##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT
 PURSUANT TO SECTION 13 OR
    15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the year ended March 31,
    2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to          .   Commission file number
    1-8462
  GRAHAM CORPORATION
 (Exact name of registrant as
    specified in its charter)
  DELAWARE

16-1194720(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)20 Florence Avenue, Batavia,
    New York

14020(Address of Principal Executive
    Offices)

(Zip Code)   Registrants telephone number, including area code
    585-343-2216
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which registeredCommon Stock (Par Value
    $.10)

American Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
  Title of ClassCommon Stock Purchase Rights   o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  o o þ
  Rule 12b-2 o þ
      Documents
    Incorporated By Reference




---



##### 



Table of
    Contents
    GRAHAM CORPORATION
    Annual Report on
    Form 10-K
    Year Ended March 31, 2007
  
  PagePART IItem 1





Business


1Item 1A





Risk Factors


4Item 1B





Unresolved Staff Comments


9Item 2





Properties


9Item 3





Legal Proceedings


10Item 4





Submission of Matters to a Vote of
    Security Holders


10PART IIItem 5





Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities


10Item 6





Selected Financial Data


11Item 7





Managements Discussion and
    Analysis of Financial Condition and Results of Operations


11Item 7A





Quantitative and Qualitative
    Disclosures About Market Risk


20Item 8





Financial Statements and
    Supplementary Data


22Item 9





Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure


49Item 9A





Controls and Procedures


49Item 9A
    (T)





Controls and Procedures


49Item 9B





Other Information


49PART IIIItem 10





Directors, Executive Officers and
    Corporate Governance


49Item 11





Executive Compensation


49Item 12





Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder Matters


50Item 13





Certain Relationships and Related
    Transactions, and Director Independence


50Item 14





Principal Accounting Fees and
    Services


50PART IVItem 15





Exhibits and Financial Statement
    Schedules


50Exhibit 21Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1    Note:
    Portions of the registrants definitive proxy statement, to
    be issued in connection with the registrants 2007 Annual
    Meeting of Stockholders to be held on July 26, 2007, have
    been incorporated by reference into Part III,
    Items 10, 11, 12, 13 and 14 of this Annual Report on
    Form 10-K.




---



##### Table of Contents



PART I
    Item 1.
    Business.  ®
    
    petroleum refineries;
    chemical plants;
    power generation facilities, such as fossil fuel, nuclear,
    cogeneration and geothermal power plants;
    pharmaceutical plants;
    plastics plants;
    fertilizer plants;
    liquefied natural gas production facilities;
    soap manufacturing plants;
    air conditioning systems;
    food processing plants; and
    other process industries.    Our
    Fiscal 2007 Highlights
    
    Net income and income per diluted share for fiscal 2007, were
    $5,761 and $1.46, respectively, including $.35 per diluted share
    in out-of-period research and development tax credits, compared
    with net income of $3,586 and income per diluted share of $0.96
    for fiscal 2006. Net income for fiscal 2007 was the highest net
    income achieved in our seventy-one year history. This
    years earnings beat our former record set in 1989 by 37%.
    Net sales for the year of $65,822 were up 19% compared with
    fiscal 2006. Fourth quarter sales increased 31% to $20,810
    compared with $15,911 for fourth quarter fiscal 2006.
    Orders placed with us in fiscal 2007 of $86,540 were up 31%
    compared with our year ended March 31, 2006, which we refer
    to as fiscal 2006. This represents the greatest dollar value of
    orders we have ever received in a one year period.
    Backlog grew significantly to $54,184 on March 31, 2007
    representing a 64% increase compared with March 31, 2006.
    This is a historic high for our backlog.
    Gross profit and operating margins for fiscal 2007 were 26% and
    10.1% compared with 29% and 10.5%, respectively, for the year
    ended March 31, 2006. 1




---



##### Table of Contents




    Cash and short-term investments at year-end fiscal 2007 were
    $15,051, which we believe places us in an unprecedented position
    to increase the longer term value of Graham.    
    Global consumption of crude oil is estimated to expand
    significantly over the next 15 years.
    It is generally believed that there is a shortage of global oil
    refining capacity.
    Known supplies of sweet crude oil are being depleted. Sour crude
    sources are identified and believed to be plentiful.
    There is a differential in raw material prices for higher
    quality sweet and lower quality sour
    crude oil. To lower production costs, many refineries are
    upgrading facilities in order to be able to process sour crude
    oil, which requires an upgrade of vacuum and heat transfer
    equipment.
    The expansion of the middle class in Asia is driving increasing
    demand for power and petrochemical products.
    The high cost of natural gas in North America and Europe is
    leading to the construction of new petrochemical plants in the
    Middle East, where natural gas is plentiful and inexpensive.
    There is an increased need in certain regions for geothermal
    electrical power plants to meet increased electricity demand.  Our
    Customers and Markets
        Form 10-K.
  Our
    Strengths
    
    We have strong brand recognition. Over the past 71 years,
    we believe that we have built a reputation for top quality,
    reliable products and high standards of customer service. As a
    result, the Graham name is well known by both our existing
    customers, and many of our potential customers. We believe that
    recognition of the Graham brand allows us to capitalize on
    market opportunities in both existing and potential markets. 2




---



##### Table of Contents




    We engineer and manufacture high quality products and systems
    that address the particular needs of our customers. With over
    71 years of engineering expertise, we believe that we are
    well respected for our knowledge in vacuum and heat transfer
    technologies. We maintain strict quality control and
    manufacturing standards in order to manufacture products of the
    highest quality.
    We have a global presence. Our products are used worldwide, and
    we have sales representatives located in major cities throughout
    the world.
    We believe that we have a solid reputation and strong
    relationships with our existing customer base, as well as with
    our key suppliers.  Our
    Strategy
    
    Continue to invest in engineering resources and technology in
    order to advance our market penetration with our vacuum and heat
    transfer technologies.
    Invest resources to meet the growing demand for our products in
    the oil refining, petrochemical processing and power generating
    industries, especially in emerging markets. Specifically,
    establish sales, engineering and manufacturing capabilities in
    Asia where we believe estimates of demand for oil and oil
    by-products will continue to increase.
    Focus on delivering products and solutions that enable our
    customers to achieve their operating objectives.
    Provide products and services to our customers that
    differentiate us from our competitors, and win new orders based
    on value not price.
    Expand our margins by implementing and expanding upon our
    operational efficiencies through lean manufacturing processes
    and other cost efficiencies.
    Enhance our engineering and manufacturing capacities, especially
    in connection with the design of our products, in order to be
    able to more quickly respond to existing and future customer
    demands.
    Accelerate our bids on available contracts by implementing
    front-end bid automation and design processes.
    Expand our global sales presence in order to further penetrate
    our existing markets and reach additional markets.
    Capitalize on the strength of the Graham brand in order to win
    more business in our traditional markets and penetrate other
    markets.
    Examine acquisition and organic growth opportunities to expand
    and complement our core business, including opportunities to
    extend our existing product lines and opportunities to move into
    complementary product lines.  Competition
    Intellectual
    Property
   3




---



##### Table of Contents



Availability
    of Raw Materials
    Working
    Capital Practices
    Environmental
    Matters
    Seasonality
    Research
    Activities
    Information
    Regarding Our International Sales
    Form 10-K
  Former
    U.K. Operations
  Form 10-K.
  Item 1A.
    Risk
    Factors  Our business and operations are subject to numerous risks,
    many of which are described below and elsewhere in this Annual
    Report on
    Form 10-K.
    If any of the events described below occur, our business and
    results of operations could be harmed.
 4




---



##### Table of Contents



Risks
    related to our business
  The
    industries in which we operate are cyclical, and downturns in
    such industries may adversely affect our operating
    results.
    Our
    international sales operations are subject to uncertainties that
    could harm our business.
    
    it may be difficult to enforce agreements and collect
    receivables through some foreign legal systems;
    foreign customers may have longer payment cycles than customers
    in the United States;
    tax rates in some foreign countries may exceed those of the
    United States and foreign earnings may be subject to withholding
    requirements or the imposition of tariffs, exchange controls or
    other restrictions;
    general economic and political conditions in the countries where
    we sell our products may have an adverse effect on our sales in
    those countries or not be favorable to our growth strategy;
    foreign governments may adopt regulations or take other actions
    that could directly or indirectly harm our business and growth
    strategy; and
    it may be difficult to enforce intellectual property rights in
    some foreign countries.    If we
    fail to introduce enhancements to our existing products or to
    keep abreast of technological changes in our markets, our
    business and results of operations could be adversely
    affected.
   5




---



##### Table of Contents



The
    loss of any of our senior executive officers or our inability to
    hire additional qualified management personnel could harm our
    business.
      Our
    business is highly competitive. If we are unable to successfully
    implement our business strategy, we risk losing market share to
    current and future competitors.
    If we
    are unable to make necessary capital investments or respond to
    pricing pressures, our business may be harmed.
    If
    third parties infringe our intellectual property or if we were
    to infringe the intellectual property of third parties, we may
    expend significant resources enforcing or defending our rights
    or suffer competitive injury.
     6




---



##### Table of Contents



A
    decrease in supply or increase in cost of the materials used in
    our products could harm our profitability.
    If we
    are unable to effectively outsource a portion of our production
    during times when we are experiencing strong demand, our results
    of operations might be adversely affected. In addition,
    outsourcing may negatively affect our profit
    margins.
    We
    face potential liability from asbestos exposure and similar
    claims.
    Risks
    related to operating a subsidiary in China
  The
    operations of our Chinese subsidiary may be adversely affected
    by Chinas evolving economic, political and social
    conditions.
    It may
    be difficult for our Chinese subsidiary to make dividend or
    other payments to us, which could adversely affect our results
    of operations.
   7




---



##### Table of Contents



Intellectual
    property rights are difficult to enforce in China.
    Uncertainties
    with respect to the Chinese legal system may adversely affect
    the operations of our Chinese subsidiary.
    Risks
    related to the ownership of our common stock
  Provisions
    contained in our certificate of incorporation, bylaws and our
    stockholder rights plan could impair or delay stockholders
    ability to change our management and could discourage takeover
    transactions that our stockholders might consider to be in their
    best interests.
    
    We could issue shares of preferred stock with terms adverse
    to our common stock.Under our certificate of
    incorporation, our Board of Directors is authorized to issue
    shares of preferred stock and to determine the rights,
    preferences and privileges of such shares without obtaining any
    further approval from the holders of our common stock. Up to
    440,000 of such undesignated shares of preferred stock are
    presently eligible for issuance. We could issue shares of
    preferred stock with voting and conversion rights that adversely
    affect the voting power of the holders of our common stock, or
    that have the effect of delaying or preventing a change in
    control of our company.
    We maintain a stockholder rights, or poison pill,
    plan.Our stockholder rights plan has the effect
    of discouraging any person or group that wishes to acquire 15%
    or more of our common stock from doing so without obtaining our
    agreement because such acquisition would cause such person or
    group to suffer substantial dilution. Such plan may have the
    effect of discouraging a change in control transaction that our
    stockholders would otherwise consider to be in their best
    interests.
    Only a minority of our directors may be elected in a given
    year.Our bylaws provide for a classified Board
    of Directors, with only approximately one-third of our Board
    elected each year. This provision makes it more difficult to
    effect a change of control because at least two annual
    stockholder meetings are necessary to replace a majority of our
    directors.
    Our bylaws contain advance notice
    requirements.  Our bylaws also provide that any
    stockholder who wishes to bring business before an annual
    meeting of our stockholders or to nominate candidates for
    election as directors at an annual meeting of our stockholders
    must deliver advance notice of their proposals to us 8




---



##### Table of Contents



before the meeting. Such advance notice provisions may have the
    effect of making it more difficult to introduce business at
    stockholder meetings or nominate candidates for election as
    director.  
    Our certificate of incorporation requires supermajority
    voting to approve a change of control
    transaction.Seventy-five percent of our
    outstanding shares entitled to vote are required to approve any
    merger, consolidation, sale of all or substantially all of our
    assets and similar transactions if the other party to such
    transaction owns 5% or more of our shares entitled to vote. In
    addition, a majority of the shares entitled to vote not owned by
    such 5% or greater stockholder are also required to approve any
    such transaction.
    Amendments to our certificate of incorporation require
    supermajority voting.Our certificate of
    incorporation contains provisions that make its amendment
    require the affirmative vote of both 75% of our outstanding
    shares entitled to vote and a majority of the shares entitled to
    vote not owned by any person who may hold 50% or more of our
    shares unless the proposed amendment was previously recommended
    to our stockholders by an affirmative vote of 75% of our Board.
    This provision makes it more difficult to implement a change to
    our certificate of incorporation that stockholders might
    otherwise consider to be in their best interests without
    approval of our Board.
    Amendments to our bylaws require supermajority
    voting.  Although our Board of Directors is
    permitted to amend our bylaws at any time, our stockholders may
    only amend our bylaws upon the affirmative vote of both 75% of
    our outstanding shares entitled to vote and a majority of the
    shares entitled to vote not owned by any person who owns 50% or
    more of our shares. This provision makes it more difficult for
    our stockholders to implement a change they may consider to be
    in their best interests without approval of our Board.  Our
    stock price may be volatile because of factors beyond our
    control.
    
    variations in our revenue and operating results from quarter to
    quarter;
    developments or downturns in the industries in which we do
    business;
    our ability to obtain
    and/or
    maintain securities analyst coverage;
    changes in securities analysts recommendations or
    estimates of our financial performance;
    changes in market valuations of companies similar to ours;
    announcements by our competitors of significant contracts, new
    offerings, acquisitions, commercial relationships, joint
    ventures or capital commitments; and
    general economic conditions.    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   9




---



##### Table of Contents



Item 3.
    Legal
    Proceedings  Form 10-K
  Item 4.
    Submission
    of Matters to a Vote of Security Holders  Form 10-K.
  PART II
    Item 5.
    Market
    For Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities      High


LowFiscal year 2007First quarter

$
23.00


$
17.51Second quarter


19.35



16.10Third quarter


17.75



12.55Fourth quarter


17.00



12.67Fiscal year 2006First quarter

$
13.75


$
8.28Second quarter


20.71



12.63Third quarter


24.85



13.20Fourth quarter


26.00



17.60        10




---



##### Table of Contents



Form 10-K.
  Item 6.
    Selected
    Financial Data  GRAHAM CORPORATION  SEVEN YEAR SUMMARY OF SELECTED
    FINANCIAL DATA2007


2006


2005


2004


2003


2002


2001(Amounts in thousands, except per share data)Operations:Net Sales

$
65,822


$
55,208


$
41,333


$
37,508


$
44,511


$
41,085


$
40,664Gross Profit


16,819



15,959



7,540



5,890



7,297



7,272



8,213Gross Profit Percentage


26
%


29
%


18
%


16
%


16
%


18
%


20
%Income (Loss) From Continuing
    Operations


5,761



3,586



296



(832
)


148



1,738



122Dividends


387



367



334



327



254







Common Stock:Basic Earnings (Loss) From
    Continuing Operations Per Share

$
1.48



.98


$
.09


$
(.25
)


.04



.53



.04Diluted Earnings (Loss) From
    Continuing Operations Per Share


1.46



.96



.09



(.25
)


.04



.52



.04Quarterly Dividend Declared Per
    Share


.025



.025



.025



.025



.025







Market Price Range of Common Stock


23.00-12.55



26.00-8.28



8.90-5.35



5.85-3.53



5.50-3.42



7.40-3.63



6.47-3.53Average Common Shares
    Outstanding  Diluted


3,940



3,735



3,433



3,293



3,344



3,342



3,226Financial Data at March
    31:Working Capital

$
20,119



16,779



11,204



11,652



12,822



13,812



11,162Capital Expenditures


1,637



1,048



224



249



799



607



1,025Depreciation


874



775



768



793



797



773



754Total Assets


48,878



40,556



33,529



35,740



38,323



43,704



36,608Long-Term Debt


56



30



44



93



127



150



682Stockholders Equity


30,654



27,107



16,578



18,102



18,836



19,636



17,137   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations    Overview
        
    Net income and income per diluted share for fiscal 2007, were
    $5,761 and $1.46, including $0.35 per diluted share in
    out-of-period research and development tax credits,
    respectively, compared with net income of $3,586 and income per
    diluted share of $0.96 for fiscal 2006. Net income for fiscal
    2007 was the highest net income achieved in our seventy-one year
    history. This years earnings beat our former record set in
    1989 by 37%. 11




---



##### Table of Contents




    Net sales for the year of $65,822 were up 19% compared with
    fiscal 2006. Fourth quarter sales increased 31% to $20,811
    compared with $15,911 for fourth quarter fiscal 2006.
    Orders placed with us in fiscal 2007 of $86,540 were up 31%
    compared with the twelve-month period ended March 31, 2006.
    This represents the greatest dollar value of orders we have ever
    received in a one year period.
    Backlog grew significantly to $54,184 on March 31, 2007
    representing a 64% increase compared with March 31, 2006.
    This is a historic high for our backlog.
    Gross profit and operating margins for fiscal 2007 were 26% and
    10.1% compared with 29% and 11.1%, respectively, for the year
    ended March 31, 2006.
    Cash and short-term investments at year-end fiscal 2007 were
    $15,051, which places us in an unprecedented opportunity to
    increase the longer term value of our Company.    
    Global consumption of crude oil is estimated to expand
    significantly over the next decade.
    It is generally believed that there is a shortage of global oil
    refining capacity.
    Known supplies of sweet crude oil are being depleted. Sour crude
    sources are identified and believed to be plentiful.
    There is a differential in raw material prices for higher
    quality sweet and lower quality sour
    crude oil. To lower production costs, many refineries are
    upgrading facilities in order to be able to process sour crude
    oil, which requires an upgrade of vacuum and heat transfer
    equipment.
    The expansion of the middle class in Asia is driving increasing
    demand for power and petrochemical products.
    The high cost of natural gas in North America and Europe is
    leading to the construction of new petrochemical plants in the
    Middle East, where natural gas is plentiful and less expensive.
    There is an increased need in certain regions for geothermal
    electrical power plants to meet increased electricity demand.  Forward-Looking
    Statements
    Form 10-K.
  
    the current and future economic environments affecting us and
    the markets we serve;
    sources of revenue and anticipated revenue, including the
    contribution from the growth of new products, services and
    markets;
    plans for future products and services and for enhancements to
    existing products and services;
    estimates regarding our liquidity and capital requirements;
    our ability to attract or retain customers; 12




---



##### Table of Contents




    the outcome of any existing or future litigation; and
    our ability to increase our productivity and capacity.      Critical
    Accounting Policies, Estimates and Judgments
  Form 10-K,
    Revenue Recognition.
    Pension and Postretirement Benefits.
  Income Taxes.
   13




---



##### Table of Contents



Results
    of Operations
  Form 10-K.
    Year Ended March 31,2007


2006


2005Net sales

$
65,822


$
55,208


$
41,333Net income

$
5,761


$
3,586


$
296Diluted income per share

$
1.46


$
0.96


$
0.09Identifiable assets

$
48,878


$
40,556


$
33,529   Fiscal
    2007 Compared with Fiscal 2006
           14




---



##### Table of Contents



Fiscal
    2006 Compared with Fiscal 2005
           15




---



##### Table of Contents



Stockholders
    Equity
    FY 2007


FY 2006


FY 2005$
30,654


$
27,107


$
16,578   Fiscal
    2007 Compared with Fiscal 2006
  Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans and/or
  Fiscal
    2006 Compared with Fiscal 2005
   16




---



##### Table of Contents



Liquidity
    and Capital Resources
    March 31,2007


2006(Dollar amounts in thousands)Working capital

$
20,119


$
16,779Working capital ratio(1)


2.2



2.6Long-term debt

$
56


$
30Long-term debt/capitalization(2)


0.2
%


0.1
%Long-term
    liabilities/capitalization(3)


5
%


10
%     1)
    
    Working capital ratio equals current assets divided by current
    liabilities.2)
    
    Long-term debt/capitalization equals long-term debt divided by
    stockholders equity plus long-term debt.3)
    
    Long-term liabilities/capitalization equals total liabilities
    minus current liabilities divided by stockholders equity
    plus long-term debt.    Payments Due by PeriodLess Than


1 − 3


3 − 5Total


1 Year


Years


Years


ThereafterShort-Term Debt

$



$



$



$



$
Capital Lease Obligations


106



44



43



19



Operating Leases(1)


98



28



45



25



Pension and Postretirement
    Benefits(2)


2,634



2,634











Accrued Compensation


272



9











263Accrued Pension Liability


251







251







Other Long-Term Liabilities
    Reflected on the Balance Sheet Under GAAP


58



58











Total

$
3,419


$
2,773


$
339


$
44


$
263     1)
    
    For additional information, see Note 6 to the Consolidated
    Financial Statements.2)
    
    Amounts represent anticipated contributions during fiscal 2008
    to our defined benefit pension plan and postretirement medical
    benefit plan, which provides health care benefits for eligible
    retirees and eligible survivors of retirees. On February 4,
    2003, the Company terminated postretirement health care benefits
    for its U.S. employees. Benefits payable to retirees of record
    on April 1, 2003 remained unchanged for fiscal 2008. We
    expect to be required to make cash contributions in connection
    with these plans beyond one year, but such amounts cannot be
    estimated.  Fiscal
    2007 Compared with Fiscal 2006
   17




---



##### Table of Contents



Orders
    and Backlog
   18




---



##### Table of Contents



Contingencies
    and Commitments
        New
    Accounting Pronouncements
  Shared-Based Payments
  , Inventory Costs Inventory
    Pricing
  Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans
 19




---



##### Table of Contents



Considering the Effects of Prior Year Misstatements When
    Quantifying Misstatements in Current Year Financial
    Statements
  Accounting for Uncertainty in Income Taxes
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
  Off
    Balance Sheet Arrangements
    Item 7A.
    Quantitative
    And Qualitative Disclosures About Market Risk    
    foreign currency exchange rates; and
    equity price risk (related to our Long-Term Incentive Plan).    Foreign
    Currency
   20




---



##### Table of Contents



Equity
    Price Risk
  50-75%
  Year Ended March 31,2007


2006(Dollar amounts in thousands)50% increase

$
(2
)

$
50% decrease


31



175% increase


(2
)


75% decrease


140



95   50-75%
  2008


2009


2010


2011


2012(Dollar amounts in thousands)50% increase

$
(2
)

$
(2
)

$
(2
)

$
(2
)

$
(2
)50% decrease


7



24



40



52



6475% increase


(2
)


(2
)


(2
)


(2
)


(2
)75% decrease


142



167



192



209



227  21




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    FINANCIAL STATEMENTS
  Graham Corporation

PageConsolidated Financial
    Statements:Consolidated
    Statements of Operations for the years ended March 31,
    2007, 2006 and 2005


23Consolidated
    Balance Sheets as of March 31, 2007 and 2006


24Consolidated
    Statements of Cash Flows for the years ended March 31,
    2007, 2006 and 2005


25Consolidated
    Statements of Changes in Stockholders Equity for the years
    ended March 31, 2007, 2006 and 2005


26Notes to
    Consolidated Financial Statements


27Report of
    Independent Registered Public Accounting Firm


48  22




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended March 31,2007


2006


2005(Dollar amounts in thousands,except per share data)Net sales

$
65,822


$
55,208


$
41,333Cost of products sold


49,003



39,249



33,793Gross profit


16,819



15,959



7,540Expenses and other income:Selling, general and administrative


10,338



9,818



7,691Interest expense


10



17



33Other expense


100



371



1,049Other income


(148
)






(1,592
)Total expenses and other income


10,300



10,206



7,181Income from continuing operations
    before income taxes


6,519



5,753



359Provision for income taxes


758



2,167



63Income from continuing operations


5,761



3,586



296Loss from discontinued operations
    (net of income tax benefit of $1,420 in 2005)










(3,202
)Net income (loss)

$
5,761


$
3,586


$
(2,906
)Per Share DataBasic:Income from continuing operations

$
1.48


$
.98


$
.09Loss from discontinued operations










(.95
)Net income (loss)

$
1.48


$
.98


$
(.86
)Diluted:Income from continuing operations

$
1.46


$
.96


$
.09Loss from discontinued operations










(.93
)Net income (loss)

$
1.46


$
.96


$
(.85
)Average common shares outstanding:Basic


3,893,590



3,653,656



3,363,980Diluted


3,940,108



3,734,591



3,433,396Dividends declared per share

$
.10


$
.10


$
.10    23




---



##### Table of Contents



CONSOLIDATED
    BALANCE SHEETS  March 31,2007


2006(Dollar amounts in thousands)AssetsCurrent assets:Cash and cash equivalents

$
1,375


$
570Investments


13,676



10,418Trade accounts receivable, net of
    allowances ($48 and $28 in fiscal 2007 and fiscal 2006,
    respectively)


11,859



5,978Unbilled revenue


4,793



4,978Inventories


4,682



5,115Deferred income tax asset


1



19Prepaid expenses and other current
    assets


353



317Total current assets


36,739



27,395Property, plant and equipment, net


8,780



7,954Deferred income tax asset


2,901



2,107Prepaid pension asset


445



3,076Other assets


13



24Total assets

$
48,878


$
40,556Liabilities and
    Stockholders EquityCurrent liabilities:Current portion of long-term debt

$
37


$
45Accounts payable


5,143



4,135Accrued compensation


3,205



3,310Accrued expenses and other
    liabilities


2,048



1,573Customer deposits


6,100



1,553Deferred income tax liability


87



Total current liabilities


16,620



10,616Long-term debt


56



30Accrued compensation


263



276Other long-term liabilities


58



191Accrued pension liability


251



232Accrued postretirement benefits


976



2,104Total liabilities


18,224



13,449Stockholders equity:Preferred stock, $1 par
    value Authorized, 500,000 sharesCommon stock, $.10 par
    value Authorized, 6,000,000 sharesIssued and outstanding, 3,887,490
    and 3,832,390 shares in 2007 and 2006, respectively


389



383Capital in excess of par value


10,008



9,517Retained earnings


22,675



17,301Accumulated other comprehensive
    loss


(2,367
)


(1
)Notes receivable from officers and
    directors


(51
)


(93
)Total stockholders equity


30,654



27,107Total liabilities and
    stockholders equity

$
48,878


$
40,556    24




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended March 31,2007


2006


2005(Dollar amounts in thousands)Operating activities:Income from continuing operations

$
5,761


$
3,586


$
296Adjustments to reconcile income
    from continuing operations to net cash provided (used) by
    operating activities of continuing operations:Non cash other expense (income)


100



247



(846
)Depreciation and amortization


887



793



780Discount accretion on investments


(458
)


(265
)


(38
)Stock-based compensation expense


84







(Gain) loss on disposal or sale of
    property, plant and equipment


(17
)


(6
)


4Deferred income taxes


646



2,150



58(Increase) decrease in operating
    assets:Accounts receivable


(5,882
)


4,048



(3,249
)Unbilled revenue


185



(1,358
)


(3,620
)Inventories


433



(292
)


(193
)Prepaid expenses and other current
    and non-current assets


(38
)


(174
)


831Prepaid pension asset


(1,979
)


(3,076
)


Increase (decrease) in operating
    liabilities:Accounts payable


1,007



761



1,266Accrued compensation, accrued
    expenses and other current and non-current liabilities


137



825



(242
)Customer deposits


4,547



258



728Long-term portion of accrued
    compensation, accrued pension liability and accrued
    postretirement benefits


(220
)


(964
)


(169
)Total adjustments


(568
)


2,947



(4,690
)Net cash provided (used) by
    continuing operations


5,193



6,533



(4,394
)Net cash used by discontinued
    operations










(85
)Net cash provided (used) by
    operating activities


5,193



6,533



(4,479
)Investing activities:Purchase of property, plant and
    equipment


(1,637
)


(1,048
)


(224
)Proceeds from sale of property,
    plant and equipment


25



8



Purchase of investments


(33,300
)


(33,160
)


(8,462
)Redemption of investments at
    maturity


30,500



25,000



11,803Net cash (used) provided by
    investing activities of continuing operations


(4,412
)


(9,200
)


3,117Net cash used by investing
    activities of discontinued operations










(75
)Net cash (used) provided by
    investing activities


(4,412
)


(9,200
)


3,042Financing activities:(Decrease) increase in short-term
    debt, net






(1,872
)


1,872Proceeds from issuance of long-term
    debt


3,896



3,070



Principal repayments on long-term
    debt


(3,948
)


(3,120
)


(45
)Issuance of common stock


413



1,424



390Collection of notes receivable from
    officers and directors


42



61



46Dividends paid


(387
)


(452
)


(333
)Sale of treasury stock






3,403



Net cash provided by financing
    activities of continuing operations


16



2,514



1,930Net cash used by financing
    activities of discontinued operations










(233
)Net cash provided by financing
    activities


16



2,514



1,697Effect of exchange rates on cash


8



(1
)


(3
)Net increase (decrease) in cash and
    cash equivalents


805



(154
)


257Cash and cash equivalents at
    beginning of year


570



724



467Cash and cash equivalents at end of
    year

$
1,375


$
570


$
724    25




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY  Accumulated





NotesCommon Stock


Capital in





Other





ReceivablePar


Excess of


Retained


Comprehensive


Treasury


from Officers


StockholdersShares


Value


Par Value


Earnings


Loss


Stock


and Directors


Equity(Dollar amounts in thousands)Balance at April 1, 2004


1,757,450


$
176


$
5,097


$
17,322


$
(2,908
)

$
(1,385
)

$
(200
)

$
18,102Net loss














(2,906
)














(2,906
)Foreign currency translation
    adjustment


















92











92Reclassification adjustment for
    losses included in net income


















1,360











1,360Minimum pension liability
    adjustment, net of income tax of $130


















(242
)










(242
)Total comprehensive loss






























(1,696
)Issuance of shares


39,290



4



386



















390Stock option tax benefit










70



















70Dividends














(334
)














(334
)Collection of notes receivable from
    officers and directors


























46



46Balance at March 31, 2005


1,796,740



180



5,553



14,082



(1,698
)


(1,385
)


(154
)


16,578Net income














3,586















3,586Foreign currency translation
    adjustment


















(1
)










(1
)Minimum pension liability
    adjustment, net of income tax of $915


















1,698











1,698Total comprehensive income






























5,283Issuance of shares


136,645



13



1,411



















1,424Stock option tax benefit










725



















725Dividends














(367
)














(367
)Two-for-one stock split


1,899,005



190



(190
)


















Sale of treasury stock










2,018











1,385







3,403Collection of notes receivable from
    officers and directors


























61



61Balance at March 31, 2006


3,832,390


$
383


$
9,517


$
17,301


$
(1
)

$



$
(93
)

$
27,107Net income














5,761















5,761Foreign currency translation
    adjustment


















7











7Total comprehensive income






























5,768Adjustment to initially apply
    SFAS No. 158 for pension and other postretirement
    benefits, net of income tax of $1,335


















(2,373
)










(2,373
)Issuance of shares


55,100



6



407



















413Dividends














(387
)














(387
)Recognition of equity-based
    compensation expense










84



















84Collection of notes receivable from
    officers and directors


























42



42Balance at March 31, 2007


3,887,490


$
389


$
10,008


$
22,675


$
(2,367
)

$



$
(51
)

$
30,654    26




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS



for years ended March 31, 2007, 2006 and 2005,
    which are referred to as fiscal 2007, fiscal 2006 and fiscal
    2005, respectively:    Note 1 
    The
    Company and Its Accounting Policies:    Principles
    of consolidation and use of estimates in the preparation of
    financial statements
      Translation
    of foreign currencies
    Revenue
    recognition
  Percentage-of-Completion
    Method
    Completed
    Contract Method
   27




---



##### Table of Contents



Shipping
    and handling fees and costs
    Investments
    Inventories
      2007


2006Costs incurred since inception on
    contracts in progress

$
11,135


$
8,593Estimated earnings since inception
    on contracts in progress


3,859



3,47314,994



12,066Less billings to date


20,353



8,864Net (over) under billings

$
(5,359
)

$
3,202     2007


2006Unbilled revenue

$
4,793


$
4,978Progress payments reducing
    inventory (Note 3)


(4,052
)


(223
)Customer deposits


(6,100
)


(1,553
)Net (over) under billings

$
(5,359
)

$
3,202  28




---



##### Table of Contents



Property,
    plant, equipment and depreciation
    Product
    warranties
    Research
    and development
    Income
    taxes
    Stock
    split
    Stock-based
    compensation
  Share-Based Payment
 29




---



##### Table of Contents



Transition Election Related to
    Accounting for the Tax Effects of Share-Based Payment
    Awards Statement of Cash Flows
  Accounting for
    Stock-Based Compensation Accounting for Stock Issued to Employees
    Year Ended March 31,2006


2005Net income (loss)As reported

$
3,586


$
(2,906
)Stock-based employee compensation
    cost, net of related tax benefits


(224
)


(118
)Pro forma net income (loss)

$
3,362


$
(3,024
)Basic income (loss) per shareAs reported

$
.98


$
(.86
)Pro forma

$
.92


$
(.90
)Diluted income (loss) per shareAs reported

$
.96


$
(.85
)Pro forma

$
.90


$
(.88
)     2007


2006


2005Expected life


5 years



5 years



5 yearsVolatility


48.44
%


46.86
%


42.84
%Risk-free interest rate


5.03
%


4.46
%


3.53
%Dividend yield


.58
%


.63
%


1.65
%    30




---



##### Table of Contents



Income
    per share data
    Year Ended March 31,2007


2006


2005Basic income per share:Numerator:Income from continuing operations

$
5,761


$
3,586


$
296Denominator:Weighted common shares outstanding


3,864,653



3,627,283



3,333,874Share equivalent units
    (SEUs) outstanding


28,937



26,373



30,106Weighted average shares and SEUs
    outstanding


3,893,590



3,653,656



3,363,980Basic income per share from
    continuing operations

$
1.48


$
.98


$
.09Diluted income per share:Numerator:Income from continuing operations

$
5,761


$
3,586


$
296Denominator:Weighted average shares and SEUs
    outstanding


3,893,590



3,653,656



3,363,980Stock options outstanding


46,400



79,412



69,166Contingently issuable SEUs


118



1,523



250Weighted average common and
    potential common shares outstanding


3,940,108



3,734,591



3,433,396Diluted income per share from
    continuing operations

$
1.46


$
.96


$
.09     Cash flow
    statement
       31




---



##### Table of Contents



Accumulated
    other comprehensive income (loss)
    Accounting
    and Reporting Changes
  Accounting for Uncertainty in Income Taxes
  Fair Value Measurements
  Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans
  Before Application





After Application ofBalance Sheet Caption

of SFAS No. 158


Adjustments


SFAS No. 158Prepaid pension asset

$
5,056


$
(4,611
)

$
445Long-term deferred income tax asset

$
1,567


$
1,335


$
2,902Accrued postretirement benefits

$
(1,879
)

$
903


$
(976
)Accumulated other comprehensive
    loss (income)

$
(6
)

$
2,373


$
2,367   Considering the Effects of Prior Year Misstatements When
    Quantifying Misstatements in Current Year Financial
    Statements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities
 32




---



##### Table of Contents



Note 2 
    Discontinued
    Operations:        Note 3 
    Inventories:    March 31,2007


2006Raw materials and supplies

$
1,427


$
1,474Work in process


6,847



3,087Finished products


460



7778,734



5,338Less  progress payments


4,052



223$
4,682


$
5,115   Note 4 
    Property,
    Plant and Equipment:    March 31,2007


2006Land

$
210


$
210Buildings and improvements


10,560



10,307Machinery and equipment


15,458



15,121Construction in progress


852



2827,080



25,666Less  accumulated
    depreciation and amortization


18,300



17,712$
8,780


$
7,954    33




---



##### Table of Contents



Note 5 
    Product
    Warranty Liability:    Year Ended March 31,2007


2006Balance at beginning of year

$
330


$
255Expense for product warranties


199



301Product warranty claims paid


(172
)


(226
)Balance at end of year

$
357


$
330   Note 6 
    Leases:      March 31,2007


2006Machinery and equipment

$
171


$
196Less accumulated amortization


80



125$
91


$
71       Operating


CapitalLeases


Leases2008


28



442009


22



242010


23



192011


25



19Total minimum lease payments

$
98


$
106Less  amount
    representing interest






13Present value of net minimum lease
    payments





$
93   Note 7 
    Debt:  Short-Term
    Debt Due to Banks
     34




---



##### Table of Contents



Long-Term
    Debt
    March 31,2007


2006Capital lease obligations
    (Note 6)

$
93


$
75Less: current amounts


37



45Total

$
56


$
30     Note 8 
    Financial
    Instruments and Derivative Financial Instruments  Concentrations
    of Credit Risk
    Letters
    of Credit
    Foreign
    Exchange Risk Management
  and/or
 35




---



##### Table of Contents



Note 9 
    Income
    Taxes:    Year Ended March 31,2007


2006


2005United States

$
6,476


$
5,739


$
359United Kingdom


9



14



China


34







$
6,519


$
5,753


$
359     Year Ended March 31,2007


2006


2005Current:Federal

$
80


$



$
State


29



14



5Foreign


3



3



112



17



5Deferred:Federal


438



1,878



36State


201



272



22Foreign


7







646



2,150



58Total provision for income taxes

$
758


$
2,167


$
63     Year Ended March 31,2007


2006


2005Provision for income taxes at
    federal rate

$
2,216


$
1,956


$
122State taxes


221



281



25Charges not deductible for income
    tax purposes


21



32



43Recognition of tax benefit
    generated by extraterritorial income exclusion


(88
)


(100
)


(94
)Tax credits


(1,607
)






(20
)Other


(5
)


(2
)


(13
)Provision for income taxes

$
758


$
2,167


$
63    36




---



##### Table of Contents



March 31,2007


2006Depreciation

$
(918
)

$
(885
)Accrued compensation


187



354Prepaid pension asset


(421
)


(1,309
)Accrued pension liability


98



91Accrued postretirement benefits


460



875Compensated absences


533



522Inventories


(1,112
)


(1,072
)Warranty liability


139



129Accrued expenses


322



206Federal and state loss
    carryforwards


1,605



2,970Federal tax credits


1,808



121New York State investment tax
    credit


140



133Other


(26
)


(9
)2,815



2,126Less: Valuation allowance






Total

$
2,815


$
2,126     March 31,2007


2006Current deferred income tax asset

$
1


$
19Long-term deferred income tax asset


2,901



2,107Current deferred income tax
    liability


(87
)


$
2,815


$
2,126     Note 10 
    Employee
    Benefit Plans:  Retirement
    Plans
   37




---



##### Table of Contents



Year Ended March 31,2007


2006


2005Service cost-benefits earned
    during the period

$
472


$
450


$
472Interest cost on projected benefit
    obligation


1,056



988



975Expected return on assets


(1,360
)


(921
)


(905
)Amortization of:Transition asset










(15
)Unrecognized prior service cost


4



4



4Actuarial loss


349



297



304Net pension cost

$
521


$
818


$
835     Discount rate


5.75
%


5.93
%


6
%Rate of increase in compensation
    levels


3.5
%


3.5
%


3.5
%Long-term rate of return on plan
    assets


8.5
%


8.5
%


9
%         Year Ended March 31,2007


2006Change in the benefit obligationProjected benefit obligation at
    beginning of year

$
18,863


$
17,607Service cost


393



382Interest cost


1,056



988Actuarial (gain) loss


(624
)


364Benefit payments


(624
)


(478
)Projected benefit obligation at
    end of year

$
19,064


$
18,863  38




---



##### Table of Contents



March 31,2007


2006Discount rate


5.91
%


5.75
%Rate of increase in compensation
    levels


3.5
%


3.5
%Change in fair value of plan assetsFair value of plan assets at
    beginning of year

$
15,515


$
10,535Actual return on plan assets


2,118



707Employer contributions


2,500



4,751Benefit and administrative expense
    payments


(624
)


(478
)Fair value of plan assets at end
    of year

$
19,509


$
15,515Funded statusFunded status at end of year

$
445


$
(3,348
)Unrecognized prior service cost






38Unrecognized actuarial loss






6,386Net asset recognized

$
445


$
3,076   Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans Accounting and Reporting Changes
      Net actuarial losses

$
2,929Prior service cost


22$
2,951       2008

$
5562009


5602010


7012011


7742012


8052013-2017


4,852Total

$
8,248  39




---



##### Table of Contents



Target


December 31,Allocation


2006


2005Asset CategoryEquity securities


50-70
%


66
%


66
%Debt securities


20-50
%


34
%


34
%Other, including cash


0-10
%






100
%


100
%           Other
    Postretirement Benefits
        Year ended March 31,2007


2006


2005Interest cost on accumulated
    benefit obligation

$
63


$
70


$
72Amortization of prior service
    benefit


(166
)


(166
)


(166
)Amortization of actuarial loss


25



15



13Net postretirement benefit income

$
(78
)

$
(81
)

$
(81
)    40




---



##### Table of Contents



Year Ended March 31,2007


2006Change in the benefit obligationProjected benefit obligation at
    beginning of year

$
1,175


$
1,203Interest cost


63



70Participant contributions


14



23Actuarial loss


24



42Benefit payments


(166
)


(163
)Projected benefit obligation at
    end of year

$
1,110


$
1,175     March 31,2007


2006Discount rate


5.65
%


5.65
%Medical care cost trend rate


8.5
%


6.5
%     Year Ended March 31,2007


2006Change in fair value of plan assetsFair value of plan assets at
    beginning of year

$



$
Employer contribution


152



140Participants contributions


14



23Benefit payments


(166
)


(163
)Fair value of plan assets at end
    of year

$



$
Funded statusFunded status at end of year

$
(1,110
)

$
(1,175
)Unrecognized prior service benefit






(1,475
)Unrecognized actuarial loss






407Net liability recognized

$
(1,110
)

$
(2,243
)         Net actuarial loss

$
260Prior service cost


(838
)$
(578
)  41




---



##### Table of Contents



2008

$
1342009


1242010


1202011


1072012


1002013-2017


492Total

$
1,077     Employee
    Stock Ownership Plan
    Note 11 
    Stock
    Compensation Plans:      Share-Based Payment
 42




---



##### Table of Contents



WeightedShares


Average


Weighted


AggregateUnder


Exercise


Average Remaining


IntrinsicOption


Price


Contractual Term


ValueOutstanding at April 1, 2004


423,390


$
6.09Granted


78,000


$
6.37Exercised


(78,580
)

$
4.97Cancelled


(40,800
)

$
7.75Outstanding at March 31, 2005


382,010


$
6.20Granted


56,000


$
13.90Exercised


(238,910
)

$
5.96Outstanding at March 31, 2006


199,100


$
8.65Granted


59,000


$
19.80Exercised


(55,100
)

$
7.49Forfeited


(14,000
)

$
19.94Outstanding at March 31, 2007


189,000


$
11.63



6.41 years


$
1,059Vested or expected to vest at
    March 31, 2007


186,603


$
11.53



6.38 years


$
1,059Exercisable at March 31, 2007


144,000


$
9.10



5.55 years


$
1,059     Options Outstanding





Weighted Averageat March 31,


Weighted Average


RemainingExercise Price

2007


Exercise Price


Contractual Life$ 3.75- 4.57


26,500


$
4.19



4.74 years5.50- 6.25


41,000



5.96



5.088.06-13.90


76,500



12.48



6.0817.10-19.94


45,000



19.75



9.18$ 3.75-19.94


189,000


$
11.63



6.41        43




---



##### Table of Contents



Note 12 
    Shareholder
    Rights Plan:        Note 13 
    Other
    Income and Expense:         44




---



##### Table of Contents



2007


2006Balance at beginning of year

$
26


$
142Expense for restructuring






19Amounts paid for restructuring

$
(12
)


(135
)Balance at end of year

$
14


$
26         Note 14 
    Related
    Party Transactions:    Note 15 
    Segment
    Information:   45




---



##### Table of Contents



2007


2006


2005Heat transfer equipment

$
28,275


$
24,242


$
15,927Vacuum equipment


26,676



21,011



18,104All other


10,871



9,955



7,302Net sales

$
65,822


$
55,208


$
41,333     2007


2006


2005Net Sales:Africa

$
84


$
30


$
403Asia


11,157



8,854



6,154Australia & New Zealand


1,652



295



731Canada


2,764



5,201



3,756Mexico


583



2,578



1,007Middle East


15,253



7,893



1,783South America


583



1,965



1,874United States


33,006



27,881



24,995Western Europe


566



375



594Other


174



136



36Net sales

$
65,822


$
55,208


$
41,333       Note 16 
    Commitments
    and Contingencies:        Note 17 
    Sale of
    Treasury Stock:   46




---



##### Table of Contents



Note 18 
    Quarterly
    Financial Data (Unaudited):    First


Second


Third


Fourth


Total2007

Quarter


Quarter


Quarter


Quarter


YearNet sales

$
14,608


$
15,903


$
14,500


$
20,811


$
65,822Gross profit


4,118



3,224



3,390



6,087



16,819Provision (benefit) for income
    taxes


705



267



322



(536
)


758Net income


1,116



563



666



3,416
(1)


5,761Per share:Net income:Basic


.29



.14



.17



.87



1.48Diluted


.28



.14



.17



.86



1.46Market price range of common stock


17.51-23



16.10-19.35



12.55-17.75



12.67-17



12.55-23   First


Second


Third


Fourth


Total2006

Quarter


Quarter


Quarter


Quarter


YearNet sales

$
11,749


$
14,044


$
13,504


$
15,911


$
55,208Gross profit


3,338



4,629



3,595



4,397



15,959Provision for income taxes


377



728



301



761



2,167Net income


703



1,350



560



973



3,586Per share:Net income:Basic


.20



.38



.15



.25



.98Diluted


.20



.37



.15



.25



.96Market price range of common stock


13.75-8.28



20.71-12.63



24.85-13.20



26-17.60



26-8.28     (1)
    
    In the fourth quarter of fiscal 2007, the Company recognized a
    tax benefit of $1,607 for research and development tax credits
    related to qualifying expenditures for fiscal years 1999 to 2007. 47




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM            Employers Accounting for Defined Benefit
    Pension and Other Postretirement Plans
  
     48




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Conclusion
    regarding the effectiveness of disclosure controls and
    procedures
  Rules 13a-15(e) 15d-15(e)) Form 10-K.
  Changes
    in internal control over financial reporting
  Form 10-K
  Item 9A (T).
    Controls
    and Procedures    Item 9B.
    Other
    Information    PART III
  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Code of Ethics. Form 8-K
  Item 11.
    Executive
    Compensation   49




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Securities
    Authorized for Issuance under Equity Compensation Plans as of
    March 31, 2007
  Equity Compensation Plan InformationNumber of securitiesremaining availableNumber of securities





for future issuanceto be issued upon


Weighted average


under equityexercise of


exercise price of


compensation plansoutstanding options,


outstanding options,


(excluding securitiesPlan Category

warrants and rights


warrants and rights


reflected in column (a))(a)


(b)


(c)Equity compensation plans approved
    by security holders


189,000


$
11.63



298,300Equity compensation plans not
    approved by security holders










Total


189,000


$
11.63



298,300   Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services    Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K Form 10-K
    Form 10-K Form 10-K.
 50




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      Form 10-K.
  
     51




---



##### Table of Contents



GRAHAM
    CORPORATION AND SUBSIDIARIES
  SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
 (In
    Thousands)
  Balance at


Charged to


Charged to





Balance atBeginning


Costs and


Other





End ofDescription

of Period


Expenses


Accounts


Deductions


PeriodYear ended March 31, 2007Reserves deducted from the asset
    to which they apply:Reserve for doubtful accounts
    receivable

$
28


$
23


$



$
(3
)

$
48Reserves included in the balance
    sheet caption Accrued expensesProduct warranty liability


330



199







(172
)


357Restructuring reserve


26











12



14Year ended March 31, 2006Reserves deducted from the asset
    to which they apply:Reserve for doubtful accounts
    receivable

$
28


$
5


$



$
(5
)

$
28Reserves included in the balance
    sheet caption Accrued expensesProduct warranty liability


255



301







(226
)


330Restructuring reserve


142



19







(135
)


26Year ended March 31, 2005Reserves deducted from the asset
    to which they apply:Reserve for doubtful accounts
    receivable

$
75


$
16


$
(32
)(a)

$
(31
)

$
28Reserves included in the balance
    sheet caption Accrued expensesProduct warranty liability


242



124







(111
)


255Restructuring reserve


153



401







(412
)


142       (a)
    
    Represents a bad debt recovery and a reduction due to the
    liquidation of Graham Vacuum and Heat Transfer Limited. 52




---



##### Table of Contents



INDEX TO
    EXHIBITS
  (2)

Plan of acquisition,
    reorganization, arrangement, liquidation or successionNot applicable.(3)

Articles of Incorporation and
    By-Laws3
.1

Certificate of Incorporation, as
    amended, is incorporated herein by reference to Exhibit 4.1
    to the Companys Registration Statement on
    Form S-2
    (SEC File
    No. 333-128646)
    filed on September 28, 2005.3
.2

By-laws, as amended, are
    incorporated herein by reference to Exhibit 3(ii) to the
    Companys Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2004.(4)

Instruments defining the rights of
    security holders, including indentures4
.1

Stockholder Rights Plan is
    incorporated herein by reference to Exhibit 99.3 to the
    Companys
    Form 8-A
    (SEC File
    No. 000-18703)
    filed September 15, 2000.(9)

Voting trust agreementNot applicable.(10)

Material Contracts#10
.1

1995 Graham Corporation Incentive
    Plan to Increase Shareholder Value is incorporated herein by
    reference to Appendix A to the Companys Proxy
    Statement for its 1996 Annual Meeting of Stockholders.#10
.2

Employment Agreement between the
    Company and J. Ronald Hansen dated May 13, 1993 is
    incorporated herein by reference to Exhibit 10.4 to the
    Companys Annual Report on
    Form 10-K
    for the year ended March 31, 1998.#10
.3

Graham Corporation Senior
    Executive Severance Agreement between the Company and J. Ronald
    Hansen dated July 28, 1995 is incorporated herein by
    reference to Exhibit 10.5 to the Companys Annual
    Report on
    Form 10-K
    for the year ended March 31, 1998.#10
.4

Amendment No. 1, dated
    September 26, 1996, to Employment Agreement between the
    Company and J. Ronald Hansen, dated May 13, 1993, is
    incorporated herein by reference to Exhibit 10.4 to the
    Companys Annual Report on
    Form 10-K
    for the year ended March 31, 1998.#10
.5

Employment Agreement between the
    Company and Stephen P. Northrup dated as of September 26,
    1996 is incorporated herein by reference to Exhibit 10.4 to
    the Companys Annual Report on
    Form 10-K
    for the year ended March 31, 1998.#10
.6

2000 Graham Corporation Incentive
    Plan to Increase Shareholder Value is incorporated herein by
    reference to Appendix A to the Companys Proxy
    Statement for its 2001 Annual Meeting of Stockholders.#10
.7

Long-Term Stock Ownership Plan of
    Graham Corporation is incorporated herein by reference to
    Appendix A to the Companys Proxy Statement for its
    2000 Annual Meeting of Stockholders.#10
.8

Agreement and Release of Claims
    between Alvaro Cadena and the Company dated November 29,
    2004 is incorporated herein by reference to Exhibit 10.1 to
    the Companys Current Report on
    Form 8-K
    dated November 29, 2004.#10
.9

Form of Director Indemnification
    Agreement is incorporated herein by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q
    for the quarterly period ended December 31, 2004.#10
.10

Graham Corporation Outside
    Directors Long-Term Incentive Plan is incorporated herein
    by reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    dated March 3, 2005.10
.11

Amended and Restated Credit
    Facility Agreement between Graham Corporation and Bank of
    America, N.A. dated as of July 12, 2005 (includes form of
    Amended and Restated Revolving Line Note) is incorporated herein
    by reference to Exhibit 4.1 to the Companys Current
    Report on
    Form 8-K
    dated July 12, 2005.10
.12

First Amendment, dated as of
    February 24, 2006, to Credit Facility Agreement between
    Graham Corporation and Bank of America, N.A. dated as of
    July 12, 2005, is incorporated herein by reference to
    Exhibit 4.1 to the Companys Current Report on
    Form 8-K
    dated February 24, 2006.#10
.13

Graham Corporation Policy
    Statement for U.S. Foreign Service Employees is incorporated
    herein by reference to Exhibit 99.1 to the Companys
    Current Report on
    Form 8-K
    dated March 27, 2006.#10
.14

Graham Corporation Annual
    Stock-Based Incentive Award is incorporated herein by reference
    to Exhibit 99.2 to the Companys Current Report on
    Form 8-K
    dated March 27, 2006. 53




---



##### Table of Contents



#10
.15

Graham Corporation Annual
    Executive Cash Bonus Program is incorporated herein by reference
    to Exhibit 99.3 to the Companys Current Report on
    Form 8-K
    dated March 27, 2006.10
.16

Second Amendment, dated as of
    June 14, 2006, to Credit Facility Agreement between Graham
    Corporation and Bank of America, N.A., dated as of July 12,
    2005, is incorporated herein by reference to Exhibit 4.1 to
    the Companys Current Report on
    Form 8-K
    dated June 14, 2006.#10
.17

Employment Agreement between
    Graham Corporation and James R. Lines executed July 27,
    2006 with an effective date of August 1, 2006, is
    incorporated herein by reference to Exhibit 99.1 to the
    Companys Current Report on
    Form 8-K
    dated July 27, 2006.#10
.18

Amended and Restated 2000 Graham
    Corporation Incentive Plan to Increase Shareholder Value is
    incorporated herein by reference to Appendix A to the
    Companys Proxy Statement for its 2006 Annual Meeting of
    Stockholders.10
.19

Third Amendment, dated as of
    September 30, 2006, to Credit Facility Agreement between
    Graham Corporation and Bank of America, N.A., dated as of
    July 12, 2005, is incorporated herein by reference to
    Exhibit 4.1 to the Companys Current Report on
    Form 8-K
    dated September 20, 2006.10
.20

Continuing and Unconditional
    Guarantee, dated as of September 20, 2006, made by Graham
    Corporation in favor of Bank of America, N.A., is incorporated
    herein by reference to Exhibit 4.2 to the Companys
    Current Report on
    Form 8-K
    dated September 20, 2006.10
.21

Fourth Amendment, dated as of
    March 7, 2007, to Credit Facility Agreement between Graham
    Corporation and Bank of America, N.A., dated as of July 12,
    2005, is incorporated herein by reference to Exhibit 4.1 to
    the Companys Current Report on
    Form 8-K
    dated March 7, 2007.(11)

Statement re computation of per
    share earningsComputation of per share earnings
    is included in Note 1 of the Notes to Consolidated
    Financial Statements.(12)

Statement re computation of ratiosNot applicable.(13)

Annual report to security holders,
    Form 10-Q
    or quarterly report to security holdersNot applicable.(14)

Code of Ethics(16)

Letter re change in certifying
    accountantNot applicable.(18)

Letter re change in accounting
    principlesNot applicable.(21)

Subsidiaries of the registrant(22)

Published report regarding matters
    submitted to vote of security holdersNot applicable.(23)

Consents of Experts and Counsel*23
.1

Consent of Deloitte &
    Touche LLP(24)

Power of AttorneyNot applicable.(31)

Rule 13a-14(a)/15d-14(a)
    Certifications*31
.1

Certification of Principal
    Executive Officer*31
.2

Certification of Principal
    Financial Officer(32)

Section 1350 Certifications*32
.1

Section 1350 Certifications(99)

Additional ExhibitsNot applicable     *
    
    Exhibits filed with this report.#
    
    Management contract or compensatory plan. 54




---



##### Table of Contents



SIGNATURES
      Date:  June 5, 2007

By: /s/  J.
    Ronald
    HansenJ.
    Ronald HansenVice President  Finance &
    Administration
    and Chief Financial Officer     Signature/s/  James
    R. LinesJames
    R. Lines

President and Chief Operating
    Officer; Director (Principal Executive Officer)

June 5, 2007/s/  J.
    Ronald
    HansenJ.
    Ronald Hansen

Vice President 
    Finance &
    Administration and Chief Financial
    Officer (Principal Financial Officer
    and Principal Accounting Officer)

June 5, 2007/s/  Cornelius
    S. Van ReesCornelius
    S. Van Rees

Director

June 5, 2007/s/  Jerald
    D. BidlackJerald
    D. Bidlack

Director; Chairman of the Board

June 5, 2007/s/  Helen
    H. BerkeleyHelen
    H. Berkeley

Director

June 5, 2007/s/  H.
    Russel
    LemckeH.
    Russel Lemcke

Director

June 5, 2007/s/  William
    C.
    DenningerWilliam
    C. Denninger

Director

June 5, 2007/s/  James
    J. MalvasoJames
    J. Malvaso

Director

June 5, 2007  55




---



##### Table of Contents



SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
      EXHIBITS
  filed with
  FORM 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
  of
  THE SECURITIES EXCHANGE ACT OF
    1934
  FOR THE YEAR ENDED
  March 31, 2007
      GRAHAM CORPORATION