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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

(MARK ONE)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2006

                                       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 NUMBER 1-9125

                        AMERICAN TECHNICAL CERAMICS CORP.
               (EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER)

                     DELAWARE                               11-2113382
           (STATE OR OTHER JURISDICTION                  (I.R.S. EMPLOYER
        OF INCORPORATION OR ORGANIZATION)               IDENTIFICATION NO.)

       1 NORDEN LANE, HUNTINGTON STATION, NY                  11746
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)              (ZIP CODE)

         COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: (631) 622-4700
           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

          TITLE OF EACH CLASS          NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, PAR VALUE $.01 PER SHARE          AMERICAN STOCK EXCHANGE

     SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

     INDICATE BY CHECK MARK IF THE REGISTRANT IS A WELL-KNOWN SEASONED ISSUER,
AS DEFINED IN RULE 405 OF THE SECURITIES ACT.
                                YES [_] NO [X]

     INDICATE BY CHECK MARK IF THE REGISTRANT IS NOT REQUIRED TO FILE REPORTS
PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE ACT.
                                YES [_] NO [X]

     INDICATE BY CHECK MARK WHETHER THE COMPANY (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 COMPANY
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 THE COMPANY'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. [X]

     INDICATE BY CHECK MARK WHETHER THE COMPANY IS A LARGE ACCELERATED FILER, AN
ACCELERATED FILER, OR A NON-ACCELERATED FILER AS DEFINED IN EXCHANGE ACT RULE
(2b-2).

   LARGE ACCELERATED FILER [_] ACCELERATED FILER [_] NON-ACCELERATED FILER [X]

     INDICATE BY CHECK MARK WHETHER THE COMPANY IS A SHELL COMPANY AS DEFINED IN
EXCHANGE ACT RULE (12b-2).
                                YES [_] NO [X]

================================================================================



================================================================================

     AS OF THE LAST BUSINESS DAY OF THE COMPANY'S MOST RECENTLY COMPLETED SECOND
FISCAL QUARTER ENDED DECEMBER 31, 2005, THE AGGREGATE MARKET VALUE OF THE
COMPANY'S COMMON STOCK (BASED UPON THE CLOSING SALES PRICE OF THE COMPANY'S
COMMON STOCK ON THE AMERICAN STOCK EXCHANGE ON SUCH DATE) HELD BY NONAFFILIATES
OF THE COMPANY WAS APPROXIMATELY $34,171,810. (FOR PURPOSES OF THIS REPORT, ALL
OFFICERS AND DIRECTORS HAVE BEEN CLASSIFIED AS AFFILIATES, WHICH CLASSIFICATION
SHALL NOT BE CONSTRUED AS AN ADMISSION OF THE AFFILIATE STATUS OF ANY SUCH
PERSON.)

     ON SEPTEMBER 12, 2006, THE COMPANY HAD OUTSTANDING 8,704,673 SHARES OF
COMMON STOCK.

     Documents Incorporated by Reference: Portions of the Company's Proxy
Statement relating to its Annual Meeting of Stockholders to be held on November
14, 2006, are incorporated into Part III of this report by reference.

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                                     PART I

ITEM 1.  BUSINESS

     GENERAL

     The Company was incorporated in New York in 1966 as Phase Industries, Inc.,
and changed its name to American Technical Ceramics Corp. in June 1984. The
Company was merged into a Delaware corporation in 1985 in order to change its
jurisdiction of incorporation. Unless the context indicates otherwise,
references to the Company herein include American Technical Ceramics Corp., a
Delaware corporation, and its subsidiaries, all of which are wholly-owned.

     The Company designs, develops, manufactures and markets
RF/Microwave/Millimeter-Wave ceramic capacitors, thin film products and other
passive components. The Company's products are focused primarily in the high
reliability market for ultra-high frequency ("UHF") and microwave applications,
including wireless electronics, medical electronics, semiconductor equipment,
satellite equipment and fiber optics. Capacitors function within electronic
circuits by storing and discharging precise amounts of electrical power. The
Company believes that it is a leading manufacturer of multilayer capacitors
("MLCs") for UHF and microwave applications. Selling prices for the Company's
MLCs typically range from $.10 to $7.50 or higher, whereas selling prices for
commodity-type MLC units typically range from $.005 to $.05. Thin film products
are ceramic substrates on which circuit patterns are printed by means of thin
film processes, and are used by customers as building blocks in electronic
circuits. Management believes the Company operates in only one industry segment
- the electronic components industry.

     The recovery in the technology and telecommunications sectors that began in
the second half of fiscal year 2004 continued in fiscal year 2006. The Company
experienced substantial increases in sales and bookings in fiscal year 2006.
Bookings from customers in a majority of the Company's markets increased during
this period.

     PRODUCTS

     The Company's traditional line of MLCs are available in predominantly four
physical sizes designated "A" (.055 inch cube), "B" (.110 inch cube), "C" (.250
inch cube) and "E" (.380 inch cube); in three types of dielectrics: low-loss
porcelain (the 100 series), zero temperature coefficient (the 700 series) and
high dielectric constant (the 200 series); and in a variety of capacitance
values and tolerances. The 100 series, the Company's basic product line, is
widely used in microwave equipment. The 700 series, because of its lower
temperature coefficient, is used in tuning circuits in UHF/Microwave and lower
frequency applications. The 200 series has high packaging density and is used in
microcircuits where high capacitance value is needed in a small space. The
Company's traditional line of MLCs is one of three product lines that accounts
for more than 10% of the Company's consolidated revenue, accounting for
approximately 64%, 69% and 70%, of the Company's revenues in fiscal years 2006,
2005 and 2004, respectively.

     The Company's MLCs are generally designed for critical performance
applications, and are characterized by a high degree of reliability, low power
dissipation and ruggedness. The MLCs can be broadly classified as either
commercial or "Hi-Rel", based primarily upon the amount of testing involved. All
are subject to precise measurement of capacitance, dissipation factor,
insulation resistance and temperature co-efficient. The Company's products are
used in commercial and military applications, including wireless cellular and
personal communications systems (PCS), medical electronics (i.e., magnetic
resonance imaging), radio frequency power sources for semiconductor
manufacturing, satellite communications, aerospace systems, including radar and
electronic warfare, and certain high-speed digital processing equipment.

     Approximately 95% of the Company's sales in fiscal year 2006 and
approximately 92% of sales in each of the fiscal years 2005 and 2004 were to
commercial (i.e., applications other than Hi-Rel) customers. The Company
estimates that approximately 5% of the Company's sales in fiscal year 2006 and
approximately 8% of sales in fiscal years 2005 and 2004 were sales of Hi-Rel
products. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING -- FOREIGN SALES."


                                       2



     Hi-Rel MLCs are principally utilized in applications such as satellites
(including commercial communications satellites), high performance military
aircraft, spacecraft and missiles, and other defense applications such as radar
and electronic countermeasures. The Company produces its Hi-Rel MLCs to precise
customer specifications and subjects each Hi-Rel MLC to a battery of performance
and environmental tests. Such performance tests measure capacitance, dissipation
factor, insulation resistance and dielectric withstanding voltage. The
environmental tests are either designated by customers or specified by the
military and include thermal shock tests, humidity tests and tests of life
expectancy at elevated temperature and voltage levels.

     For commercial applications, the Company produces MLCs to precise
performance specifications similar to Hi-Rel MLCs, individually tests them for
certain electrical performance characteristics and conducts additional tests on
samples from production lots. However, the Company does not subject all
commercial MLCs to environmental tests.

     The Company has historically pursued the high-performance MLC market in
which its products are typically applied in the manufacture of high-value
capital equipment and which has commanded higher unit selling prices. The MLCs
required for many of these applications constitute a small part of the circuit
cost and, because performance and reliability requirements are stringent and the
cost of component failure high, customers have been willing to pay the price
premium associated with higher performance products such as those the Company
makes. In recent years, the Company has further automated its manufacturing
processes to enable it to produce certain of its existing MLCs for the medium -
priced niche market driven by wireless base-station infrastructure applications.

     The Company markets its 600 series products to higher volume markets. These
products are targeted toward the high-performance, lower-priced segment of the
wireless industry. The Company manufactures predominantly three physical sizes
designated "S" (.06" x .03" rectangle), "L" (.04 x .02 rectangle), and "F" (.08
x .05 rectangle). These are lower-priced than the Company's traditional MLCs
(approximately two-thirds the price of the lowest-priced comparable part), and
use a newer ceramic proprietary formulation developed by the Company to optimize
performance for wireless applications. Sales from this product line amounted to
approximately 15%, 13% and 10% of the Company's revenues in fiscal years 2006,
2005 and 2004, respectively.

     The Company also offers specialized capacitors designed to perform at
frequencies higher than the useful range of typical microwave MLCs. The
Company's Microcap(R), a single layer ceramic capacitor, was developed to meet
certain applications where small size is critical and which operate at
frequencies extending higher than those for which MLCs are typically chosen.
Manufactured and sold in both Hi-Rel and commercial versions, these products are
used in wideband wireless data communications, satellite communications,
military systems and other microwave and millimeter-wave applications. Another
product tailored to the same market, the 500S Broadband Microwave Capacitor
(BMC), is based on a patented construction designed to be compatible with
customers' high-volume surface-mount assembly technologies. In fiscal year 2006,
the Company introduced, on a limited basis, an Ultra Broadband Capacitor
functioning from very low frequencies up to 40 GHz for ultra high speed digital
signal processing applications, representing a potential new and growing market
for the Company's products.

     The Company has diversified its product line through the development of
custom product capability based on thin film technologies. The Company produces
metallized circuits and passive components on high-quality ceramic substrates to
customers' drawings and specifications. Thin film layers deposited on the
ceramic substrate may consist of a variety of materials with specific
conductive, resistive, capacitive and other properties enabling the build-up of
the desired circuit pattern. As with a typical circuit board, the customer may
then attach discrete components and chips to complete the circuit. Thin film
products are used by the Company's customers in a broad range of applications,
including microwave components, fiber optic repeaters and high-density packaging
of devices, typically where requirements for high reliability, small size and
dimensional precision are paramount. In fiscal years 2006, 2005 and 2004, thin
film sales represented approximately 13%, 11% and 14% of the Company's revenues,
respectively.

     In June 2000, the Company introduced a line of high power, passive
resistive products. In fiscal year 2002, in order to offer higher reliability
and power handling capability for these products, the Company switched to thin
film Technology, replacing the thick film technology previously employed. The
Company's products, including standard


                                       3



resistors, terminations, attenuators and other customized products, consist of
resistive and conductive layers deposited on a substrate of aluminum nitride, a
base material chosen for its high thermal conductivity and its non-toxic
properties. High power resistive products are used in many of the same types of
equipment as the Company's capacitor products. Applications for these products,
some of which represent an expansion of the Company's customer base, include a
variety of microwave and RF modules and equipment, including power amplifiers,
up and down converters, and high power combiner/dividers. The markets for these
products include the wireless and telecommunication markets, including base
station and satellite communications, and a broad range of medical, military and
other commercial applications.

     Since fiscal year 2002, the Company has offered, on a limited basis,
certain products based upon a new high-density electronic packaging technology
for radio frequency (RF) and microwave frequency broadband applications. This
technology, commonly referred to as Low Temperature Co-fired Ceramic ("LTCC"),
is based on high performance dielectric ceramic materials, some manufactured by
the Company and others purchased from leading electronic materials
manufacturers. The Company markets this technology under the name Co-fired
Ceramic Packaging ("CCP"). Traditional RF and microwave circuits have been
limited in size and performance by the use of only two dimensions to incorporate
all RF elements and passive components, such as inductors, capacitors and
resistors. LTCC technology enables the user to design circuits in the third
dimension with the integration of the RF elements and passive components in the
body of the electronic circuit. LTCC technology also provides the ability to
design RF components such as couplers, power dividers/combiners, filters and
impedance transformers, and passive devices.

     MANUFACTURING

     The manufacturing process for MLC's involves four primary stages. The
first, or "white room" stage, includes tape casting, multi-layer lamination,
dicing and firing of ceramic chips. In this phase, layers of electrically
conducting material are printed onto ceramic tape in patterns, which eventually
form the electrodes of the capacitor. The screen-printing technology used for
the printing of such layers is referred to as "thick film". In the second, or
"termination" stagethe ends of the ceramic chips are coated with silver to
provide the connection to external circuitry. In the third, or "finishing"
stage, the parts are then customized to specific order requirements, including
termination plating, soldering of leads and laser marking. Also in this stage,
the products are tested to standards suitable for commercial applications and
then packaged for shipment. If the customer's specifications call for a higher
level of performance assurance, prior to packaging the parts are put through a
fourth, or "Hi-Rel" stage, consisting of extensive additional testing.

     The Company currently manufactures MLC's at its facilities in Huntington
Station, New York and Jacksonville, Florida. Its primary MLC manufacturing site
is Huntington Station, consisting of four manufacturing facilities which
aggregate approximately 76,000 square feet. Two of these facilities house the
Company's state-of-the-art chip fabrication operations. These facilities are
designed to provide optimum control of the Company's manufacturing processes and
product quality, while substantially increasing its output capability. The other
two facilities provide "finishing" process steps and key manufacturing support
activities.

     The Company manufactures its 500 and 600 series capacitors at its facility
in Jacksonville. Over the past three fiscal years, the Company expanded the
offering of the 600 series to include an additional case size each year to
better serve the EIA (Electronic Industry Association) product standardization
used by its customers. The Jacksonville facility is also the site of manufacture
for the Company's thin film, Microcap(R) SLC, resistor and CCP product lines,
and serves as the Company's new product technology center. The Jacksonville
facilities aggregate over 109,000 square feet of space with 37,000 square feet
committed to custom circuit operations.

     As differentiated from the "thick film" technology used in MLC
manufacturing, the manufacture of thin film circuits involves a method for the
deposition of layers of conducting and other materials using "sputtering"
technology. Unlike the manufacture of capacitors, where all products flow
through the same manufacturing sequences, manufacturing processes for custom
thin film products vary significantly in accordance with each customer's
specifications.

     Utilizing its core competencies in the manufacture of MLC devices, over the
past two years, the Company has developed the capability to manufacture
multilayer microelectronic ceramic circuits. Starting in fiscal year 2004, the


                                       4



Company has been using this technology in connection with its CCP product line.
Similar to commercial printed circuit board manufacturing, the Company can
manufacture multiple layer boards with layer-to-layer interconnects and
circuitry on each layer in a ceramic structure. The CCP product line, much like
the Company's thin film product line, operates in a build-to-order format. The
Company typically receives drawings for custom devices and packages from its
customers and builds products to their specification, utilizing multiple layer
circuit technology. During fiscal year 2006, the Company acquired certain
equipment from CTS Corporation used in the manufacture of CCP products. The use
of this equipment will allow the Company to expand its existing CCP operation by
increasing both the capacity and capability of the existing operation. See "ITEM
1. BUSINESS -PRODUCTS AND -RESEARCH AND DEVELOPMENT."

     Microcap(R) SLCs, resistive products and BMCs all utilize various
combinations of the production methods described in the preceding paragraphs.
The manufacture of each of these product lines involves dedicated equipment in
addition to the equipment used in connection with the manufacture of the product
lines previously discussed.

     The Company utilizes a wide variety of specialized equipment for the
fabrication, handling and testing of its products, including equipment that it
has designed and constructed. The Company considers its capability to create its
own unique equipment solutions tailored to the particular needs of its product
lines and technologies to be a competitive advantage.

     Before full market introduction of a new product, the Company generally
establishes a production line for the product and manufactures substantial
quantities to evaluate and verify its ability to consistently meet quality and
performance standards. Such efforts involve the dedication of equipment,
materials and labor, and, to the extent that these efforts do not result in
saleable product, all costs are expensed. During fiscal years 2003 and 2004, the
Company's CCP product line was in the development phase. During fiscal year
2005, the Company completed the development of this product line.

     To complement its own manufacturing efforts and to provide a wider variety
of product offerings to its customers, the Company has from time to time entered
into arrangements with other manufacturers to produce certain products to the
Company's specifications. These arrangements do not obligate the Company to
purchase any minimum amount of product.

     The historical pattern of industry price declines has largely prevented MLC
producers, including the Company, from increasing prices and has forced the
Company and competitors to rely on advances in productivity and efficiency in
order to improve profit margins. Accordingly, the Company continuously looks to
improve the production yields and efficiency of its manufacturing processes. The
Company conducts continuous improvement programs targeted at streamlining
manufacturing processes and increasing yields, and has established statistical
process control techniques for maintaining key process steps within specified
bounds and providing data to support continuous improvement. For additional
information with respect to yields and efficiencies, see "Item 1. BUSINESS --
RESEARCH AND DEVELOPMENT."

     In fiscal year 2003, the Company attained ISO-9001:2000 status, which
includes product design capability. It is a higher level certification than the
Company previously had. The Company's European sales and distribution office
also achieved ISO-9001:2000 certification status during fiscal year 2003. During
fiscal year 2004, the Company established an Environmental Management System in
accordance with ISO-14001 requirements, and the New York manufacturing facility
received ISO-14001 certification during fiscal year 2005.

     CUSTOMERS AND MARKETING

     The Company markets its products primarily to customers in the wireless
infrastructure, fiber optic telecommunications, military, medical, semiconductor
equipment manufacturing and aerospace industries. The customers included within
these industries are manufacturers of microwave, high frequency and fiber optic
systems, subsystems and equipment, including original equipment manufacturers
(OEMs) and Electronics Manufacturing Services (EMS) companies and suppliers
thereto, and government contractors and subcontractors. Most of the Company's
products are used in the manufacture of capital equipment.


                                       5



     The Company promotes its products through specialized trade shows, industry
trade journal advertisements, a website and catalog direct mail programs. In
fiscal year 2000, the Company started taking orders, on a limited basis, via its
web site. In fiscal year 2004, and again in fiscal year 2006, the Company
increased the list of products available for sale via its web site and plans to
further expand these offerings in the future.

     The Company shipped to approximately 2,200 customers in each of fiscal
years 2006, 2005 and 2004. The top ten customers combined accounted for
approximately 25%, 29% and 30% of net sales in fiscal years 2006, 2005 and 2004,
respectively. No customer accounted for more than 10% of the Company's net sales
in fiscal years 2006, 2005 or 2004.

     The Company is qualified as a producer of capacitors by the Defense
Logistics Agency of the United States Department of Defense. This qualification
covers several varieties and types of capacitors. Maintenance of its qualified
producer status is critical in order for the Company to continue to sell its
Hi-Rel military product line. To date, the Company has not encountered any
difficulty in maintaining its status as a qualified producer.

     The Company typically sells its products through a combination of logistics
arrangements and a large number of individual purchase orders. Certain
individual purchase orders are subject to pricing agreements. Neither pricing
agreements nor logistics arrangements are firm purchase orders, but each still
requires that the Company commit to produce semi-finished or finished goods
inventory in anticipation of receiving a purchase order for immediate shipment.
See "Item 1. BUSINESS -- SALES BACKLOG" and "Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

     Customers are invoiced simultaneously with merchandise shipments. The
Company sells to a majority of its customers on 30-day terms. A small number of
the Company's larger volume customers have terms ranging from 45 days to 120
days. Customers may also charge their purchases through the use of a
credit/debit card. Sales returns are authorized and accepted by the Company in
the normal course of business. An evaluation of the returned product is
performed and typically results in either a credit or a shipment of replacement
product to customers. The Company believes that it has provided an adequate
reserve for returns in the accompanying consolidated financial statements.

     In the United States, the Company principally sells its products through
independent sales representatives who are compensated on a commission basis. In
foreign countries, the Company utilizes resellers, who purchase products from
the Company for resale, independent sales representatives and its own employees.
During fiscal year 2005, the Company's wholly-owned subsidiary in Sweden,
through its own wholly-owned subsidiary, established a representative office
within the Russian Federation to service the growing market there. See "Item 1.
BUSINESS -- FOREIGN SALES" and Note 9 of Notes to Consolidated Financial
Statements.

     At June 30, 2006, the Company utilized approximately seventeen sales
representative organizations in the United States and approximately ten sales
representative and reseller organizations in foreign countries, principally
Europe, Canada and the Far East. The Company's sales representatives and
resellers generally have substantial engineering expertise, which enables them
to assist the Company in providing a high level of service to assist customers
in generating product specifications and in providing applications assistance
and maintaining contact with key customers. The Company employs regional sales
managers to supervise its sales representatives and resellers and a staff of
sales and applications specialists to provide direct contact with and support to
customers.

     SEASONALITY

     General economic conditions have an impact on the Company's business and
financial results. Historically, the markets in which the Company sells its
products have been adversely affected by weak economic conditions which, in
turn, has negatively affected sales. During periods of relatively stable
economic conditions the Company's revenues are typically higher in the second
half of the fiscal year. The typically lower revenues in the first half of the
fiscal year are due to several factors, including the impact of vacations during
the summer months and a reduced number of shipping days.


                                       6



     FOREIGN SALES

     In fiscal years 2006, 2005 and 2004, sales to customers located outside the
United States constituted 49%, 47% and 47% of net sales, respectively. The
Company's foreign customers are located primarily in Europe, Canada and the Far
East. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING" and Note 9 of Notes to
Consolidated Financial Statements. All foreign sales, except sales by the
Company's wholly-owned subsidiary in Stockholm, Sweden, are denominated in
United States dollars. The Company attempts to reduce the risk of doing business
in foreign countries through the use, in certain circumstances, of prepayment or
sight drafts, and by working closely with its foreign representatives and
distributors in assessing business environments.

     SALES BACKLOG

     The Company's sales backlog was $18,941,000, $13,958,000 and $13,472,000 at
June 30, 2006, 2005 and 2004, respectively. Backlog generally consists of a
combination of the Company's standard products and custom manufactured parts
that require a longer lead time to produce. The long-term trend in customer
requirements for the Company's standard products has been toward shorter lead
times. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING."

     The Company offers its Quik-Pick 48 Hour System(R) program pursuant to
which products are shipped within 48 hours from the time the order is placed.
This program is popular with its customers. In order to offer this program, the
Company has to maintain higher inventory levels of certain products in
proportion to total sales than it would otherwise and higher than those
maintained by some other capacitor manufacturers. The contribution of the
Quik-Pick(R) program to the financial results of the Company depends critically
on the Company's ability to accurately predict customer demand for the various
products offered through the program.

     RESEARCH AND DEVELOPMENT

     The technology upon which the Company's products are based is subject to
continued development of materials and processes to meet the demands of new
applications and increased competition. The Company pursues a process-oriented
strategy in which it conducts efforts aimed at developing integrated sets of
materials and associated processes and equipment to provide the capability to
create new or enhanced classes of products. Once a new set of technologies is
established, the Company then seeks to develop and introduce various products
using such technologies. The Company believes its future successes depend upon
its ability to identify the requirements for future products and product
enhancements, and to define, implement and successfully employ the technologies
needed to meet those requirements. Accordingly, the Company believes that its
research and development efforts are critical to its continued success.

     The Company conducts most of its research and development activities at its
facility in Jacksonville, Florida. Activities are focused on the development of
new products and improvement of existing products. Improvements in materials and
process technology, and the development of specialized production equipment, are
directed toward reducing product cost, as well as enhancing performance
requirements that are identified through frequent customer contacts by the
Company's sales and technical personnel. Products are introduced after extensive
in-house testing and evaluations at selected customer sites. See "Item 1.
BUSINESS - MANUFACTURING."

     The Company often pursues programs with individual customers whom it
considers to be leaders in their respective industries to develop special
products to meet their specific requirements. The Company typically conducts
such programs when it believes such products have potential applications
reaching well beyond the initial customer's requirements. The Company's
expansion of the 600 Series product line arose from one such program conducted
in past years.

     The Company's research and development efforts remain focused on the
development of new products and processes related to its core product lines. For
example, during fiscal year 2004, the Company continued its efforts on
developing enhancements to its line of specialty higher frequency capacitors.
The Company also continued development activities on its new resistive product
line by adding thin film resistor manufacturing capability.


                                       7



Typically, thin film resistors offer a higher degree of reliability and are
better able to handle power than their thick film counterparts. The thin film
capability also allows for the development of finer line width and resolution,
which is used in the manufacture of higher frequency terminations and
attenuators. See "Item 1. BUSINESS - PRODUCTS."

     The initial phases of the CCP process were completed during fiscal year
2003, and during fiscal year 2004, the Company started to sell these products.
The Company continues to believe in the long-term prospects for this technology,
and intends to continue the enhancement of its capabilities along with
additional processes that further expand its offering of products during fiscal
year 2006. In this regard, the Company purchased from CTS Corporation certain
equipment used by CTS in the manufacture of LTCC products. The Company
transferred the equipment to its facility in Jacksonville, Florida, where it
will be used, among other things, in the production of LTCC products and certain
of the Company's specialty MLCs. See "ITEM 1. BUSINESS - MANUFACTURING AND -
PRODUCTS."

     Expenditures for research and development were approximately $1,986,000,
$2,161,000 and $3,067,000 in fiscal years 2006, 2005 and 2004, respectively,
representing approximately 2%, 3% and 5% of net sales, respectively. The Company
anticipates that research and development expenditures in fiscal year 2007,
expressed as a percentage of net sales, will be comparable to fiscal year 2006.

     RAW MATERIALS

     The principal raw materials used by the Company include silver, palladium,
gold, platinum, titanate, and other powders that are used in ceramic
manufacture. Precious metals are available from many sources, although palladium
is generally available only from a limited number of metal dealers who obtain
their product requirements, from the Republic of South Africa or the Russian
Federation. The major consumers of palladium are the automotive and electronics
industries.

     As economic conditions improve, the demand for the precious metals the
Company uses in its manufacturing processes is increasing throughout the
electronics industry and other industries. As a result, the Company has seen a
rise in the market prices of certain of these metals. The Company believes that,
based upon its current levels of production, it owns a sufficient supply of
precious metals to meet its near term expected production requirements but will
need to continue purchasing precious metals at prevailing market prices at the
time of purchase. See "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."

     COMPETITION

     Competition in the broad MLC industry continues to be intense and, in
general, is based primarily on price. In the RF/Microwave market segment, where
price has historically been less important, competition has been based primarily
on high performance product specifications, achieving consistent product
reliability, fast deliveries and high levels of customer service. The Company
believes any competitive advantage it may have results from its ability to
fulfill these requirements in a consistent manner. Potential growth of some
market applications may in the future increase the competitive importance of
price in this market. The Company believes it competes in the RF/Microwave
capacitor market with several other manufacturers, both domestically and abroad,
including AVX Corporation, Dover Corporation, Temex, Murata Manufacturing Co.
Ltd and Johanson Technology, Inc., most of which are larger and have broader
product lines and greater financial, marketing and technical resources than the
Company. There are other large commodity-type MLC manufacturers who have
attempted to develop products for the RF/Microwave market segment. While the
Company believes these efforts have not produced significant results to date,
there can be no assurance that such efforts will not be successful in the
future. New product developments may lead the Company into markets where there
are existing competitors that may have significantly greater financial and
technical resources and greater expertise in mass production techniques than the
Company. Competition in the Company's other product areas is similar in nature
to that of the capacitor market. The primary competition for the Company's thin
film products is Reinhardt Microtech AG. The primary competition for the
Company's resistive products are Anaren Inc., EMC Technologies and Florida RF
Labs Inc., the last two of which are both subsidiaries of Smiths Group PLC.


                                       8



     ENVIRONMENTAL COMPLIANCE

     The Company produces hazardous waste in the production of its products.
Accordingly, the Company's manufacturing operations are subject to various
federal, state and local laws restricting the discharge of such waste into the
environment. The Company recycles some of its hazardous wastes and disposes of
the remainder through licensed carriers, which are required to deposit such
waste at licensed waste sites.

     The Company is also subject to various federal, state, local and foreign
laws regulating or prohibiting the use of certain materials in the manufacture
of its products. As part of its research and development efforts, the Company
continues to develop and test new materials and products designed to comply with
these laws.

     Except as described below, the Company believes that it is in material
compliance with all applicable federal, state and local environment laws. In
addition, the Company does not currently anticipate having to make material
capital expenditures in connection with continued achievement of material
compliance therewith. However, more stringent requirements may be enacted in the
future and the Company can not predict whether it will be able to comply with
them. Moreover, there can be no assurance that the Company will be able to
develop replacement materials or products for those which may become prohibited
in the future, or that competitors will not develop superior compliant products.
See "Item 1. BUSINESS -- CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING
STATEMENTS."

     During fiscal year 2006, the Company identified and discontinued
intermittent releases of a certain portion of its cooling and rinsing wastewater
to exterior grounds at the Jacksonville, Florida facility. In response to this
issue, the Company retained an environmental engineering firm to assess whether
such releases had adversely impacted soil, groundwater or surface water at the
Jacksonville site. The environmental engineering firm issued a written report
concluding that no further action is necessary on the Company's part in
connection with these past releases, which report has been provided by such firm
on behalf of the Company to the Florida Department of Environmental Protection
("FDEP") for its review. Following this report, FDEP conducted a site visit and
requested certain further information from the Company concerning the process
from which the discontinued releases occurred, which information has been or is
in the process of being provided, and FDEP's review of this matter is pending.
In addition, during fiscal year 2006, the Company retained an environmental
consulting firm to conduct voluntary environment compliance assessments at its
Jacksonville, Florida and Huntington Station, New York facilities. Recommended
operational improvements documented in these compliance assessments have been or
are in the process of being implemented. The Company does not expect that
completion of the implementation of these improvements will require material
capital expenditures.

     During fiscal year 2004, the Company established an Environmental
Management System in accordance with ISO-14001 requirements, and during fiscal
year 2005, the Company's New York facilities achieved ISO-14001 certification.

     PATENTS AND PROPRIETARY INFORMATION

     Although the Company has manufacturing and design patents and pending
patent applications, and although the Company will continue to seek the
supplemental protection afforded by patents, the Company generally considers
protection of its products, processes and materials to be more dependent upon
proprietary knowledge and on rapid assimilation of innovations than on patent
protection. The Company's porcelain and ceramic formulations are considered
trade secrets which are protected by internal non-disclosure safeguards and
employee confidentiality agreements. There can be no assurance that the steps
taken by the Company to protect its rights will be adequate to deter
misappropriation, or that an independent third party will not develop
functionally equivalent technology.

     EMPLOYEES

     At June 30, 2006, the Company employed 458 persons at its facilities in New
York, of which 12 were employed on a part-time basis; 303 persons at its
facilities in Florida, of which none were employed on a part-time basis; 10
persons in sales offices in Asia and 11 persons in sales offices in Europe, of
which 1 was employed on a part-time basis.


                                       9



Of the 782 persons employed by the Company, 668 were involved in manufacturing
and testing activities and as support personnel, 100 were involved in selling,
general and administrative activities and 14 were involved in research and
development activities. None of the Company's employees are covered by
collective bargaining agreements. The Company considers its relations with its
employees to be satisfactory.

     CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

     Statements in this Annual Report on Form 10-K under the captions "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as statements made in press releases and oral statements
that may be made by the Company or by officers, directors or employees of the
Company acting on the Company's behalf that are not statements of historical
fact, constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause the actual results of the Company to be materially different from the
historical results or from any future results expressed or implied by such
forward-looking statements. The risk factors set forth below under the caption
"Item 1A. RISK FACTORS" identify certain factors that could cause such
differences. In addition to statements which explicitly describe risks and
uncertainties, readers are urged to consider statements labeled with terms such
as "believes", "belief", "expects", "plans", "anticipates", or "intends" to be
uncertain and forward-looking. All cautionary statements made and risk factors
contained in this Annual Report on Form 10-K should be read as being applicable
to all related forward-looking statements wherever they appear. Any
forward-looking statement represents the Company's expectations or forecasts
only as of the date it was made and should not be relied upon as representing
its expectations or forecasts as of any subsequent date. The Company undertakes
no obligation to correct or update any forward-looking statements, whether as a
result of new information, future events or otherwise, even if its expectations
or forecasts change.

ITEM 1A. RISK FACTORS

     The Company's business, operations, and financial condition are subject to
various risks. Some of these risks are described below. This section does not
describe all risks that may be applicable to the Company, the Company's
industry, or the Company's business, and it is intended only as a summary of
certain material risk factors.

     The Company's products are used in the production of a variety of highly
complex electronic products manufactured for the military and for commercial
use. Accordingly, demand for the Company's products is highly dependent upon
demand for the products in which they are used. From time to time, including the
first half of fiscal year 2004, the Company's results have been negatively
impacted by a general decrease in demand for technology and electronic products
in the United States and abroad. There can be no assurance that, if demand for
such products declines, it will increase again or that, even if it does
increase, the demand for the Company's products will increase. In addition,
there can be no assurance that the Company will not receive order cancellations
after orders are booked into backlog. Moreover, a majority of the Company's
costs are fixed, and the Company may not be able to reduce costs if sales
volumes were to decline.

     The Company produces and ships product based upon orders received from its
customers. If these orders are cancelled prior to shipment, it could affect the
Company's profitability. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING."

     The Company offers a broad variety of products to its customers. Gross
margins can vary significantly from product to product and across product lines.
Accordingly, a change in the mix of products sold by the Company during a
particular period could lead to distinctly different financial results for that
period as compared to other periods.

     The Company expects that international sales will continue to constitute a
substantial portion of its total sales. These sales expose the Company to
certain risks, including, without limitation, barriers to trade, fluctuations in
foreign currency exchange rates (which may make the Company's products less
price competitive), political and economic instability, changes in monetary
policy, tariff regulations and other United States and foreign laws and
regulations that may apply to the export of the Company's products, as well as
the generally greater difficulties of doing business abroad.


                                       10



     During fiscal year 2006, the Company's ten largest customers accounted for
approximately 25% of net sales. The Company expects that sales to a relatively
small number of customers will continue to account for a significant portion of
its net sales for the foreseeable future. A loss of one or more of such key
customers could affect the Company's profitability. Moreover, an increasing
amount of the Company's sales are to contract manufacturers. Several contract
manufacturers to whom the Company sells parts could be selling their products to
the same end customer. The discontinued use of these contract manufacturers'
products (or of their products which incorporate the Company's parts) by the end
customer could affect the Company's profitability. See "Item 1. BUSINESS --
CUSTOMERS AND MARKETING."

     The technology upon which the Company's products are based is subject to
continuous development of materials and processes. The Company's business is in
large part contingent upon the continuous refinement of its technological and
engineering expertise and the development of new or enhanced products and
technologies to meet the rapidly developing demands of new applications and
increased competition. There can be no assurance that the Company will continue
to be successful in its efforts to develop new or refine existing products, that
such new products will meet with anticipated levels of market acceptance or that
the Company will otherwise be able to timely identify and respond to
technological improvements made by its competitors. Significant technological
breakthroughs by others could also have a material adverse effect on the
Company's business.

     The Company's business may be adversely affected by difficulties in
obtaining raw materials and other items needed for the production of its
products, the effects of quality deviations in raw materials and fluctuations in
prices of such materials. Palladium, a precious metal used in the production of
the Company's capacitors, is currently available from a limited number of metal
dealers who obtain product from the Republic of South Africa or the Russian
Federation. A prolonged cessation or reduction of exports of palladium by the
Republic of South Africa or the Russian Federation, or a significant increase in
the price of palladium, could have a material adverse effect on the Company's
business. See "Item 1. BUSINESS -- RAW MATERIALS" and "Item 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

     Certain raw materials used by the Company may fluctuate in price. To the
extent that the Company is unable to pass on increases in the costs of such
materials to its customers, this may adversely affect the gross profit margins
of those products using such materials. At times, the Company will enter into
contracts to purchase certain raw materials in the future at agreed upon prices
in order to protect against shortages and rising prices. If the Company were to
do so and prices were to decline, the Company would be required to purchase such
raw materials at or above market prices which would also negatively impact gross
profit margins.

     Competition in the MLC industry is intense and, in general, is based
primarily on price. In the RF/Microwave market segments, where price has
historically been less important, competition has been based primarily on high
performance product specifications, achieving consistent product reliability,
fast deliveries and high levels of customer service. The Company competes with a
number of large MLC manufacturers who have broader product lines and greater
financial, marketing and technical resources than the Company. Growth of some
commercial market applications has increased, and is expected to continue to
increase, the competitive importance of price. There can be no assurance that
the Company will be able to improve the productivity and efficiency of its
manufacturing processes in order to respond to pricing pressures, or to
successfully design new processes and products; and the failure to do so could
have a material adverse effect on the Company's business.

     The Company produces hazardous wastes in the production of its capacitors.
Accordingly, the inherent risks of environmental liability and remediation costs
associated with the Company's manufacturing operations may result in substantial
unforeseen liabilities.

     The Company is also subject to various federal, state, local and foreign
laws regulating or prohibiting the use of certain materials in the manufacture
of its products. As part of its research and development efforts, the Company
continues to develop and test new materials and products designed to comply with
these laws. However, there can be no assurance that the Company will be able to
develop replacement materials or products for those which may become prohibited
in the future, or that competitors will not develop superior compliant products.
See "Item 1. BUSINESS -- ENVIRONMENTAL COMPLIANCE."


                                       11



     The Company has not received any claims that its products or the
technologies upon which they are based infringe the intellectual property rights
of others. Any such claims in the future may result in the Company being
required to enter into royalty arrangements, cease manufacturing the infringing
products or utilizing the infringing technologies, pay damages or defend
litigation, any of which could have a material adverse effect on the Company's
business.

     The Company's business may also be adversely affected by matters and events
affecting businesses generally, including, without limitation, political and
economic events, labor unrest, acts of God, war, acts of terrorism and other
events outside of the Company's control.

ITEM 2. PROPERTIES

     The Company's primary production facilities are located in Huntington
Station, New York and Jacksonville, Florida. The Company's principal executive
office is located in Huntington Station, New York, and its principal research
and development facility is located in Jacksonville, Florida. The following
table sets forth the address of each facility, its primary function, the square
footage occupied by the Company and whether the facility is leased or owned.



ADDRESS OF FACILITY            PRIMARY FUNCTION           SQUARE FOOTAGE OCCUPIED   TYPE OF OCCUPANCY
----------------------------   ------------------------   -----------------------   ---------------------

10 Stepar Place
Huntington Station, New York   Production                          11,200           Owned

11 - 13 Stepar Place           Production and
Huntington Station, New York   production support (1)              20,000           Owned

15 Stepar Place                                                                     Leased from Principal
Huntington Station, New York   Production                          35,700           Stockholder (2)

One Norden Lane
Huntington Station, New York   Production                           8,700           Owned

17 Stepar Place
Huntington Station, New York   Sales and administration            18,000           Owned

2201 Corporate Square Blvd.    Production, research                                 Leased from Principal
Jacksonville, Florida          and development                     99,700           Stockholder (2)

8810 Corporate Square Court
Jacksonville, Florida          Production                          10,000           Owned

Ellipsvaegen 5
SE-141 75                      Sales and                                            Leased
Kungens Kurva, Sweden          distribution office                  3,400

Rm. 621-623, International
Culture Building, No. 3039
Shennan Centre Rd., Futian
District, Shenzhen, PR China   Sales office                         1,950           Leased


(1)  In fiscal year 2001, the Company purchased a 20,000 square foot facility
     adjacent to its existing New York facilities. This facility was placed into
     operation during fiscal year 2005 and houses production and production
     support activities.

(2)  See "Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and Notes 4
     and 7 of Notes to Consolidated Financial Statements.


                                       12



ITEM 3.  LEGAL PROCEEDINGS

     The Company is not currently a party to any material legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders during the quarter
ended June 30, 2006.

     EXECUTIVE OFFICERS

     The executive officers of the Company are as follows:

     Victor Insetta, age 66, co-founded the Company in 1966 and has served as
President, Chief Executive Officer and a director of the Company since its
organization.

     Richard Monsorno, age 54, has been employed by the Company in various
capacities since 1983. In August 1996, he was appointed Senior Vice President -
Technology.

     Kathleen M. Kelly, age 52, has been employed by the Company in various
capacities since 1974. She has served as Vice President - Administration and as
corporate Secretary since November 1989.

     David B. Ott, age 64, joined the Company in June 1999 as Vice President -
New York Manufacturing. In December 2000, he was appointed Senior Vice President
- New York Manufacturing. In April 2004, he was appointed Senior Vice President
- New York Operations.

     Judah Wolf, age 60, has been managing the Company's thin film operations in
Jacksonville, Florida since 1993. In 1999, he was appointed Vice President -
Thin Film Operations. In August 2001, he was appointed Senior Vice President -
Thin Film Products.

     Andrew R. Perz, age 47, has been with the Company as Controller since 1998,
and was appointed Vice President, Controller in November 2000. In August 2005,
he was appointed Vice President - Finance.

     Harrison Tarver, age 60, has been employed by the Company in various
capacities since 1973, principally in positions relating to quality assurance.
He was appointed Vice President - Quality Assurance in December 2000.

     William Johnson, age 54, joined the Company in June 2005, as Vice President
of Sales. From 2003 until his employment by the Company, he served as Vice
President of Sales for Precision Technology USA, Inc., a manufacturer of linear
actuation and power transmission equipment. From 1996 to 2003, he was the Vice
President of Worldwide Sales for Kemet Corporation, a manufacturer of electronic
components.

     The officers serve at the discretion of the Board of Directors and there
are no family relationships among the officers listed and any directors of the
Company.


                                       13



                                     PART II

ITEM  5. MARKET FOR COMPANY'S COMMON STOCK, RELATED
         STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     MARKET INFORMATION

     The Company's common stock is traded on the American Stock Exchange
("AMEX") under the symbol "AMK". The table below sets forth the quarterly high
and low sales prices for the common stock on the AMEX for the fiscal years ended
June 30, 2006 and June 30, 2005.

                   FISCAL 2006      FISCAL 2005
                 --------------   --------------
Quarter Ended:    High     Low     High     Low
--------------   ------   -----   ------   -----
September        $13.86    9.89   $ 9.30   $6.53
December          11.46    8.40    12.00    8.90
March             15.75    8.61    10.58    7.50
June              16.05   11.90    11.09    7.77

     NUMBER OF STOCKHOLDERS

     As of September 12, 2006, there were approximately 316 holders of record of
the Company's common stock. The Company believes numerous shares are held of
record by brokerage and other institutional firms for their customers.

     DIVIDENDS

     The Company has not paid any cash dividends on its common stock during the
past two fiscal years. It is the present policy of the Company's Board of
Directors to retain earnings to finance the expansion of the Company's
operations and not to pay cash dividends on its common stock.

     SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     The following table details securities authorized for issuance under equity
compensation plans as of June 30, 2006:



                                                                                       Number of securities
                                                                                      remaining available for
                                                                                       future issuance under
                            Number of securities to                                     equity compensation
                            be issued upon exercise     Weighted-average exercise        plans (excluding
                            of outstanding options,   price of outstanding options,   securities reflected in
                              warrants and rights          warrants and rights              column (a))
      Plan category                   (a)                          (b)                          (c)
-------------------------   -----------------------   -----------------------------   -----------------------

Equity compensation plans
approved by security
holders                             862,745                       $8.83                       167,600


     The Company has no securities authorized for issuance under equity
compensation plans that have not been approved by security holders.


                                       14



ITEM 6.  SELECTED FINANCIAL DATA

     The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other information set
forth following Item 15 of this report.



                                                        FISCAL YEARS ENDED JUNE 30,
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                             -----------------------------------------------
                                               2006      2005      2004      2003      2002
                                             -------   -------   -------   -------   -------

INCOME STATEMENT DATA:
Net sales                                    $84,131   $72,965   $61,183   $49,048   $49,585
Gross profit                                 $29,097   $24,582   $20,437   $14,332   $ 9,624
Income/(loss) from operations                $ 8,953   $ 6,467   $ 2,528   $  (755)  $(6,596)
Net income/(loss)                            $ 5,988   $ 4,268   $ 2,176   $  (501)  $(4,243)
Basic net income/(loss) per common share     $  0.70   $  0.51   $  0.27   $ (0.06)  $ (0.53)
Diluted net income/(loss) per common share   $  0.67   $  0.49   $  0.25   $ (0.06)  $ (0.53)
Cash dividends paid per common share         $    --   $    --   $    --   $    --   $    --

BALANCE SHEET DATA:
Property, plant and equipment, net           $31,375   $29,502   $26,141   $27,174   $29,740
Total assets                                 $90,543   $77,872   $69,853   $63,548   $66,574
Long-term debt, net of current portion       $ 7,229   $ 5,276   $ 2,896   $ 3,290   $ 2,368
Working capital                              $46,649   $39,032   $34,900   $31,332   $28,375


                            QUARTERLY FINANCIAL DATA:
              (In thousands, except per share amounts) (unaudited)



                                                                BASIC               DILUTED
                                            NET (LOSS)   NET INCOME/ (LOSS)   NET INCOME/ (LOSS)
QUARTER ENDED    NET SALES   GROSS PROFIT     /INCOME       PER SHARE (1)        PER SHARE (1)
--------------   ---------   ------------   ----------   ------------------   ------------------

Fiscal 2006
September         $17,502       $ 3,875       $ (691)          $(0.08)              $(0.08)
December           19,678         7,965        1,929             0.23                 0.22
March              22,690         8,570        2,089             0.24                 0.23
June               24,261         8,687        2,661             0.31                 0.30
                  -------       -------       ------            -----               ------
   Fiscal Year    $84,131       $29,097       $5,988            $0.70               $ 0.67
                  -------       -------       ------            -----               ------
Fiscal 2005
September         $16,928       $ 5,292       $  600            $0.07               $ 0.07
December           16,229         5,670          766             0.09                 0.09
March              18,991         6,667        1,380             0.16                 0.16
June               20,817         6,953        1,522             0.18                 0.17
                  -------       -------       ------            -----               ------
   Fiscal Year    $72,965       $24,582       $4,268            $0.51               $ 0.49
                  -------       -------       ------            -----               ------


(1)  Earnings per share amounts for each quarter are required to be computed
     independently. As a result, the sum may differ from the total year earnings
     per share amounts.


                                       15



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and other information set
forth following Item 15 of this Report. See also "CAUTIONARY STATEMENTS
REGARDING FORWARD-LOOKING STATEMENTS" and "Item 1A. RISK FACTORS" in Part I of
this Report.

     GENERAL

     Bookings reached record levels and sales were near record levels for the
fiscal year ended June 30, 2006. The Company experienced increased sales and
bookings to customers in most of the Company's major markets, particularly the
wireless infrastructure, fiber optic and semiconductor equipment markets.
Management believes that these increases resulted from improved market
conditions, increased market share and the growth in sales of new products.

     Sales growth was exceptionally strong in Asia. In order to improve service
to our Asian customers and further foster sales growth in that region, the
Company began stocking inventory in China late in fiscal year 2006. The Company
believes maintaining inventory in the Far East will help it develop a
competitive advantage in terms of delivery.

     Net income increased from the prior fiscal year due to the increased sales
volume. However, profits were adversely impacted in the first quarter of fiscal
year 2006 by difficulties encountered while converting certain of the Company's
operations to its Enterprise Resource Planning ("ERP") system. As the Company
began to implement the conversion, it encountered a series of unanticipated
problems beyond the planned closure period that disrupted its ability to book
orders, manufacture and ship product. As a result, the Company decided to revert
to its legacy systems for these functions so that it could resume shipping
products and restore the high level of service its customers have grown to
expect. The Company incurred substantial costs related to these efforts, thereby
tempering profit improvement. The Company's preliminary analysis of the problems
encountered indicates that they can be successfully overcome, and the Company is
reformulating its ERP implementation plans accordingly.

     The Company continues to develop new products and processes. A considerable
portion of the capital expenditures for the fiscal year ended June 30, 2006 were
for equipment related to new processes or new product manufacturing. During
fiscal year 2006, the Company purchased $2.8 million of equipment from CTS
Corporation. The equipment will be used to increase overall capacity and add
additional capabilities to the Company's co-fired ceramic packaging product
line. The Company is in the process of qualifying the equipment.

     The Company funded its capital expenditures through cash flow from
operations and its credit facility with General Electric Capital Corporation
("GECC"). During the fiscal year ended June 30, 2006, the Company borrowed
approximately $2.5 million under its credit facility with GECC, and the
Company's Swedish subsidiary borrowed an additional $1.5 million from Svenska
Handelsbanken, AB ("Handelsbanken"). The funds borrowed by the Company's Swedish
subsidiary were used to pay a dividend to the Company, a portion of which was
made under the repatriation provisions of the American Jobs Creation Act of
2004.


                                       16



     RESULTS OF OPERATIONS

KEY COMPARATIVE PERFORMANCE INDICATORS

                                   Fiscal Year Ended
                     ---------------------------------------------
                     June 30, 2006   June 30, 2005   June 30, 2004
                     -------------   -------------   -------------
Sales                 $84,131,000     $72,965,000     $61,183,000
Bookings              $89,163,000     $73,419,000     $65,517,000
Gross Margin          $29,097,000     $24,582,000     $20,437,000
Gross Margin                 34.6%           33.7%           33.4%
Operating Expenses    $20,144,000     $18,115,000     $17,909,000
Operating Expenses           23.9%           24.8%           29.3%

SIGNIFICANT HIGHLIGHTS

     Sales and bookings for the fiscal year ended June 30, 2006 increased 15%
and 21%, respectively, over the prior fiscal year.

     FISCAL YEAR 2006 COMPARED WITH FISCAL YEAR 2005

     Net sales for the fiscal year ended June 30, 2006 were $84,131,000, an
increase of 15% from the $72,965,000 recorded in the fiscal year ended June 30,
2005. Domestic sales increased by 10% to $42,744,000 in fiscal year 2006 from
$38,819,000 in fiscal year 2005. International sales increased by 21% to
$41,387,000 in fiscal year 2006 from $34,146,000 in fiscal year 2005. The
increase in sales is due to the improved business climate in a majority of the
markets the Company serves, increased market penetration and growth in sales of
newer product lines. Sales growth has been particularly robust in the wireless
infrastructure and semiconductor equipment markets since the second half of
fiscal year 2005.

     Bookings have improved significantly from the levels experienced in fiscal
year 2005. Total bookings in fiscal year 2006 were $89,163,000, compared to
$73,419,000 in fiscal year 2005, representing an increase of approximately 21%.
Growth has come from a majority of the markets the Company serves, but was
particularly strong in the wireless infrastructure, semiconductor equipment and
fiber optic markets.

     Gross margins were 35% of net sales in fiscal year 2006, compared to 34% in
fiscal year 2005. The increase in gross margins is attributable to higher sales
volume and the economics associated with higher production volumes, offset in
part by increased precious metal costs and difficulties encountered while
converting certain of the Company's operations to its ERP system during the
first quarter of fiscal year 2006.

     Operating expenses totaled $20,144,000, or 24% of net sales, in fiscal year
2006, compared to $18,115,000, or 25% of net sales, in fiscal year 2005. The
increase in operating expenses in absolute terms compared to the prior fiscal
year is attributable to increased commissions as a result of increased sales and
bookings, increased bonus expense as a result of increased profit levels,
increased stock related compensation due to the adoption of a new accounting
standard on share-based payments, increased professional fees (in part related
to the adoption of the new accounting standard), increased depreciation and
increased costs relating to the Company's sales office in China. The trend
toward customers moving production offshore has continued. Accordingly, a
growing portion of the Company's sales are to customers in Asia. Consequently,
the Company continues to expand its sales offices in China to better service its
customers in that region.


                                       17



     Research and development expenses for the fiscal year ended June 30, 2006
decreased 8% to $1,986,000, compared to $2,161,000 in the prior fiscal year. The
decrease was primarily the result of decreased headcount and decreased supply
consumption.

     The effective income tax rate for both fiscal year 2006 and 2005 was
approximately 29%. In fiscal year 2006, the Company's effective tax rate was
favorably impacted by an approximately $500,000 reduction of tax reserves
primarily due to the expiration of a statute of limitations and audit
settlements for less than the amounts reserved. In fiscal year 2005, the
Company's effective tax rate was favorably impacted by Extraterritorial Income
Exclusion benefits and benefits from state tax law changes.

     As a result of the foregoing, the Company reported net income of
$5,988,000, or $0.70 per common share and $0.67 per common share assuming
dilution, for fiscal year 2006, compared to net income of $4,268,000, or $0.51
per common share and $0.49 per common share assuming dilution, for fiscal year
2005.

     FISCAL YEAR 2005 COMPARED WITH FISCAL YEAR 2004

     Net sales for the fiscal year ended June 30, 2005 were $72,965,000, an
increase of 19% from the $61,183,000 recorded in the fiscal year ended June 30,
2004. Domestic sales increased by 20% to $38,819,000 in fiscal year 2005 from
$32,234,000 in fiscal year 2004. International sales increased by 18% to
$34,146,000 in fiscal year 2005 from $28,949,000 in fiscal year 2004. The
increase in sales was due to the improved business climate in a majority of the
markets the Company serves, increased market penetration and growth in sales of
newer product lines. Sales growth was particularly significant in the wireless
infrastructure and semiconductor equipment markets in the second half of fiscal
year 2005.

     Bookings improved significantly in fiscal year 2005 from the levels
experienced in fiscal year 2004. Total bookings in fiscal year 2005 were
$73,419,000, compared to $65,517,000 in fiscal year 2004, representing an
increase of approximately 12%. Growth has come from a majority of the markets
the Company serves, but was particularly strong in the wireless infrastructure
and semiconductor equipment markets.

     Gross margins were 34% of net sales in fiscal year 2005, compared to 33% in
fiscal year 2004. The increase in gross margins was attributable to higher sales
volume and the economics associated with higher production volumes, offset in
part by increased fixed overhead and increased levels of scrap. During fiscal
year 2005, the Company continued to expand its capacity in order to meet the
increased demand for its products and to accommodate expected future growth
resulting in increased fixed costs.

     Operating expenses totaled $18,115,000, or 25% of net sales, in fiscal year
2005, compared to $17,909,000, or 29% of net sales, in fiscal year 2004. The
increase in operating expenses in absolute terms compared to the prior fiscal
year is attributable to increased sales staff in response to increased booking
and quoting activity and increased commissions, partially offset by lower
research and development expense. The trend toward customers moving production
offshore has continued. Accordingly, a growing portion of the Company's sales
are to customers in Asia and Europe. Consequently, the Company continues to
expand its foreign sales offices in China and Europe to better service its
customers.

     Research and development expenses for the fiscal year ended June 30, 2005
decreased 30% to $2,161,000, compared to $3,067,000 in the prior fiscal year.
The decrease was primarily the result of redesignation of certain research and
development personnel to production support in connection with the maturation of
certain new products from the development stage to commercial acceptance.


                                       18



     The effective income tax rate for fiscal year 2005 was approximately 29%,
as compared to 2% for fiscal year 2004. In fiscal year 2005, the Company's
effective tax rate was favorably impacted primarily by Extraterritorial Income
Exclusion benefits and benefits from State tax law changes. In fiscal year 2004,
the Company benefited from the reduction of tax reserves due to audit
settlements and updated evaluations and the impact of foreign tax benefits in
relation to the lower level of pre-tax income.

     As a result of the foregoing, the Company reported net income of
$4,268,000, or $0.51 per common share and $0.49 per common share assuming
dilution, for fiscal year 2005, compared to net income of $2,176,000, or $0.27
per common share and $0.25 per common share assuming dilution, for fiscal year
2004.

     LIQUIDITY AND CAPITAL RESOURCES

                                June 30, 2006   June 30, 2005
                                -------------   -------------
Cash and Investments             $ 8,324,000     $ 6,950,000
Working Capital                  $46,649,000     $39,032,000
Operating Cash Flow              $ 5,668,000     $ 4,526,000
Capital Expenditures             $ 8,309,000     $ 8,784,000
Depreciation and Amortization    $ 6,207,000     $ 5,383,000

Current Ratio                          4.8:1           5.3:1
Quick Ratio                            1.7:1           1.9:1

     The Company's financial position at June 30, 2006 remains strong as
evidenced by working capital of $46,649,000, compared to working capital of
$39,032,000 at June 30, 2005. The Company's current ratio and quick ratio at
June 30, 2006 remain strong although slightly lower than at June 30, 2005.

     Cash and investments increased to $8,324,000 at June 30, 2006, compared to
$6,950,000 at June 30, 2005. The increase in cash and investments is primarily
the result of positive cash flow from operations, cash from stock option
exercises and loan proceeds in excess of capital expenditures. Accounts
receivable increased by $2,711,000 to $12,719,000 at June 30 2006, compared to
$10,008,000 at June 30, 2005. The increase is primarily due to improved sales in
the fourth quarter of fiscal year 2006 compared to the fourth quarter of fiscal
year 2005. Inventories increased by $5,715,000 to $33,255,000 at June 30, 2006,
compared to $27,540,000 at June 30, 2005, primarily as a result of precious
metal purchases during the year, higher precious metal costs, increases to
finished goods inventories to support higher sales levels and increases in
inventory levels of newer product lines. The precious metal purchases were made
in anticipation of future production requirements and potential price increases.
The Company continues to maintain high finished goods inventory levels to keep
customer lead times to a minimum and maintain good customer service.

     Current portion of long-term debt increased due to borrowings under the
GECC line of credit and borrowings at the Company's Swedish subsidiary. Accounts
payable increased by $556,000, to $3,005,000 at June 30, 2006 compared to
$2,449,000 at June 30, 2005, due in part to increased purchasing activity to
keep pace with higher production levels and in part to capital expenditures.
Accrued expenses increased by $603,000 to $6,192,000 at June 30, 2006, compared
to $5,589,000 at June 30, 2005, due to increased commission accruals as the
result of increased bookings and sales, increased bonus accruals as a result of
improved profits and increased payroll related accruals. Income taxes payable
increased $1,002,000 to $1,002,000 at June 30, 2006 compared to $14,000 income
tax receivable at June 30, 2005, primarily due to increased taxable income,
partially offset by tax reserve reductions.

     The Company leases its facilities in Jacksonville, Florida from a
partnership controlled by the Company's President, Chief Executive Officer and
principal stockholder under a capital lease. The rental payments under this
lease have been adjusted several times, primarily to reflect certain additions
to the facilities and market value adjustments as


                                       19



required by the terms of the lease based upon independent appraisals and for
Consumer Price Index adjustments. See "Item 2. PROPERTIES." The Company is
currently obligated to pay approximately $780,000 per annum under this lease.
The payments due over the remaining five years of this capital lease, including
the portion related to interest, total approximately $3,315,000. See "Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and Note 4 of Notes to
Consolidated Financial Statements.

     In April 2004, the Company entered into a $4,000,000 credit facility with
GECC for the purchase of equipment. In May 2005, the credit facility was
increased to $6,000,000. Borrowings under the line bear interest, at the
Company's option, at either a fixed rate of 3.47% above the five year Treasury
Bond yield at the time of election or a floating rate of 3.65% above LIBOR.
Borrowings under the line are secured by the equipment purchased thereunder.
Each separate borrowing under the line will be a fully amortizing term loan with
a maturity of five years from the date the funds are drawn down. The line of
credit will expire on March 24, 2007. GECC has the option to securitize these
loans with a third party. Loans securitized with a third party increase the
available line of credit to the Company. As of June 30, 2006, the Company had
$5,059,000 of borrowings outstanding under this facility and, as a result of
third party securitizations, $6,000,000 available to borrow.

     In December 2004, the Company entered into a credit facility with Commerce
Bank, N.A. Under the terms of this facility, the Company may request advances
from time to time up to an aggregate of $5,000,000. Any advance made bears
interest at the Prime Rate as reported in the Wall Street Journal. Borrowings
under the facility are secured by a lien on the Company's accounts receivable
and inventory. Each borrowing under the line will expire on November 30, 2006.
The facility is subject to certain financial covenants, including minimum
tangible net worth and liability percentage ratios. As of June 30, 2006, the
Company had no outstanding borrowings under this credit facility.

     In September 2005, the Company's wholly-owned subsidiary in Sweden obtained
a series of five term loans aggregating 12,000,000 Swedish Krona ("SEK")
(approximately $1,700,000) from Handelsbanken. The loans are unsecured and bear
interest at fixed rates ranging from 3.56% to 4.59%. The five loans are each for
a principal amount of 2,400,000 SEK and are fully amortizing. The loans mature
in one to five years with the first maturing on September 30, 2006 and one other
maturing on each succeeding September 30th through 2010. In connection with, and
as an inducement to Handelsbanken to make the loans, the Company entered into a
Guaranty and Agreement with the Handelsbanken whereby the Company has agreed to
guarantee the payment of all its Swedish subsidiary's obligations under the
loans.

     Capital expenditures for the fiscal year ended June 30, 2006 totaled
$8,309,000, including expenditures for buildings, machinery and equipment and
planned leasehold improvements. The Company intends to use cash on hand, cash
generated through operations and available credit to finance budgeted capital
expenditures, primarily for equipment acquisition, of approximately $6,900,000
in fiscal year 2007.

     Aggregate contractual obligations, including interest, as of June 30, 2006
mature as follows:



                                                   Payments Due by Period
                                ------------------------------------------------------------
                                                 Less
                                                than 1        1- 3         4- 5      After 5
Contractual Obligations            Total         year         years        years      years
-----------------------------   -----------   ----------   ----------   ----------   -------

Bank Debt                       $ 7,774,000   $1,884,000   $3,730,000   $2,160,000     $--
Capital Lease Obligations         3,315,000      780,000    1,560,000      975,000      --
Operating Leases                    719,000      515,000      204,000           --      --
Purchase Obligations              6,423,000    6,423,000           --           --      --
                                -----------   ----------   ----------   ----------     ---
Total Contractual Obligations   $18,231,000   $9,602,000   $5,494,000   $3,135,000     $--
                                ===========   ==========   ==========   ==========     ===


     The Company routinely enters into binding and non-binding purchase
obligations in the ordinary course of business, primarily covering anticipated
purchases of inventory and equipment. The terms of these commitments generally
do not extend beyond six months. None of these obligations are individually
significant. The Company does not expect that these commitments will materially
adversely affect its liquidity in the foreseeable future.


                                       20



     CRITICAL ACCOUNTING POLICIES

     The Securities and Exchange Commission ("SEC") has issued disclosure
guidance for "critical accounting policies." The SEC defines "critical
accounting policies" as those that require the application of management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. The Company's significant accounting policies are
described in Note 1 to its consolidated financial statements contained in "Item
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this report. The Company
believes that the following accounting policies require the application of
management's most difficult, subjective or complex judgments:

     ALLOWANCES FOR DOUBTFUL ACCOUNTS RECEIVABLE

     The Company performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and a customer's current
creditworthiness, as determined by its review of the customer's current credit
information. The Company continuously monitors collections and payments from its
customers and maintains an allowance for estimated credit losses based upon its
historical experience and any specific customer collection issues that the
Company has identified. While such credit losses have historically been within
the Company's expectations and the allowances established, the Company cannot
guarantee that it will continue to experience the same credit loss rates that it
has in the past. Should the financial position of its customers deteriorate
resulting in an impairment of their ability to pay amounts due, the Company's
revised estimate of such losses and any actual losses in excess of previous
estimates may negatively impact its operating results.

     SALES RETURNS AND ALLOWANCES

     In the ordinary course of business, the Company accepts returns of products
sold for various reasons and grants sales allowances to customers. While the
Company engages in extensive product quality control programs and processes, its
level of sales returns is affected by, among other things, the quality of its
manufacturing processes. The Company maintains an allowance for sales returns
and allowances based upon historical returns and allowances granted. While such
returns and allowances have historically been within the Company's expectations,
actual return and allowance rates in the future may differ from current
estimates, which could negatively impact the Company's operating results.

     INVENTORY VALUATION

     The Company values inventory at the lower of aggregate cost (first-in,
first-out) or market. When the cost of inventory is determined by management to
be in excess of its market value, such inventory is written down to its
estimated net realizable value. This requires the Company to make estimates and
assumptions about several factors (e.g., future sales quantities and selling
prices, and percentage complete and failure rates for work in process) based
upon historical experience and its projections for future periods. Changes in
factors such as the level of order bookings, the product mix of order bookings
and the Company's manufacturing processes could have a material impact on the
Company's assessment of the net realizable value of inventory in the future.

     VALUATION OF DEFERRED TAX ASSETS

     The Company regularly evaluates its ability to recover the reported amount
of its deferred income taxes considering several factors, including its estimate
of the likelihood of the Company generating sufficient taxable income in future
years during the period over which temporary differences reverse. Management
also considers the expected reversal of deferred tax liabilities, the Company's
historic taxable income and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and the expected future
taxable income over the periods in which the deferred tax assets are deductible
as well as reversals of deferred tax liabilities, management believes, although
there can be no assurance, that it is more likely than not that the Company will
realize the net benefits of these deductible differences. The Company has
available State net operating loss carry forwards in Florida, which expire in
various years through 2025. Due to uncertainties about the realization of these
loss carryforwards, a valuation


                                       21



allowance has been provided against the associated deferred tax asset. In the
event that actual results differ from its estimates, or the Company adjusts
these estimates in future periods, the Company may need to establish additional
valuation allowances against a portion or all of its deferred tax assets, which
could materially impact its financial position or results of operations in
future periods.

     VALUATION OF LONG-LIVED ASSETS

     The Company assesses the recoverability of long-lived assets whenever the
Company determines that events or changes in circumstances indicate that the
carrying amount may not be recoverable. Its assessment is primarily based upon
its estimate of future cash flows associated with these assets. The Company
believes that the carrying amount of its long-lived assets is recoverable.
However, should its operating results deteriorate, or anticipated new product
launches not occur or not attain the commercial acceptance that the Company
anticipates, the Company may determine that some portion of its long-lived
assets are impaired. Such determination could result in non-cash charges to
income that could materially affect the Company's financial position or results
of operations for that period.

     INFLATION

     The Company does not expect the effects of inflation to have a significant
impact on its liquidity or results of operations.

     ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED

     In July 2006, the Financial Accounting Standard Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" ("FIN 48"). to address the
noncomparability in reporting tax assets and liabilities resulting from a lack
of specific guidance in FASB Statement of Financial Accounting Standards
("SFAS") No. 109 ("SFAS No. 109"), "Accounting for Income Taxes," on the
uncertainty in income taxes recognized in an enterprise's financial statements.
Specifically, FIN No. 48 prescribes (a) a consistent recognition threshold, and
(b) a measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return, and
provides related guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. FIN No. 48
will apply to fiscal years beginning after December 15, 2006. The Company is
currently assessing the impact of the adoption of FIN No. 48 on its financial
position and consolidated results of operations.

     In September 2006, the Securities and Exchange Commission Staff issued
Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial
Statements" ("SAB No. 108"), which addresses how the effects of prior-year
uncorrected misstatements should be considered when quantifying misstatements in
current-year financial statements. SAB No. 108 will require registrants to
quantify misstatements using both the balance sheet and income-statement
approaches and to evaluate whether either approach results in quantifying an
error that is material in light of relevant quantitative and qualitative
factors. When the effect of initial adoption is determined to be material, SAB
No. 108 allows registrants to record that effect as a cumulative effect
adjustment to beginning-of-year retained earnings. The requirements are
effective for annual financial statements covering the first fiscal year ending
after November 15, 2006. The Company is in the process of assessing the effect
of SAB No. 108 on its consolidated financial statements.


                                       22



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company has identified four market risks relative to its business:
foreign currency exchange rate risk, commodity price risk, security price risk
and interest rate risk. The Company has managed its market risk exposures in
order to minimize their potential impact on its consolidated financial condition
and results of operations. Specifically:

     a)   Foreign currency exchange rate risk. With the exception of
          transactions by the Company's wholly-owned subsidiary in Sweden (which
          are denominated in Krona), all transactions are, and are anticipated
          to be, denominated in U.S. Dollars. Fluctuations in exchange rates
          could impact revenues with an offsetting impact on costs and expenses.
          The Company does not believe that the impact on net earnings of a 10%
          shift in exchange rates would be material.

     b)   Commodity price risk. The Company uses certain precious metals in the
          manufacturing of its products (primarily palladium, gold and silver),
          and is therefore subject to certain commodity price risks. In the last
          several years, the price of precious metals rose due to the higher
          demand coming from the electronics industry and other industries.
          Consequently, the Company has purchased a quantity of these metals to
          protect against rising prices. In addition, in July 2006, the Company
          exchanged silver for palladium to better align its inventory of
          precious metals against expected production requirements. The Company
          believes that, based upon its current levels of production and
          inventories of precious metals, it has a sufficient supply of precious
          metals such that the Company would not have to buy any additional
          quantities for the next six months. See "Item 1. BUSINESS - RAW
          MATERIALS."

     c)   Security price risk. The Company's current portfolio of marketable
          securities consists of U.S. Treasury notes and other government
          securities with maturities of less than one year. The Company believes
          it can effectively manage any exposure resulting from declining prices
          by holding any securities which decline substantially in value until
          maturity.

     d)   Interest rate risk. The Company earns interest income on cash and
          investment balances and pays interest on debt incurred. In light of
          the Company's existing cash, results of operations, the terms of its
          debt obligations and projected capital needs, it does not believe that
          a 10% change in interest rates would have a significant impact on its
          consolidated financial position. See "Item 7. MANAGEMENT'S DISCUSSION
          AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
          LIQUIDITY AND CAPITAL RESOURCES."

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Company's Consolidated Financial Statements and the Notes thereto begin
on page F-2 of this report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

     None.

ITEM 9A. CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls and Procedures. In response to the
requirements of the Sarbanes-Oxley Act of 2002, within 90 days prior to the date
of this report (the "Evaluation Date"), the Company's President and Chief
Executive Officer and Vice President - Finance carried out an evaluation of the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based on
that evaluation, these officers concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company and the Company's
consolidated subsidiaries was made known to them by others within those
entities, particularly during the period in which this report was being
prepared.


                                       23



     Changes in Internal Controls. Except as noted below, there were no changes
in the Company's internal controls over financial reporting, identified in
connection with the evaluation of such internal controls that occurred during
the Company's last fiscal quarter, that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.

     Management has determined that the Company has a significant deficiency due
to the fact that the Company has not adequately documented and implemented
certain controls over information technology. These areas include certain change
management and customer management procedures. In addition, certain financial
computer program application controls and related access controls relating to
information security were not adequately implemented. Back-up and recovery
processes were not adequately documented, and testing of recovery procedures was
not implemented. The Company has drafted, and is in the process of implementing,
remedial procedures to address these matters.

ITEM 9B. OTHER INFORMATION

     None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The information set forth under the captions "Election of Directors",
"Compliance with Section 16(a) of the "Exchange Act" and "Code of Ethics" in the
Company's Proxy Statement to be furnished in connection with its Annual Meeting
of Stockholders to be held November 14, 2006 is hereby incorporated by
reference.

ITEM 11. EXECUTIVE COMPENSATION

     The information set forth under the caption "Executive Compensation" in the
Company's Proxy Statement to be furnished in connection with its Annual Meeting
of Stockholders to be held November 14, 2006 is hereby incorporated by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" and the information relating to beneficial
ownership of the Company's common stock in the table under the caption "Election
of Directors" in the Company's Proxy Statement to be furnished in connection
with its Annual Meeting of Stockholders to be held November 14, 2006 is hereby
incorporated by reference. See also "Item 5. MARKET FOR COMPANY'S COMMON STOCK,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES -- EQUITY
COMPENSATION PLAN INFORMATION."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information set forth under the caption "Certain Relationships and
Related Transactions" in the Company's Proxy Statement to be furnished in
connection with its Annual Meeting of Stockholders to be held November 14, 2006
is hereby incorporated by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

     The information set forth under the caption "Principal Accounting Fees and
Services" in the Company's Proxy Statement to be furnished in connection with
its Annual Meeting of Stockholders to be held November 14, 2006 is hereby
incorporated by reference.


                                       24



                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)   FINANCIAL STATEMENTS                                              PAGE NO.
                                                                        --------
Index to Consolidated Financial Statements ..........................      F
Report of Independent Registered Public Accounting Firm .............      F-1
Consolidated Financial Statements
   Balance Sheets as of June 30, 2006 and 2005 ......................      F-2
   Statements of Operations
      Fiscal Years Ended June 30, 2006, 2005 and 2004 ...............      F-3
   Statements of Stockholders' Equity and Comprehensive Income
      Fiscal Years Ended June 30, 2006, 2005 and 2004 ...............      F-4
   Statements of Cash Flows
      Fiscal Years Ended June 30, 2006, 2005 and 2004 ...............      F-5
   Notes to Consolidated Financial Statements .......................      F-6

(B)  EXHIBITS

     Unless otherwise indicated, the following exhibits were filed as part of
the Company's Registration Statement on Form S-18 (No. 2-96925-NY) and are
incorporated herein by reference to the same exhibit thereto.

EXHIBIT NO.   DESCRIPTION
-----------   -----------
3.1         - Certificate of Incorporation of the Company.

3.2         - Amendment to Certificate of Incorporation. (3)

3.3         - Amended and restated By-laws of the Company. (21)

9.1         - Restated Shareholders' Agreement, dated April 15, 1985, among
              Victor Insetta, Joseph Mezey, Joseph Colandrea and the Company.

10.1        - Lease, dated September 1, 2002, between Stepar Leasing, LLC and
              the Company for premises at 15 Stepar Place, Huntington Station,
              N.Y. (11)

10.2        - Form of 1985 Employee Stock Sale Agreement between the Company and
              various employees.

10.3        - Form of Employee Stock Bonus Agreement, dated as of July 1, 1993,
              between the Company and various employees. (2)

10.4        - Form of Employee Stock Bonus Agreement, dated as of April 19,
              1994, between the Company and various employees. (2)

10.5        - Form of Employee Stock Bonus Agreement, dated as of April 20,
              1995, between the Company and various employees. (3)

10.6        - Second Amended and Restated Lease, dated as of May 16, 2000,
              between V.P.I. Properties Associates, d/b/a V.P.I. Properties
              Associates, Ltd., and American Technical Ceramics (Florida), Inc.
              (7)

10.7        - Profit Bonus Plan, dated April 19, 1995, and effective for the
              fiscal years beginning July 1, 1994. (3)


                                       25



10.8        - Employment Agreement, dated April 3, 1985, between Victor Insetta
              and the Company, and Amendments No. 1 through 4 thereto. (1)

10.9        - Amendment No. 5, dated as of September 11, 1998, to Employment
              Agreement between Victor Insetta and the Company. (4)

10.10       - Amendment No. 6, dated as of January 3, 2001, to Employment
              Agreement between Victor Insetta and the Company. (8)

10.11       - Employment Agreement, dated October 1, 2003, between the Company
              and Richard Monsorno. (13)

10.12       - Managers Profit Bonus Plan, dated December 7, 1999 and effective
              January 1, 2000. (6)

10.13       - Officers Profit Bonus Plan, dated October 30, 2003 and effective
              June 30, 1992. (13)

10.14       - Consulting Agreement, dated January 1, 2004, between the Company
              and Northport Systems, Inc. (14)

10.15       - Letter extending the Consulting Agreement with Northport System,
              Inc. until December 31, 2006. (19)

10.16       - American Technical Ceramics Corp. 1997 Stock Option Plan. (4)

10.17       - American Technical Ceramics Corp. 2000 Incentive Stock Plan. (6)

10.18       - Master Loan Agreement, dated April 2, 2004, between the Company
              and General Electric Capital Corporation. (14)

10.19       - Letter from General Electric Capital Corporation, dated as of
              March 30, 2006. (20)

10.20       - Second Amended and Restated Employment Agreement, dated as of
              December 31, 2001, between Judah Wolf and the Company. (9)

10.20 (i)   - Letter Agreement, dated December 22, 2005, between the Company and
              Judah Wolf. (18)

10.21       - Employment Agreement, dated January 1, 2004, between the Company
              and David Ott. (14)

10.22       - Severance Agreement, dated November 1, 2003, between the Company
              and Kathleen Kelly. (13)

10.23       - Severance Agreement, dated November 1, 2003, between the Company
              and Andrew Perz. (13)

10.24       - Severance Agreement, dated November 1, 2003, between the Company
              and Harrison Tarver. (13)

10.25       - Loan and Security Agreement, dated November 30, 2004, between the
              Company and Commerce Bank N.A. (15)

10.26       - Security Agreement, dated November 30, 2004, between American
              Technical Ceramics (Florida) Inc. and Commerce Bank N.A. (15)

10.27       - Surety Agreement, dated November 30, 2004, between American
              Technical Ceramics (Florida) Inc. and Commerce Bank N.A. (15)

10.28       - Victor Insetta Compensation Arrangement. (16)

10.29       - Stuart Litt Consulting Arrangement. (16)


                                       26



10.30       - Executive Compensation Arrangement. (16)

10.31       - Director Compensation Arrangement. (16)

10.32       - William Johnson Compensation Arrangement. (17)

10.33       - Financial Obligation, dated as of September 16, 2005, between
              American Technical Ceramics Europe AB and Svenska Handelsbanken,
              AB. (17) *

10.34       - Guaranty and Agreement, dated as of September 9, 2005, between the
              Company and Svenska Handelsbanken, AB. (17)

21.1        - Subsidiaries of the Company. (10)

23.1        - Consent of KPMG LLP. (22)

31.1        - Section 302 Certification of Chief Executive Officer. (22)

31.2        - Section 302 Certification of Principal Accounting Officer. (22)

32.1        - Section 906 Certification of Chief Executive Officer. (22)

32.2        - Section 906 Certification of Principal Accounting Officer. (22)

----------
1.   Incorporated by reference to the Company's Annual Report on Form 10-K for
     the fiscal year ended June 30, 1993.

2.   Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended June 30, 1994.

3.   Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended June 30, 1995.

4.   Incorporated by reference to the Company's Annual Report on Form 10-K for
     the fiscal year ended June 30, 1997.

5.   Incorporated by reference to the Company's Annual Report on Form 10-K for
     the fiscal year ended June 30, 1998.

6.   Incorporated by reference to the Company's Annual Report on Form 10-K/A for
     the fiscal year ended June 30, 2000.

7.   Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended September 30, 2000.

8.   Incorporated by reference to the Company's Annual Report on Form 10-Q for
     the quarterly period ended December 31, 2000.

9.   Incorporated by reference to the Company's Quarterly Report on Form 10-Q/A
     for the quarterly period ended March 31, 2002.


                                       27



10.  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the fiscal year ended June 30, 2002.

11.  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended September 30, 2002.

12.  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended March 31, 2003.

13.  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended December 31, 2003.

14.  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended March 31, 2004.

15.  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended December 31, 2004.

16.  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended March 31, 2005.

17.  Incorporated by reference to the Company's Annual Report on Form 10-K for
     the fiscal year ended June 30, 2005.

18.  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended December 31, 2005.

19.  Incorporated by reference to the Company's Quarterly Report on Form 10-Q
     for the quarterly period ended March 31, 2006.

20.  Incorporated by reference to the Company's Current Report on Form 8-K,
     dated April 4, 2006.

21.  Incorporated by reference to the Company's Current Report on Form 8-K,
     dated May 8, 2006.

22.  Filed herewith.

*    Summary of document written in Swedish.

(C)  FINANCIAL STATEMENT SCHEDULES

     Schedules have been omitted since they either are not applicable, not
required or the information is included elsewhere herein.


                                       28



                                   SIGNATURES

     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.

                                        AMERICAN TECHNICAL CERAMICS CORP.


                                        BY: /S/ VICTOR INSETTA
                                            ------------------------------------
                                            VICTOR INSETTA
                                            President

Dated: September 26, 2006

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE COMPANY
IN THE CAPACITIES AND ON THE DATES INDICATED:

            NAME                          TITLE                     DATE
            ----                          -----                     ----


/S/ VICTOR INSETTA               President and Director      September 26, 2006
---------------------------   (Principal Executive Officer)
Victor Insetta


/S/ ANDREW R. PERZ              Vice President - Finance     September 26, 2006
---------------------------  (Principal Accounting Officer)
Andrew R. Perz


/S/ STUART P. LITT                      Director             September 26, 2006
---------------------------
Stuart P. Litt


/S/ O. JULIAN GARRARD III               Director             September 26, 2006
---------------------------
O. Julian Garrard III


/S/ CHESTER E. SPENCE                   Director             September 26, 2006
---------------------------
Chester E. Spence


/S/ THOMAS J. VOLPE                     Director             September 26, 2006
---------------------------
Thomas J. Volpe


/S/ DOV S. BACHARACH                    Director             September 26, 2006
---------------------------
Dov S. Bacharach


                                       29



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

               AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                     Page Number
                                                                     -----------
Report of Independent Registered Public Accounting Firm ..........       F-1
Consolidated Balance Sheets as of June 30, 2006 and 2005 .........       F-2
Consolidated Statements of Operations
   Fiscal Years Ended June 30, 2006, 2005 and 2004 ...............       F-3
Consolidated Statements of Stockholders' Equity and
   Comprehensive Income
   Fiscal Years Ended June 30, 2006, 2005 and 2004 ...............       F-4
Consolidated Statements of Cash Flows
   Fiscal Years Ended June 30, 2006, 2005 and 2004 ...............       F-5
Notes to Consolidated Financial Statements .......................       F-6


                                        F



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
American Technical Ceramics Corp.:

We have audited the accompanying consolidated balance sheets of American
Technical Ceramics Corp. and subsidiaries (the Company) as of June 30, 2006 and
2005, and the related consolidated statements of operations, stockholders'
equity and comprehensive income and cash flows for each of the years in the
three-year period ended June 30, 2006. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 American Technical
Ceramics Corp. and subsidiaries as of June 30, 2006 and 2005, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2006, in conformity with U.S. generally accepted
accounting principles.

As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 123(R),
"Shared-Based Payment", effective July 1, 2005.


                                        /S/ KPMG LLP

Melville, New York
September 26, 2006


                                       F-1



               AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                                                                   JUNE 30,       JUNE 30,
                                                                                     2006           2005
                                                                                 ------------   -----------

                                     ASSETS
CURRENT ASSETS
   Cash (including cash equivalents of $2,000 and
      $4,000, respectively)                                                      $  6,230,000   $ 4,927,000
   Investments                                                                      2,094,000     2,023,000
   Accounts receivable, (net of allowance for doubtful accounts
      of $401,000 and $300,000, respectively)                                      12,719,000    10,008,000
   Inventories                                                                     33,255,000    27,540,000
   Deferred income taxes, net                                                       3,472,000     2,668,000
   Prepaid and other current assets                                                 1,035,000     1,007,000
                                                                                 ------------   -----------
      TOTAL CURRENT ASSETS                                                         58,805,000    48,173,000
                                                                                 ------------   -----------
PROPERTY, PLANT AND EQUIPMENT
   Land                                                                               738,000       738,000
   Buildings and leasehold improvements                                            19,418,000    18,426,000
   Machinery and equipment                                                         53,474,000    47,038,000
   Computer equipment and software                                                  7,508,000     7,187,000
   Furniture, fixtures and other                                                    3,064,000     3,256,000
                                                                                 ------------   -----------
                                                                                   84,202,000    76,645,000
   Less: Accumulated depreciation and amortization                                 52,827,000    47,143,000
                                                                                 ------------   -----------
                                                                                   31,375,000    29,502,000
OTHER ASSETS                                                                          363,000       197,000
                                                                                 ------------   -----------
         TOTAL ASSETS                                                            $ 90,543,000   $77,872,000
                                                                                 ============   ===========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
   Current portion of long-term debt
      (including related party debt of $485,000 and $437,000, respectively)      $  1,957,000   $ 1,103,000
   Accounts payable                                                                 3,005,000     2,449,000
   Accrued expenses                                                                 6,192,000     5,589,000
   Income taxes payable                                                             1,002,000            --
                                                                                 ------------   -----------
         TOTAL CURRENT LIABILITIES                                                 12,156,000     9,141,000

LONG-TERM DEBT, NET OF CURRENT PORTION
     (including related party debt of $1,974,000 and $2,459,000, respectively)      7,229,000     5,276,000
DEFERRED INCOME TAXES                                                               3,091,000     3,308,000
         TOTAL LIABILITIES                                                         22,476,000    17,725,000
                                                                                 ------------   -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
   Common Stock -- $0.01 par value; authorized 20,000,000
      shares; issued 9,104,613 and 8,917,463 shares,
      outstanding 8,690,473 and 8,503,323  shares, respectively                        91,000        89,000
   Capital in excess of par value                                                  15,000,000    13,195,000
   Retained earnings                                                               54,102,000    48,114,000
   Accumulated  other comprehensive income:
      Unrealized loss on investments available-for-sale, net                           (1,000)           --
      Cumulative foreign currency translation adjustment                              271,000       145,000
                                                                                 ------------   -----------
                                                                                      270,000       145,000
                                                                                 ------------   -----------
   Less: Treasury stock, at cost (414,140 and 414,140  shares, respectively)        1,396,000     1,396,000
                                                                                 ------------   -----------
         TOTAL STOCKHOLDERS' EQUITY                                                68,067,000    60,147,000
                                                                                 ------------   -----------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $ 90,543,000   $77,872,000
                                                                                 ============   ===========


See accompanying notes to consolidated financial statements.


                                       F-2



               AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FISCAL YEARS ENDED JUNE 30, 2006, 2005 AND 2004



                                                         2006          2005         2004
                                                     -----------   -----------   -----------

Net sales                                            $84,131,000   $72,965,000   $61,183,000
Cost of sales                                         55,034,000    48,383,000    40,746,000
                                                     -----------   -----------   -----------
   Gross profit                                       29,097,000    24,582,000    20,437,000
                                                     -----------   -----------   -----------
Selling, general and administrative expenses          18,092,000    15,935,000    14,815,000
Research and development expenses                      1,986,000     2,161,000     3,067,000
Other                                                     66,000        19,000        27,000
                                                     -----------   -----------   -----------
   Operating expenses                                 20,144,000    18,115,000    17,909,000
                                                     -----------   -----------   -----------
   Income from operations                              8,953,000     6,467,000     2,528,000
                                                     -----------   -----------   -----------
Other expense (income)
   Interest expense                                      643,000       475,000       365,000
   Interest income                                       (86,000)      (57,000)      (68,000)
   Other                                                      --         8,000         2,000
                                                     -----------   -----------   -----------
                                                         557,000       426,000       299,000
                                                     -----------   -----------   -----------
   Income before provision for income taxes            8,396,000     6,041,000     2,229,000
Provision for income taxes                             2,408,000     1,773,000        53,000
                                                     -----------   -----------   -----------
   Net Income                                        $ 5,988,000   $ 4,268,000   $ 2,176,000
                                                     ===========   ===========   ===========
Basic net income per common share                    $      0.70   $      0.51   $      0.27
Diluted net income per common share                  $      0.67   $      0.49   $      0.25
                                                     -----------   -----------   -----------
Basic weighted average common shares outstanding       8,573,000     8,402,000     8,132,000
                                                     ===========   ===========   ===========

                                                     -----------   -----------   -----------
Diluted weighted average common shares outstanding     8,891,000     8,738,000     8,583,000
                                                     ===========   ===========   ===========


See accompanying notes to consolidated financial statements.


                                       F-3



               AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                 FISCAL YEARS ENDED JUNE 30, 2006, 2005 AND 2004



                                                                                             Accumulated
                                                                                                Other
                                                 Common Stock      Capital in               Comprehensive
                               Comprehensive  ------------------   Excess of     Retained       Income       Treasury
                                   Income       Shares    Amount   Par Value     Earnings       (Loss)        Stock        Total
                               -------------  ---------  -------  -----------  -----------  -------------  -----------  -----------

BALANCE AT JUNE 30, 2003                      8,502,758  $85,000  $11,418,000  $41,670,000    $ 176,000    $(1,396,000) $51,953,000
Net income                      $2,176,000           --       --           --    2,176,000           --             --    2,176,000
Tax benefit of stock options
   exercised                            --           --       --       55,000           --           --             --       55,000
Stock awards                            --       21,350       --      190,000           --           --             --      190,000
Stock option compensation
   expense                              --           --       --       10,000           --           --             --       10,000
Exercise of stock options               --      119,950    1,000      341,000           --           --             --      342,000
Other comprehensive income,
   net of tax:
   Unrealized losses on
      investments
      available-for-sale, net
      of reclassification
      adjustment                    (5,000)
   Foreign currency
      translation adjustment       106,000
                                ----------
Other comprehensive income,
   net of tax                      101,000           --       --           --           --      101,000             --      101,000
                                ----------
Comprehensive income            $2,277,000
                                ==========
BALANCE AT JUNE 30, 2004                      8,644,058  $86,000  $12,014,000  $43,846,000    $ 277,000    $(1,396,000) $54,827,000
Net income                      $4,268,000           --       --           --    4,268,000           --             --    4,268,000
Tax benefit of stock options
   exercised                            --           --       --      215,000           --           --             --      215,000
Stock awards                            --       22,000       --      120,000           --           --             --      120,000
Stock option compensation
   expense                              --           --       --       44,000           --           --             --       44,000
Exercise of stock options               --      251,405    3,000      802,000           --           --             --      805,000
Other comprehensive loss, net
   of tax:
   Unrealized gain on
      investments
      available-for-sale,
      net of reclassification
      adjustment                     5,000
   Foreign currency
      translation adjustment      (137,000)
                                ----------
Other comprehensive loss, net
   of tax                         (132,000)          --       --           --           --     (132,000)            --     (132,000)
                                ----------
Comprehensive income            $4,136,000
                                ==========
BALANCE AT JUNE 30, 2005                      8,917,463  $89,000  $13,195,000  $48,114,000    $ 145,000    $(1,396,000) $60,147,000
Net income                      $5,988,000           --       --           --    5,988,000           --             --    5,988,000
Tax benefit of stock options
   exercised                            --           --       --      458,000           --           --             --      458,000
Stock awards                            --       16,450       --      209,000           --           --             --      209,000
Stock option compensation
   expense                              --           --       --      279,000           --           --             --      279,000
Exercise of stock options               --      170,700    2,000      859,000           --           --             --      861,000
Other comprehensive income,
   net of tax:
   Unrealized gain on
      investments
      available-for-sale, net
      of reclassification
      adjustment                    (1,000)
   Foreign currency
      translation adjustment       126,000
                                ----------
Other comprehensive income,
   net of tax                      125,000           --       --           --           --      125,000             --      125,000
                                ----------
Comprehensive income            $6,113,000
                                ==========
BALANCE AT JUNE 30, 2006                      9,104,613  $91,000  $15,000,000  $54,102,000    $ 270,000    $(1,396,000) $68,067,000
                                              ======================================================================================


SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       F-4



               AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FISCAL YEARS ENDED JUNE 30, 2006, 2005 AND 2004



                                                                 2006          2005          2004
                                                             -----------   -----------   -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                $ 5,988,000   $ 4,268,000   $ 2,176,000
   Adjustments to reconcile net income to net cash
      provided by/(used in)  operating activities:
      Depreciation and amortization                            6,207,000     5,383,000     5,152,000
      Loss/(gain) on disposal of fixed assets                    246,000       (12,000)      373,000
      Stock based compensation expense                           488,000       164,000       200,000
      Excess tax benefits from stock based
         compensation arrangements                              (458,000)     (215,000)      (55,000)
      Provision for doubtful accounts and sales returns          101,000      (170,000)       32,000
      Deferred income taxes                                   (1,021,000)      (99,000)     (570,000)
      Investment interest accretion, net                         (46,000)      (17,000)      (21,000)
      Realized loss on sale of investments                            --         7,000         2,000
   Changes in operating assets and liabilities:
      Accounts receivable                                     (2,626,000)      651,000    (3,781,000)
      Inventories                                             (5,580,000)   (5,348,000)   (7,038,000)
      Other assets                                              (200,000)     (147,000)     (224,000)
      Accounts payable, accrued expenses and
         income taxes payable                                  2,569,000        61,000     3,606,000
                                                             -----------   -----------   -----------
   Net cash provided by/(used in) operating activities         5,668,000     4,526,000      (148,000)
                                                             -----------   -----------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Capital expenditures                                    (8,309,000)   (8,784,000)   (4,506,000)
      Purchase of investments                                 (3,125,000)   (3,508,000)   (3,482,000)
      Proceeds from sale of investments                        3,100,000     4,010,000     3,997,000
      Proceeds from sale of fixed assets                          35,000        49,000        22,000
                                                             -----------   -----------   -----------
   Net cash used in investing activities                      (8,299,000)   (8,233,000)   (3,969,000)
                                                             -----------   -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Repayment of long-term debt                             (1,269,000)   (2,661,000)     (355,000)
      Proceeds from exercise of stock options                    861,000       805,000       342,000
      Excess tax benefits from stock based
      compensation arrangements                                  458,000       215,000        55,000
      Proceeds from issuance of debt                           3,956,000     5,750,000            --
                                                             -----------   -----------   -----------
   Net cash provided by financing activities                   4,006,000     4,109,000        42,000
                                                             -----------   -----------   -----------
      Effect of exchange rate changes on cash                    (72,000)       (9,000)      (76,000)
                                                             -----------   -----------   -----------
      Net increase/(decrease) in cash and cash equivalents     1,303,000       393,000    (4,151,000)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                   4,927,000     4,534,000     8,685,000
                                                             -----------   -----------   -----------
CASH AND CASH EQUIVALENTS, END OF YEAR                       $ 6,230,000   $ 4,927,000   $ 4,534,000
                                                             ===========   ===========   ===========

Supplemental cash flow information:
      Interest paid                                          $   650,000   $   468,000   $   364,000
      Income taxes paid                                      $ 1,967,000   $ 2,764,000   $   237,000


See accompanying notes to consolidated financial statements.


                                       F-5



               AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     DESCRIPTION OF BUSINESS AND NATURE OF OPERATIONS

     American Technical Ceramics Corp. and its wholly-owned subsidiaries (the
"Company") are engaged in the design, development, manufacture and sale of
electronic components, including ceramic multilayer capacitors and custom thin
film circuits. These products are primarily used for commercial and military
purposes in the United States and for export, primarily to Western Europe,
Canada and the Far East. In fiscal years 2006, 2005 and 2004, no one customer
accounted for more than 10% of consolidated net sales. The Company operates in
one industry segment - the electronic components industry.

     BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the accounts of
American Technical Ceramics Corp. and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.

     REVENUE RECOGNITION

     The Company generates revenue from product sales to original equipment
manufacturers and resellers. The Company recognizes revenue when persuasive
evidence of an arrangement exists (which is evidenced by written purchase
arrangements), delivery has occurred and title has passed to the customer, the
selling price is fixed or determinable and collectibility of the resulting
receivable is reasonably assured. The Company does not perform any installation
services and does not have any post-shipment obligations. The Company typically
warranties that its products will be free from defects in material and
workmanship for 90 days. However, defective product may be accepted beyond this
period. The Company provides for estimated sales returns when the underlying
sale is made, based upon historical experience and known events or trends, in
accordance with Statement of Financial Accounting Standards No. 48, "Revenue
Recognition when Right of Return Exists". Historically, product returns and
associated warranty costs have not been significant. Shipping and handling fees
charged to customers are included in net sales, and related costs are included
in cost of sales.

     CASH EQUIVALENTS

     The Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents, including money
market accounts and certificates of deposit.

     INVESTMENTS

     The Company classifies its investments in debt and equity securities as
available-for-sale. Accordingly, these investments are reported at fair value
with unrealized holding gains and losses excluded from earnings and reported as
a component of accumulated other comprehensive income/loss within stockholders'
equity, net of tax. Classification of investments is determined at acquisition
and reassessed at each reporting date. Realized gains and losses are included in
the determination of net earnings at the time of sale and are derived using the
specific identification method for determining cost of securities sold.


                                      F-6



     INVENTORIES

     Inventories are stated at the lower of aggregate cost (first-in, first-out)
or market.

     COMPREHENSIVE INCOME

     The following table sets forth the components of the change in net
unrealized gains/(losses) on investments available-for-sale for the fiscal years
ended June 30, 2006, 2005 and 2004:

                                                     2006     2005      2004
                                                   -------   ------   -------
Unrealized holding losses
   arising during the period, net of tax           $(1,000)  $   --   $(7,000)
Less: reclassification adjustment for
   losses included in net income, net of tax            --    5,000     2,000
                                                   -------   ------   -------
Change in net unrealized (losses)/gains on
   investments available-for-sale                  $(1,000)  $5,000   $(5,000)
                                                   =======   ======   =======

     The deferred tax (benefit)/liability associated with unrealized holding
gains/(losses) arising during the fiscal years 2006, 2005 and 2004 was nil, nil
and ($3,000), respectively. The tax benefit of the reclassification adjustments
for gains on sales of investments included in net income was nil, $3,000 and nil
for fiscal years 2006, 2005 and 2004, respectively.

     LONG-LIVED ASSETS

     Property, plant and equipment are stated at cost. Repairs and maintenance
costs are expensed as incurred. Depreciation and amortization are provided
primarily using the straight-line method over the estimated useful lives of the
related assets as follows:

Buildings                                                              30 years
Leasehold improvements            Lesser of the remaining lease term or 5 years
Machinery and equipment                                           3 to 10 years
Computer equipment and software                                    2 to 5 years
Furniture, fixtures and other                                      3 to 8 years

     The Company reviews its long-lived assets for impairment whenever events or
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected cash flows, undiscounted and without
interest, is less than the carrying amount of the asset, an impairment loss is
recognized as the amount by which the carrying amount of the asset exceeds its
fair value.

     INCOME TAXES

     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be realized or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.


                                      F-7



     FOREIGN CURRENCY TRANSLATION

     The Company translates the financial statements of its foreign subsidiaries
(located in Sweden and China) by applying the current exchange rate as of the
balance sheet date to the assets and liabilities of the subsidiary and a
weighted average rate to such subsidiary's results of operations. The resulting
translation adjustment is recorded as a component of stockholders' equity.

     STOCK-BASED COMPENSATION

     On July 1, 2005, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123 (R)").
This Statement is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 (R) supersedes APB Opinion No. 25 and its related
implementation guidance. Under SFAS No. 123 (R), stock compensation expense will
be recognized for the portion of all awards for which the requisite service has
not been rendered based upon the award's fair value on the date of grant.

     During the years ended June 30, 2006, 2005 and 2004, there were 65,000,
50,000 and 13,000 options granted, respectively. The average per share fair
value of stock options granted during fiscal years 2006, 2005 and 2004 was
$8.62, $5.68 and $3.57, respectively, as determined by the Black-Scholes option
pricing model (assuming a risk-free interest rate of 4.40%, 3.79% and 3.30%,
respectively, expected life of five years, expected volatility of 73.7%, 69.3%
and 71.5%, respectively, and no dividends). The weighted average remaining
contractual life of options outstanding as of June 30, 2006 was 4.8 years.

     Had compensation expense with respect to options and awards been determined
based on the fair value method on the date of grant consistent with the
methodology prescribed under SFAS No. 123 prior to July 1, 2003, the Company's
net income and earnings per share would have approximated the pro forma amounts
indicated below:



                                                                  For Year Ended June 30,
                                                                 ------------------------
                                                                    2005         2004
                                                                 ----------   -----------

Net income, as reported                                          $4,268,000   $ 2,176,000
Add: Stock-based employee compensation expense
   included in reported net income, net of related tax effects      117,000       154,000
Deduct: Total stock-based employee compensation
   expense determined under fair value based method for all
   awards, net of related tax effects                              (424,000)   (1,410,000)
                                                                 ----------   -----------
Pro forma net income                                             $3,961,000   $   920,000
                                                                 ==========   ===========
Income per share:
   Basic - as reported                                           $     0.51   $      0.27
   Basic - pro forma                                             $     0.47   $      0.11
   Diluted - as reported                                         $     0.49   $      0.25
   Diluted - pro forma                                           $     0.45   $      0.11


     The weighted-average fair value of each stock option included in the
preceding pro forma amounts is estimated using the Black-Scholes option pricing
model and is amortized ratably over the vesting period of the options which is
typically four years.


                                      F-8



     EARNINGS PER SHARE

     Basic earnings per share ("EPS") is computed by dividing income available
to common stockholders (which for the Company equals its net income) by the
weighted average number of common shares outstanding, and dilutive EPS adds the
dilutive effect of stock options and other common stock equivalents.
Antidilutive shares aggregating 147,121, 372,000 and 520,000, respectively, have
been omitted from the calculation of dilutive EPS for the fiscal years ended
June 30, 2006, 2005 and 2004, respectively. A reconciliation between numerators
and denominators of the basic and diluted earnings per share is as follows:



                                         YEAR ENDED JUNE 30, 2006                  YEAR ENDED JUNE 30, 2005
                                 ---------------------------------------   ---------------------------------------
                                    INCOME         SHARES      PER-SHARE     INCOME         SHARES       PER-SHARE
                                 (NUMERATOR)   (DENOMINATOR)     AMOUNT    (NUMERATOR)   (DENOMINATOR)     AMOUNT
                                 -----------   -------------   ---------   -----------   -------------   ---------

Basic EPS                        $5,988,000      8,573,000       $ 0.70     $4,268,000     8,402,000       $0.51
Effect of Dilutive Securities:
   Stock Options                         --        312,000        (0.03)            --       328,000       (0.02)
   Stock Awards                          --          6,000           --             --         8,000          --
                                 ----------      ---------       ------     ----------     ---------       -----
Diluted EPS                      $5,988,000      8,891,000       $ 0.67     $4,268,000     8,738,000       $0.49
                                 ==========      =========       ======     ==========     =========       =====


                                         YEAR ENDED JUNE 30, 2004
                                 ---------------------------------------
                                    INCOME         SHARES      PER-SHARE
                                 (NUMERATOR)   (DENOMINATOR)     AMOUNT
                                 -----------   -------------   ---------

Basic EPS                         $2,176,000     8,132,000       $0.27
Effect of Dilutive Securities:
Stock Options                             --       444,000       (0.02)
Stock Awards                              --         7,000          --
                                  ----------     ---------       -----
Diluted EPS                       $2,176,000     8,583,000       $0.25
                                  ==========     =========       =====


     IMPACT OF NEW ACCOUNTING STANDARDS

     On July 1, 2005, the Company adopted SFAS No. 123 (R). This Statement is a
revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123 (R) supersedes Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"), and its related
implementation guidance. SFAS No. 123 (R) establishes standards for the
accounting for transactions in which an entity exchanges its equity instruments
for goods or services. It also addresses transactions in which an entity incurs
liabilities in exchange for goods or services that are based on the fair value
of the entity's equity instruments, or that may be settled by the issuance of
those equity instruments. The adoption of this standard resulted in an
additional expense of $120,000 ($0.01 per basic and diluted common share) being
recorded in fiscal year 2006, which related to options granted prior to July 1,
2003 that were not fully vested before July 1, 2005.

     On July 1, 2005, the Company adopted Statement of Financial Accounting
Standards No. 151 "Inventory Costs - an amendment of ARB No. 43, Chapter 4,
Inventory Pricing" ("SFAS No. 151"). SFAS No. 151 amends the guidance in ARB No.
43, Chapter 4 to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material (spoilage). SFAS No. 151
requires that those items be recognized as current period charges regardless of
whether they meet the criterion of "so abnormal." In addition, SFAS No. 151
requires that allocation of fixed production overhead to the costs of conversion
be based on the normal capacity of the production facilities. The adoption of
SFAS No. 151 did not have a material impact on the Company's consolidated
results of operations or financial position.

     On December 31, 2004, FASB issued Staff Position No. FAS 109-2,
"Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs
Creation Act of 2004" ("FSP No. 109-1"), and Staff Position No. 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004" ("FSP No. 109-2").
These staff positions provide accounting guidance on how companies should
account for the effects for the American Jobs Creation Act of 2004 ("AJCA") that
was signed into law on October 22, 2004. FSP No. 109-1 states that the tax
relief (special tax deduction for domestic manufacturing) from this legislation
should be accounted for as a "special deduction" instead of a tax rate
reduction. The Company has assessed the repatriation provisions and repatriated
a dividend, as defined in the AJCA, during its second fiscal quarter ended
December 31, 2005.


                                      F-9



     In March 2005, the Financial Accounting Standards Board issued FASB
Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations"
("FIN No. 47"). This Interpretation clarifies that the term "conditional asset
retirement obligation" as used in FASB Statement No. 143, Accounting for Asset
Retirement Obligations, refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are
conditional on a future event that may or may not be within the control of the
entity. The obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method of settlement.
Accordingly, an entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation if the fair value of the liability
can be reasonably estimated. The fair value of a liability for the conditional
asset retirement obligation should be recognized when incurred, generally upon
acquisition, construction, or development and (or) through the normal operation
of the asset. This Interpretation also clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. The adoption of FIN No. 47 did not have a material impact
on the Company's financial position and consolidated results of operations.

     ACCOUNTING ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Such estimates include, but are not limited to, provisions
for doubtful accounts receivable and sales returns, net realizable value of
inventory, and assessments of the recoverability of the Company's long lived
assets (including deferred taxes). Actual results could differ from those
estimates.

     SUPPLEMENTAL CASH FLOW INFORMATION

     During fiscal year 2006, significant non-cash activities included (i) a tax
benefit of $458,000 resulting from stock options exercised, (ii) compensation
expense of $210,000 in connection with awards of an aggregate of 16,450 shares
of common stock, and (iii) compensation expense of $279,000 recognized in
connection with 859,000 stock options which will also result in compensation
expense of $698,000 to be recognized ratably over the next three years.

     During fiscal year 2005, significant non-cash activities included (i) a tax
benefit of $215,000 resulting from stock options exercised, (ii) compensation
expense of $120,000 in connection with awards of an aggregate of 15,000 shares
of common stock, and (iii) compensation expense of $44,000 recognized in
connection with 38,000 stock options which will also result in compensation
expense of $122,000 to be recognized ratably over the next three years.

     During fiscal year 2004, significant non-cash activities included (i) a tax
benefit of $55,000 resulting from stock options exercised, (ii) compensation
expense of $317,000 in connection with awards of an aggregate of 28,350 shares
of common stock, and (iii) compensation expense of $10,000 recognized in
connection with 13,000 stock options which will also result in compensation
expense of $37,000 to be recognized ratably over the next four years.


                                      F-10



NOTE 2. INVESTMENTS

     Investments consist of the following:

                                              Gross        Gross
                                           Unrealized   Unrealized
       June 30, 2006             Cost         Gains       Losses     Fair Value
---------------------------   ----------   ----------   ----------   -----------
U.S. Government obligations   $2,096,000       $--        $2,000      $2,094,000
                              ----------       ---        ------      ----------
                              $2,096,000       $--        $2,000      $2,094,000
                              ==========       ===        ======      ==========

                                              Gross        Gross
                                           Unrealized   Unrealized
       June 30, 2005             Cost         Gains       Losses     Fair Value
---------------------------   ----------   ----------   ----------   -----------
U.S. Government obligations   $1,024,000       $--        $1,000      $1,023,000
N.J. Municipal bonds           1,000,000        --            --       1,000,000
                              ----------       ---        ------      ----------
                              $2,024,000       $--        $1,000      $2,023,000
                              ==========       ===        ======      ==========

     All of the Company's investments at June 30, 2006 contractually mature
within one year.

NOTE 3. INVENTORIES

     Inventories consist of the following:

                                   June 30, 2006   June 30, 2005
                                   -------------   -------------
Raw materials                       $17,095,000     $14,122,000
Work in process                       8,605,000       7,382,000
Finished goods                        7,555,000       6,036,000
                                    -----------     -----------
                                    $33,255,000     $27,540,000
                                    ===========     ===========

NOTE 4. LONG-TERM DEBT

     Long-term debt consists of the following:

                                   June 30, 2006   June 30, 2005
                                   -------------   -------------
Notes payable to banks               $6,727,000      $3,483,000
Obligations under capital leases      2,459,000       2,896,000
                                     ----------      ----------
                                      9,186,000       6,379,000
Less: Current portion                 1,957,000       1,103,000
                                     ----------      ----------
   Long-term debt                    $7,229,000      $5,276,000
                                     ==========      ==========

     NOTES PAYABLE TO BANKS

     In April 2004, the Company entered into a $4,000,000 credit facility with
General Electric Capital Corporation ("GECC") for the purchase of equipment. In
May 2005, the credit facility was increased to $6,000,000. Borrowings under the
line bear interest, at the Company's option, at either a fixed rate of 3.47%
above the five year Treasury Bond yield at the time of election or a floating
rate of 3.65% above LIBOR. Borrowings under the line are secured by the
equipment purchased thereunder. Each separate borrowing under the line will be a
fully amortizing term loan with a maturity of five years from the date the funds
are drawn down. The line of credit will expire on March 24, 2007. GECC has the
option to securitize these loans with a third party. Loans securitized with a
third party increase the available line of credit to the Company. As of June 30,
2006, the Company had $5,059,000 of borrowings outstanding under this facility
at fixed interest rates ranging from 7.15% and 7.93%. At June 30, 2006, the
Company had $6,000,000 available to borrow under this credit facility.


                                      F-11



     In December 2004, the Company entered into a credit facility with Commerce
Bank, N.A. Under the terms of this facility, the Company may request advances
from time to time up to an aggregate of $5,000,000. Any advance made bears
interest at the Prime Rate as reported in the Wall Street Journal. Borrowings
under the facility are secured by a lien on the Company's accounts receivable
and inventory. Borrowings under the line expire on November 30, 2006. The
facility is subject to certain financial covenants, including minimum tangible
net worth and liability percentage ratios. As of June 30, 2006, the Company had
no outstanding borrowings under this credit facility.

     In September 2005, the Company's wholly-owned subsidiary in Sweden obtained
a series of five term loans aggregating 12,000,000 Swedish Krona ("SEK")
(approximately $1,700,000) from Svenska Handelsbanken, AB ("Handelsbanken"). The
loans are unsecured and bear interest at fixed rates ranging from 3.56% to
4.59%. The five loans are each for a principal amount of 2,400,000 SEK and are
fully amortizing. The loans mature in one to five years with the first maturing
on September 30, 2006 and one other maturing on each succeeding September 30th
through 2010. In connection with, and as an inducement to Handelsbanken to make
the loans, the Company entered into a Guaranty and Agreement with Handelsbanken
whereby the Company has agreed to guarantee the payment of all its Swedish
subsidiary's obligations under the loans.

     The following table sets forth the contractual maturity of notes payable to
banks as of June 30, 2006:

2007                          $1,472,000
2008                           1,560,000
2009                           1,654,000
2010                           1,375,000
2011 and thereafter              666,000
                              ----------
Total minimum debt payments    6,727,000
Less: Current portion          1,472,000
                              ----------
                              $5,255,000
                              ==========

     OBLIGATIONS UNDER CAPITAL LEASES

     The Company leases an administrative office, manufacturing and research and
development complex located in Jacksonville, Florida (the "Jacksonville
Facility") from a partnership controlled by the Company's President, Chief
Executive Officer and principal stockholder under a capital lease. At June 30,
2006, the Jacksonville Facility has an aggregate cost of $5,104,000 and a net
book value of $1,587,000. The lease is for a period of 30 years, was capitalized
using an interest rate of 10.5% and expires on September 30, 2010. The lease
currently provides for base rent of approximately $780,000 per annum. The lease
further provides for annual increases in base rent for years beginning after May
1, 1999, based on the increase in the Consumer Price Index since May 1, 1998
applied to base rent. The lease also provides for increases to the base rent in
connection with any new construction at the Jacksonville Facility. Under the
lease, upon any new construction being placed into use, the base rental is
subject to increase to the fair market rental of the Jacksonville Facility,
including the new construction.


                                      F-12



     The following table sets forth the future minimum lease payments (excluding
contingent rental adjustments) under this capital lease by fiscal year and the
present value of the minimum lease payments as of June 30, 2006:

2007                                 $  719,000
2008                                    719,000
2009                                    719,000
2010                                    719,000
2011 and thereafter                     180,000
                                     ----------
Total minimum lease payments          3,056,000
Less: Amount representing interest      597,000
                                     ----------
Present value at June 30, 2006        2,459,000
Less: Current portion                   485,000
                                     ----------
                                     $1,974,000
                                     ==========

     Contingent rentals of $55,000, $32,000 and $11,000 were expensed during
fiscal years 2006, 2005 and 2004, respectively.

NOTE 5. INCOME TAXES

     The components of income before income taxes are as follows:

                Fiscal Years Ended June 30,
           ------------------------------------
              2006          2005         2004
           ----------   ----------   ----------
Domestic   $7,492,000   $5,577,000   $1,940,000
Foreign       904,000      464,000      289,000
           ----------   ----------   ----------
           $8,396,000   $6,041,000   $2,229,000
           ==========   ==========   ==========

     The provision for income taxes consists of the following:

                               Years Ended June 30,
                       -----------------------------------
                          2006         2005         2004
                       ----------   ----------   ---------
CURRENT:
   Federal             $2,705,000   $1,737,000   $ 951,000
   State                   41,000       13,000    (110,000)
   Foreign                177,000      122,000    (218,000)
                       ----------   ----------   ---------
      Total current     2,923,000    1,872,000     623,000
                       ----------   ----------   ---------
DEFERRED:
   Federal               (736,000)     (95,000)   (561,000)
   State                  193,000      (38,000)         --
   Foreign                 28,000       34,000      (9,000)
                       ----------   ----------   ---------
      Total deferred     (515,000)     (99,000)   (570,000)
                       ----------   ----------   ---------
                       $2,408,000   $1,773,000   $  53,000
                       ==========   ==========   =========


                                      F-13



     The following table reconciles the Federal statutory rate to the Company's
effective tax rate:

                                                                Years Ended
                                                                  June 30,
                                                            -------------------
                                                            2006   2005    2004
                                                            ----   ----   -----
Tax provision computed at statutory rate                    34.0%  34.0%   34.0%
State tax and State tax credit, net of Federal tax effect    1.2    0.9     1.1
EIE Manufacturer deduction benefit                          (3.6)  (4.0)   (7.5)
Foreign tax                                                 (0.5)  (0.7)   (4.9)
Changes in tax contingency estimates
   and audit settlements (1)                                (6.5)  (0.5)  (19.9)
Deferred tax benefit from State tax law change               0.9   (1.9)     --
Tax credits and other, net                                   3.2    1.5    (0.4)
                                                            ----   ----   -----
                                                            28.7%  29.3%    2.4%
                                                            ====   ====   =====

     (1) The Company has undergone tax audits in various jurisdictions which are
substantially complete. In fiscal years 2006, 2005 and 2004, the Company
recognized benefits as a result of audit settlements and the reevaluation of
certain tax contingency estimates relating to these jurisdictions.

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
2006 and 2005, are presented below.



                                                                  June 30,
                                                         -------------------------
                                                             2006          2005
                                                         -----------   -----------

Deferred tax assets:
   Allowance for doubtful accounts receivable
      and sales returns                                  $   145,000   $   106,000
   Inventories                                             2,620,000     1,715,000
   Accrued expenses                                          819,000       737,000
   Net operating loss
      and tax credit carry forwards                        1,135,000     1,457,000
                                                         -----------   -----------
   Total deferred tax assets                               4,719,000     4,015,000
                                                         -----------   -----------
   Valuation allowance                                    (1,247,000)   (1,347,000)
                                                         -----------   -----------
      Net deferred tax assets                              3,472,000     2,668,000
                                                         -----------   -----------
Deferred tax liabilities:
   Plant and equipment, principally due to differences
      in depreciation and capital leases                  (3,091,000)   (3,308,000)
                                                         -----------   -----------
      Total deferred tax liabilities                      (3,091,000)   (3,308,000)
                                                         -----------   -----------
         Net deferred tax asset/(liability)              $   381,000   $  (640,000)
                                                         ===========   ===========


     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
expected reversal of deferred tax liabilities, expected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income, expected future taxable income over the periods in
which the deferred tax assets are deductible, and reversals of deferred tax
liabilities, management believes (although there can be no assurance) that it is
more likely than not that the Company will realize the benefits of these
deductible differences in the United States. The Company has available state net
operating loss carryforwards which expire in various years through 2025.
However, due to the uncertainties of realizing certain tax loss carryforwards, a
valuation allowance of $1,247,000 has been provided against the associated
deferred tax asset.


                                      F-14



     The Company had $770,000 of undistributed earnings of foreign subsidiaries
as of June 30, 2006. No accrual of U.S. income taxes on the earnings of these
subsidiaries has been recorded because, at June 30, 2006, management's intention
is to reinvest such earnings in the operations of such subsidiaries.
Determination of the amount of unrecognized deferred U.S. income tax liabilities
is not practicable to calculate because of the complexity of this hypothetical
calculation.

     The Company has assessed the repatriation provisions of the "American Jobs
Creation Act of 2004" and has repatriated a dividend during the fiscal year
ended June 30, 2006.

NOTE 6. STOCK-BASED COMPENSATION

          STOCK OPTIONS

     On April 1, 1997, the Board of Directors approved the American Technical
Ceramics Corp. 1997 Stock Option Plan (the "1997 Option Plan") pursuant to which
the Company may grant options to purchase up to 800,000 shares of the Company's
common stock. On April 11, 2000, the Board of Directors approved the American
Technical Ceramics Corp. 2000 Incentive Stock Plan (the "2000 Plan", and
collectively with the 1997 Option Plan, the "Plans") pursuant to which the
Company may grant options or stock awards covering up to 1,200,000 shares of the
Company's common stock. Options granted under the Plans may be either incentive
or non-qualified stock options. The term of each incentive stock option shall
not exceed ten years from the date of grant (five years for grants to employees
who own 10% or more of the voting power of the Company's common stock), and
options may vest in accordance with a vesting schedule established by the plan
administrator (typically 25% per year during the first four years of their
term). Unless terminated earlier by the Board, the 1997 Option Plan will
terminate on March 31, 2007. Unless terminated earlier by the Board, the 2000
Plan will terminate on April 10, 2010.

     Disposition of shares acquired pursuant to the exercise of incentive stock
options under both Plans may not be made by the optionees within two years
following the date that the option is granted, nor within one year after the
exercise of the option, without the written consent of the Company.

     Prior to fiscal year 2004, the Company did not recognize compensation cost
for these options upon grant as the exercise price was equal to or greater than
the fair market value of the underlying stock at the date of grant. In July
2003, the Company adopted Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), using the prospective method as prescribed in Statement of
Financial Accounting Standards No. 148 ("SFAS No. 148"). The Company applied
SFAS No. 123 in accounting for employee stock-based compensation awarded or
granted after June 30, 2003, and applied Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("Opinion No. 25"), in accounting
for employee stock-based compensation awarded or granted prior to July 1, 2003,
and makes pro-forma disclosures of net income and net income per share as if the
fair value method under SFAS No. 123, as amended by SFAS No. 148, had been
applied. The Company has recognized $159,000, $44,000 and $10,000 in
compensation expense for the fiscal years ended June 30, 2006, 2005 and 2004,
respectively, for options granted after June 30, 2003.

     On January 16, 2002, the Company filed a Schedule TO with the Securities
and Exchange Commission and commenced an offer to exchange outstanding options
under the Plans having an exercise price per share of $19.50 or more for new
options. The offer expired on February 13, 2002. The Company accepted for
exchange options to purchase an aggregate of 432,000 shares of common stock. On
August 15, 2002, the Company issued 407,000 new options in exchange for the
options tendered and accepted for exchange. The new options were issued at the
closing price of the Company's common stock on August 15, 2002, which was $2.35
per share. No compensation expense was recognized as a result of these
exchanges.

     On July 1, 2005, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123 (R)").
This Statement is a revision of SFAS No. 123. SFAS No. 123 (R)


                                      F-15



supersedes Opinion No. 25 and its related implementation guidance. SFAS No. 123
(R) establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments, or
that may be settled by the issuance of those equity instruments.

     During the years ended June 30, 2006, 2005 and 2004, there were 65,000,
50,000 and 13,000 options granted, respectively. The weighted average grant-date
fair value of stock options granted during each fiscal year was $8.62, $5.68 and
$3.57 per share, respectively, as determined by the Black-Scholes option pricing
model (assuming a risk-free interest rate of 4.40%, 3.98% and 3.80%,
respectively, expected life of six years, five years, and five years,
respectively, expected volatility of 73.7%, 69.3% and 67.0%, respectively, and
no dividends). The total intrinsic value of options exercised during fiscal
years ended June 30, 2006, 2005 and 2004 was $1,421,000, $1,592,000 and
$662,000, respectively.

     Expected volatility is calculated using historical volatility. The expected
term (life) of options granted represents the period of time that options
granted are expected to be outstanding. In determining expected life, the
Company uses historical data to estimate option exercise and employee departure
behavior. Groups of employees that have similar historical behavior are
considered separately for valuation purposes. The risk free interest rate is
based on the US Treasury Yield curve in effect at the time of grant for the
expected life of the option.

     A summary of the status of the Company's nonvested options at June 30,
2006, and changes during the year then ended is presented below:

                                               Weighted
                                   Shares       Average
                                   Subject    Grant Date
                                 to Options   Fair Value
                                 ----------   ----------
Nonvested, beginning of period    121,000        $4.73
Granted                            65,000         8.62
Vested                            (65,500)        4.64
Forfeited                            (750)        5.44
                                  -------
Nonvested, end of period          119,750        $6.88
                                  =======

     As of June 30, 2006, there was $698,000 of total unrecognized compensation
costs related to nonvested options granted under the Plans. That cost is
expected to be recognized over a weighted average period of 3.2 years. The total
fair value of shares vested during the fiscal years ended June 20, 2006, 2005
and 2004 was $300,000, $822,000 and $1,223,000, respectively. Compensation cost
capitalized in inventory and fixed assets for the fiscal year ended June 30,
2006 was $45,000. Compensation cost recognized in income for amounts previously
capitalized in inventory and fixed assets for fiscal year 2006 was $34,000.

     Cash received from the exercise of options for the fiscal years ended June
30, 2006, 2005 and 2004 was $861,000, $805,000 and $342,000, respectively. The
related tax benefit recognized for the fiscal years ended June 30, 2006, 2005
and 2004 was $458,000, $215,000 and $55,000, respectively. The total
compensation cost related to options for the fiscal years 2006, 2005 and 2004
was $279,000, $44,000 and $10,000, respectively.


                                      F-16



     Stock option activity for fiscal years 2006, 2005 and 2004 is as follows:



                                          2006                   2005                   2004
                                 ---------------------   --------------------   --------------------
                                              Weighted     Shares    Weighted     Shares    Weighted
                                   Shares      Average    Subject     Average    Subject     Average
                                   Subject    Exercise       to      Exercise       to      Exercise
                                 to Options     Price     Options      Price     Options      Price
                                 ----------   --------   ---------   --------   ---------   --------

Outstanding, beginning of year     990,945     $ 7.91    1,257,400     $6.97    1,380,200     $6.63
Granted                             65,000      13.21       50,000      9.45       13,000      5.85
Canceled                              (750)      9.09      (32,250)     8.08       (6,250)     9.11
Expired                            (21,750)      9.73      (32,800)     9.95       (9,600)     7.35
Exercised                         (170,700)      5.05     (251,405)     3.20     (119,950)     2.84
                                  --------               ---------              ---------
Outstanding, end of year           862,745     $ 8.83      990,945     $7.91    1,257,400     $6.97
                                  ========               =========              =========


     As of June 30, 2006, there were 862,745 stock options outstanding. These
options had a weighted average remaining contractual term of 4.8 years and an
aggregate intrinsic value of $4,310,000. At June 30, 2006, 742,995 stock options
were exercisable having a weighted average remaining contractual term of 4.2
years and an aggregate intrinsic value of $4,024,000.

     The following table summarizes significant ranges of outstanding and
exercisable options at June 30, 2006:



                                Options Outstanding                        Options Exercisable
                 -------------------------------------------------   ------------------------------
 Actual Range                      Weighted
  of Exercise                      -Average
    Prices          Number         Remaining      Weighted-Average      Number     Weighted-Average
150% Increment   Outstanding   Contractual Life    Exercise Price    Exercisable    Exercise Price
--------------   -----------   ----------------   ----------------   -----------   ----------------

$ 2.35 -  4.13     231,650            2.6              $ 3.17          227,150          $ 3.18
  4.31 -  8.79     144,445            5.6              $ 5.93          112,945          $ 5.50
  8.89 - 10.10     141,650            6.1              $ 9.16          122,900          $ 9.01
 11.40 - 11.40     202,000            4.4              $11.40          202,000          $11.40
 13.20 - 19.50     135,000            6.7              $15.36           70,000          $17.36
 44.00 - 44.00       8,000            3.9              $44.00            8,000          $44.00
                   -------                                             -------
$ 2.35 - 44.00     862,745            4.8              $ 8.83          742,995          $ 8.51
                   =======                                             =======


     At June 30, 2006, an aggregate of 167,600 shares were available for option
grants or awards under the Plans.

          OTHER STOCK-BASED COMPENSATION

     In fiscal years 2006, 2005 and 2004, the Company awarded an aggregate of
16,450, 15,000 and 28,350 shares of common stock, respectively, to officers and
certain other employees. These awards resulted in compensation expense of
$336,000, $197,000 and $317,000, respectively (including $126,000, $77,000 and
$127,000 of payments made to offset tax liabilities associated with these
awards), measured by the market value of the shares on their respective grant
dates.


                                      F-17



NOTE 7. COMMITMENTS AND CONTINGENCIES

          OPERATING LEASES

     The Company has a related party operating lease with an entity owned by the
Company's President, Chief Executive Officer and principal stockholder, for a
rented facility, pursuant to which the Company pays $410,000 per annum, subject
to annual increases based upon increases in the Consumer Price Index. The lease
expires in September 2007, subject to four five-year renewal options. Rent
expense under this related party operating lease was approximately $438,000,
$424,000 and $413,000 for the fiscal years ended June 30, 2006, 2005 and 2004,
respectively.

     Rent expense to unrelated parties, primarily for office space, was
approximately $266,000, $180,000 and $157,000 for the fiscal years ended June
30, 2006, 2005 and 2004, respectively. Minimum rent payments under existing
lease commitments with unrelated parties extending through the year ending June
30, 2007 are approximately $6,000 per month.

          CONTINGENCIES

     The Company is party to certain legal proceedings that arose in the normal
course of its business. The Company does not believe that the resolution of such
matters will have a significant effect on the Company's financial position or
results of operations.

          EMPLOYMENT AGREEMENTS

     The Company has an employment agreement with its President and Chief
Executive Officer which currently provides for annual base compensation of
$425,000 as well as additional annual compensation equal to 2.5% of net income
before such additional compensation and income taxes. The Company, at its
option, may pay the additional annual compensation in stock, cash or a
combination thereof, subject to certain limitations.

     The agreement expires March 1st of each year but is renewed automatically
for an additional one year in the absence of written notice to the contrary by
either party at least 120 days prior to the March 1st renewal date. In addition,
if there is a change in control of the Company or the employee's employment is
terminated by the Company before the expiration of the agreement other than for
cause (as defined in the agreement), the employee is entitled to the greater of
(a) all compensation due under the remaining term of the agreement, or (b) a
payment equal to three times his average annual compensation (including any
incentives) over the last five years.

     In December 2001, the Company renewed a four year employment agreement with
an executive officer. The agreement provides for annual base compensation of
$125,000, with annual increases of 8% over the rate in effect during the
immediately preceding year, plus additional compensation based upon specific
performance measures. The agreement includes termination provisions providing
for conditional payments depending on the nature of the termination. The
agreement expired in December 2005. The Company and the executive have entered
into a letter agreement pursuant to which they have mutually agreed to continue
the executive's employment on the terms set forth in the agreement until a new
long-term agreement is negotiated.

     In October 2003, the Company entered into a three year employment agreement
with an executive officer. The agreement provides initially for annual base
compensation of $208,428 and participation in the Company's Officers' Bonus
Plan. If the officer is terminated by the Company during the term of the
agreement other than for cause (as defined in the agreement), (i) the officer
will be entitled to receive his base salary for a period of 15 months, (ii) the
Company shall continue to provide family medical coverage for a period of 18
months, and (iii) all exercisable options may be exercised for a period of one
year after termination.


                                      F-18



     In November 2003, the Company entered into severance agreements with three
executive officers. If the officer is terminated by the Company during the term
of the agreement other than for cause (as defined in the agreement), (i) the
officer will be entitled to receive his or her base salary for a period of
months equal to the number of years the employee has been an executive officer
plus three months up to a maximum of 15 months, (ii) the Company shall continue
to provide family medical coverage for the severance period, and (iii) all
exercisable options may be exercised for the lesser of the severance period or
the expiration of the options.

     In January 2004, the Company entered into a three year agreement with
another executive officer. The agreement provides for annual base compensation
of $165,500 and participation in the Company's Officers' Bonus Plan. In April
2004, the annual compensation was increased to $200,000 in connection with a
promotion. If the officer is terminated by the Company during the term of the
agreement other than for cause (as defined in the agreement), the officer will
be entitled to receive his base salary for one year.

     In June 2005, the Company entered into an employment arrangement with an
executive officer. The arrangement provides for annual base compensation of
$175,000 plus additional compensation based upon specific performance measures.

NOTE 8. OTHER DATA

          ACCRUED EXPENSES

     Accrued expenses consist of the following:

                            June 30,     June 30,
                              2006         2005
                           ----------   ----------

Accrued commissions        $  935,000   $  784,000
Accrued salaries              407,000      392,000
Accrued bonus               1,260,000      928,000
Accrued vacation            1,096,000      977,000
Accrued medical expenses    1,308,000    1,219,000
Other                       1,186,000    1,289,000
                           ----------   ----------
                           $6,192,000   $5,589,000
                           ==========   ==========

          VALUATION AND QUALIFYING ACCOUNTS

     Valuation and qualifying accounts included in the accompanying consolidated
financial statements consist of the following:



                                                                  Balance -    Additions   Deductions   Balance -
                                                                  Beginning     Charged      / Other      End of
                       Classification                             of Period   to Expense    Additions     Period
------------------------------------------------------------      ---------   ----------   ----------   ---------

For the year ended June 30, 2006:
   Allowance for doubtful accounts receivable and sales returns    $300,000      137,000       36,000    $401,000
For the year ended June 30, 2005:
   Allowance for doubtful accounts receivable and sales returns    $470,000      968,000    1,138,000    $300,000
For the year ended June 30, 2004:
   Allowance for doubtful accounts receivable and sales returns    $438,000    1,192,000    1,160,000    $470,000



                                      F-19



          EMPLOYEE BENEFIT DEFINED CONTRIBUTION PLAN

     Effective November 1, 1985, the Company established a voluntary savings and
defined contribution plan under Section 401(k) of the Internal Revenue Code.
This Plan covers all U.S. employees meeting certain eligibility requirements and
allows participants to contribute a portion of their annual compensation. For
the fiscal years ended June 30, 2006, 2005 and 2004, the Company provided a
matching contribution of $707,000, $602,000, and $575,000, respectively, which
was equal to 50% of each participant's contribution up to a maximum of 6% of
annual compensation. Employees are 100% vested in their own contributions and
become fully vested in the employer contributions over five years.

          PROFIT BONUS PLAN

     Effective commencing in fiscal year 1995, the Company adopted a Profit
Bonus Plan for the benefit of eligible employees, as defined. The plan provides
that, for each fiscal year, the Board of Directors, in its discretion, may
establish a bonus pool not to exceed 10% of pretax income of the Company for the
subject fiscal year. The bonus pool is then allocated among eligible employees
in accordance with the terms of the plan. As of June 30, 2006, 2005 and 2004,
$839,000, $610,000 and $224,000, respectively, was accrued pursuant to this
plan.

     Effective January 1, 2000, the Company adopted a Managers' Profit Bonus
Plan for the benefit of eligible employees, as defined. The plan provides that,
for each fiscal year, the Board of Directors, in its discretion, may allocate a
percentage of the Company's pre-tax profits (not to exceed 2.5% of such profits)
for equal distribution among participants in the plan. Participants in the
Managers' Profit Bonus Plan are no longer eligible to participate in the Profit
Bonus Plan described above. For fiscal years 2006, 2005 and 2004, the Company
recognized compensation expense of $210,000, $152,000 and $56,000, respectively,
in respect of this plan.

     The Company has a bonus plan for executive officers. This plan provides for
a majority of the eligible employees to receive a cash bonus equal to at least
0.5% of the Company's pre tax income. In addition, two of the employees have
different plans that provide for bonus calculations based upon other factors,
including product line profitability and achievement of bookings quotas. For
fiscal years 2006, 2005 and 2004, the Company recognized compensation expense of
$604,000, $381,000 and $294,000, respectively, in respect of this plan.

NOTE 9. FOREIGN OPERATIONS

     The Company markets and distributes a portion of its products sold abroad
through its wholly-owned subsidiary, American Technical Ceramics Europe AB,
located in Sweden. During fiscal year 2002, the Company established a
wholly-owned subsidiary in the United States which established a representative
office in the People's Republic of China to service the Asian market. The
following table summarizes certain financial information covering the Company's
operations by geographic area for fiscal years 2006, 2005 and 2004. Net sales
information is based upon country of origin.

                          2006          2005          2004
                      -----------   -----------   -----------
Net sales
      United States   $71,273,000   $60,739,000   $51,831,000
      Sweden           12,858,000    12,226,000     9,352,000
                      -----------   -----------   -----------
   Total              $84,131,000   $72,965,000   $61,183,000
                      ===========   ===========   ===========
Long-lived assets
      United States   $31,644,000   $29,593,000   $26,209,000
      Sweden               68,000        70,000        90,000
      China                26,000        36,000        39,000
                      -----------   -----------   -----------
   Total              $31,738,000   $29,699,000   $26,338,000
                      =======-===   ===========   ===========


                                      F-20



     U.S. sales include $28,529,000, $21,920,000 and $19,597,000 for export in
fiscal years 2006, 2005 and 2004, respectively. Export sales were primarily to
customers in Western Europe, Canada and the Far East.

NOTE 10. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

          CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND
          ACCRUED EXPENSES

     The carrying amount approximates fair value due to the short maturity of
these instruments.

          INVESTMENTS

     Cost and fair value of the Company's investments is presented in Note 2.
Fair value is based upon quoted market prices.

          LONG-TERM DEBT

     At June 30, 2006, the Company's debt obligation had a fair value of
$6,578,000 and a book value of $6,727,000, and the Company's capital lease
obligation with respect to its Jacksonville, Florida facility had a fair value
of $2,808,000 and a book value of $2,459,000. Fair value is based on the present
value of future cash flows and the Company's estimated incremental borrowing
rate of 8.25%.

     Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.


                                      F-21`