLE>
            Aggregate  long-term debt as of June 30, 1999 matures in each fiscal
      year as follows:
<TABLE>
<CAPTION>
                                    (In thousands)
                    <S>                 <C>
                    2000............... $  6,509
                    2001...............    6,422
                    2002...............    6,455
                    2003...............    4,695
                    2004...............    1,044
                    Thereafter.........    5,992
                                        --------
                                        $ 31,117
                                        ========
</TABLE>

     Interest  paid was $1.6 million,  $2.1 million and $2.6 million  during the
     years ended June 30, 1999, 1998 and 1997, respectively.

                                      S-11
<PAGE>
     (a) As of February 25, 1999, the Company replaced a previous agreement with
     a revised revolving credit, term loan and mortgage agreement with two banks
     which is secured by substantially all of the Company's assets not otherwise
     encumbered.  The  agreement  provides for a revolving  credit line of $23.0
     million,  a term loan of $20.0  million  and a  mortgage  on the  Company's
     Plainview  property for $4.5 million.  The revolving  credit and term loans
     expire in December 2002. The term loan is payable in quarterly installments
     of $1.25  million  beginning  September  30,  1999 with  final  payment  on
     December 31, 2002. As of June 30, 1999, the outstanding term loan was $17.5
     million. The interest rate on borrowings under this agreement is at various
     rates  depending  upon  certain  financial  ratios,  with the current  rate
     substantially  equivalent to 90- day LIBOR  (approximately 5.4% and 5.7% at
     June 30, 1999 and 1998,  respectively)  plus 1.50% on the revolving  credit
     borrowings  and LIBOR plus 1.75% on the term loan  borrowings.  The Company
     paid a facility fee of $100,000 and is required to pay a commitment  fee of
     .25% per annum of the  average  unused  portion  of the  credit  line.  The
     mortgage  is payable  in  monthly  installments  of  approximately  $26,000
     through March 2008 and a balloon payment of $1.6 million in April 2008. The
     Company  has  entered  into  an  interest  rate  swap   agreement  for  the
     outstanding  amount under the mortgage  agreement at approximately  7.6% in
     order to reduce the interest rate risk  associated  with these  borrowings.
     The fair market value of the interest rate swap agreement was $40,000 as of
     June 30, 1999 in favor of the Company.

     The  terms of the  agreement  require  compliance  with  certain  covenants
     including  minimum  consolidated  tangible  net worth and pretax  earnings,
     maintenance   of  certain   financial   ratios,   limitations   on  capital
     expenditures  and  indebtedness  and  prohibition  of the  payment  of cash
     dividends.  In connection with the purchase of certain materials for use in
     manufacturing, the Company has a letter of credit facility of $2.0 million.
     At June 30, 1999, the Company's  available  unused line of credit was $21.0
     million after consideration of the letter of credit.

     (b) In December 1998, the Company  financed the  acquisition and renovation
     of the land and  building  of its Pearl  River,  NY facility  and  received
     proceeds amounting to $4.2 million.  These borrowings are payable in annual
     installments of approximately $200,000 through 2019.

     (c) During the year ended June 30, 1998, the Company entered into equipment
     loans with two banks totaling $6.2 million. The loans are repayable monthly
     through  July 2004 and bear  interest at a floating  rate 200 basis  points
     above the 30-day  LIBOR  (approximately  5.2% and 5.7% at June 30, 1999 and
     1998, respectively).  The Company believes that the carrying amount of this
     debt  approximates  fair value since the interest  rate is variable and the
     margins are  consistent  with those  available to the Company under similar
     terms.

8.   Senior Subordinated Convertible Debentures
     During June 1994, the Company  completed a sale of $10.0 million  principal
     amount of 7-1/2%  Senior  Subordinated  Convertible  Debentures to non-U.S.
     persons.  The net proceeds from the offering were used  initially to retire
     certain  bank  indebtedness  and for general  working  capital  with excess
     proceeds  placed in temporary  short-term  bank related  investments  until
     ultimately used for the purchase of MIC in fiscal 1996. The debentures were
     convertible into the Company's Common Stock at a price of $5.625 per share.
     On  September  8,  1997,  the  Company  called  for the  redemption  of all
     outstanding 7-1/2% Senior Subordinated  Convertible Debentures at 104.5% of
     the principal  amount.  All of the principal amount of the Company's 7-1/2%
     Senior  Subordinated  Convertible  Debentures was converted.  In connection
     with the conversions, $599,000 of deferred bond issuance costs were charged
     to additional paid-in capital.

                                      S-12
<PAGE>

9.   Stockholders' Equity

     (a) Common  Stock  Offering  In March 1998,  the  Company  sold 2.6 million
     shares of its Common Stock in a public  offering for $31.3 million,  net of
     an underwriting discount of $2.0 million and issuance costs of $496,000. Of
     these net proceeds,  $9.6 million was used to repay bank indebtedness.  The
     balance of the net proceeds was used primarily for the purchase of UTMC.

     (b) Stock Options and Warrants
     Under the Company's stock option plans,  options may be granted to purchase
     shares of the  Company's  Common Stock  exercisable  at prices equal to the
     fair  market  value  on the  date of  grant.  During  1990,  the  Company's
     shareholders approved the Non-Qualified Stock Option Plan (the "NQSOP"). In
     December  1993, the Board of Directors  adopted the Outside  Director Stock
     Option  Plan  (the  "Directors'   Plan")  which  provides  for  options  to
     non-employee directors,  which become exercisable in three installments and
     expire ten years from the date of grant.  The Directors'  Plan, as amended,
     covers 500,000 shares of the Company's  Common Stock. In November 1994, the
     shareholders  approved the Directors' Plan and the 1994 Non-Qualified Stock
     Option Plan (the "1994 Plan"). In November 1996, the shareholders  approved
     the 1996 Stock Option Plan (the "1996 Plan").  In April 1998,  the Board of
     Directors adopted the 1998 Stock Option Plan (the "1998 Plan").  The NQSOP,
     the 1994 Plan,  the 1996 Plan and the 1998 Plan  provide for options  which
     become  exercisable in one or more installments and each covers 1.5 million
     shares of the Company's Common Stock.  Options under the NQSOP and the 1994
     Plan expire five years from the date of grant.  Options under the 1996 Plan
     and the 1998 Plan  shall  expire  not later than ten years from the date of
     grant.

     The Company has also issued to employees,  who are not executive  officers,
     options to purchase  548,000  shares of Common  Stock  exercisable  between
     $4.00 and $13.63  per share.  Such  grants  were not  covered by one of the
     above plans.

     Additional  information  with respect to the Company's  stock options is as
     follows:
<TABLE>
<CAPTION>
                                     Weighted       Shares
                                      Average        Under
                                     Exercise     Outstanding
                                      Prices        Options
                                     --------     -----------
                                         (In thousands)

                 <S>                 <C>              <C>
                 Balance, July 1,
                  1996.........      $  3.38          3,293
                 Granted.......         4.47            668
                 Forfeited.....         3.17            (71)
                 Exercised.....         2.04           (570)
                 Balance, June 30,                    -----
                  1997.........         3.83          3,320
                 Granted.......         9.94          1,043
                 Forfeited.....         3.65            (35)
                 Exercised.....         3.17           (436)
                 Balance, June 30,                    -----
                  1998.........         5.54          3,892
                 Granted.......        11.82          1,155
                 Forfeited.....         4.50             (3)
                 Exercised.....         3.74         (1,460)
                 Balance, June 30,                    -----
                  1999.........      $  8.30          3,584
                                                      =====
</TABLE>

     During  fiscal  years  1999,  1998 and 1997,  payroll  tax on stock  option
     exercises  were withheld from  employees in shares of the Company's  Common
     Stock  amounting to $2.6 million,  $10,000 and $316,000,  respectively,  as
     permitted by the option plan provisions.

                                      S-13
<PAGE>
     Options to purchase  1.5 million,  2.3 million and 2.2 million  shares were
     exercisable at weighted average  exercise prices of $5.07,  $3.90 and $3.61
     as of June 30, 1999, 1998 and 1997, respectively.

     The options  outstanding  as of June 30, 1999 are  summarized  in ranges as
     follows:
<TABLE>
<CAPTION>
                        Options Outstanding
                    --------------------------------
                    Weighted               Weighted
      Range of       Average                Average
      Exercise      Exercise   Options     Remaining
       Prices        Price     Outstanding   Life
      --------      --------   ----------- ---------
                             (In thousands)
     <S>            <C>          <C>         <C>
     $ 3.75-$ 5.38  $ 4.17       1,402       4.5 years
     $ 8.19-$11.63    9.76       1,589       8.6
     $13.44-$17.56   14.15         593       9.2
                                 -----
                                 3,584
                                 =====
</TABLE>
<TABLE>
<CAPTION>
                           Options Exercisable
                    --------------------------------
                   Weighted
       Range of    Average
       Exercise    Exercise     Options
        Prices      Price     Exercisable
       --------    --------   -----------
                             (In thousands)
     <S>             <C>           <C>
     $ 3.75-$ 5.38   $4.12         1,225
     $ 8.19-$11.63    8.75           259
     $13.44-$17.56   13.99            23
                                   -----
                                   1,507
                                   =====
</TABLE>
     The Company has  outstanding  warrants  to purchase  387,000  shares of its
     Common Stock  exercisable  between  $6.75 and $7.50 per share  through June
     2004.   These  warrants  were  issued  primarily  in  connection  with  the
     acquisition of MIC in fiscal 1996.

     (c) Accounting for Stock-Based Compensation. In October 1995, the Financial
     Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
     Compensation,"  which the Company  adopted in fiscal 1997.  The Company has
     chosen not to implement the fair value based accounting method for employee
     and director stock  options,  but has elected to disclose the pro forma net
     income and net income per share as if such  method had been used to account
     for stock-based compensation cost as described in SFAS No. 123.

     The per share weighted  average fair value of stock options  granted during
     fiscal 1999, 1998 and 1997 was $7.50, $7.39 and $2.37, respectively, on the
     date of  grant  using  the  Black  Scholes  option-pricing  model  with the
     following weighted average  assumptions:  1999 - expected dividend yield of
     0%, risk free interest rate of 5.3%,  expected stock volatility of 77%, and
     an expected option life of 5.1 years; 1998 - expected dividend yield of 0%,
     risk free interest rate of 5.8%,  expected stock  volatility of 80%, and an
     expected  option life of 7.4 years;  1997 - expected  dividend yield of 0%,
     risk free interest rate of 6.3%,  expected stock  volatility of 40%, and an
     expected option life of 7.4 years. The pro forma  compensation  cost before
     income  taxes  was  $4.8  million, $2.0  million and $783,000 for the years



                                      S-14
<PAGE>
     ended  June  30,  1999,   1998  and  1997,   respectively,   based  on  the
     aforementioned  fair value at the grant date only for options granted after
     fiscal year 1995.  The  Company's net income and net income per share using
     this pro forma compensation cost would have been:
<TABLE>
<CAPTION>
                                 Years Ended June 30,
                               -----------------------
                         (In thousands, except per share data)

                                        1997
                              -------------------------
                              As Reported     Pro Forma
                              -----------     ---------
   <S>                          <C>            <C>
   Net income.................  $  4,420       $  3,919

   Net income per share
           -Basic.............   $ 0.36         $ 0.31
           -Diluted...........     0.34           0.30


                                        1998
                              -------------------------
                              As Reported     Pro Forma
                              -----------     ---------
   Net income.................  $  8,406       $  7,112

   Net income per share
           -Basic.............   $ 0.57         $ 0.48
           -Diluted...........     0.51           0.44


                                        1999
                              ------------------------
                              As Reported     Pro Forma
                              -----------     ---------
   Net income...............    $  9,757       $  6,608

   Net income per share
         - Basic............     $ 0.55         $ 0.37
         - Diluted..........       0.51           0.36
</TABLE>


     Since the pro forma  compensation  cost reflects only options granted after
     fiscal year 1995, the full impact of calculating  stock-based  compensation
     costs  under  SFAS No.  123 is not  reflected  in the pro forma net  income
     because  compensation cost is recognized over the respective vesting period
     and compensation cost for options granted prior to fiscal year 1996 was not
     reflected.

     (d)  Shareholders'  Rights Plan On August 13, 1998, the Company's  Board of
     Directors  approved  a  Shareholders'  Rights  Plan  which  provides  for a
     dividend  distribution  of one right for each share to holders of record of
     the Company's Common Stock on August 31, 1998 and the issuance of one right
     for each  share of Common  Stock  that shall be  subsequently  issued.  The
     rights become  exercisable only in the event a person or group  ("Acquiring
     Person")  accumulates  15% or more of the Company's  Common Stock, or if an
     Acquiring  Person announces an offer which would result in it owning 15% or
     more of the Common Stock.  The rights expire on August 31, 2008. Each right
     will  entitle the holder to buy one  one-thousandth  of a share of Series A
     Junior Participating Preferred Stock, as amended, of the Company at a price
     of $65. In  addition,  upon the  occurrence  of a merger or other  business
     combination,  or the  acquisition by an Acquiring  Person of 50% or more of
     the Common Stock,  holders of the rights,  other than the Acquiring Person,
     will be entitled to purchase  either  Common Stock of the Company or common
     stock of the Acquiring Person at half their respective market values.

     The Company will be entitled to redeem the rights for $.01 per right at any
     time prior to a person becoming an Acquiring Person.

                                      S-15
<PAGE>
     (e) Net Income Per Share
     A  reconciliation  of the numerators and  denominators of the Basic EPS and
     Diluted EPS calculations is as follows:
<TABLE>
<CAPTION>
                                                         Years Ended June 30,
                                                ------------------------------------
                                                  1999           1998         1997
                                                  ----           ----         ----
                                               (In thousands, except per share data)
  <S>                                           <C>            <C>          <C>
  Computation of Adjusted Net Income:
  Net income for basic earnings per
    common share.............................   $  9,757       $  8,406     $  4,420
    Add: Debenture interest and amortization
    expense, net of income taxes.............       -               103          504
  Adjusted net income for diluted               --------       --------     --------
    earnings per common share................   $  9,757       $  8,509     $  4,924
  Computation of Adjusted Weighted Average      ========       ========     ========
    Shares Outstanding:
  Weighted average shares outstanding........     17,784         14,802       12,446
  Add: Shares assumed to be issued upon
    conversion of debentures.................       -               392        1,774
  Add: Effect of dilutive options and
    warrants outstanding.....................      1,344          1,333          400
  Weighted average shares and common share      --------       --------     --------
    equivalents used for computation of
    diluted earnings per common share........     19,128         16,527       14,620
  Net Income Per Common Share:                  ========       ========     ========
    Basic....................................     $0.55          $0.57        $0.36
                                                  =====          =====        =====
    Diluted..................................     $0.51          $0.51        $0.34
                                                  =====          =====        =====
</TABLE>
     Options to purchase 92,500 shares at exercise prices ranging between $15.75
     and  $17.56  per share were  outstanding  as of June 30,  1999 but were not
     included in the  computation of Diluted EPS because the exercise  prices of
     these  options  were  greater  than the average  market price of the common
     shares.

10.  Income Taxes
     The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
                                          Years Ended June 30,
                                 -------------------------------------
                                     1999         1998          1997
                                 ---------    ----------     ---------
                                              (In thousands)
       <S>                        <C>          <C>           <C>
       Current:
         Federal...............  $   4,465     $   3,178     $   1,752
         State and local.......        873           568           693
                                 ---------     ---------     ---------
                                     5,338         3,746         2,445
                                 ---------     ---------     ---------
       Deferred:
         Federal...............      1,989           932           404
         State and local.......       (177)           72          (414)
                                 ---------     ---------     ---------
                                     1,812         1,004           (10)
                                 ---------     ---------     ---------
                                 $   7,150     $   4,750     $   2,435
                                 =========     =========     =========
</TABLE>
     The provision for income taxes varies from the amount  computed by applying
     the U.S.  Federal income tax rate to income before income taxes as a result
     of the following:
<TABLE>
<CAPTION>
                                         Years Ended June 30,
                                 -------------------------------------
                                    1999          1998          1997
                                 ---------     ---------     ---------
                                              (In thousands)
       <S>                       <C>           <C>           <C>
       Tax at statutory rate...  $   5,917     $   4,505     $   2,331
       Non-deductible acquired
        in-process research
        and development charge.      1,225             -             -
       State and local
        income tax.............        452           416           184
       Research and development
        credit.................       (500)         (250)            -
       Other, net..............         56            79           (80)
                                 ---------     ---------     ---------
                                 $   7,150     $   4,750     $   2,435
                                 =========     =========     =========
</TABLE>
                                      S-16
<PAGE>
    Deferred tax assets and liabilities consist of:

<TABLE>
<CAPTION>
                                                             June 30,
                                                   --------------------------
                                                      1999              1998
                                                   ---------         --------
                                                         (In thousands)
       <S>                                         <C>               <C>
       Accounts receivable.......................  $     160         $    106
       Inventories...............................      5,025            1,671
       Accrued expenses..........................        106               84
                                                   ---------         --------
         Current assets..........................      5,291            1,861
                                                   ---------         --------
       Other long-term liabilities...............        801              781
       Capital loss carryforwards................      2,543            2,493
       Tax loss carryforwards....................      1,434              238
       Tax credit carryforwards..................      3,864            3,737
       Less: valuation allowance.................     (3,426)          (3,379)
                                                   ---------         --------
         Non-current assets......................      5,216            3,870
                                                   ---------         --------
       Property, plant and equipment.............     (3,572)          (1,848)
       Intangibles...............................     (5,205)          (3,125)
       Other.....................................        (21)             (53)
                                                   ---------         --------
         Long-term liabilities...................     (8,798)          (5,026)
                                                   ---------         --------
         Net non-current liabilities.............     (3,582)          (1,156)
                                                   ---------         --------
           Total.................................  $   1,709         $    705
                                                   =========         ========
</TABLE>
     In accordance with SFAS No. 109, the Company records a valuation  allowance
     against  deferred tax assets if it is more likely than not that some or all
     of the deferred tax asset will not be realized.

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

     The Company made income tax payments of $3.3 million, $2.1 million and $1.5
     million and received  refunds of $75,000,  $26,000 and $1.1 million  during
     the years ended June 30, 1999, 1998 and 1997, respectively.

     A tax benefit of $5.2  million,  $1.6  million and $598,000 was credited to
     additional  paid-in  capital during the years ended June 30, 1999, 1998 and
     1997,  respectively  in  connection  with the exercise of stock options and
     warrants.

11.  Employment Contracts

     As of June 30, 1999, the Company has employment  agreements with certain of
     its  officers for periods  through  June 30, 2004 with annual  remuneration
     ranging from $180,000 to $350,000,  plus cost of living adjustments and, in
     some cases,  additional  compensation  based upon  earnings of the Company.
     Future  aggregate  minimum  payments under these contracts are $1.2 million
     per year.  Certain of the  contracts  provide for a  three-year  consulting
     period at the expiration of the employment term at two-thirds of salary. In
     addition,  these  officers  have the option to terminate  their  employment
     agreements upon change in control of the Company,  as defined,  and receive
     lump sum payments equal to the salary and bonus,  if any, for the remainder
     of the term.

12.  Employee Benefit Plans

     The Aeroflex  Incorporated  Employees'  401(k) Plan (the "ARX  401(k)") was
     established  pursuant to Section  401(k) of the Internal  Revenue Code. All
     employees of the Company and certain  subsidiaries who are not members of a
     collective  bargaining  agreement may  participate in the ARX 401(k).  Each
     participant  has  the  option  to  contribute  a  portion  of  his  or  her
     compensation.
                                      S-17
<PAGE>
     For each of the 1999, 1998 and 1997 calendar years,  the Board of Directors
     has elected to provide an employer  contribution,  which vests immediately,
     equal to 40%, 30% and 30%,  respectively of employee  contributions subject
     to certain  limitations.  The ARX 401(k) expense for the fiscal years ended
     June  30,  1999,  1998  and  1997  was  $507,000,  $298,000  and  $263,000,
     respectively.

     Employees  of MIC, who are  excluded  from the ARX 401(k),  are eligible to
     participate in the MIC 401(k) and Profit Sharing Plan (the "MIC Plan").  In
     addition to contributing a portion of his or her compensation and receiving
     an employer contribution,  eligible employees also receive an allocation of
     a  discretionary  share  of the MIC  profits.  The  MIC  Plan  expense  was
     $500,000,  $512,000  and $450,000 for the fiscal years ended June 30, 1999,
     1998 and 1997, respectively.

     Effective January 1, 1994, the Company established a Supplemental Executive
     Retirement  Plan  (the  "SERP")  which  provides   retirement,   death  and
     disability  benefits to certain of its  officers.  The SERP expense for the
     fiscal years ended June 30, 1999, 1998 and 1997 was $384,000,  $324,000 and
     $300,000,  respectively.  The assets of the SERP are held in a Rabbi  Trust
     and  amounted  to $1.2  million  and  $744,000  at June 30,  1999 and 1998,
     respectively.  The accumulated benefit obligation was $2.0 million and $1.7
     million  at June 30,  1999 and  1998,  respectively.  No  participants  are
     currently receiving benefits.

13.  Commitments and Contingencies

     Operating Leases

     Several of the Company's  operating  facilities  and certain  machinery and
     equipment are leased under agreements expiring through 2005. The leases for
     machinery and equipment  generally  contain options to purchase at the then
     fair market value of the related leased assets.

     Future minimum  payments under operating  leases as of June 30, 1999 are as
     follows for the fiscal years:
<TABLE>
<CAPTION>
                                    (In thousands)
                                     ------------
                   <S>                 <C>
                   2000............... $  2,191
                   2001...............    1,990
                   2002...............    1,677
                   2003...............    1,598
                   2004...............      783
                   Thereafter.........      361
                                       --------
                                       $  8,600
                                       ========
</TABLE>

     Rental  expense was $2.3 million,  $1.9 million and $1.6 million during the
     fiscal years 1999, 1998 and 1997, respectively.

     Legal Matters

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

     The Company is involved in various other routine legal matters.  Management
     believes the outcome of these  matters  will not have a materially  adverse
     effect on the Company's consolidated financial statements.

                                      S-18
<PAGE>
14.  Business Segments

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

    Microelectronics:                  Isolator Products:
    a)Microelectronic Modules          a)Commercial spring and rubber isolators
    b)Thin Film Interconnects          b)Industrial spring and rubber isolators
    c)Integrated Circuits              c)Military wire-rope isolators



    Test, Measurement and
     Other Electronics:
    a)Instrument Products
    b)Motion Control Systems
       - Scanning devices
       - Stabilization and tracking
           devices
       - Magnetic devices









                                     S-19
<PAGE>
     The Company is a manufacturer of advanced technology systems and components
     for commercial industry, government and defense contractors.  Approximately
     41%, 42% and 50% of the Company's sales for the fiscal years 1999, 1998 and
     1997, respectively,  were to agencies of the United States government or to
     prime  defense   contractors  or   subcontractors   of  the  United  States
     government.  The only  customers  which  constituted  more  than 10% of the
     Company's  sales  during any year in the  period  presented  were  Lockheed
     Martin and Lucent  Technologies which comprised 12.2% and 11.4% of sales in
     fiscal year 1999,  respectively,  Lucent Technologies which comprised 15.4%
     of sales in fiscal year 1998 and Lockheed Martin and Hughes which comprised
     13.3% and 11.7% of sales in fiscal year 1997,  respectively.  The Company's
     customers  are located  primarily  in the United  States,  but export sales
     accounted  for 7.7%,  5.5% and 8.8% in fiscal  years  1999,  1998 and 1997,
     respectively.
<TABLE>
<CAPTION>
                                                           Years Ended June 30,
                                                 ----------------------------------
     Business Segment Data:                        1999         1998         1997
                                                   ----         ----         ----
                                                           (In thousands)
     <S>                                         <C>          <C>          <C>
     Net sales:
       Microelectronics.......................   $ 96,846     $ 74,263     $ 48,462
       Test, Measurement and
         Other Electronics....................     41,515       25,685       28,144
       Isolator Products......................     18,743       18,913       17,693
                                                 --------     --------     --------
         Net sales............................   $157,104     $118,861     $ 94,299
                                                 ========     ========     ========
     Operating income:
       Microelectronics.......................   $ 20,104     $ 14,147     $  6,644
       Test, Measurement and
         Other Electronics....................      3,134          996        2,762
       Isolator Products......................      2,108        3,063        2,844
       General corporate expenses.............     (4,262)      (3,348)      (2,514)
                                                 --------     --------     --------
                                                   21,084       14,858        9,736
       Acquired in-process research
         and development(1)...................     (3,500)            -            -
       Interest expense.......................     (1,454)      (2,011)      (2,974)
       Other income, net......................        777          309           93
                                                 --------     --------     --------
         Income before income taxes...........   $ 16,907     $ 13,156     $  6,855
                                                 ========     ========     ========
     Total assets:
       Microelectronics.......................   $104,222     $ 58,053     $ 37,741
       Test, Measurement and
         Other Electronics....................     43,958       27,522       28,603
       Isolator Products......................     10,020       10,163        9,700
       Corporate..............................      7,016       28,363        5,003
                                                 --------     --------     --------
         Total assets.........................   $165,216     $124,101     $ 81,047
                                                 ========     ========     ========
     Capital expenditures:
       Microelectronics.......................   $  6,955     $  8,792     $  1,637
       Test, Measurement and
         Other Electronics....................      1,559          848          996
       Isolator Products......................        586          970          293
       Corporate..............................          4            3            5
                                                 --------     --------     --------
         Total capital expenditures...........   $  9,104     $ 10,613     $  2,931
                                                 ========     ========     ========
     Depreciation and amortization
      expense:
       Microelectronics.......................   $  4,112     $  2,802     $  2,230
       Test, Measurement and
         Other Electronics....................      1,849        1,553        1,528
       Isolator Products......................        563          500          532
       Corporate..............................         30           29           32
                                                 --------     --------     --------
         Total depreciation and
          amortization expense................   $  6,554     $  4,884     $  4,322
                                                 ========     ========     ========
<FN>
            (1) The special charge for the write-off of in-process  research and
        development  acquired in the purchase of UTMC is allocable  fully to the
        Microelectronics segment.
</FN>
</TABLE>
                                      S-20
<PAGE>
Quarterly Financial Data (Unaudited):
(In thousands, except per share data and footnotes)


<TABLE>
<CAPTION>
                                             Quarter                    Year Ended
1999                          First     Second     Third      Fourth      June 30
----------------------------------------------------------------------------------
<S>                         <C>        <C>        <C>        <C>        <C>
Net Sales                   $ 31,629   $ 36,197   $ 40,604   $ 48,674   $157,104
Gross Profit                  11,125     12,402     15,399     19,533     58,459
Net Income (1)              $  2,258   $  2,810   $    188   $  4,501   $  9,757
Net income per share:       ========   ========   ========   ========   ========
  Basic (1)                  $  .13     $  .16     $  .01     $  .25     $  .55
                             =======    =======    =======    =======    =======
  Diluted (1)                $  .12     $  .15     $  .01     $  .23     $  .51
                             =======    =======    =======    =======    =======


                                             Quarter                    Year Ended
1998                          First     Second     Third      Fourth      June 30
----------------------------------------------------------------------------------
Net Sales                   $ 23,885   $ 29,325   $ 31,221   $ 34,430   $118,861
Gross Profit                   8,212      9,919     10,883     12,561     41,575
Net Income                  $  1,152   $  1,686   $  2,057   $  3,511   $  8,406
Net income per share:       ========   ========   ========   ========   ========
  Basic                      $  .09     $  .12     $  .14     $  .20     $  .57
                             =======    =======    =======    =======    =======
  Diluted                    $  .08     $  .11     $  .13     $  .19     $  .51
                             =======    =======    =======    =======    =======

<FN>
    (1) Includes  $3.5 million  ($.18 per diluted  share and $.20 basic) for the
    year ended June 30, 1999 and quarter ended March 31, 1999, for the write-off
    of the in- process research and development  acquired in connection with the
    purchase of UTMC Microelectronic Systems, Inc.
</FN>
</TABLE>

Since per share  information is computed  independently for each quarter and the
full  year,  based  on the  respective  average  number  of  common  and  common
equivalent shares  outstanding,  the sum of the quarterly per share amounts does
not necessarily equal the per share amounts for each year.

                                      S-21
<PAGE>

                              AEROFLEX INCORPORATED
                              ---------------------
                                AND SUBSIDIARIES
                                ----------------
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                 -----------------------------------------------
                                 (In thousands)

<TABLE>
<CAPTION>
Column A            Column B          Column C        Column D    Column E
--------            --------          --------        --------    --------
                                      Additions
                               --------------------
                                          Charged
                    Balance at Charged to to other                Balance at
                    beginning  costs and  accounts    Deductions    end of
Description         of period  expenses   - describe  - describe    period
-----------         ---------- ---------- ----------  ----------  -----------

<S>                     <C>      <C>        <C>       <C>            <C>
YEAR ENDED JUNE 30, 1999:
------------------------
Allowance for doubtful
  accounts              $  317   $  152     $     -   $   88  (A)     $  381
Reserve for inventory   ======   ======     =======   ======          ======
  obsolescence          $3,592   $  805     $     -   $   43  (B)     $4,354
                        ======   ======     =======   ======          ======
YEAR ENDED JUNE 30, 1998:
------------------------
Allowance for doubtful
  accounts              $  417   $   15     $     -   $  115  (A)     $  317
Reserve for inventory   ======   ======     =======   ======          ======
  obsolescence          $4,055   $  150     $     -   $  613  (B)     $3,592
                        ======   ======     =======   ======          ======

YEAR ENDED JUNE 30, 1997:
------------------------
Allowance for doubtful
  accounts              $  354   $   72     $     -   $    9  (A)     $  417
Reserve for inventory   ======   ======     =======   ======          ======
  obsolescence          $4,260   $  100     $     -   $  305  (B)     $4,055
                        ======   ======     =======   ======          ======

<FN>
Note: (A) - Net write-offs of uncollectible amounts.
      (B) - Write-off of inventory.
</FN>
</TABLE>


                                      S-22