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, 1997
                                       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 8, 1997 approximately $104,160,613.
---------------------------------------------------

     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 8, 1997 - 12,869,212 (excluding 131,756 shares held in treasury).

     Documents incorporated by reference: Parts II and IV - The Annual Report to
Stockholders for the fiscal year ended June 30, 1997 to the extent  specifically
identified or  incorporated  herein.  Part III - Registrant's  definitive  proxy
statement to be filed pursuant to Regulation 14A of the Securities Act of 1934.

<PAGE>

                                     PART I
                                     ------   

ITEM ONE - BUSINESS
           --------

     Aeroflex Incorporated,  through its subsidiaries (collectively,  unless the
context requires otherwise, referred to as the "Company" or "Aeroflex") utilizes
advanced  technologies  to provide  state-of-the-art  electronic  packaging  and
testing  solutions used in communication  applications,  among others.  Aeroflex
designs and manufactures  microelectronic  circuits and  interconnect  products,
instrument  products and motion  control  systems,  for  commercial  and defense
markets.  It also  designs  and  manufactures  shock and  vibration  stabilizing
systems used for commercial, industrial and defense applications.

     Operations are grouped into three segments:  microelectronics,  electronics
and isolator products. These segments, their products and the markets they serve
are described below.

     In March 1995, the Company  adopted a plan to consolidate  its Puerto Rican
manufacturing  operations  into  its  existing  facilities  in New  York and New
Jersey. The Company has ceased manufacturing operations in Puerto Rico.

     As of June 30, 1997, the Company has accounted for certain segments, namely
commercial and custom envelopes  (Huxley  Envelope Corp.) and  telecommunication
systems  services  (T-CAS  Corp.)  as  discontinued  operations.  The  following
description  of the  Company's  business  does not  include  these  discontinued
operations.  These  segments  are  described  under  the  caption  "Discontinued
Operations".

Microelectronics 
----------------
Microelectronic Modules - (Circuit Technology)

     Since 1974,  the Company has been  engaged in the design,  manufacture  and
sale  of  state-of-the-art   microelectronic   assemblies  for  the  electronics
industry.  In January 1994, the Company  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.
This  acquisition  increased  the range of  products  offered and  enhanced  the
Company's engineering capability.

     Microelectronic  assemblies  are  called  "Hybrids"  because  they  combine
elements of  integrated  circuit and printed  circuit board  technologies.  They
provide  many of the  advantages  of  integrated  circuits  relative  to printed
circuit  boards,  such as  miniaturization,  increased  capability  and  greater
reliability and environmental  stability.  However,  unlike integrated circuits,
they can be  economically  manufactured  in  quantities  of  hundreds to several
thousands. Hybrids are multi-layered electronic circuits,  containing very small
and barely  visible  passive and active  elements  (those that carry,  transmit,
receive,  generate or amplify signals) which are mounted and wired together on a
single  multi-layered  ceramic surface in patterns  designed to perform specific
electronic functions. These functions include amplification,  switching,  signal
conversion,  voltage  regulation  and  decoding of microwave  signals.  They are
especially suited to aircraft,  spacecraft,  missile and industrial applications
where space is limited,  such as in navigation  equipment,  airborne  computers,
sonar systems, medical diagnostic instrumentation, satellite/telecom systems and
computer instrumentation.

     One such Hybrid  Microcircuit  product family,  the  MIL-STD-1553  Data Bus
product  line,  has  a   particularly   broad  range  of   applications.   These
microcircuits,  which have been adopted by the Tri-services (Army, Navy, and Air
Force) as a standard interface, act as a digital data communication link between
various computer-based equipment.






                                  -2-
<PAGE>
     A series of Monolithic Data-bus Transceivers and Remote Terminals, has been
transitioned  to  production  by the  Company,  many of which are  described  by
"Standard  Military Devices" (SMD) drawings,  thereby  facilitating their use in
current and future avionic systems.

     The Company's  Microcircuits are used on numerous avionic systems including
the F-14,  F-15,  F-16 and F-18  aircraft  and the  AMRAAM  and  Tomahawk-cruise
missiles.  They are also  qualified  for possible  further use on the updates to
older  platforms.  The  Data-bus  microcircuits  are used in a wide  variety  of
aerospace  and seaboard  navigation  and  communication  systems.  A Motor Drive
Hybrid  microcircuit  is in production for the AN/PVS-6,  a miniature,  eyesafe,
laser rangefinder.

     The Company has production  contracts for the Serial  Interface  Module and
Current  Mode  Coupler  Module  used on the  ARINC  629  Data-bus  which  is the
commercial  equivalent of  MIL-STD-1553.  This  commercial  data  communications
interface is used on the Boeing 777.

     Multichip  Modules  (MCMs)  are  a  further   advancement  of  the  hybrid
microcircuit technology, in which large digital devices such as microprocessors,
SRAM and EEPROM memories are combined with multilayer  ceramic  packages to form
complex  digital  systems or subsystems.  Multichip  modules  perform  functions
similar to hybrids,  except the emphasis is on  miniaturizing  and  synthesizing
digital functions such as microprocessor  systems and mass memories. The Company
has been  qualified on multiple  MCM designs on both the F-16 and F-22  Advanced
Tactical Fighter (ATF), V-22, LAMPS, AWACS and AEGIS Missle and is participating
in pre-production  and production  contracts.  Application  specific  multi-chip
modules  have   significant   market   potential   in  avionics,   workstations,
telecommunications and satellites.

     The Company has expanded its standard  memory module  product line with the
addition  of  thirty-five  new memory  modules in the past  three  years.  These
products,  which consist of SRAM and Flash memory modules, take advantage of the
Company's  multichip module  expertise.  They are designed to be used for a wide
range of computer and general purpose circuit board applications.

     The  Company  continues  to  expand  its  market  for the  R4400  family of
microprocessor  modules with the sale of production  units  utilized in multiple
avionics/missile  applications.  The Intel  I486 dual  microprocessor  module is
being utilized for avionics and missile applications, in production quantities.

Thin Film Interconnects - (MIC Technology)

     In March 1996, the Company acquired MIC Technology  Corporation (MIC) which
designs,  develops,  manufactures and markets  microelectronics  products in the
form of passive thin film circuits and  interconnects.  Its advanced circuit and
interconnect  technology is emerging as a key technology for miniaturized,  high
frequency, high performance electronic products for rapidly growing markets like
cellular telephones,  personal  communcation service devised (PCS) and microwave
data links.  It  continues  to be an essential  technology  in  satellite  based
communication  hardware,  cable amplifiers and leading edge military  electronic
products.

     Thin film  products  allow  dramatic  reductions  in the size and weight of
electronic  devices  and provide  superior  electrical  and thermal  performance
available today at high frequencies.  Growth in thin film technology is expected
to complement the advances in semiconductor speed which have occurred during the
recent  years in the digital  world.  Thin film removes  limitations  imposed by
other  interconnect  technologies for high clock rate digital  circuits.  In the
digital,  analog R.F., and microwave domain,  thin films allow the production of
hybrid integrated  circuits with lumped elements at lower cost than full silicon
(Si)  or  gallium  arsenide  (GaAs)  integration  while  retaining   outstanding
performance.




                                      -3-

<PAGE>

     MIC serves both commercial and military markets. Commercial markets include
wireless  communications,  cable television  ("CATV"),  fiber optics and digital
MCMs. Military markets include missile Transmit and Receive (T/R) modules, radar
T/R modules and advanced Electronic Counter Measures (ECM).

     MIC  designs  and  manufactures  a variety  of  electronic  components  for
wireless/cellular  PCS products  including power amplifiers,  band-pass filters,
mixers  and down  converters.  Due to the  growth in the  cellular  market,  the
current 900 MHz cellular band is saturated.  Therefore,  new cellular  operating
frequencies at 1.8+ GHz are being allocated.  MIC's circuits operate at both the
existing and higher band widths.  Competing technologies (thick film, epoxy, and
Teflon-based   substrates)   compromise   performance   at  1.8+  GHz  operating
frequencies.

     MIC manufactures high power substrates for CATV amplifiers.  These receive,
filter,  amplify and transmit signals that distribute cable service.  In January
1997, MIC entered into a strategic sole source supplier agreement to manufacture
and supply all of Motorola's RF Semiconductor Division's thin film interconnects
supporting   component   applications   in  CATV,   cellular   and  land  mobile
communications.

     Commercial  satellite  networks  require high  frequency  T/R functions for
ground  to  satellite,   satellite  to   satellite,   and  satellite  to  ground
transmission.   MIC   produces  T/R  module   circuits  for  signal   splitting,
amplification, phase shifting, and combining functions.

     In July 1997, MIC entered into a multi-year strategic agreement under which
MIC will supply Lucent Technologies with film integrated circuits which are used
in communications applications. In connection with this agreement, MIC purchased
equipment, inventory and licenses for advanced technologies from two of Lucent's
telecommunications  components  operations which  significantly  increases MIC's
manufacturing capacity and it is expected to enhance its capabilities.

     MIC is a key supplier to Texas  Instruments and Raytheon for T/R modules on
the Army's  Ground  Based Radar  program and a key  supplier to  Lockheed,  TRW,
Westinghouse and Texas  Instruments on the Air Force's Advanced Tactical Fighter
(F22).

Electronics
-----------

Instrumentation

Frequency Synthesizers and Components - (Comstron)

     In November 1989, the Company acquired Comstron Corporation which is now an
operating  division  of  Aeroflex  Laboratories  Incorporated,   a  wholly-owned
subsidiary  of Aeroflex.  Comstron is a leader in radio  frequency and microwave
technology used in the manufacture of fast switching frequency  synthesizers and
components.


                                  -4-

<PAGE>

     A frequency synthesizer is a device or circuit that synthetically  produces
a large number of frequencies based upon a single reference frequency.  The best
way to tune a radio or  receiver  is with a crystal  frequency  reference.  When
multiple frequencies are necessary, multiple crystals and switches are required.
Eventually it becomes first  impractical,  and then  impossible,  to use a large
number of crystals due to size  constraints.  A frequency  synthesizer  replaces
millions or billions of crystals.

     The Company's  synthesizers operate in a broad frequency range of 10 MHz to
40GHz with excellent spectral purity.  Their small size and modular construction
allow for easy systems  configuration  and facilitation of repair.  The Company,
together with Hewlett  Packard,  helped develop the Modular  Measurement  System
(MMS) standard which has been selected as the architecture underlying the RF and
microwave  sections  of a number of  automated  test  equipment  (ATE)  systems,
including CASS, the U.S. Navy's next generation ATE. The Company's  synthesizers
also  significantly  improve the performance and reliability of existing radars.
The Company's synthesizers have been selected by Westinghouse to upgrade its TPS
63 and 70 series radars. Additionally,  the synthesizers improve the performance
of threat  simulators  as well as radar cross  section  and antenna  measurement
systems.

     With the 1993 introduction of the new model FS-5000 synthesizer series, the
Company  strengthened  its  leadership  position  in  the  Ultra-Fast  Switching
Frequency  Synthesizer market. The FS-5000 series is ten times faster, less than
half  the  size  and  offers  superior  performance  to the  Company's  previous
synthesizers.  In 1995, the Company  introduced a phase-coherent  version of the
FS-5000 which expands its application into numerous radar systems.

     Component technology,  which contributes to the exceptional  performance of
the Company's synthesizer,  includes custom microwave and RF hybrids and filters
manufactured by the Company.

High Speed Automatic Test Systems - (Lintek)

     In January  1995,  the  Company  acquired  Lintek  Inc.  as a wholly  owned
subsidiary of Aeroflex. Aeroflex Lintek Corp., the successor to Lintek, Inc., is
a leader in high speed  instrumentation  radar  systems and antenna  measurement
systems.  These  systems are used by the  Department of Defense and by industry.
Lintek Inc. was  incorporated  in 1988 for the purpose of developing and selling
instrumentation  radar systems,  and currently has systems in place with many of
the large aerospace companies and with major government laboratories.

     Instrumentation radar systems are used to measure the radar reflectivity or
Radar Cross Section (RCS),  both scale models and actual  examples,  of aircraft
and other objects. These measurements are made in many diverse environments from
factory floor, to laboratory,  to flight lines or aircraft carriers. These radar
systems operate in the frequency  range of 100MHz to 100GHz.  In addition to the
radar system hardware,  Aeroflex Lintek Corp. has developed  various  analytical
processing and display  algorithms to assist in the  interpretation of the radar
data.

     Aeroflex  Lintek has three lines of radar  systems:  the Elan  series,  the
Model 5000, and the Model 4000. These systems vary in price and performance. The
Company  believes  that the Elan series radar system is the highest  performance
system in the industry,  the Model 5000 is a price performance  leader,  and the
Model 4000 is a low cost entry level system.

     Antenna measurement systems are used in the design and manufacturing of all
types of antennas.  The  Company's  product  line is derived from the  expertise
gained  in  high  speed  data   acquisition  and  display   techniques  used  in
instrumentation  radar  products.  These products  comprise a growing portion of
Aeroflex  Lintek's  sales due to the growth in personal  communications  and the
demand for these systems abroad.




                                  -5-

<PAGE>

Motion Control Systems - (Aeroflex Laboratories)

Scanning Devices

     Since 1975, the Company has been engaged in the development and manufacture
of  electro-optical  scanning  devices used in infra-red  night vision  systems.
These  systems  detect  temperature   differences  in  the  infra-red  radiation
emanating from objects in target areas. The differences are then  electronically
amplified  and  converted to visible  light to create a visual image of the zone
being scanned,  enabling accurate  observation and weapon firing control through
smoke,  darkness and battlefield haze. 

     The Company has completed  development  and has started a production  order
for the next  generation  polygon  rotary  scanner for the U.S.  Army's  thermal
weapons  sight  (TWS),  under  contract to Hughes  Electro-Optical  Data Systems
Group.  TWS is a low cost,  lightweight  thermal  imaging  device  that  detects
targets based on thermal  radiation  contrasts  with  background  and utilizes a
solid state thermal cooling system. This scanner is intended for use on standard
issue U.S. Army assault rifles and crew served weapons.

Stabilization and Tracking Devices

     Since 1961,  the Company has been  engaged in the design,  development  and
production of stabilization  tracking devices and systems. These are dynamically
positioned  pedestals  on or in  moving  vehicles  such  as  trucks,  ships  and
aircraft,  upon which tracking  equipment,  such as a radar antenna, is mounted.
Pedestals,   through  the   continuous   balancing   action  of  gyroscopes  and
servo-mechanical  stabilizers  operating  in all three  dimensions,  enable  the
mounted  equipment  to remain  almost  perfectly  balanced and  motionless.  The
equipment can then automatically  track or focus on a target as accurately as if
it were on solid  ground  despite  the  motion  of the  vehicle.  The  Company's
stabilization   and  tracking   devices  are  a  part  of  major   surveillance,
reconnaissance  and weapon firing control  systems and 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.
In  addition to  military  and  aerospace  markets,  the  Company  has  recently
delivered commercial units used to stabilize airborne spectroscopy equipment for
terrestrial mapping.

Magnetic Motors

     Magnetic motor products consist of electronically  commutated  brushless DC
motors, stepping motors, segment and arc motors, actuators, limited angle torque
motors  and solid  state  magnetic  sensors.  Brushless  DC motors  differ  from
conventional DC motors in that the current which produces  mechanical  energy is
applied to stationary coils via electronic  switches,  without physical contact,
rather than by stationary  rods brushing  against the rotating coil. By avoiding
friction, sparks and the wearing and fragmenting of the brush rods, brushless DC
motors  provide  cleaner  operation  and  longer   maintenance-free   life  than
conventional motors. These  characteristics make brushless DC motors well-suited
for use in vacuum situations such as outer space where lubricants needed to slow
brushwear  dissipate rapidly,  in environments  containing volatile or explosive
materials  and gases,  and in  applications  where clean  operation is critical.
Actuators  operate  various  mechanisms on spacecraft,  satellites and aircraft,
including the forward wing mechanism of the Beech Starship. Torque motors are DC
motors  which  convert  electrical  current to  mechanical  force for  precisely
controlled,  usually repetitive  movement,  over limited distances and arcs less
than 180  degrees.  These  motors are  utilized in the  Company's  stabilization
systems and  infra-red  scanner  modules,  as well as other  applications  where
precise movement is required, such as for positioning antennae, optical systems,
mechanical vanes and valves.

Electronic Control Systems

     Building on  technology  acquired  from  Comstron,  Aeroflex  develops  and
manufactures   complex   communications  and  guidance  systems  and  subsystems
including HF, VHF and UHF receivers,  communications  jammer emulators,  weather
radar receivers, up/down converters, frequency agile radar local oscillators and
low phase noise  frequency  sources.  The Company is currently under contract to
develop a frequency  generator for the  receiver/transmitter  used in the LAMPS
Program.





                                  -6-


<PAGE>
     The Company produces a receiver for the NOAA wind-profiler  system which is
used to detect clean air turbulence around airports.  The  wind-profiler  system
has made major improvements in the accuracy of operational weather forecasts.

Isolator Products Group - (Aeroflex International, Vibration Mountings & 
-----------------------    Controls and Korfund Dynamics)

     Since  1961,  the  Company  has been  engaged in the  design,  development,
manufacture  and sale of severe service shock and vibration  isolation  systems.
These  devices  consist of  helically-wound  steel wire rope  contained  between
rugged metal  retainer  bars,  and are used to store and  dissipate  potentially
destructive   vibration  and  shock.   Purchasers   of  helical   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 this equipment. Isolators are also used to prevent vibrations
in equipment from causing disturbances to surrounding equipment,  structures and
configurations.

     Markets for helical  isolation  systems  include the  military,  aerospace,
geophysical  exploration,  aircraft,  communications,  transportation  and power
plants.  Specific  applications  include  sensitive mobile  equipment,  reusable
shipping containers,  shipboard electronics and navigational equipment, avionics
and other  airborne gear,  nuclear and seismic  construction,  power  generation
equipment, and heavy duty rotating and reciprocating machines.

     In October 1983,  the Company  acquired  Vibration  Mountings and Controls,
Inc. ("VMC"), which manufactures a line of off-the-shelf noise, shock, vibration
and structureborne  noise control devices including a version of the elastomeric
cupmount  isolator referred to below.  These rubber and spring isolators,  which
are  manufactured in a wide variety of sizes,  load ratings and  configurations,
are  used  primarily  in  commercial  applications  to  protect  heavy  rotating
equipment,  heating,  ventilating  and air  conditioning  equipment,  and diesel
engines.  In December 1986, the Company acquired the operating assets of Korfund
Dynamics Corporation ("KDC"), a manufacturer of an industrial line of heavy duty
spring and rubber shock mounts.










                                  -7-
<PAGE>
     A complementary line of off-the-shelf  elastomeric cupmounts was introduced
in fiscal 1991.  The cupmount is a  lightweight,  low profile  isolator which is
available in two sizes and two types of elastomer-silicone  for high temperature
applications  and neoprene where extreme high  temperature is not a factor.  The
elastomer-in-compression   design  is  particularly  effective  in  interrupting
structure borne noise transmission.  Cupmount isolators are produced and sold in
large quantities for military electronics and industrial  equipment,  where high
levels of shock are encountered.

     During  fiscal  1992,  the Company  introduced  two new series of wire rope
isolators,  the arch and the circular  arch.  The arch isolator  offers  greater
stability than the helical isolator for severe shock  applications  such as Navy
shipboard  electronic  equipment.  The circular arch was developed in a compact,
circular  configuration  to fit into smaller  space  envelopes  and compete on a
performance and cost basis with existing  competitive  proprietary  designs.  In
fiscal  1995,  the Company  successfully  introduced  the  circular  arch to the
industrial  market  as an  improved  solution  to shock and  vibration  problems
encountered  with data  processing  and  electronic  equipment in the mobile and
aerospace markets.

     During the last several  years,  the Company has developed and introduced a
series of new  products  to the  marketplace  to broaden the VMC and KDC product
lines.  These new  complementary  products have enabled the Company to enter new
markets,  namely, the off-highway market,  portable power market,  truck and bus
market and the seismic marketplace.

Competition

     In all phases of its continuing  operations,  the Company  competes in both
performance  and  price  with  companies  considerably  larger  than  itself  in
financial  resources and sales, and which are more diversified than the Company.
In the manufacturing of stabilization  and tracking  devices,  scanning devices,
frequency synthesizers,  high speed automatic test systems and isolators,  there
are several major competitors  manufacturing  similar or comparable products. In
the manufacture of microelectronic modules and thin-film interconnects, magnetic
motors and electronic systems, there are numerous worldwide,  regional and local
competitors  manufacturing and distributing similar or comparable products.  The
Company  believes  that in all of its  operations  it competes  favorably in the
principal competitive factors of technology, performance,  reliability, quality,
customer service and price.

     To the extent  that the  Company is engaged in  government  contracts,  its
success or  failure,  to a large  measure,  is based upon its ability to compete
successfully  for contracts and to complete  them at a profit.  Such  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 50% and 65% of the Company's sales from continuing operations
for fiscal 1997 and 1996,  respectively,  were to agencies of the United  States
Government  or to prime  defense  contractors  or  subcontractors  of the United
States  Government.  The Company's  overall  dependence on the military has been
declining due to the  acquisition of MIC, which is more  commercially  oriented,
and a  focusing  of  resources  towards  developing  standard  products  for the
commercial markets.  The Company's government contracts have been awarded either
on a bid basis or after  negotiation.  The contracts  are primarily  fixed price
contracts,  though the Company also has government  contracts providing for cost
plus fixed fee. The contracts of the Company with the United  States  Government
and prime defense contractors or subcontractors contain customary provisions for
termination at the convenience of the government  without cause. In the event of
such termination,  the Company is entitled to reimbursement for its costs and to
receive a reasonable profit, if any, on the work done prior to termination.




                                  -8-
<PAGE>
     Revenues  and costs on  government  contracts  are  recognized  based  upon
shipments or billings on manufacturing contracts.  Revenues and costs on certain
consulting contracts are recognized based upon costs incurred.

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

Marketing and Distribution

     The Company  markets  its  products  through an internal  sales force of 25
persons and over 140 sales representative  organizations  located nationwide and
worldwide.  The Company's engineers and marketing  personnel,  many of whom have
technical  backgrounds,  advise prospective  purchasers  regarding the Company's
products and how such products can be custom  designed to be  incorporated  into
specific government programs and other applications. These efforts are supported
by product  brochures  and by  published  articles and  advertisements  in trade
journals.

Product Research and Development

     The Company's product development efforts primarily involve engineering and
design  relating to the  improvement  of existing  products or the adaptation of
such products to new applications. The Company's efforts also include developing
prototype  components  to bid on  specific  programs.  Several of the  Company's
officers and almost all of its engineers have been involved at various times and
to varying degrees in these  activities.  Product  development and similar costs
not  recoverable  under  contractual  arrangements  are  expensed  in  the  year
incurred.  The costs of Company sponsored research activities were approximately
$3,279,900,   $1,260,000  and  $2,389,000  for  fiscal  1997,   1996  and  1995,
respectively.  The increase from fiscal 1996 to fiscal 1997 was primarily due to
MIC which was acquired in March 1996.  Further, in connection with the Company's
purchase of MIC  Technology  Corporation  in March 1996,  the Company  allocated
$23,200,000 of the purchase price to in-process research and development.  Since
the  research  and   development   projects   had  not  reached   technological
feasibility, the $23,200,000 was charged to expense in fiscal 1996 in accordance
with generally accepted accounting principles.

Backlog

     At June 30,  1997,  the  Company's  backlog  of  orders  was  approximately
$53,332,000.  Approximately  90% was scheduled to be delivered on or before June
30, 1998.  Approximately  65% of this backlog  represents orders for military or
national defense purposes.

     At June 30,  1996,  the  Company's  backlog  of  orders  was  approximately
$37,457,000.  Approximately  90% was  scheduled to be delivered  before June 30,
1997.  Approximately  79% of this  backlog  represented  orders for  military or
national defense purposes.

Principal Materials

     The principal materials used by the Company in manufacturing and assembling
its products are steel,  aluminum,  rubber,  gold, ceramic,  magnetic materials,
iron and copper. Many of the component parts used by the Company in its products
are also  purchased,  including  semiconductors,  transformers,  amplifiers  and
bearings.  These materials and components,  none of which are presently in short
supply,  are purchased from time to time on the open market.  The Company has no
long-term commitments for their purchase.





                                  -9-
<PAGE>
Patents and Trademarks

     The Company owns several patents, patent licenses and trademarks. While the
Company considers that in the aggregate its patents and trademarks are important
in its operations, it does not consider that one or any group of them is of such
importance that termination could materially affect its business.

Employees

     As of June 30, 1997 the Company had  approximately  790 employees,  of whom
approximately  400 were engaged in a manufacturing  capacity,  and approximately
390 in engineering,  sales, administrative or clerical positions.  Approximately
230  employees  of the  Company  are  covered by various  collective  bargaining
agreements. The Company considers its employee relations to be satisfactory.

Seasonality

     Seasonality  does not have a material  impact upon the Company's  revenues.

Regulation

     The Company's activities are subject to various  environmental,  health and
employee  safety laws.  The Company has expended  resources,  both financial and
managerial,  to comply with applicable  environmental,  health and worker safety
laws  in its  operations  and at its  facilities  and  anticipates  that it will
continue to do so in the future.  The Company does not require any  governmental
approval of its principal  products or services.  Compliance with  environmental
laws  has not  historically  had a  material  effect  on the  Company's  capital
expenditures,  earnings  or  competitive  position,  and the  Company  does  not
anticipate  that such  compliance  will have a material effect on the Company in
the future.  Although the Company  believes  that it is generally in  compliance
with all applicable  environmental,  health and worker safety laws, there can be
no assurance that  additional  costs for compliance  will not be incurred in the
future or that such 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,  1997 are set forth in Note 16 of Notes to
Consolidated Financial Statements.

Discontinued Operations

     The Company has accounted for certain segments as discontinued  operations.
A description of these operations is as follows:

     Commercial and Custom Envelopes
     -------------------------------

     In November 1993, the Company sold  substantially  all of the net operating
assets of its wholly-owned  subsidiary,  Huxley Envelope Corp.  ("Huxley"),  for
$5,550,000.  Huxley is a manufacturer  of specialized  envelopes for high-volume
direct-mail users. The sale did not include Huxley's New York City manufacturing
facility which was sold in the fourth  quarter of fiscal 1995 for  approximately
$2,400,000. The sale of the facility, along with the resolution of certain other
contingencies, resulted in a net of tax gain of $240,000.

     Telecommunication Systems Services
     ----------------------------------

     Through T-CAS Corp. ("T-CAS"), a wholly-owned subsidiary which was acquired
in 1988,  the  Company  also  specialized  in the design and  implementation  of
telecommunications  and  electronic  systems  for  government,   industrial  and
commercial  customers  nationwide and abroad.  T-CAS' services  included systems
concepts and  operational  criteria,  detailed  engineering  designs,  equipment
specifications,    site   preparation,    construction,    field    engineering,
installations,  on-site training and technical assistance. The Company's plan to
discontinue this operation  included the completion of existing contracts (which
were completed at June 30, 1993) and an orderly dissolution.

     In May 1995,  T-CAS  received  $170,000 in  settlement of a claim against a
former customer.  This settlement,  together with other unrelated settlements of
claims and  adjustments  of previously  recorded loss  reserves,  resulted in an
after tax gain of $222,000, which was included in discontinued operations in the
fourth quarter of fiscal 1995.

                                 -10-
<PAGE>

ITEM TWO - PROPERTIES
           ----------

     The executive  offices of the Company and the  manufacturing  facilities of
Aeroflex Laboratories  Incorporated,  a subsidiary of the Company,  occupying an
aggregate of approximately 69,000 square feet, are located in premises which the
Company owns in Plainview,  Long Island,  New York.  An  industrial  development
agency  loan  is  secured  by the  premises,  with  an  outstanding  balance  of
approximately $63,000 at June 30, 1997.

     Aeroflex Laboratories  Incorporated also leases manufacturing facilities in
Farmingdale,  Long  Island,  New York and Boca Raton,  Florida of  approximately
20,000  and  11,000  square  feet,  respectively.  The  annual  rental  of these
properties is approximately $143,000 and $76,000 respectively.

     The Company's subsidiary, MIC Technology Corporation,  leases manufacturing
facilities  in  Richardson,  Texas and Pearl  River,  New York of  approximately
29,000  and  63,000  square  feet,  respectively.  The  annual  rental  of these
properties is approximately $164,000 and $189,000, respectively.

     The Company's subsidiary,  Vibration Mountings and Controls, Inc., conducts
manufacturing  operations at a plant located in  Bloomingdale,  New Jersey.  The
plant, which the Company owns, consists of approximately 72,000 square feet.

     The Company's  subsidiary,  Aeroflex Lintek Corp.,  occupies  approximately
8,500 square feet of space in Powell, Ohio, with an annual rental of $43,000.

     The Company  believes that its  facilities are adequate for its current and
presently foreseeable needs.

ITEM THREE - LEGAL PROCEEDINGS
             -----------------

     Filtron Co. Inc.,  ("Filtron") a subsidiary of the Company whose operations
were  discontinued  in October 1991,  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.

     According  to  the  allegations  of the  Amended  Verified  Complaint,  the
plaintiffs,  who are current or former  employees  of a company to whom  Filtron
sold  RFI   filters/capacitors,   and  their  wives,  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 still in the early stages of discovery. 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.




                                 -11-
<PAGE>


ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            --------------------------------------------------- 

     Not applicable.

                                     PART II
                                     -------   

ITEM FIVE - MARKET FOR THE COMPANY'S COMMON EQUITY
            AND RELATED STOCKHOLDER MATTERS
            --------------------------------------


     (a) The 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>  
1995
----
First Quarter ....................              $4.38      $3.50
Second Quarter ...................               4.88       3.63
Third Quarter ....................               5.63       4.25
Fourth Quarter ...................               5.00       3.88

1996
----
First Quarter ....................               5.13       3.50
Second Quarter ...................               6.63       4.38
Third Quarter ....................               6.13       4.63
Fourth Quarter ...................               4.75       4.13

1997
----
First Quarter ....................               4.88       3.50
Second Quarter ...................               5.13       3.25
Third Quarter  (through August 29)               8.88       4.44
</TABLE>


     (b) As of August 29, 1997, there were approximately 1,200 record holders of
the Company's Common Stock.

     (c) The  Company  has never paid any cash  dividends  on its Common  Stock.
There have been no stock dividends declared or paid by the Company on its Common
Stock during the past three years.  Future dividends,  if any, will be dependent
upon the earnings and  financial  position of the Company and such other factors
as the Board of Directors  shall deem  appropriate.  In addition,  the Company's
Revolving  Credit  Agreement,  as  amended,  prohibits,  and its  7-1/2%  Senior
Subordinated  Convertible  Debenture  Indenture Agreement limits, it from paying
cash dividends.





                                 -12-
<PAGE>

ITEM SIX - SELECTED FINANCIAL DATA

(In thousands except ratios and per share data)
<TABLE>
<CAPTION>
                                                        Year ended June 30,
                                  ------------------------------------------------------------ 
                                    1997         1996         1995         1994         1993
                                  ------------------------------------------------------------
<S>                               <C>          <C>          <C>          <C>          <C>     
Earnings Statement Data (7)
-----------------------
  Net Sales...................... $ 94,299     $ 74,367     $ 71,113     $ 65,602     $ 52,031
  Income (Loss) from
    Continuing Operations........    4,420      (17,420)(1)(2) 6,587(4)(5)  5,850(6)     1,736
  Income from
    Discontinued Operations......     -            -             462          187          500
  Net Income (Loss)..............    4,420      (17,420)       7,049        6,037(6)     2,236
  Income (Loss) from Continuing
    Operations Per Common Share
    and Common Share Equivalent
      Primary.................... $  .34       $(1.46)(1)(2)$  .53(4)(5) $  .55(6)    $  .20
      Fully Diluted..............    .33         (3)           .52(4)(5)    .50(6)       .19
  Net Income (Loss) Per Common
    Share and Common Share
    Equivalent
      Primary....................    .34        (1.46)         .57          .57          .26
      Fully Diluted..............    .33         (3)           .55          .51          .24
  Weighted Average Number of
    Common Shares and Common
    Share Equivalents Outstanding
      Primary....................   13,057       11,971       12,352       10,526        8,757
      Fully Diluted..............   15,142       (3)          14,249       12,401       10,920

                                                           June 30,
                                   -----------------------------------------------------------
                                    1997         1996         1995         1994         1993
                                   -----------------------------------------------------------
Balance Sheet Data
------------------
  Working Capital................ $ 25,872     $ 25,300     $ 31,721     $ 28,572     $ 14,982
  Total Assets...................   81,047       81,169       71,936       71,016       60,185
  Long-term Debt
    (including current portion)..   28,916       34,577       13,787       18,408       21,871
  Stockholders' Equity...........   35,040       30,472       46,344       39,571       27,208
Other Statistics
----------------
  After Tax Profit Margin (Loss)
    (from continuing operations)..   4.7%       (23.4)%(1)(2)   9.3%(4)(5)   8.9%(6)      3.3%
  Return on Average Stockholders'
    Equity (from continuing
    operations)..................   13.5%       (45.4)%(1)(2)  15.3%(4)(5)  17.5%(6)      6.6%
  Stockholders' Equity
    Per Share (8)................ $  2.81      $  2.49      $   3.95     $   3.37     $   3.14
<FN>
(1)  Includes $23,200,000 ($1.94 per share) for  the year ended June 30, 1996, for 
     the write-off of in-process research and development acquired in connection with 
     the purchase of MIC Technology Corporation in March 1996.
(2)  Includes a $437,000 net of tax, or $.04 per share gain on the sale of securities 
     for the year ended June 30, 1996.
(3)  As a result of the loss, all options,  warrants and  convertible  debentures
     are  anti-dilutive.  
(4)  Includes  $2,000,000 ($.14 per share fully diluted and $.16 primary) of
     insurance proceeds received on the death of the former chairman.
(5)  Includes a $1,494,000 net of tax restructuring charge ($.10 per share fully
     diluted and $.12 primary) for the  consolidation  of the  Company's  Puerto
     Rican operations into its domestic facilities.
(6)  Includes  income tax  benefit of  $1,716,000,  or $.14 per share  ($.16 per
     share  primary),  relating to the recognition of a portion of the Company's
     unrealized net operating loss  carryforward in accordance with Statement of
     Financial Accounting Standards No. 109.
(7)  See Note 4 to the  Consolidated  Financial  Statements  for a discussion  of
     discontinued operations. 
(8)  Calculated by dividing stockholders' equity, at the end of the year, by
     the number of shares outstanding at the end of the year.
</FN>
</TABLE>
                                     -13-
<PAGE>

ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS
          ---------------------------------------------

Results of Operations

Fiscal 1997 Compared to Fiscal 1996

Net sales  increased to  $94,299,000  in fiscal 1997 from  $74,367,000 in fiscal
1996.  Net  income  was  $4,420,000  in fiscal  1997  compared  to a net loss of
$(17,420,000) in fiscal 1996. Fiscal 1996 results included a one-time  write-off
of $23,200,000 for in-process  research and development  related to the purchase
of MIC Technology  Corporation  ("MIC") and a net of tax gain of $437,000 on the
sale of securities.

Net sales in the microelectronics  segment increased to $48,462,000 for the year
ended June 30, 1997 from $28,414,000 for the year ended June 30, 1996 due to the
acquisition  of MIC in March 1996 and  increased  sales in the existing  product
lines. MIC sales for fiscal 1997 and from  acquisition  until June 30, 1996 were
approximately  $21,900,000  and  $6,200,000,  respectively.  Operating  profits,
exclusive of the special  write-off of $23,200,000 in 1996,  were $6,644,000 and
$3,282,000  for the  years  ended  June 30,  1997 and  1996,  respectively.  The
increase is due to the increased sales and higher overall profit margins.

Net sales in the electronics segment decreased to $28,144,000 for the year ended
June 30, 1997 from  $30,109,000  for the year ended June 30, 1996 primarily as a
result of reduced  frequency  synthesizer  sales  partially  offset by increased
sales  of  stabilization  and  tracking  devices.  The  reduction  in  frequency
synthesizer  sales was due to the early  completion of the current CASS contract
and  the  transition  from  custom  to  commercial  markets.  Operating  profits
decreased to $2,762,000  from  $4,830,000  for the years ended June 30, 1997 and
1996, respectively, due to the decrease in sales and lower profit margins. In an
effort to transition  from custom products to commercial  products,  the Company
has  directed  its  resources  towards  developing  standard  products  for  the
commercial markets.

Net sales in the isolator products segment increased to $17,693,000 for the year
ended June 30,  1997 from  $15,844,000  for the year ended  June 30,  1996.  The
increase  reflects  higher sales volume of industrial and  commercial  isolators
partially  offset by  decreased  sales volume of military  isolators.  Operating
profits  increased  by  $694,000 as a result of the  increased  sales and higher
profit   margins,   partially   offset  by   increased   selling,   general  and
administrative costs.

Cost of sales as a percentage of sales decreased to 66.9% from 68.7% between the
two years primarily as a result of increased margins in the microelectronics and
isolator  segments  during the year ended June 30,  1997.  Selling,  general and
administrative  costs  (exclusive of the special charge in 1996) as a percentage
of sales  increased to 22.8% from 20.7% as a result of the addition of MIC which
has a higher selling, general and administrative cost structure than the balance
of the Company.

Interest expense increased to $2,974,000 from $1,939,000 due to increased levels
of borrowings  required to purchase MIC.  Interest and other income decreased to
$93,000 from  $1,075,000  due to lower  interest  income on reduced cash amounts
which were used to acquire MIC and a securities related gain in fiscal 1996.





                                 -14-
<PAGE>

The  income  tax  provisions  for the years  ended  June 30,  1997 and 1996 were
different from the amounts computed by applying the U.S. Federal income tax rate
to income before income taxes  primarily as a result of the tax benefits of loss
carryforwards (both unrealized and realized), state and local income taxes, and,
for the year  ended  June 30,  1996,  because  of the  non-deductibility  of the
$23,200,000 special charge.

Management  believes that  potential  reductions  in military  spending will not
materially  affect its  operations.  In certain  product areas,  the Company has
suffered  reductions in sales volume due to cutbacks in the military budget.  In
other product areas, the Company has experienced increased sales volume due to a
realignment of government spending towards upgrading existing systems instead of
purchasing  completely  new  systems.  The overall  effect of the  cutbacks  and
realignment  has not been  material to the Company.  Furthermore,  the Company's
overall  dependence on the military has been declining.  Approximately  50%, 65%
and 74% of the  Company's  sales  for the  fiscal  years  1997,  1996 and  1995,
respectively,  were to  agencies  of the United  States  government  or to prime
defense contractors or subcontractors of the United States government.

Fiscal 1996 Compared to Fiscal 1995

Net sales  increased to  $74,367,000  in fiscal 1996 from  $71,113,000 in fiscal
1995.  The net loss was  $(17,420,000)  in  fiscal  1996  including  a  one-time
write-off of $23,200,000 for in-process  research and development related to the
purchase  of MIC and a net of tax gain of  $437,000  on the sale of  securities.
Income  from  continuing  operations  for fiscal 1995 was  $6,587,000  including
$2,000,000 of insurance  proceeds  received on the death of the former  chairman
and a net of tax restructuring charge of $1,494,000 for the consolidation of the
Company's Puerto Rico operations into its existing domestic facilities.

Net sales in the microelectronics  segment increased to $28,414,000 for the year
ended June 30, 1996 from  $24,250,000 for the year ended June 30, 1995 primarily
as a  result  of the  acquisition  of MIC in March  1996.  MIC  sales,  from its
acquisition  until  June 30,  1996,  were  approximately  $6,200,000.  Operating
profits,  exclusive  of the  special  write-off  of  $23,200,000  in 1996,  were
$3,282,000  and  $2,075,000  for  the  years  ended  June  30,  1996  and  1995,
respectively.  The increase is due to the increase in sales and increased profit
margins partially offset by increased selling, general and administrative costs.

Net sales in the electronics segment decreased to $30,109,000 for the year ended
June 30, 1996 from  $31,357,000  for the year ended June 30, 1995 primarily as a
result of reduced  sales  volume of  scanning  devices  partially  offset by the
acquisition  of Lintek,  Inc. in January 1995.  Operating  profits  decreased to
$4,830,000  from  $6,028,000  for the  years  ended  June  30,  1996  and  1995,
respectively.  The decrease was due primarily to lower profit margins, primarily
in instrument products and magnetic motors, and the reduced sales.

Net sales in the isolator products segment increased to $15,844,000 for the year
ended June 30,  1996 from  $15,506,000  for the year ended  June 30,  1995.  The
increase  reflects  higher sales volume of industrial and  commercial  isolators
partially  offset by  decreased  sales volume of military  isolators.  Operating
profits decreased by $227,000 as a result of lower profit margins,  as discussed
below,  partially  offset by the  increased  sales  volume and reduced  selling,
general and administrative costs as a result of the consolidation of facilities.







                                 -15-
<PAGE>

Cost of sales as a percentage of sales increased to 68.7% from 66.9% between the
two years primarily as a result of  inefficiencies  in the final production runs
of military  isolators in the Company's Puerto Rican facility and start-up costs
of  the   transition  to  the  New  Jersey   facility.   Selling,   general  and
administrative  costs (exclusive of the respective special charges) decreased to
$15,379,000 from $15,752,000 as a result of cost savings from the  consolidation
of certain  operations of the Company's Puerto Rican facility into the Company's
other facilities.

Interest expense increased to $1,939,000 from $1,464,000 due to increased levels
of borrowings  required to purchase MIC.  Interest and other income increased to
$1,075,000  from $751,000 due to a securities  related gain partially  offset by
lower interest income on reduced cash amounts which were used to acquire MIC.

The  income  tax  provisions  for the years  ended  June 30,  1996 and 1995 were
different from the amounts computed by applying the U.S. Federal income tax rate
to income before income taxes  primarily as a result of the tax benefits of loss
carryforwards  (both  unrealized  and realized) and, for the year ended June 30,
1996, because of the  non-deductibility  of the $23,200,000  special charge, and
for the year ended June 30,  1995,  because of the  non-taxable  life  insurance
proceeds of $2,000,000.

Income from discontinued  operations for the year ended June 30, 1995 includes a
gain related to the sale of the former Huxley Envelope Corp. ("Huxley") building
of $240,000 and a gain related to T-CAS Corp. ("T-CAS") of $222,000. The gain of
$222,000 is due primarily to a settlement of a claim against a former customer.

Liquidity and Capital Resources

June 30, 1997 Compared To June 30, 1996

The Company's  working  capital at June 30, 1997 was  $25,872,000 as compared to
$25,300,000  at June 30, 1996.  The current  ratio was 2.3 to 1 at both June 30,
1997 and 1996. The increase in working  capital was primarily due to an increase
in inventories offset in part by a reduction in accounts receivable.

Cash provided from  operating  activities was $8,729,000 for the year ended June
30, 1997 and  $4,508,000  for the year ended June 30, 1996. The increase was due
primarily  to  lower  year-end  accounts  receivables.  Cash  used by  investing
activities of $2,996,000  in 1997 was primarily for capital  expenditures.  Debt
was reduced by $5,661,000 in 1997.

Effective March 19, 1996, the Company  acquired all of the outstanding  stock of
MIC for  approximately  $36,000,000 of cash,  300,000 shares of common stock and
warrants to purchase  400,000 shares of common stock (at exercise prices ranging
from $7.05 to $7.50 per share).  The purchase price was paid with available cash
of  $9,000,000  and  borrowings  under  the  Company's  bank loan  agreement  of
$27,000,000.   MIC   manufactures   high   frequency   thin  film  circuits  and
interconnects  for  miniaturized,  high frequency,  high performance  electronic
products  for  growing  commercial  markets  such  as  wireless  communications,
satellite   based   communications   hardware  and  high   technology   military
electronics. The acquired company's net sales were approximately $25,000,000 for
its fiscal year ended October 31, 1995.

As of March 15, 1996 the Company  replaced a previous  agreement  with a revised
revolving  credit  and term loan  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 $22,000,000 and a term loan of
$16,000,000.  The revolving  credit line expires in March 1999. The term loan is
payable in quarterly  installments  of $900,000  with final payment on September


                                 -16-
<PAGE>
30,  2000.  The   interest  rate   on  borrowings  under this  agreement  is  at
various rates  depending upon certain  financial  ratios,  with the present rate
substantially  equivalent  to the  prime  rate  (8.5% at June  30,  1997) on the
revolving credit borrowings and prime plus 1/4% on the term loan borrowings.  At
June 30, 1997, the outstanding  borrowings  under the revolving  credit line and
term  loan  were  $8,109,000  and  $9,041,000,  respectively.  The  terms of the
agreement   require   compliance  with  certain   covenants   including  minimum
consolidated  tangible net worth and pre-tax  earnings,  maintenance  of certain
financial  ratios,  limitations on capital  expenditures  and  indebtedness  and
prohibition of the payment of cash dividends.

During June 1994, the Company  completed a sale of $10,000,000  principal amount
of 7-1/2% Senior Subordinated  Convertible  Debentures to non-U.S.  persons. The
debentures  are due June 15, 2004 subject to prior sinking fund payments of 10%,
10%, 15% and 15% of the principal  amount on September 15, 2000,  2001, 2002 and
2003,  respectively.  The debentures are convertible  into the Company's  common
stock at a price of $5-5/8 per  share.  During  the  fiscal  year 1996,  $19,000
principal amount of debentures was converted.

Management of the Company believes that internally generated funds and available
lines of credit will be sufficient for its working capital requirements, capital
expenditure  needs and the servicing of its debt for the fiscal year ending June
30, 1998. At June 30, 1997,  the Company's  available  unused line of credit was
approximately $12,000,000.

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 may 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
early stages of discovery.  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.

The Company's  backlog of orders at June 30, 1997 and 1996 was  $53,332,000  and
$37,457,000, respectively.

At  June  30,  1997,  the  Company  had  net  operating  loss  carryforwards  of
approximately $4,000,000 for Federal income tax purposes.

The  Company is  undergoing  routine  audits by various  taxing  authorities  of
several of its state and local  income tax returns  covering  different  periods
from  1992 to 1995.  Management  believes  that the  probable  outcome  of these
various  audits  should  not  materially   affect  the  consolidated   financial
statements of the Company.

In the second  quarter of fiscal 1998 the Company will be required to adopt SFAS
No. 128 "Earnings Per Share". This statement establishes standards for computing
and  presenting  earnings  per share  ("EPS"),  replacing  the  presentation  of
currently  required  Primary EPS with a presentation  of Basic EPS. For entities
with complex capital structures, the statement requires the dual presentation of
both Basic EPS and Diluted EPS on the face of the statement of operations.  When
SFAS No. 128 is adopted the Company will be required to restate its EPS data for
all prior  periods  presented.  The  Company  does not  expect the impact of the
adoption of this statement to be material to previously reported EPS amounts.

                                 -17-
<PAGE>

Effective July 1, 1997, the Company's  subsidiary,  MIC Technology  Corporation,
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  $4,400,000 in cash.
These units manufacture  interconnect products for the communications  industry.
The Company has also signed a multi-year supply agreement to provide Lucent with
film integrated circuits.

On September 8, 1997,  the Company  called for the redemption of all of its
outstanding 7-1/2% Senior Subordinated Convertible Debentures at 104-1/2% of the
principal amount. The Debentures are convertible into the Company's Common Stock
at a price of  $5-5/8  per  share  through  October  6,  1997.  Any  outstanding
Debentures on October 13, 1997 will be redeemed.








































                                 -18-

<PAGE>






ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
             -------------------------------------------    

   The financial  statements and  supplementary  data listed in the accompanying
Index to Financial Statements and Schedules is 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 the
Company's  definitive  proxy  statement in connection with its Annual Meeting of
Stockholders  scheduled  to be held in  November  1997,  to be  filed  with  the
Securities  and Exchange  Commission  within 120 days  following  the end of the
Company's fiscal year ended June 30, 1997.

                                     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:
       -------------------

        Report on Form 8-K dated May 17, 1997 with respect to Item 5.

   (c)  Exhibits
        --------  

     3.1 Certificate of Incorporation,  as amended (Exhibit 3.1 of Annual Report
         on Form 10-K for the year ended June 30, 1987)

     3.2 By-Laws,  as amended (Exhibit 3.2 of Annual Report on Form 10-K for the
         year ended June 30, 1987)

     4.1 Third  Amended and  Restated  Loan and Security  Agreement  dated as of
         March 15, 1996 among the Registrant, certain of its subsidiaries,  
         Chemical  Bank and  NatWest  Bank,  N.A.  (Exhibit 10 of Report on Form
         8-K dated March 19, 1996).

     4.2 Indenture  Agreement  between  Registrant and American Stock Transfer &
         Trust Company  dated as of June 23, 1994.  (Exhibit 4.2 of Annual 
         Report on Form 10-K for the year ended June 30, 1994).

    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).

                                 -19-
<PAGE>

   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 Common Stock Purchase Agreement dated as of February 13, 1996 and closed
        on March 19, 1996 among Aeroflex  Acquisition  Corp. (as assignee of the
        Registrant),  MIC Technology  Corporation  and the  stockholders  of MIC
        Technology  Corporation (Exhibit 2 of Report on Form 8-K dated March 19,
        1996).

   10.5 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated 
        and Harvey R. Blau (Exhibit 10.1 to Report on Form 8-K dated May 17, 
        1997).

   10.6 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated 
        and Michael Gorin (Exhibit 10.2 to Report on Form 8-K dated May 17, 
        1997).

   10.7 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated 
        and Leonard Borow (Exhibit 10.3 to Report on Form 8-K dated May 17, 
        1997).

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

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

   11   Computation of Earnings Per Common Share

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

                                                     State of
            Name                                   Incorporation
            ----                                   -------------  

        Aeroflex International Inc.                  Delaware
        Aeroflex Laboratories Incorporated           Delaware
        Aeroflex Lintek Corp.                        Ohio
        Aeroflex Systems Corp.                       Delaware
        MIC Technology Corporation                   Texas
        Vibration Mountings and Controls, Inc.       New York

   23   Consent of Independent Auditors

   99   Additional Exhibit

     The following undertakings are incorporated by reference into the Company's
Registration  Statements on Form S-8 and Form S-3 (Registration  Nos.  33-75496,
33-88868, 33-88878, 333-15339 and 333-21803).

(a) The undersigned registrant hereby undertakes:

   (1) To file,  during any period in which  offers or sales are being  made,  a
post-effective amendment to this registration statement:

        (i)  To  include  any  prospectus  required  by  section  10(a)(3)  of 
   the Securities Act of 1933;

        (ii) To reflect in the  prospectus any facts or events arising after the
   effective   date  of  the   registration   statement   (or  the  most  recent
   post-effective  amendment  thereof) which,  individually or in the aggregate,
   represent  a  fundamental   change  in  the  information  set  forth  in  the
   registration statement;

        (iii) To include any  material  information  with respect to the plan or
   distribution not previously  disclosed in the  registration  statement or any
   material change to such information in the registration statement;


                                 -20-
<PAGE>

   Provided,  however,  that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the  registration  statement  is on Form S-3 or Form  S-8,  and the  information
required to be included in a  post-effective  amendment by those  paragraphs  is
contained in periodic reports filed by the registrant  pursuant to Section 13 or
Section 15(d) of the Securities  Exchange Act of 1934 that are  incorporated  by
reference in the registration statement.

   (2) For the purpose of determining  any liability under the Securities Act of
1933,  each  such  post-effective   amendment  shall  be  deemed  to  be  a  new
registration  statement  relating to the  securities  offered  therein,  and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

   (3) To remove from registration by means of a post-effective amendment any of
the securities  being  registered  which remain unsold at the termination of the
offering.

   (b) The  undersigned  registrant  hereby  undertakes  that,  for  purposes of
determining  any liability  under the Securities Act of 1933, each filing of the
registrant's  annual  report  pursuant to Section  13(a) or Section 15(d) of the
Securities  Exchange  Act of 1934  (and,  where  applicable,  each  filing of an
employee  benefit  plan's  annual  report  pursuant  to  Section  15(d)  of  the
Securities  Exchange  Act of 1934)  that is  incorporated  by  reference  in the
registration  statement  relating to the  securities  offered  therein,  and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

   (f) (1) The undersigned  registrant  hereby undertakes to deliver or cause to
be delivered with the prospectus to each employee to whom the prospectus is sent
or given a copy of the  registrant's  annual report to stockholders for its last
fiscal year, unless such employee  otherwise has received a copy of such report,
in which case the registrant shall state in the prospectus that it will promptly
furnish,  without  charge,  a copy of such  report  on  written  request  of the
employee.  If the last fiscal year of the  registrant  has ended within 120 days
prior to the use of the prospectus,  the annual report of the registrant for the
preceding  fiscal year may be so  delivered,  but within such 120 day period the
annual report for the last fiscal year will be furnished to each such employee.

   (2) The undersigned  registrant  hereby undertakes to transmit or cause to be
transmitted  to all  employees  participating  in the plan who do not  otherwise
receive such material as stockholders of the registrant,  at the time and in the
manner such material is sent to its stockholders,  copies of all reports,  proxy
statements and other communications distributed to its stockholders generally.

   (3)  Where  interests  in a plan are  registered  herewith,  the  undersigned
registrant  and plan hereby  undertake  to  transmit or cause to be  transmitted
without charge,  to any participant in the plan who makes a written  request,  a
copy of the then latest annual report of the plan  filed  pursuant to Section 15
(d) of the Securities  Exchange Act of 1934 (Form 11-K). If such report is filed
separately on Form 11-K, such form shall be delivered upon written  request.  If
such report is filed as a part of the  registrant's  annual report on Form 10-K,
that entire report (excluding exhibits) shall be delivered upon written request.
If  such  report  is  filed  as a part  of the  registrant's  annual  report  to
stockholders  delivered  pursuant to paragraph  (1) or (2) of this  undertaking,
additional delivery shall not be required.

   (4) If the registrant is a foreign private issuer, eligible to use Form 20-F,
then the registrant shall undertake to deliver or cause to be delivered with the
prospectus to each employee to whom the  prospectus is sent or given,  a copy of
the  registrant's  latest  filing on Form 20-F in lieu of the  annual  report to
stockholders.


                                 -21-
<PAGE>

        (i)  Insofar  as  indemnification  for  liabilities  arising  under  the
   Securities  Act  of  1933  may  be  permitted  to  directors,   officers  and
   controlling persons of the registrant  pursuant to the foregoing  provisions,
   or  otherwise,  the  registrant  has been  advised that in the opinion of the
   Securities and Exchange  Commission  such  indemnification  is against public
   policy as expressed in the act and is, therefore, unenforceable. In the event
   that a claim for  indemnification  against such  liabilities  (other than the
   payment by the registrant of expenses incurred or paid by a director, officer
   or  controlling  person of the  registrant in the  successful  defense of any
   action,  suit or  proceeding)  is  asserted  by  such  director,  officer  or
   controlling  person in connection with the securities being  registered,  the
   registrant  will,  unless in the  opinion of its  counsel the matter has been
   settled  by  controlling   precedent,   submit  to  a  court  of  appropriate
   jurisdiction  the  question  whether  such  indemnification  by it is against
   public  policy  as  expressed  in the Act and will be  governed  by the final
   adjudication of such issue.

   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 25th day of
September 1997.

                                           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 25th, 1997 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 
Leonard Borow                      Director 
                                   (Chief Operating Officer)
/s/ Robert Bradley, Sr.
--------------------------         Director
Robert Bradley, Sr.
/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, 1997 AND 1996

                                AND FOR THE YEARS

                       ENDED JUNE 30, 1997, 1996 AND 1995


















<PAGE>


                       FINANCIAL STATEMENTS AND SCHEDULES
                       ----------------------------------
<TABLE>
<CAPTION>


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


  ITEM FOURTEEN (a)

1.  FINANCIAL STATEMENTS:

     <S>                                                              <C>
     Independent auditors' report                                     S-1

     Consolidated financial statements:

        Balance sheets - June 30, 1997 and 1996                       S-2-3

     Statements of operations - each of the three years
        in the period ended June 30, 1997                             S-4

     Statements of stockholders' equity - each of the
        three years in the period ended June 30, 1997                 S-5

     Statements of cash flows - each of the three years
        in the period ended June 30, 1997                             S-6

     Notes (1-17)                                                     S-7-20

     Quarterly financial data (unaudited)                             S-21


2.   FINANCIAL STATEMENT SCHEDULES:

     II - Valuation and qualifying accounts                           S-22


</TABLE>
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,  1997  and 1996 and the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the years in the three year period ended June 30, 1997.  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, 1997 and 1996 and the results of
their  operations  and their  cash flows for each of the years in the three year
period ended June 30, 1997, 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.

KPMG PEAT MARWICK LLP


Jericho, New York
August 14, 1997 (except as to Note 17(b),
   which is as of September 8, 1997)



















                                     S-1
<PAGE>


                            AEROFLEX INCORPORATED
                               AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


ASSETS                                                            June 30,
-----------------------------------------------------------------------------------
                                                            1997            1996
-----------------------------------------------------------------------------------
<S>                                                    <C>             <C>         
Current Assets:
  Cash and cash equivalents                            $    600,000    $    661,000
  Current portion of invested cash                           69,000            -
  Accounts receivable, less allowance for doubtful
    accounts of $417,000 and $354,000 at
    June 30, 1997 and 1996, respectively                 21,843,000      23,336,000
  Income tax refund receivable                                 -            926,000
  Inventories                                            20,319,000      16,916,000
  Deferred income taxes                                   2,043,000       1,871,000
  Prepaid expenses and other current assets                 743,000         554,000
-----------------------------------------------------------------------------------

       Total Current Assets                              45,617,000      44,264,000

Invested Cash                                               453,000         603,000

Property, Plant and Equipment, net                       14,487,000      14,854,000

Intangible Assets Acquired in Connection with
  the Purchase of Businesses, net of accumulated
  amortization of $1,224,000 and $516,000 at
  June 30, 1997 and 1996, respectively                    8,046,000       8,707,000

Cost in  Excess  of Fair  Value of Net  Assets of  
  Businesses  Acquired,  net of accumulated amortization 
  of $2,399,000 and $2,086,000 at June 30, 1997
  and 1996, respectively                                  9,903,000      10,054,000

Other Assets                                              2,541,000       2,687,000
-----------------------------------------------------------------------------------

Total Assets                                           $ 81,047,000    $ 81,169,000
===================================================================================






<FN>

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

                                     S-2
<PAGE>

                             AEROFLEX INCORPORATED
                                AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>


LIABILITIES AND STOCKHOLDERS' EQUITY                              June 30,
-----------------------------------------------------------------------------------
                                                            1997            1996
-----------------------------------------------------------------------------------
<S>                                                    <C>             <C>         
Current Liabilities:
  Current portion of long-term debt                    $  4,247,000    $  4,259,000
  Accounts payable                                        5,093,000       3,968,000
  Accrued expenses and other current liabilities          8,564,000       8,967,000
  Income taxes payable                                    1,841,000       1,770,000
-----------------------------------------------------------------------------------
       Total Current Liabilities                         19,745,000      18,964,000
Long-Term Debt                                           14,688,000      20,337,000
Deferred Income Taxes                                       334,000         172,000
Other Long-Term Liabilities                               1,259,000       1,243,000
Senior Subordinated Convertible Debentures                9,981,000       9,981,000
-----------------------------------------------------------------------------------
Total Liabilities                                        46,007,000      50,697,000
-----------------------------------------------------------------------------------

Commitments and Contingencies

Stockholders' Equity:
  Preferred stock, par value $.10 per share; 
    authorized 1,000,000 shares:
    Series A Junior Participating Preferred stock,
    par value $.10 per share; authorized 150,000 shares;
    none issued                                                -               -
  Common stock, par value $.10 per share; authorized
    25,000,000 shares; issued 12,658,000 and 12,380,000
    shares at June 30, 1997 and 1996, respectively        1,266,000       1,238,000
  Additional paid-in capital                             58,110,000      57,820,000
  Accumulated deficit                                   (23,584,000)    (28,004,000)
-----------------------------------------------------------------------------------
                                                         35,792,000      31,054,000
  Less:  Treasury stock, at cost (169,000 and
    129,000 shares at June 30, 1997 and 1996,
    respectively)                                           752,000         582,000
-----------------------------------------------------------------------------------
Total Stockholders' Equity                               35,040,000      30,472,000
-----------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity             $ 81,047,000    $ 81,169,000
===================================================================================
<FN>

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

                                       S-3

<PAGE>
                     AEROFLEX INCORPORATED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                       Year Ended June 30,
------------------------------------------------------------------------------------

                                               1997           1996           1995
                                               ----           ----           ---- 
<S>                                       <C>            <C>            <C>         
Net Sales                                 $ 94,299,000   $ 74,367,000   $ 71,113,000
Cost of Sales                               63,109,000     51,070,000     47,542,000
------------------------------------------------------------------------------------
   Gross Profit                             31,190,000     23,297,000     23,571,000
Selling, General and Administrative Costs   21,454,000     15,379,000     15,752,000
Special Charge (Note 2)                           -        23,200,000           -
Restructuring Charge (Note 3)                     -              -         1,669,000
------------------------------------------------------------------------------------
   Operating Income (Loss)                   9,736,000    (15,282,000)     6,150,000
------------------------------------------------------------------------------------
Other Income (Expense)
  Life Insurance Proceeds (Note 13)               -              -         2,000,000
  Interest Expense                          (2,974,000)    (1,939,000)    (1,464,000)
  Other Income (including interest and
    dividends of $84,000, $496,000 and
    $669,000)                                   93,000      1,075,000        751,000
------------------------------------------------------------------------------------
   Total Other Income (Expense)             (2,881,000)      (864,000)     1,287,000
------------------------------------------------------------------------------------
Income (Loss) From Continuing Operations
  Before Income Taxes                        6,855,000    (16,146,000)     7,437,000
Provision For Income Taxes                   2,435,000      1,274,000        850,000
------------------------------------------------------------------------------------
   Income (Loss) From Continuing Operations  4,420,000    (17,420,000)     6,587,000
------------------------------------------------------------------------------------
Discontinued Operations (Note 4):
  Gain on disposal of subsidiaries,
    net of income taxes                            -              -          462,000
------------------------------------------------------------------------------------
   Income From Discontinued Operations             -              -          462,000
------------------------------------------------------------------------------------
Net Income (Loss)                         $  4,420,000   $(17,420,000)    $7,049,000
====================================================================================
Income (Loss) Per Common Share:
 Primary
  Continuing Operations                      $   .34        $(1.46)         $  .53
  Discontinued Operations                         -            -               .04
------------------------------------------------------------------------------------
   Net Income (Loss)                         $   .34        $(1.46)         $  .57
====================================================================================
 Fully Diluted
  Continuing Operations                      $   .33          *             $  .52
  Discontinued Operations                         -           *                .03
------------------------------------------------------------------------------------
   Net Income                                $   .33          *             $  .55
====================================================================================
Weighted Average Number of Common
  Shares Outstanding
   Primary                                  13,057,000     11,971,000     12,352,000
   Fully Diluted                            15,142,000        *           14,249,000
====================================================================================
<FN>

* As a result of the loss, all options, warrants and convertible debentures are
  anti-dilutive.

               See notes to consolidated financial statements.
</FN>
</TABLE>
                                     S-4
<PAGE>

                                           AEROFLEX INCORPORATED
                                             AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                 Years Ended June 30, 1997, 1996 and 1995


<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, 1994   $ 39,571,000   11,799,000  $ 1,180,000  $ 56,116,000   $(17,633,000)       58,000     $ (92,000)
Treasury Stock Received
  from the Employee
  Stock Ownership Plan       (28,000)        -            -             -              -            7,000       (28,000)
Retirement of Treasury
  Stock                         -         (65,000)      (6,000)     (114,000)          -          (65,000)      120,000
Purchase of Treasury
  Stock                     (355,000)        -            -             -              -           92,000      (355,000)
Stock Issued Upon Exercise
  of Stock Options           107,000       84,000        8,000        99,000           -             -             -
Net Income                 7,049,000         -            -             -         7,049,000          -             -
-----------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1995    46,344,000   11,818,000    1,182,000    56,101,000    (10,584,000)       92,000      (355,000)
Stock Issued Upon
  Conversion of
  Debentures                  19,000        3,000         -           19,000           -             -             -
Treasury Stock Received
  from the Employee
  Stock Ownership Plan      (285,000)        -            -             -              -           56,000      (285,000)
Stock Issued Upon Exercise
  of Stock Options           440,000      159,000       16,000       366,000           -          (19,000)       58,000
Stock and Warrants Issued
  to Acquire Business      1,074,000      300,000       30,000     1,044,000           -             -             -
Stock Issued in Connection
  with Bank Refinancing      300,000      100,000       10,000       290,000           -             -             -
Net Loss                 (17,420,000)        -            -             -       (17,420,000)         -             -
-----------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996    30,472,000   12,380,000    1,238,000    57,820,000    (28,004,000)      129,000      (582,000)
Stock Issued Upon Exercise
  of Stock Options           586,000      278,000       28,000       290,000            -         (69,000)      268,000
Purchase of Treasury
  Stock                     (438,000)        -            -             -               -         109,000      (438,000)
Net Income                 4,420,000         -            -             -         4,420,000          -             -
-----------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997  $ 35,040,000   12,658,000  $ 1,266,000  $ 58,110,000   $(23,584,000)      169,000     $(752,000)
=======================================================================================================================



<FN>

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

                                       S-5
<PAGE>


                     AEROFLEX INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                       Year Ended June 30,
------------------------------------------------------------------------------------
                                               1997           1996           1995
                                               ----           ----           ----
<S>                                       <C>            <C>            <C>         
Cash Flows From Operating Activities:
  Net income (loss)                       $   4,420,000  $(17,420,000)  $  7,049,000
  Adjustments to reconcile net income
    (loss) to net cash provided by
    operating activities:
      Special charge                               -       23,200,000           -
      Gain from discontinued operations,
        net                                        -             -          (462,000)
      Depreciation and amortization           4,322,000     3,091,000      3,133,000
      Gain on sale of securities                   -         (533,000)          -
      Deferred income taxes                     (10,000)     (461,000)       (13,000)
      Other                                      57,000      (112,000)       (69,000)
  Change in operating  assets and
    liabilities,  net of effects  from
    purchase of businesses:
      Decrease (increase) in accounts
        receivable                            1,421,000    (2,220,000)    (1,965,000)
      Decrease (increase) in inventories     (3,403,000)   (2,654,000)     2,263,000
      Decrease (increase) in prepaid
        expenses and other assets               879,000        (6,000)      (279,000)
      Increase (decrease) in accounts
        payable, accrued expenses and
        other long-term liabilities             375,000       434,000     (1,232,000)
      Increase (decrease) in income
        taxes payable                           668,000     1,189,000       (125,000)
------------------------------------------------------------------------------------
Net Cash Provided By
  Operating Activities                        8,729,000     4,508,000      8,300,000
------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
  Payment for purchase of businesses,
    net of cash acquired                       (162,000)  (35,190,000)      (536,000)
  Net cash provided by
    discontinued operations                        -             -         3,058,000
  Capital expenditures                       (2,931,000)   (1,687,000)    (2,919,000)
  Proceeds from sale of property,
    plant and equipment                          16,000     2,318,000        182,000
  Net proceeds from sale of securities             -          533,000           -
  Decrease in invested cash                      81,000       709,000        194,000
------------------------------------------------------------------------------------
Net Cash Used In
  Investing Activities                       (2,996,000)  (33,317,000)       (21,000)
------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
  Borrowings under debt agreements               58,000    27,250,000        293,000
  Debt repayments                            (5,719,000)   (9,210,000)    (5,232,000)
  Bank debt financing costs                        -         (403,000)          -
  Purchase of treasury stock                   (438,000)         -          (355,000)
  Proceeds from the exercise of stock
    options                                     305,000       503,000        107,000
------------------------------------------------------------------------------------
Net Cash Provided By (Used In)
  Financing Activities                       (5,794,000)   18,140,000     (5,187,000)
------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash and
  Cash Equivalents                              (61,000)  (10,669,000)     3,092,000
Cash and Cash Equivalents At Beginning
  Of Year                                       661,000    11,330,000      8,238,000
------------------------------------------------------------------------------------
Cash and Cash Equivalents At End Of Year  $     600,000  $    661,000   $ 11,330,000
====================================================================================
<FN>
                            See notes to consolidated financial statements.
</FN>
</TABLE>

                                       S-6
<PAGE>

                     AEROFLEX INCORPORATED AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Years Ended June 30, 1997, 1996 and 1995

 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.  The Company has  accounted for certain  subsidiaries,  namely
    telecommunication  systems  services (T-CAS Corp.) and commercial and custom
    envelopes  (Huxley  Envelope  Corp.),  as  discontinued  operations.   These
    subsidiaries have not been consolidated as part of the Company's  continuing
    operations (Note 4). All significant  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.

    Financial Instruments
    The fair values of all financial instruments,  other than long-term debt and
    the  convertible  debentures (see Notes 9 and 10),  approximate  book values
    because of the short maturity of these instruments.

    Revenue and Cost Recognition on Contracts
    Revenue  and costs on  contracts  are  recognized  based upon  shipments  or
    billings for  manufacturing  contracts  and upon costs  incurred for certain
    engineering and support  services  contracts.  Estimated costs at completion
    are  based  upon  engineering  and  production  estimates.   Provisions  for
    estimated losses on contracts-in-process are recorded in the period in which
    such losses 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 and
    are classified as selling,  general and administrative  costs.  Research and
    development   expenses  were   approximately   $3,279,000,   $1,260,000  and
    $2,389,000  during the fiscal years 1997, 1996 and 1995,  respectively.  See
    Note 2 for a discussion of purchased 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 20 to 40
    years except for certain costs allocated to existing  technology,  workforce
    in-place,  customer relationships and patents which are amortized over 13 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.  As of June 30,  1997,  the cost in excess of fair
    value  of net  assets  of  businesses  acquired  consists  substantially  of
    $8,666,000  related  to the 1989  acquisition  of  Comstron  Corporation,  a
    manufacturer of frequency synthesizers, subsystems and components.

    Long-Lived Assets
    Effective July 1, 1996 the Company adopted Statement of Financial Accounting
    Standards  ("SFAS") No. 121,  "Accounting  for the  Impairment of Long-Lived
    Assets and for  Long-Lived  Assets to Be Disposed Of",  which  requires that
    long-lived assets and certain  identifiable  intangibles to be held and used
    or disposed of by an entity be reviewed  for  possible  impairment  whenever
    events or changes in  circumstances  indicate that the carrying amount of an
    asset may not be recoverable.  The adoption of SFAS No. 121 did not have any
    impact on the  Company's  consolidated  financial  position  or  results  of
    operations.

    Invested Cash
    Invested cash consists of government securities and certificates of deposit,
    having original  maturities of greater than three months,  and is carried at
    cost, which approximates market.

    Income (Loss) Per Share
    Income per share is  computed  based  upon the  weighted  average  number of
    common shares  outstanding  after giving  effect to the assumed  exercise of
    dilutive  stock options and warrants and, for fully  diluted  purposes,  the
    assumed conversion of debentures. Loss per share is computed based upon only
    the weighted average number of common shares outstanding.

    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  earnings  and pro forma  earnings  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 1996 and 1995 consolidated financial
    statements to conform to the 1997 presentation.







                                       S-8
<PAGE>

 2. Acquisition of Businesses
    MIC
    ---
    Effective March 19, 1996, the Company acquired all of the outstanding  stock
    of MIC Technology Corporation ("MIC") for approximately $36,000,000 of cash,
    300,000  shares of common stock and warrants to purchase  400,000  shares of
    common stock (at exercise prices ranging from $7.05 to $7.50 per share). The
    purchase price was paid with available cash of approximately  $9,000,000 and
    borrowings   under  the  Company's  bank  loan  agreement  of  approximately
    $27,000,000.   MIC  manufactures  high  frequency  thin  film  circuits  and
    interconnects for miniaturized,  high frequency, high performance electronic
    products for growing  commercial  markets  such as wireless  communications,
    satellite  based  communications   hardware  and  high  technology  military
    electronics. The acquired company's net sales were approximately $25,000,000
    for its fiscal year ended October 31, 1995.

    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 as follows:
<TABLE>
          <S>                                     <C>         
          Net tangible assets                     $  6,190,000
          Identifiable intangible assets             8,453,000
          In-process research and development       23,200,000
                                                  ------------
                                                  $ 37,843,000
                                                  ============
</TABLE>


    The  identifiable  intangible  assets  which  include  existing  technology,
    customer  relationships  and assembled  work force are being  amortized on a
    straight-line  basis over thirteen 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 1996.

    Summarized  below are the  unaudited  pro forma results of operations of the
    Company as if MIC had been acquired at the  beginning of the fiscal  periods
    presented.  The $23,200,000 write-off has been included in the June 30, 1996
    pro  forma  loss but not the June 30,  1995  pro  forma  income  in order to
    provide comparability to the respective historical periods.

<TABLE>
<CAPTION>
                                              Pro Forma Year Ended
                                                    June 30,
                                      ---------------------------------------  
                                           1996                   1995
                                      ----------------       ----------------
                                       (in thousands, except per share data)

    <S>                                 <C>                  <C>     
    Net Sales                           $ 90,097             $ 95,300
    Income (Loss) From Continuing
      Operations                         (19,392)               6,729
    Net Income (Loss)                    (19,392)               7,191

    Earnings (Loss) Per Share
      Primary
        Continuing Operations           $ (1.62)             $    .53
        Net Income (Loss)                 (1.62)                  .56
      Fully Diluted
        Continuing Operations                *                    .51
        Net Income                           *                    .54
<FN>
    *  Due to the loss, all options, warrants and convertible debentures are anti-
       dilutive.
</FN>
</TABLE>





                                       S-9

<PAGE>


    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 $162,000 and $63,000 was earned as of
    December 31, 1996 and 1995 and paid in February 1997 and 1996, respectively.
    Such  amounts,  and any further  contingent  consideration  earned,  will be
    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  acquired  company's  net  sales  were
    approximately  $2,600,000  for the year ended  December 31,  1994.  On a pro
    forma basis, had the Lintek  acquisition  taken place as of the beginning of
    the periods  presented,  results of  operations  for those periods would not
    have been materially affected.

    The pro forma financial  information presented above for the MIC acquisition
    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.

    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 MIC and Lintek are  included in the  consolidated  statements  of
    operations from the respective acquisition dates.

 3. Restructuring Charge
    In March 1995, the Company  adopted a plan to  consolidate  its Puerto Rican
    manufacturing  operations  into its existing  facilities in New York and New
    Jersey. The Company has ceased  manufacturing  operations in Puerto Rico. In
    connection  with  this  restructuring,  the  Company  recorded  a charge  to
    earnings of $1,669,000 in fiscal 1995,  representing costs of abandonment of
    leasehold  improvements,  severance costs for  approximately  100 employees,
    lease  termination  costs,  write-down of excess equipment and other related
    costs.   Approximately   $597,000  of  this  amount  were  non-cash   costs.
    Expenditures  related  to the  restructuring  have  been  consistent  in all
    material respects with the original charges taken.

 4. Discontinued Operations
    In November  1993, the Company sold  substantially  all of the net operating
    assets of its wholly-owned subsidiary, Huxley Envelope Corp. ("Huxley"), for
    $5,550,000.   Huxley  is  a  manufacturer   of  specialized   envelopes  for
    high-volume  direct-mail  users.  The sale did not include Huxley's New York
    City  manufacturing  facility which was sold in the fourth quarter of fiscal
    1995 for approximately $2,400,000.  The sale of the facility, along with the
    resolution of certain other contingencies,  resulted in a net of tax gain of
    $240,000.

    Effective  June 30, 1991,  the Board of Directors of the Company  approved a
    formal plan to discontinue  the operations of its  wholly-owned  subsidiary,
    T-CAS Corp.  ("T-CAS"),  which was involved in the design and implementation
    of telecommunication  and electronic systems. The plan called for completion
    of existing contracts and an orderly  dissolution.  As of June 30, 1993, all
    contracts were completed.

    In May 1995,  T-CAS  received  $170,000 in  settlement  of a claim against a
    former customer. This settlement,  together with other unrelated settlements
    of claims and adjustments of previously recorded loss reserves,  resulted in
    an after tax gain of $222,000, which was included in discontinued operations
    in the fourth quarter of fiscal 1995.

    Huxley  and  T-CAS  have  been  reported  as  discontinued  operations  and,
    accordingly,  the Company's  equity earnings (loss) from these  subsidiaries
    and the estimated gain (loss) on disposal,  sale or discontinuance have been
    reported separately from continuing operations.

                                      S-10
<PAGE>

 5. Invested Cash

    Invested cash represents  funds held in qualified  Puerto Rican  investments
    which  enabled the Company to take  advantage of reduced  withholding  taxes
    when the earnings from its subsidiary in Puerto Rico were repatriated. These
    funds are currently  invested in government  securities and  certificates of
    deposit.  Despite the cessation of operations in Puerto Rico, the funds will
    be maintained in such investments for the required statutory periods through
    the year 1999.

 6. Inventories
    Inventories consist of the following:
<TABLE>
<CAPTION>
                                                  June 30,
    --------------------------------------------------------------------
                                           1997                1996
    --------------------------------------------------------------------
   <S>                                <C>                 <C>         
    Raw materials                     $ 11,191,000        $  9,352,000
    Work-in-process                      6,642,000           5,301,000
    Finished goods                       2,486,000           2,263,000
    --------------------------------------------------------------------
                                      $ 20,319,000        $ 16,916,000
    ====================================================================
</TABLE>
    Inventories  include  contracts-in-process  of $3,318,000  and $2,269,000 at
    June  30,  1997 and  1996,  respectively,  which  consist  substantially  of
    unbilled material,  labor and overhead costs that are or were expected to be
    billed during the succeeding fiscal year.

 7. Property, Plant and Equipment
    Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>

                                                  June 30,
    --------------------------------------------------------------------
                                           1997                1996
    --------------------------------------------------------------------
    <S>                               <C>                 <C>         
    Land                              $    725,000        $    725,000
    Building and leasehold
      improvements                      11,742,000          11,370,000
    Machinery, equipment, tools
      and dies                          19,583,000          17,293,000
    Furniture and fixtures               5,196,000           5,070,000
    Assets recorded under
      capital leases                     2,392,000           2,707,000
    Transportation equipment                85,000              63,000
    --------------------------------------------------------------------
                                        39,723,000          37,228,000
    Less accumulated depreciation
      and amortization                  25,236,000          22,374,000
    --------------------------------------------------------------------
                                      $ 14,487,000        $ 14,854,000
    ====================================================================
</TABLE>
    Repairs  and  maintenance  expense  on  property,  plant and  equipment  was
    $1,131,000,  $481,000 and  $475,000 for the years ended June 30, 1997,  1996
    and 1995, respectively.

 8. Accrued Expenses and Other Current Liabilities
    Accrued  expenses and other current  liabilities  include accrued  salaries,
    wages and other  compensation  of $2,874,000 and $2,789,000 at June 30, 1997
    and 1996, respectively.












                                      S-11
<PAGE>
 9. Long-Term  Debt and  Credit  Arrangements
    Long-term  debt  consists  of the following:
<TABLE>
<CAPTION>
                                                  June 30,
    --------------------------------------------------------------------
                                           1997                1996
    --------------------------------------------------------------------
   <S>                                <C>                 <C>         
    Revolving credit and term
      loan agreement (a)              $ 17,150,000        $ 22,200,000
    Capitalized lease
      obligations (b)                    1,536,000           2,047,000
    Bank loans (c)                         187,000             187,000
    Other                                   62,000             162,000
    --------------------------------------------------------------------
                                        18,935,000          24,596,000
    Less current maturities              4,247,000           4,259,000
    --------------------------------------------------------------------
                                      $ 14,688,000        $ 20,337,000
    ====================================================================
</TABLE>

    (a) As of March 15, 1996, the Company  replaced a previous  agreement with a
    revised  revolving  credit and term loan  agreement  with two banks which is
    secured by substantially all of the Company's assets. The agreement provides
    for a revolving credit line of $22,000,000, which expires on March 31, 1999,
    and a term  loan of  $16,000,000.  The term  loan is  payable  in  quarterly
    principal installments of $900,000 with final payment on September 30, 2000.
    The interest  rate on  borrowings  under this  agreement is at various rates
    depending upon certain financial ratios, with the present rate substantially
    equivalent to the prime rate (8.5% at June 30, 1997) on the revolving credit
    borrowings  and prime plus 1/4% on the term loan  outstandings.  The Company
    paid a facility fee of $200,000 and 100,000  shares of common stock,  and is
    required to pay a  commitment  fee of 3/8% per annum of the  average  unused
    portion of the revolving  credit line. An additional  payment of $125,000 is
    payable if the term loan is greater than $4,000,000 at December 31, 1997.

    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 commodities for use in  manufacturing,  the
    Company has a letter of credit facility of $1,600,000. At June 30, 1997, the
    Company's  available  unused  line of credit was  approximately  $12,000,000
    after  consideration of the letter of credit.  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.

    (b) The Company has various  capitalized  lease  obligations  with financial
    institutions  which have  various  terms  through  2000 and  interest  rates
    ranging from 7.1% to 9.5%.

    (c) The Company has loans with a bank bearing interest at rates ranging from
    6.1% to 6.4%.  These loans mature at various dates through July 1998 and are
    fully collateralized by the invested cash.

    Aggregate long-term debt as of June 30, 1997 matures in each fiscal year as
follows:
<TABLE>
          <S>                <C>         
          1998...............$  4,247,000
          1999...............  12,724,000
          2000...............   1,964,000
    ---------------------------------------
                             $ 18,935,000
    =======================================
</TABLE>

    Interest paid was  $2,647,000,  $1,584,000 and  $1,333,000  during the years
    ended June 30, 1997, 1996 and 1995, respectively.

                                      S-12
<PAGE>

10. Senior Subordinated Convertible Debentures
    During June 1994,  the Company  completed  a sale of  $10,000,000  principal
    amount of 7-1/2%  Senior  Subordinated  Convertible  Debentures  to non-U.S.
    persons.  The debentures are due June 15, 2004 subject to prior sinking fund
    payments of 10%, 10%, 15%, and 15% of the principal  amount on September 15,
    2000, 2001, 2002 and 2003, respectively. The debentures are convertible into
    the Company's  common stock at a price of $5-5/8 per share.  The Company may
    redeem  the  debentures  at a price of  104-1/2%  of the  principal  amount,
    declining by 1.5 points per year beginning June 15, 1998 to 100% at June 15,
    2000 and thereafter.  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.  The cost of issuing  these
    debentures,   $947,000,  included  a  6%  fee  paid  and  100,000  warrants,
    exercisable at $6.75 per share,  issued to the placement agent.  This amount
    is  included in the  Consolidated  Balance  Sheet  under the caption  "Other
    Assets" and is being  amortized  over the term of the debentures as interest
    expense.  As of June 30, 1997,  $19,000  principal  amount of bonds has been
    converted  into common  stock.  The Company  estimates the fair value of the
    debentures  as of June 30,  1997 to be  approximately  $10,430,000  based on
    quoted market prices.

11. Stockholders' Equity

    (a)  Stock Option Plans
    Under stock option plans approved by the Company's shareholders, 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  this  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").  The
    NQSOP,  the 1994 Plan and the 1996 Plan  provide  for options  which  become
    exercisable in one or more  installments and each covers 1,500,000 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 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 275,000 shares of common stock  exercisable at $4.00 per
    share. Such grants were not covered by one of the above plans.




















                                      S-13
<PAGE>
    Additional  information  with respect to the  Company's  stock options is as
follows:
<TABLE>
<CAPTION>
                                 Weighted       Shares
                                 Average        Under
                                 Exercise     Outstanding
                                  Prices        Options
                 ----------------------------------------
               <S>                 <C>        <C>       
                 Balance,
                 July 1,
                   1994            $2.61      1,725,000
                 Granted            3.89      1,160,000
                 Expired            3.88       (135,000)
                 Forfeited          2.63        (74,000)
                 Exercised          2.70        (84,000)
                 ----------------------------------------
                 Balance,
                 June 30,
                  1995              3.11      2,592,000
                 Granted            3.93        960,000
                 Forfeited          2.98        (68,000)
                 Exercised          2.77       (191,000)
                 ----------------------------------------
                 Balance,
                 June 30,
                  1996              3.38      3,293,000
                 Granted            4.47        668,000
                 Forfeited          3.17        (71,000)
                 Exercised          2.04       (570,000)
                 ----------------------------------------   
                 Balance
                 June 30,
                  1997             $3.83      3,320,000
                 ========================================
</TABLE>

    Options  to  purchase   2,168,000,   2,092,000  and  1,764,000  shares  were
    exercisable at weighted average exercise prices of $3.61, $3.06 and $2.75 as
    of June 30, 1997, 1996 and 1995, respectively.

    The  options  outstanding  as of June 30, 1997 are  summarized  in ranges as
follows:
<TABLE>
<CAPTION>
                      Options Outstanding               Options Exercisable
               -------------------------------          -------------------

                  Weighted                 Weighted                  Weighted
       Range of   Average                  Average                   Average
       Exercise   Exercise  Options        Remaining   Options       Exercise
        Prices    Price     Outstanding    Life        Exercisable   Price
     -----------  --------  -----------    ---------   -----------   -------- 
     <S>           <C>     <C>            <C>         <C>           <C>  
     $2.00-$3.50    $2.57     523,000      1.0 years     523,000       $2.57
     $3.75-$5.38     4.07   2,797,000      4.8         1,645,000        3.94
                            ---------                  ---------
                            3,320,000                  2,168,000
                            =========                  =========  
</TABLE>

    The per share  weighted-average  fair value of stock options  granted during
    fiscal 1997 and 1996 was $2.37 and $1.31, respectively, on the date of grant
    using  the  Black   Scholes   option-pricing   model   with  the   following
    weighted-average  assumptions:  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;  1996 - expected  dividend  yield of 0%,
    risk free interest rate of 5.4%,  expected  stock  volatility of 30%, and an
    expected option life of 4.3 years.


                                     S-14

<PAGE>


     (b) In October 1995, the Financial  Accounting  Standards Board issued SFAS
No.  123,  "Accounting  for  Stock-Based  Compensation,"  which the  Company has
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  earnings  per share as if such method
had been used to account for stock-based  compensation cost as described in SFAS
No. 123. The pro forma  compensation cost before income taxes, based on the fair
value at the grant date for options  granted only in fiscal years 1997 and 1996,
was  $783,000  and  $429,000  for the  years  ended  June  30,  1997  and  1996,
respectively.  The  Company's  net income (loss) and net income (loss) per share
using this pro forma compensation cost would have been:
<TABLE>
<CAPTION>
                                        Year Ended June 30,
                         ------------------------------------------------------
                                   1997                      1996
                         ----------------------   -----------------------------
                         As Reported Pro Forma    As Reported       Pro Forma
                         ----------- ---------    -----------       ---------
<S>                     <C>           <C>           <C>           <C>          
   Net Income (Loss)    $4,420,000    $3,919,000    $(17,420,000) $(17,772,000)

   Net Income (Loss)
      Per Share
        - Primary          $  .34      $  .30          $(1.46)         $(1.48)
        - Fully Diluted       .33         .30             *               *
<FN>
       *  As a result of the loss, all options, warrants and convertible 
          debentures are anti-dilutive.
</FN>
</TABLE>

    Since the pro forma  compensation  cost  reflects  only  options  granted in
    fiscal  years  1996 and 1997,  the full  impact of  calculating  stock-based
    compensation  costs under SFAS No. 123 is not reflected in the pro forma net
    income (loss) because  compensation  cost is recognized  over the respective
    vesting  period and  compensation  cost for options  granted prior to fiscal
    year 1996 was not reflected.

    (c) Shareholders' Rights Plan
    In August 1988, the Company's  Board of Directors  approved a  Shareholders'
    Rights Plan which provided for a dividend distribution of one right for each
    share to  holders  of record of the  Company's  common  shares on August 31,
    1988. The rights will become exercisable only in the event a person or group
    accumulates  20 percent or more of the Company's  common  shares,  or if any
    person  or group  announces  an offer  which  would  result  in it owning 20
    percent or more of the common  shares.  The rights  will  expire  August 30,
    1998. Each right will entitle the holder to buy one one-hundredth of a share
    of a new  series of  Series A Junior  Participating  Preferred  Stock of the
    Company at the price of $25. In addition, upon the occurrence of a merger or
    other  business  combination,  or  the  acquisition  by a  person  or  group
    ("Acquiring Person") of 25 percent or more of the common shares,  holders of
    the rights,  other than the Acquiring  Person,  will be entitled to purchase
    either common shares of the Company or common shares of the Acquiring Person
    at half their market value.

    The Company will be entitled to redeem the rights for $0.01 per right at any
    time until the tenth day following a public  announcement of the acquisition
    of a 20 percent position in its common shares.









                                      S-15

<PAGE>
12. Income Taxes
    The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
                                          Year Ended June 30,
       -----------------------------------------------------------------
                                     1997          1996          1995
       -----------------------------------------------------------------
       <S>                       <C>           <C>           <C>        
       Current:
         Federal                 $ 1,752,000   $ 1,166,000   $   307,000
         State and local             693,000       569,000       454,000
         U.S. Territory                 -             -          102,000
       ----------------------------------------------------------------- 
                                   2,445,000     1,735,000       863,000
       -----------------------------------------------------------------
       Deferred:
         Federal                     404,000      (776,000)       43,000
         State and local            (414,000)      201,000       (54,000)
         U.S. Territory                 -          114,000        (2,000)
       -----------------------------------------------------------------
                                     (10,000)     (461,000)      (13,000)
       -----------------------------------------------------------------
                                 $ 2,435,000   $ 1,274,000   $   850,000
       =================================================================
</TABLE>
    The provision  for income taxes varies from the amount  computed by applying
    the U.S. Federal income tax rate to income (loss) from continuing operations
    before income taxes as a result of the following:


<TABLE>
<CAPTION>
                                          Year Ended June 30,
       -----------------------------------------------------------------
                                     1997          1996          1995
       -----------------------------------------------------------------   
       <S>                       <C>           <C>           <C>        
       Tax at statutory rate     $ 2,331,000   $(5,490,000)  $ 2,529,000
       Non-deductible special
        charge (Note 2)                 -        7,888,000          -
       Utilization of net
        operating loss
        carryforwards                   -       (1,437,000)   (1,702,000)
       State, local and U.S.
        Territory income tax         184,000       376,000       392,000
       Officers' life insurance
        premiums and (proceeds)       59,000        21,000      (658,000)
       Other, net                   (139,000)      (84,000)      289,000
     -------------------------------------------------------------------
                                 $ 2,435,000   $ 1,274,000    $  850,000
     ===================================================================
</TABLE>
<PAGE>

    Deferred tax assets and liabilities consist of:
<TABLE>
<CAPTION>
                                                              June 30,
---------------------------------------------------------------------------------
                                                       1997              1996
---------------------------------------------------------------------------------
       <S>                                         <C>               <C>         
       Accounts receivable                         $    148,000      $    139,000
       Inventories                                    1,676,000         1,604,000
       Accrued expenses                                 219,000           128,000
---------------------------------------------------------------------------------
         Current assets                               2,043,000         1,871,000
---------------------------------------------------------------------------------
       Other long-term liabilities                         -              155,000
       Unrealized capital loss                        1,428,000         1,315,000
       Tax loss carryforwards                         1,737,000         2,972,000
       Tax credit carryforwards                       3,477,000         2,449,000
       Capital loss carryforwards                     1,256,000         1,670,000
       Less valuation allowance                      (3,569,000)       (3,884,000)
---------------------------------------------------------------------------------
         Non-current assets                           4,329,000         4,677,000
---------------------------------------------------------------------------------
       Property, plant and equipment                   (955,000)         (966,000)
       Intangibles                                   (3,654,000)       (3,838,000)
       Other                                            (54,000)          (45,000)
---------------------------------------------------------------------------------
         Long-term liabilities                       (4,663,000)       (4,849,000)
---------------------------------------------------------------------------------
         Net non-current assets (liabilities)          (334,000)         (172,000)
---------------------------------------------------------------------------------
           Total                                   $  1,709,000      $  1,699,000
=================================================================================
</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  valuation  allowance
    decreased  by  $315,000  during  fiscal  1997  primarily  as a result of the
    expiration of unused  capital loss  carryforwards.  In  connection  with the
    acquisition of MIC in 1996

                                      S-16
<PAGE>

    (Note 2), the Company  recorded  approximately  $3,800,000  of deferred  tax
    liabilities  related  to  identifiable   intangible  assets  which  are  not
    deductible for tax purposes. Concurrently, the Company reduced its valuation
    allowance  against its  deferred  tax assets by the same amount to recognize
    the net  operating  loss  carryforwards  that can offset these  deferred tax
    liabilities.

    At June 30,  1997,  the  Company had net  operating  loss  carryforwards  of
    approximately  $4,000,000  for  Federal  income tax  purposes  which  expire
    through 2006.

    For fiscal 1995 and prior  years,  the  earnings of Aeroflex  International,
    Inc. (the Company's Puerto Rican subsidiary) were substantially  exempt from
    United States income taxes.  These earnings were also partially  exempt from
    Puerto Rican income taxes. As a result of the consolidation of the Company's
    Puerto Rican  operations into its domestic  facilities (Note 3), the Company
    no longer has this partial exemption from income taxes.

    The Company is undergoing  routine audits by various  taxing  authorities of
    several of its state and local income tax returns covering different periods
    from 1992 to 1995.  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 $1,468,000,  $588,000 and $1,004,000
    and received  refunds of  $1,117,000,  $268,000 and $16,000 during the years
    ended June 30, 1997, 1996 and 1995, respectively.

13. Employment Contracts and Life Insurance Proceeds

    In February  1997,  the Company  entered  into  employment  agreements  with
    certain of its  officers for periods  through  December 31, 2002 with annual
    remuneration  ranging  from  $180,000  to  $275,000,  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
    $991,000 per year. In addition,  these officers have the option to terminate
    their  employment  agreements  upon  change in the  present  control  of the
    Company,  as defined,  and receive  lump sum  payments  equal to three times
    annual  compensation,  as defined, or, in one case, a lump sum payment equal
    to the salary for the remainder of the term.

    During fiscal 1995, the Company received $2,000,000 of insurance proceeds on
    the death of the Company's former chairman.

14. Employee Benefit Plans

    The Company had  established an Employee  Stock  Ownership Plan ("the ESOP")
    which  covered   substantially  all  employees  not  covered  by  collective
    bargaining agreements and who met certain service  requirements.  The annual
    contribution to the ESOP was determined by the Company's Board of Directors.
    For the plan years ended  December  31, 1995 and 1994 the Board of Directors
    did not elect to make a contribution  to the ESOP.  During 1995, the Company
    received a favorable  determination letter from the Internal Revenue Service
    for the termination of the ESOP and completed the formal  termination of the
    ESOP in December 1995.

    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.  For each of the 1997, 1996 and 1995 calendar years, the Board





                                      S-17
<PAGE>
    of Directors has elected to provide an employer  contribution,  which vests
    immediately,   equal  to  30%  of  employee  contributions  subject  to  
    certain limitations.  The ARX 401(k)  expense for the fiscal  years ended 
    June 30, 1997, 1996 and 1995 was $263,000, $230,000 and $219,000, 
    respectively.

    Employees  of MIC  Technology,  who are  excluded  from the ARX 401(k),  are
    eligible to  participate  in the MIC 401(k) Plan and MIC Profit Sharing Plan
    ("the MIC  Plans").  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  Technology
    profits.  The MIC Plans'  expense was  $450,000  and $104,000 for the fiscal
    year ended June 30, 1997 and the period from  acquisition  to June 30, 1996,
    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, 1997,  1996 and 1995 was  $300,000,  $217,000  and  $347,000,
    respectively.  The assets of the SERP are held in a Rabbi Trust and amounted
    to  $386,000  and  $234,000  at June 30,  1997 and 1996,  respectively.  The
    accumulated  benefit obligation was $1,259,000 and $843,000 at June 30, 1997
    and 1996, respectively. No participants are currently receiving benefits.

15. Commitments and Contingencies

    a.  Operating Leases

    Several of the  Company's  operating  facilities  and certain  machinery and
    equipment are leased under agreements  expiring through 2007. 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, 1997 are as
    follows for the fiscal years:
<TABLE>

          <S>                <C>            <S>                 <C>      
          1998...............$ 1,662,000    2001............... 1,068,000
          1999...............  1,188,000    2002...............   994,000
          2000...............  1,070,000    Thereafter......... 2,444,000
--------------------------------------------------------------------------------
                                                               $8,426,000
================================================================================
</TABLE>

    Rental expense was $1,560,000, $790,000 and $837,000 during the fiscal years
    1997, 1996 and 1995, respectively.

    b.  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 may 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 early  stages of  discovery.  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>


16. Business Segments

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


    Microelectronics:             Isolator Products:
    a)Microelectronic Modules     a)Commercial spring and rubber isolators (VMC)
       (Circuit Technology)       b)Industrial spring and rubber isolators
    b)Thin Film Interconnects        (Korfund)
       (MIC Technology)           c)Military wire-rope isolators
                                     (Aeroflex International)
    Electronics:
    a)Instrument products
       (Comstron and Lintek)
    b)Motion Control Systems
        - Scanning devices
        - Motion Control Systems
        - Stabilization and tracking
            devices
        - Magnetic devices
        - Electronic control systems

    The Company is a manufacturer of advanced  technology systems and components
    for commercial industry,  government and defense contractors.  Approximately
    50%, 65% and 74% of the Company's  sales for the fiscal years 1997, 1996 and
    1995,  respectively,  were to agencies of the United States government or to
    prime defense contractors or subcontractors of the United States government.




































                                      S-19
<PAGE>
<TABLE>
<CAPTION>

                                                     Year Ended June 30,
------------------------------------------------------------------------------------
     Business Segment Data:                   1997           1996           1995
------------------------------------------------------------------------------------
     <S>                                  <C>            <C>            <C>         
     Net sales:
       Microelectronics                   $ 48,462,000   $ 28,414,000   $ 24,250,000
       Electronics                          28,144,000     30,109,000     31,357,000
       Isolator Products                    17,693,000     15,844,000     15,506,000
------------------------------------------------------------------------------------
         Net sales                        $ 94,299,000   $ 74,367,000   $ 71,113,000
====================================================================================

     Operating profit (loss):
       Microelectronics                   $  6,644,000   $  3,282,000   $  2,075,000
       Electronics                           2,762,000      4,830,000      6,028,000
       Isolator Products                     2,844,000      2,150,000      2,377,000
       General corporate expenses           (2,514,000)    (2,344,000)    (2,661,000)
------------------------------------------------------------------------------------
                                             9,736,000      7,918,000      7,819,000
       Special Charge (1)                         -       (23,200,000)          -
       Restructuring costs (2)                    -              -        (1,669,000)
       Interest expense                     (2,974,000)    (1,939,000)    (1,464,000)
       Interest and other income                93,000      1,075,000      2,751,000
------------------------------------------------------------------------------------
         Income (loss) from continuing
          operations before income taxes  $  6,855,000   $(16,146,000)  $  7,437,000
====================================================================================

     Identifiable assets:
       Microelectronics                   $ 37,741,000   $ 35,445,000   $ 14,430,000
       Electronics                          28,603,000     31,354,000     33,625,000
       Isolator Products                     9,700,000      9,752,000     10,159,000
       Corporate                             5,003,000      4,618,000     13,722,000
------------------------------------------------------------------------------------
         Total assets                     $ 81,047,000   $ 81,169,000   $ 71,936,000
====================================================================================
     Capital expenditures:
       Microelectronics                   $  1,637,000   $    766,000   $    908,000
       Electronics                             996,000        597,000      1,440,000
       Isolator Products                       293,000        315,000        554,000
       Corporate                                 5,000          9,000         17,000
------------------------------------------------------------------------------------
         Total capital expenditures       $  2,931,000   $  1,687,000   $  2,919,000
====================================================================================

     Depreciation and amortization
      expense:
       Microelectronics                   $  2,230,000   $    996,000   $    691,000
       Electronics                           1,528,000      1,530,000      1,697,000
       Isolator Products                       532,000        535,000        717,000
       Corporate                                32,000         30,000         28,000
------------------------------------------------------------------------------------
         Total depreciation and
          amortization                    $  4,322,000   $  3,091,000   $  3,133,000
====================================================================================
<FN>
    (1) The  special  charge  for  the  write-off  of  in-process  research  and
        development  acquired in the  purchase of MIC  Technology  is  allocable
        fully to the microelectronics segment.
    (2) Approximately  35% and 65% of the  restructuring  charge is allocable to
        the electronics and isolator products segments, respectively.
</FN>
</TABLE>
<PAGE>

17. Subsequent Events

    (a) Effective July 1, 1997, the Company's subsidiary,  MIC, 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 $4,400,000 in cash. These units
    manufacture  interconnect  products  for the  communications  industry.  The
    Company has also signed a multi-year supply agreement to provide Lucent with
    film integrated  circuits. 

    (b) On  September 8, 1997,  the Company  called for the redemption of all of
    its  outstanding  7-1/2% Senior Subordinated  Convertible Debentures at 104-
    1/2% of the principal  amount.  The  Debentures  are  convertible  into  the
    Company's Common Stock at a price of $5-5/8  per share  through  October  6,
    1997.  Any  outstanding Debentures on October 13, 1997 will be redeemed.

                                      S-20

<PAGE>


Quarterly Financial Data (Unaudited):
(In thousands except per share data and footnotes)
<TABLE>
<CAPTION>
                                             Quarter                  
                              ----------------------------------------Year Ended
1997                          First     Second     Third      Fourth     June 30
--------------------------------------------------------------------------------

<S>                         <C>        <C>        <C>        <C>        <C>     
Net Sales                   $ 19,061   $ 22,914   $ 22,937   $ 29,387   $ 94,299
Gross Profit                   6,278      7,257      7,759      9,896     31,190
Net Income                  $    651   $    893   $    917   $  1,959   $  4,420
                            ========   ========   ========   ========   ========
Income Per Share:
  Primary                     $  .05     $  .07     $  .07     $  .15     $  .34
                            ========   ========   ========   ========   ========
  Fully Diluted               $  .05     $  .07     $  .07     $  .14     $  .33
                            ========   ========   ========   ========   ========

                                             Quarter                    
                            ------------------------------------------ Year Ended
1996                          First     Second     Third      Fourth      June 30
----------------------------------------------------------------------------------

Net Sales                   $ 13,149   $ 15,195   $ 15,956   $ 30,067   $ 74,367
Gross Profit                   4,069      4,560      5,016      9,652     23,297
Net Income (Loss) (1)(2)    $    607   $    998   $(22,084)  $  3,059   $(17,420)
                            ========   ========   ========   ========   ========
Income (Loss) Per Share:
  Primary (1)(2)              $  .05     $  .08     $(1.85)    $  .23     $(1.46)
                            ========   ========   ========   ========   ========
  Fully Diluted (2)           $  .05     $  .08        (3)     $  .21         (3)
                            ========   ========              ========   


<FN>

(1) Includes  $23,200,000 ($1.94 per share) for the year ended June 30, 1996 and
    quarter ended March 31, 1996,  for the write-off of in-process  research and
    development  acquired in  connection  with the  purchase  of MIC  Technology
    Corporation.
(2) Includes  a  $437,000  net of tax,  or $.04 per  share,  gain on the sale of
    securities for the year ended June 30, 1996 and $339,000 net of tax, or $.02
    primary and fully diluted, for the quarter ended June 30, 1996.
(3) As a result of the loss, all options,  warrants and  convertible  debentures
    are anti-dilutive.
</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
                 -----------------------------------------------
<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
-----------             ---------      ----------     ----------  ----------       ----------  

YEAR ENDED JUNE 30, 1997:
------------------------
<S>                     <C>            <C>            <C>         <C>               <C>       
Allowance for doubtful
  accounts              $  354,000     $   72,000     $     -     $    9,000(A)     $  417,000
                        ==========     ==========     ==========  ==========        ==========
Reserve for inventory
  obsolescence          $4,260,000     $  100,000     $     -     $  305,000(B)     $4,055,000
                        ==========     ==========     ==========  ==========        ==========


YEAR ENDED JUNE 30, 1996:
------------------------

Allowance for doubtful
  accounts              $  437,000     $  (55,000)    $     -     $   28,000(A)     $  354,000 
                        ==========     ==========     ==========  ==========        ==========

Reserve for inventory
  obsolescence          $4,380,000     $  497,000     $    -      $  617,000(B)     $4,260,000
                        ==========     ==========     ==========  ==========        ==========


YEAR ENDED JUNE 30, 1995:
------------------------

Allowance for doubtful
  accounts              $  434,000     $   10,000     $     -     $    7,000(A)     $  437,000
                        ==========     ==========     ==========  ==========        ==========
Reserve for inventory
  obsolescence          $3,478,000     $  968,000     $     -     $   66,000(B)     $4,380,000
                        ==========     ==========     ==========  ==========        ==========



<FN>

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




                                      S-22