**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

**FORM 10-KSB**

**x**                              ANNUALREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**Forthe fiscal year ended March 31, 2007**

**o**                                 TRANSITIONREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**Forthe transition period from                      to                      **

**CommissionFile Number 0-27250**

**AML COMMUNICATIONS, INC.**

(Exact name of Registrantas specified in its charter)

| **DELAWARE**                                                     |   | **77-0130894**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
| **1000 AVENIDA ACASO, CAMARILLO,  CALIFORNIA**                   |   | **93012**                             |
| (Address of  principal executive offices)                        |   | (Zip Code)                            |

 

**(805) 388-1345**

(Issuer’s telephone number,including area code)

Securities registered pursuant toSection 12(b) of the Act:

| Title of each class |   | Name of each  exchange on which registered |
|---------------------|--------|--------------------------------------------|
| **None**            |   | **None**                                   |

 

Securities registered pursuant toSection 12(g) of the Act:

Title of Class

**CommonStock, $.01 par value**

Check whether the issuer (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period thatthe Registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes x  No o

Check if there is nodisclosure of delinquent filers in response to Item 405 of Regulation S-Bcontained in this form, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB. o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o  No x

Issuer’s revenues for itsmost recent fiscal year: $8,854,000

The aggregate market valueof the voting and non-voting common equity held by non-affiliates of theRegistrant on June 15, 2007 was approximately $10,791,320. The per sharestock price for computational purposes was $1.38, based on the closing saleprice per share for the Registrant’s common stock on the OTC Bulletin Board on June 15,2007. This value is not intended to be a representation as to the value orworth of the Registrant’s common stock. The number of non-affiliates of theRegistrant has been calculated by subtracting the number of shares held bypersons affiliated with the Registrant from the number of outstanding shares.

The number of shares ofthe Registrant’s common stock outstanding on June 15, 2007 was 10,256,666.

DOCUMENTS INCORPORATED BYREFERENCE: Portions of the Registrant’s definitive Proxy Statement for theAnnual Meeting of Stockholders to be held on September 13, 2007, areincorporated by reference into Part III of this Form 10-KSB. TheProxy Statement will be filed within 120 days after the end of the fiscalyear covered by this report.

TransitionalBusiness Disclosure Format (Check One). Yes o  No x

 

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**AMLCommunications, Inc.**

**Indexto Form 10KSB**
|                   | ** ** | ** **                                                                            | ** ** | **Page**   |
|-------------------|------------|---------------------------------------------------------------------------------------|------------|------------|
| **Part I**   |       |                                                                                  | ** ** | ** ** |
| Item 1.           |       | Description of Business                                                               |       | 2          |
| Item 2.           |       | Description of Property                                                               |       | 9          |
| Item  3.          |       | Legal  Proceedings                                                                    |       | 9          |
| Item 4.           |       | Submission of Matters to a Vote of Security Holders                                   |       | 9          |
| **Part II**  |       |                                                                                  |       |       |
| Item 5.           |       | Market for Common Equity and Related Stockholder  Matters                             |       | 10         |
| Item 6.           |       | Management’s Discussion and Analysis or Plan of  Operations                      |       | 11         |
| Item  7.          |       | Financial  Statements                                                                 |       | 23         |
| Item 8.           |       | Changes In and Disagreements With Accountants on  Accounting and Financial Disclosure |       | 47         |
| Item 8A.          |       | Controls and Procedures                                                               |       | 47         |
| Item  8B          |       | Other  Information                                                                    |       | 47         |
| **Part III** |       |                                                                                  |       |       |
| Item 9.           |       | Directors, Executive Officers of Registrant                                           |       | 48         |
| Item 10.          |       | Executive Compensation                                                                |       | 48         |
| Item 11.          |       | Security Ownership of Certain Beneficial Owners and  Management                       |       | 48         |
| Item 12.          |       | Certain Relationships and Related Transactions                                        |       | 48         |
| Item 13.          |       | Exhibits and Reports  on Form 8-K                                                     |       | 48         |
| Item 14.          |       | Principal Accountant Fees and Services                                                |       | 50         |
| **SIGNATURES**    |       | 51                                                                                    |

 

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**Introductory Notes—ForwardLooking Statements and Certain Terminology**

Some of thestatements made by us in this Annual Report on Form 10-KSB areforward-looking in nature, including but not limited to, statementsrelating to our future revenue, product development, demand, acceptance andmarket share, gross margins, levels of research and development, our management’splans and objectives for our current and future operations, and otherstatements that are not historical facts. Forward-looking statements include,but are not limited to, statements that are not historical facts, andstatements including forms of the words “intend”, “believe”, “will”, “may”, “could”,“expect”, “anticipate”, “plan”, “possible”, and similar terms. Actual resultscould differ materially from the results implied by the forward lookingstatements due to a variety of factors, many of which are discussed throughoutthis Annual Report and particularly in the sections titled “Additional FactorsThat May Affect Future Results” and “Factors Affecting Business, OperatingResults and Financial Condition”, both of which are included in the sectiontitled “Management’s Discussion and Analysis of Plan of Operation”. Readers arecautioned not to place undue reliance on these forward-looking statements,which speak only as of the date hereof. We undertake no obligation to publiclyrelease any revisions to these forward-looking statements that mayreflect events or circumstances after the date hereof or to reflect theoccurrence of unanticipated events. Factors that could cause actual results todiffer materially from those expressed in any forward-looking statement made byus include, but are not limited to:

·       ourability to finance our activities and maintain our financial liquidity;

·       ourability to attract and retain qualified, knowledgeable employees;

·       theimpact of general economic conditions on our business;

·       postponements,reductions, or cancellations in orders from new or existing customers;

·       thelimited number of potential customers for our products;

·       thevariability in gross margins on our products;

·       ourability to design and market new products successfully;

·       ourfailure to acquire new customers in the future;

·       deteriorationof business and economic conditions in our markets;

·       intenselycompetitive industry conditions with increasing price competition; and

·       therate of growth in the defense markets.

In this document, the words “we,” “our,” “ours,” “Company,”and “us” refer to AML Communications, Inc. and our division, Microwave Power, Inc.

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**PART I**

**ITEM 1.**                DESCRIPTIONOF BUSINESS

**Introduction**

We currently design, manufacture, and market radiofrequency (RF) and microwave, low noise, medium and high power amplifiers andsubsystems serving primarily the defense microwave market. Our business is comprisedof two reportable segments consisting of amplifiers and related products thatare designed, manufactured, and marketed by AML Communications, Inc. forthe defense microwave market (AML) and high power microwave amplifiers that aredesigned, manufactured, and marketed by our division Microwave Power, Inc.(MPI) for the defense market. Our defense industry products are used primarilyin electronic systems for tactical aircraft, ships, ground systems, and missilesystems. These products are sold directly by us as well as through independentsales representatives. We had two separate reportable segments (AML) and (MPI)in the fiscal year ended March 31, 2006 and the same two reportablesegments in the fiscal year ended March 31, 2007.

We were incorporated inCalifornia in 1986 as Advanced Milliwave Laboratories, Incorporated. Earlyin 1994, we changed our name to AML Communications, Inc. In December 1995,in conjunction with the initial public offering of our common stock, we changedour state of incorporation from California to Delaware. In May 1996, wemoved our principal office and manufacturing facility to our current location,1000 Avenida Acaso, Camarillo, California, 93012.

**Background**

We were founded to develop and manufacture hybridmicrocircuit microwave and RF amplifiers to support the communications market. In1994, we became active in the Wireless market and developed a multicarrierlinear power amplifier supporting this market in the 300-450 MHz range.In late 1994, we developed a multicarrier linear RF power amplifierspecifically for boosting signal strengths in the cellular communicationsmarket and marketed this multicarrier product directly to the domestic cellularservice providers. During 1995 and 1996, we developed derivative multicarriercellular products at alternative power levels to support differing needs in theservice provider market.

In the fourth quarter of fiscal 1997, we experienced asignificant decrease in our revenue, attributable to several factors. Originalequipment manufacturers (OEMs) offered significantly reduced prices on theirimproved base station products, and the service providers began to outsourcethe infrastructure build out and maintenance to their OEM equipment providerswho used their own equipment in the cell site. Also, the mobile communicationsindustry focused substantial financial and human resources on the build out ofthe nascent PCS services, and competitors began to offer similar or improvedproducts within the domestic U.S. market.

As a result, we decided to change our market focus andconcentrate on selling to the OEM customer base. Late in fiscal 1997, weentered the satellite communications gateway market by offering a high powerlinear amplifier for data transmission applications in a Low Earth Orbit (LEO)network. In fiscal 1998, we received significant revenue from an OEM in theSouth American market and introduced products for the PCS markets and thetwo-way messaging market. We also invested heavily in wireless products for theKorean and European OEMs.

During fiscal 1999, we developed a new generation ofour original cellular multicarrier products and continued to develop anddiversify our customer base. We experienced significant negative impacts to ourrevenue because of the delay and cancellation of programs.

In August 1999, we received our ISO 9001certification, a uniform worldwide quality management system standard andundertook the transition of our production technology from traditional batch 

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assembly to a flexible,self-balancing, one piece flow process. We believe this substantially increasedour capacity and production efficiency to support growth.

In January 2000, to expand our defense microwaveproduct line, we purchased a product line and certain assets of a companyserving the military small signal amplifier market. This purchase was intendedto bolster our defense microwave product line and position that segment of ourbusiness for future growth in the market.

Since March 2001, we have concentrated ourresearch and development on defense customers and have expanded our MicrowaveIntegrated Circuits (MIC) facilities.

We believe our future success depends upon our abilityto broaden our product offerings, continue to increase our defense microwavecustomer base, and capture volume product delivery opportunities with goodgross margins. While we continually attempt to expand our customer base, wecannot give any assurance that a major customer will not reduce, delay, oreliminate its purchases from us. Such a reduction would have a material adverseeffect on our business, results of operations, and financial condition. Additionally,our future depends on our ability to generate new products, mostly as part of astandard line of products (i.e. products we developed that are intended to besold to many customers).

We believe that in orderto maintain or improve our existing gross margins in the near term, we mustachieve manufacturing cost reductions, and in the long term develop newproducts that incorporate advanced features that generate higher gross margins.There is no assurance that we will be able to develop products that willgenerate higher gross margins, or that we will be able to reduce manufacturingcosts.

**Business Strategy**

The return of Jacob Inbar and the other co-founders inFebruary 2001 resulted in our re-direction toward the defense markets. Assuch, we moved rapidly to utilize our knowledge base in defense microwaverelated design and manufacturing to offer new products, as well as variationsof existing products. The results of this strategy have been an increase inrevenues for defense-related products from $3.7 million in fiscal 2003 to$6.3 million in fiscal 2004, and an increase to $7.9 million in fiscal2005, to $9.1 million in fiscal 2006 and now to $8.6 million in fiscal 2007.

Utilizing our extensive knowledge in MicrowaveIntegrated Circuits (MIC) design capabilities, we have expanded the products weoffer as part of our full line catalog. Such products are designed for andmarketed to the Defense Microwave market. We also utilize our MIC designcapabilities toward the design of subsystems, an area that we continue toinvest in for long term defense projects. Investments in new subsystem productsremain at the center of our strategy because they offer product differentiation,opportunities for sole source positions and higher added value.

The Company seeks and has been successful in securingcontracts with its major customers that span over a number of years. Theseprogram-based contracts remain the focus of our marketing strategy.

Utilizing MPI’s proprietary Microwave MonolithicCeramic Circuits (MMCC) technology, the Company intends to expand production ofsuch amplifiers and subsystems at the AML Camarillo facility. This technologyoffers cost savings, by reducing hand-mounted operations while increasingyields and reliability.

On May 25, 2004, we signed a definitive agreementfor the acquisition of Microwave Power, Inc. which was completed on June 18,2004. MPI was merged into our wholly owned subsidiary, with the subsidiary asthe surviving entity. The total consideration for the acquisition was$3,028,000. Pursuant to the acquisition agreement, 2,117,108 shares asconsideration for the acquisition and 21,174 shares to be issued to the brokerwere committed, or authorized for issuance by our board of directors, as of June 18,2004. MPI will continue to operate as our division from its facility in SantaClara. On February 3, 2006, the Company 

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purchased the buildingthat houses MPI, which is located at 3350 Scott Blvd. Bldg. 25 in Santa Clara,California, for a purchase price of $800,000. The building is being financed bythe Bank of America in the form of a promissory note in the amount of $640,000and the Company paying the loan in 83 regular payments of $4,425.88 each andone irregular last payment of $556,594.48. The Company’s final payment is dueon February 10, 2013 and will be for all principle and interest not yetpaid. Payments include principle and interest.

The MPI acquisitionwas driven by a number of key factors, including:

1)              Technologically, MPI’ssemi-monolithic, gold filled via’s, air bridge and microwave-monolithic-ceramic(MMCC) technology provide access to processes that we believe are complimentaryand additive to those available to AML prior to the acquisition.

2)              MPI’s product baseaddresses higher power and higher frequency sectors of the microwave market. Thisacquisition was intended to strengthen our product offerings to this market byadding higher power microwave amplifiers.

On April 11, 2007,the Company completed the acquisition of a controlling position in Mica-Tech, Inc.,in a cash-for-stock transaction. Under the terms of the agreement, AMLpurchased 51% or 4,146,400 shares of Mica-Tech’s outstanding common stock foran aggregate price of $800,000. Mica-Tech, Inc., designs,manufactures, and markets an intelligent satellite communication system toprovide Supervisory Control And Data Acquisition (SCADA) of the electric powergrid. The satellite system is marketed to power utility companies and enablesremote control of substations for reducing black-outs and enhancing power/loadregulation during peak demand hours. The Federal Energy Regulatory Commission(FERC) has mandated the power utility companies to electronically controlsubstations for purposes of monitoring power quality and increase power gridreliability. Mica-Tech’s satellite system provides an immediate and low costsolution for substation control. Mica-Tech has successfully deployed itsproducts with a major Southern California utility company. Penetration into thecountrywide utility companies market is in the initial phase.

**Markets**

We sell our RF/Microwave amplifier products primarilyinto various segments of the defense microwave marketplace.  In fiscal 2007, the AML segment accounted for79.7% of the Company’s total revenues. We derived approximately 96.1% of the revenues from the defensemicrowave market, 3.5% from the PCS and two-way messaging market, and 0.4% fromcellular coverage enhancement products. In comparison, in fiscal 2006, we derived approximately 95.7% of ourrevenues from the defense microwave market, 2.7% from the PCS and two-waymessaging market, and 1.6% from cellular coverage enhancement products.  The MPI segment accounted for 20.3% of theCompany’s total revenues from the defense microwave and other markets in fiscal2007 and 23.5% during 2006. 

*Defense MicrowaveAmplifiers.**  *Thesehybrid microwave circuits utilizing MIC technology are sold to defense OEMcustomers with broadband, microwave frequency, component requirements. Theseparts typically support applications including surveillance, signal detection,satellite communication, radar, and telemetry. They are used in both thetransmission and reception signal paths. The technology permits accurate,reproducible, volume products supporting broad bandwidths and higherfrequencies to be designed and manufactured. Moderate volume requirements andcustom design requirements characterize this market.

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**Products**

**AML Communications, Inc.Segment**

During the year, we designed and/or manufactured lownoise, power amplifiers and subsystems that were sold primarily into thedefense microwave markets. During the first quarter of fiscal 2007, AMLdelivered the first product utilizing the MMCC technology processed by MPI. Itis expected that increasingly new AML product development would use MMCC as animplementation technology due to its cost savings advantages.

*DefenseMicrowave.**  *Weproduce standard catalog and custom hybrid microwave amplifiers and subsystems.We also produce derivative products that are based upon minor modifications ofcatalog items. The frequencies for these products range from 50kHz to 26GHz. Powerlevels range from less than one milliwatt to several hundred watts. Integrationof a number of amplifiers and other microwave components built by AML addressthe subsystem markets.

Our power amplifiers rangein price from $500 up to $10,000 per amplifier, depending upon technology,complexity, quantity, and implementation.

**Microwave Power, Inc.Segment**

*DefenseMicrowave and Test Instrumentation.  *MPImanufactures solid state microwave amplifiers operating in the frequency rangefrom to 1 to 40 GHz with output power from 100 mW to 500 W. MPI proprietarytechnology Microwave Monolithic Ceramic Circuits (MMCC) is especially designedfor broadband and high power. Some typical applications includetelecommunications, radar, simulators, transmitters and test instrumentation. Mostof the units are available either rack mounted or as connectorized modules.

The MPI transmit poweramplifiers range in price from $2,000 to over $45,000 per amplifier, dependingupon the technology, complexity, quantity, and implementation.

**Customers**

AML sells products to defense OEM manufacturersworldwide, including Raytheon, BAE, Northrop Grumman, Rockwell,Thales-Raytheon, and L3-Communications. Additionally we export ourproducts to major OEM’S in the France, Germany, Israel, Spain, Turkey,Singapore, Italy, and UK. The Company seeks and was successful in securingcontracts with its major customers that span over a number of years. Theseprogram-based contracts remain the focus of our marketing strategy.

MPI sells products to system integrators primarily inthe defense sector and particularly to specialized test equipment manufacturers.The list of customers includes Boeing, Raytheon, Northrop Grumman, and SyracuseResearch Corporation. In addition, MPI exports products to the customers inFrance, Germany, and Japan.

For the fiscal year ended March 31, 2007, ourlargest customer was Raytheon; which accounted for approximately 12.6% of netsales. Northrop Grumman was our second largest customer accounting forapproximately 8.7% of net sales. For the fiscal year ended March 31, 2006,our largest customer was Raytheon, which accounted for approximately 12.3% ofnet sales. L3 Communications was our second largest customer accountingfor approximately 6.6% of net sales. The loss of either of these customers, ora significant loss, reduction, or rescheduling of orders from any of ourcustomers could have a material adverse effect on our business, results ofoperations and financial condition.

We rely heavily onacquiring new customers. The acquisition rate for new defense microwavecustomers during fiscal 2007 was approximately 11 new customers per quarter forthe AML segment and approximately 5 new customers per quarter for the MPIsegment, compared to approximately 11 new 

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customersper quarter for the AML segment and approximately 2 new customers per quarterfor the MPI segment for the fiscal year ended March 31, 2006.

**Marketing and Distribution;International Sales**

We sell our AML Communications, Inc. products andMicrowave Power, Inc. products through a combination of a technicallyproficient internal sales and marketing resources and a network of independentsales representatives selected for their familiarity with our potentialcustomers and their knowledge of the defense microwave markets. Both theinternal sales and marketing personnel and the independent salesrepresentatives generate product sales, provide product and customer service,and provide customer feedback for product development. In addition, theindependent sales representatives receive support from our internal sales andmarketing personnel, which currently consists of four people.

Our marketing efforts are focused on establishing anddeveloping long-term relationships with potential customers. Sales cycles forcertain of our products are lengthy, typically ranging from six months to twoyears. Our customers typically conduct significant technical evaluations of ourproducts before making purchase commitments. In addition, as is customary inthe industry, sales are made through standard purchase orders, which can besubject to cancellation, postponement, or other types of delays. While certaincustomers provide us with forecasted needs, they are not bound by suchforecasts.

During the fiscal year ended March 31, 2007,international sales were $2.4 million or 27.3% of net sales as compared tointernational sales of $1.7 million or 17.9% of net sales for the fiscal yearended March 31, 2006. During the fiscal year, we exported our products tomajor OEM’s in the France, Germany, Israel, Spain, Turkey, Singapore, Italy,UK, and Japan.

Thefollowing table summarizes the international sales by segment for the fiscalyear ended March 31, 2007:

| ** **           | ** ** | **AML**                              | ** ** | ** ** | ** ** | **MPI** | ** ** | ** ** | ** ** | **Total** | ** ** | ** ** | ** ** |
|----------------------|------------|--------------------------------------|------------|------------|------------|---------|------------|------------|------------|-----------|------------|------------|------------|
| ** **           | ** ** | **(Dollars in thousands)** | ** ** |
| International  Sales |       | $                                    | 1,570      |       | 17.7       | %       | $          | 845        |       | 9.6       | %          | $          | 2,415      |   | 27.3 | % |
| Domestic sales       |       | 5,490                                |       | 62.0       |       | 949     |       | 10.7       |       | 6,439     |       | 72.7       |       |
| Total Sales          |       | $                                    | 7,060      |       | 79.7       | %       | $          | 1,794      |       | 20.3      | %          | $          | 8,854      |   | 100.0 | % |

 

**Warranty**

Our warranty varies byproduct type and typically covers defects in material and workmanship for one yearfrom the date of delivery. We perform warranty obligations and othermaintenance services at our facility in Southern California and our facility inNorthern California.

**Product Development**

We invest significant resources in the research anddevelopment of new methods to improve amplifier performance, including reducednoise and increased efficiency in the RF amplification process as well as seekingto reduce the cost and increase the manufacturing efficiency of our new andexisting products.

The acquisition of MPI has addedto our existing technology, with their semi-monolithic, gold filledvia’s, dielectric bridge and microwave-monolithic-ceramic (MMCC) technologyprocesses.

Our combined research anddevelopment staff consisted of 18 people as of March 31, 2007.Expenditures for research and development amounted to approximately $1,405,000in fiscal 2007 and $1,233,000 in fiscal 2006.

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**Competition**

The defense microwave industry is highly competitive.Our main competitors include Teledyne Defense, Miteq, CTT, and Endwave DefenseSystems. Although most of the competitors have significantly more resourcesthan we have, we believe that our technical abilities in implementing MICamplifiers do not differ to any great degree. We utilize our technologicalknowledge as well as price to compete effectively. We intend to apply theknow-how and technology of MPI towards gaining a technological advantage overour competitors.

We have experiencedsignificant price competition and expect price competition in the sale ofRF/Microwave amplifiers to increase. No assurance can be given that ourcompetitors will not develop new technologies or enhancements to existingproducts or introduce new products that will offer superior price orperformance features. We expect our competitors will offer new and existingproducts at prices necessary to gain or retain market share. Some of ourcompetitors have substantial financial resources, which may enable them tobetter withstand sustained price competition or a market downturn. There can beno assurance that we will be able to compete successfully in the pricing of ourproducts, or otherwise.

**Manufacturing andSuppliers**

Our headquarters and our AML manufacturing facilityare located in Camarillo, California. Our manufacturing process involves theassembly of numerous individual components and precise fine-tuning byproduction technicians. The parts and materials we use consist primarily ofspecialized printed circuit boards, specialized subassemblies, fabricatedhousings, and small electric circuit components, such as integrated circuits,semiconductors, resistors and capacitors.

ISO 9001 is****a uniformworldwide quality management system standard. Numerous customers and potentialcustomers throughout the world, particularly in Europe, require their suppliersbe ISO certified. In addition, many customers require their suppliers topurchase components only from subcontractors that are ISO certified. We arecurrently certified to the ISO 9001 standard.

MPI’s manufacturing facility is located in SantaClara, California. Depending on the specific requirements, we use a combinationof three basic technologies: Integration of internally matched GaAs FETs usingMICs (Microwave Integrated Circuits), Integration of GaAs Monolithics (MMIC’s)using various techniques, including Multi-Chip Modules, and our own proprietaryMMIC (Microwave Monolithic Integrated Circuits) technology. We manufacture inhouse all the ceramic integrated circuits, both MIC’s and MMIC’s.

We currently procure, andexpect to continue to procure, certain components from single sourcemanufacturers due to unique component designs as well as certain quality andperformance requirements. In addition, in order to take advantage of volumepricing discounts, we purchase certain customized components from singlesources. These single source suppliers consist of Spectrum Control for theirfilters, Mimix for MMIC parts, Johanson Technologies for their ceramiccapacitors, Sandvik Osprey LTD for their osprey materials, and NEC and Fujitsufor their semiconductors. Although we did not experience shortages duringfiscal year 2007, we have experienced this in the past, and may again in thefuture, experience shortages of single-source components. In such event,we may have to make adjustments to both product designs and productionschedules, which could result in delays in production and delivery of products.Such delays could have an adverse effect on our operating results and financialcondition.

**IntellectualProperty**

We rely on trade secrets and execute confidentialityand non-disclosure agreements with our employees and limit access to anddistribution of our proprietary information. These efforts allow us to relyupon the knowledge and experience of our management and technical personnel andour ability to 

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market our existingproducts and to develop new products. The departure of any of our managementand technical personnel, the breach of their confidentiality and non-disclosureobligations with us, or the failure to achieve our intellectual propertyobjectives may have a material adverse effect on our business, financialcondition and results of operations.

The proprietary technologies of our MPI segment areprimarily protected through patent and trade secret protection. As of March 31,2007, we owned three U.S. issued patents and one foreign patent, and MPI had nopatent applications pending. The four patents expire at various dates from May 2007to September 2009. Additionally, MPI has two registered trademarks: theMPI Company logo, and the term “MMCC” (monolithic microwave ceramic circuits).

We believe our success depends upon the knowledge andexperience of our management and technical personnel and our ability to marketour existing products and to develop new products. We do not have non-competeagreements with our employees who are employed on an “at-will” basis. Therefore,employees may, and have, left us to go to work for a competitor. While webelieve that we have adequately protected our proprietary technology, and wewill take all appropriate and reasonable legal measures to protect it, the useof our processes by a competitor could have a material adverse effect on ourbusiness, financial condition and results of operations.

Our ability to compete successfully and achieve futurerevenue growth will depend, in part, on our ability to protect our proprietarytechnology and operate without infringing upon the rights of others. We may notbe able to successfully protect our intellectual property and our intellectualproperty or proprietary technology may otherwise become known or beindependently developed by competitors. In addition, the laws of certaincountries in which our products have been or may be sold may not protect ourproducts and intellectual property rights to the same extent as the laws of theUnited States.

The inability to protectour intellectual property and proprietary technology could have a material adverseeffect on our business, financial condition and results of operations. As thenumber of patents, copyrights and other intellectual property rights in ourindustry increases, and as the coverage of these rights and the functionalityof the products in the market further overlap, we believe that companies in ourindustry may face more frequent infringement claims. We may in the future benotified that we are infringing upon certain patent or other intellectualproperty rights of others. Although we are not aware of any pending orthreatened intellectual property lawsuits against us, we cannot guarantee thatsuch litigation or infringement claims will not occur in the future. Suchlitigation or claims could result in substantial costs and diversion of resourcesand could have a material adverse effect on our business, results of operationsand financial condition. A third party claiming infringement may also be ableto obtain an injunction or other equitable relief, which could effectivelyblock our ability or our customer’s ability to distribute, sell, or importallegedly infringing products. If it appears necessary or desirable, we mayseek licenses from third parties covering intellectual property that we areallegedly infringing. No assurance can be given, however, that any suchlicenses could be obtained on terms acceptable to us, if at all. The failure toobtain the necessary licenses or other rights could have a material adverseeffect on our business, financial condition and results of operations.

**Employees**

As of March 31, 2007,we had 80 full-time employees, including 18 in research and development; 49 inmanufacturing, production engineering, and quality assurance; 7 inadministration; and 6 in sales, marketing, order entry, and customer support. Webelieve the success of our business depends, in part, on our ability to attractand retain qualified personnel, particularly qualified scientific, technicaland key management personnel. Our employees are not governed by collectivebargaining agreements. We believe our relationships with our employees aregood.

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**EnvironmentalRegulations**

We are subject to federal,state and local governmental regulations relating to the storage, discharge,handling, emission, generation, manufacture, and disposal of toxic or otherhazardous substances used to manufacture our products. We believe we arecurrently in compliance in all material respects with such regulations. Failureto comply with current or future regulations could result in the imposition ofsubstantial fines on us, suspension of production, alteration of ourmanufacturing processes, cessation of our operations, or other actions whichcould materially and adversely affect our business, financial condition, andresults of operations.

**ITEM 2.**                DESCRIPTIONOF PROPERTY

Our AML administrative,engineering, and manufacturing facility is located in a 25,017 square footleased building in Camarillo, California. The lease for this space expires in April 2008and we intend to enter into a new lease at that time. Our MPI division operatesin a 3,868 square foot industrial/office condominium located at 3350 ScottBoulevard in Santa Clara, California. The building was purchased on February 3,2006. We believe that our current facilities are in reasonable condition andprovide adequate expansion capabilities.

**ITEM 3.**                LEGALPROCEEDINGS

We may be subject to, fromtime to time, various legal proceedings relating to claims arising out of ouroperations in the ordinary course of our business. We are not currently a partyto any legal proceedings, the adverse outcome of which, individually or in theaggregate, would have a material adverse effect on the business, financialcondition, or results of operations of the Company.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

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**PART II**

**ITEM 5.**                MARKETFOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

***Market Information***

Ourcommon stock currently trades on NASDAQ’s OTC Bulletin Board under the symbol “AMLJ.OB”.Our common stock traded on the Nasdaq Small Cap Market from October 8, 2001to August 13, 2002 and on the Nasdaq National Market prior to that time. Thetable below sets forth for the periods indicated the high and low bid pricesfor the Company’s common stock for the periods it traded on the OTC BulletinBoard. The bid prices represent inter-dealer quotations, without adjustmentsfor retail mark-ups, markdowns or commissions and may not necessarily representactual transactions. The source of the information for the high and low bidprices is the OTC Bulletin Board.

| ** **                             | ** ** | **Price Range of  Common Stock** | ** ** |
|----------------------------------------|------------|-------------------------------------------------|------------|
| ** **                             | ** ** | **High**                                        | ** ** | **Low** | ** ** |
| Fiscal year ended  March 31, 2006 |       |                                            |       |   |   |
| First quarter                          |       | $                                               | 1.44       |   | $ | 0.86 |   |
| Second quarter                         |       | $                                               | 1.45       |   | $ | 1.05 |   |
| Third quarter                          |       | $                                               | 1.40       |   | $ | 1.06 |   |
| Fourth quarter                         |       | $                                               | 1.36       |   | $ | 1.14 |   |
| Fiscal year ended  March 31, 2007 |       |                                            |       |   |   |
| First quarter                          |       | $                                               | 1.27       |   | $ | 0.90 |   |
| Second quarter                         |       | $                                               | 1.01       |   | $ | 0.75 |   |
| Third quarter                          |       | $                                               | 0.90       |   | $ | 0.68 |   |
| Fourth quarter                         |       | $                                               | 1.50       |   | $ | 0.82 |   |

 

At June 15, 2007,there were approximately 87 holders of record of our common stock. This numberdoes not include the number of persons whose stock is in nominee or in “streetname” accounts through brokers.

***Dividends***

We have not paid cashdividends and do not anticipate paying cash dividends in the foreseeable future.We expect to utilize future earnings to finance future growth. The actualamount of any dividends paid would be subject to the discretion of our Board ofDirectors and would depend on operations, financial and business requirements,compliance with bank covenants, and other factors.

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***Equity Compensation Plans***

Thefollowing table gives information about our common stock that may be issuedunder our existing equity compensation plans as of March 31, 2007:

| ** **                                                      | ** ** | **Equity Compensation Plan Information** | ** ** |
|-----------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| **Plan Category**                                          | ** ** | ** **                                              | ** ** | **Number of Securities to  be Issued Upon Exercise  of Outstanding Options  and Rights (a)** | ** ** | **Weighted Average  Exercise Price of  Outstanding Options  and Rights (b)** | ** ** | **Number of Securities Remaining  Available for Future Issuance  Under Equity Compensation Plans  (Excluding Securities Reflected in  Column (a))(c)** | ** ** |
| 1995 Equity compensation  plans approved by security holders    |       |                                                    | None       |   |   |   | None |   |   |   | None |   |   |
| 2005 Equity  compensation plans approved by security holders(1) |       |                                                    | 2,232,750  |   |   |   | $ | 0.97 |   |   |   | 310,574 |   |   |
| Total                                                           |       |                                                    | 2,232,750  |   |   |   | $ | 0.97 |   |   |   | 310,574 |   |   |
|                                                                 |            |                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          In November 2005,we established the 2005 Equity Incentive Plan (“2005 Plan”) with 150,000 sharesinitially approved and subject to the 2005 Plan. Incentive stock option awardsmay be granted under the 2005 Plan only to employees (including officers anddirectors who are also employees) of the Company or of a Parent or subsidiaryof the Company. All other awards (including nonqualified stock options,restricted stock or stock awards) under the 2005 Plan may be granted toemployees, officers, directors, consultants, independent contractors andadvisors of the Company or any Parent or Subsidiary of the Company, providedsuch consultants, contractors and advisors render bona fide services not inconnection with the offer and sale of securities in a capital-raisingtransaction. The Board of Directors has full authority to administer the 2005Plan, including but not limited to, the authority to designate eligiblepersons, grant awards, interpret the 2005 Plan, prescribe, rescind or amend therules and regulations of the 2005 Plan, make all other determinationsnecessary or advisable for the administration of the 2005 Plan, and alsodelegate to one or more executive officers of the Company the authority togrant an Award under the 2005 Plan to plan participants who are not insiders ofthe Company. The number of shares initially approved for issuance under the2005 Plan was 150,000 shares of our common stock and number of shares reservedand available for grant and issuance shall be increased on the first day ofJanuary of each year so that the total of all Common Stock available for Awardsshall be the maximum amount allowable under Regulation 260.140.45 of Title 10of the California Code of Regulations. Unless earlier terminated as provided inthe plan, the 2005 Plan will terminate on October 31, 2015.

**ITEM 6.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

**Overview**

We design, manufacture, and market RF and microwave,low noise, medium and high power amplifiers and subsystems  serving primarily the defense microwave market.Our business is comprised of two reportable segments, AML, which represented79.7% of 2007 product revenue, and MPI, which represented 20.3% of 2007 productrevenue.

Our AML segment includes low noise, power amplifiers andsubsystems with frequencies that range from 50kHz to 26GHz. In February 2001,we made a strategic decision to focus our resources on the defense markets. Assuch, we moved rapidly to utilize our knowledge base in defense microwaverelated design and manufacturing to offer new products, as well as variationsof our existing products. The results 

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of this strategy have beenan increase in revenues for defense related products from $3.7 million infiscal 2003 to $6.3 million in fiscal 2004, and an increase to $6.6 million infiscal 2005, to $6.9 million in fiscal 2006 and $6.8 million in fiscal 2007.

We consider the AML segment to be our core businesssince it has a larger revenue base and investments were made in this segmentthat address long term growth. We devote most of our management time and other resourcesto improving the prospects for this segment. Virtually all of our sales andmarketing expenses are in the AML segment. The majority of our research anddevelopment spending is dedicated to this segment, as well.

Our MPI segment includessolid state microwave amplifiers operating in the frequency range from to 1 to40 GHz with output power from 100 mW to 500 W. In June 2004, we acquiredMicrowave Power, Inc. and operate it as a division of AML. The MPIdivision operates independently, with its own marketing, production, andgeneral management team. During this year, we expanded MPI’s managerial andtechnical capabilities to address the potential for growth for the division aswell as the anticipated knowledge dissemination because of the expected retirementof key personnel.

**Results ofOperations**

The following tablesummarizes our results of operations both in dollars and as a percentage of netsales for the fiscal years ended March 31, 2007 and 2006.

**For the fiscal year ended March 31, 2007:**

| ** **                              | ** ** | **AML**                              | ** ** | ** ** | ** ** | **MPI** | ** ** | ** ** | ** ** | **Total** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|------------|------------|---------|------------|------------|------------|-----------|------------|------------|------------|
| ** **                              | ** ** | **(Dollars in thousands)** | ** ** |
| Revenues                                |       |                                 |       |       |       |    |       |       |       |      |       |       |       |
| Defense Microwave  and other            |       | $                                    | 6,785      |       | 76.6       | %       | $          | 1,794      |       | 20.3      | %          | $          | 8,579      |   | 96.9 | % |
| Cellular,  wireless telephony and other |       | 275                                  |       | 3.1        |       | —  |       | —     |       | 275       |       | 3.1        |       |
| Total net sales                         |       | 7,060                                |       | 79.7       | %          | 1,794   |       | 20.3       | %          | 8,854     |       | 100.0      | %          |
| Cost of goods  sold                     |       | 4,452                                |       | 50.3       |       | 719     |       | 8.1        |       | 5,171     |       | 58.4       |       |
| Gross profit                            |       | $                                    | 2,608      |       | 29.4       | %       | $          | 1,075      |       | 12.2      | %          | $          | 3,683      |   | 41.6 | % |
| Operating  expenses:                    |       |                                 |       |       |       |    |       |       |       |      |       |       |       |
| Selling, general and administrative     |       | 1,690                                |       | 19.1       |       | 666     |       | 7.5        |       | 2,356     |       | 26.6       |       |
| Research and development                |       | 1,244                                |       | 14.0       |       | 161     |       | 1.9        |       | 1,405     |       | 15.9       |       |
| Operating profit                        |       | (326                                 | )          | (3.7       | )          | 248     |       | 2.8        |       | (78       | )          | (.9        | )          |
| Other income  (expense), net            |       | (33                                  | )          | (.4        | )          | 8       |       | 0.1        |       | (25       | )          | (.3        | )          |
| Profit before income taxes              |       | (359                                 | )          | (4.1       | )          | 256     |       | 2.9        |       | (103      | )          | (1.2       | )          |
| Income tax  expense (credit)            |       | (1,662                               | )          | 18.8       |       | —  |       | 0.0        |       | (1,662    | )          | 18.8       |       |
| Net profit                              |       | $                                    | 1,303      |       | 14.7       | %       | $          | 256        |       | 2.9       | %          | $          | 1,559      |   | 17.6 | % |

 

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**For the fiscal year ended March 31, 2006:**

| ** **                              | ** ** | **AML**                              | ** ** | ** ** | ** ** | **MPI** | ** ** | ** ** | ** ** | **Total** | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|--------------------------------------|------------|------------|------------|---------|------------|------------|------------|-----------|------------|------------|------------|
| ** **                              | ** ** | **(Dollars in thousands)** | ** ** |
| Revenues                                |       |                                 |       |       |       |    |       |       |       |      |       |       |       |
| Defense Microwave and  other            |       | $                                    | 7,116      |       | 75.2       | %       | $          | 2,221      |       | 23.4      | %          | $          | 9,337      |   | 98.6 | % |
| Cellular, wireless  telephony and other |       | 129                                  |       | 1.4        |       | —  |       | —     |       | 129       |       | 1.4        |       |
| Total net sales                         |       | 7,245                                |       | 76.6       | %          | 2,221   |       | 23.4       | %          | 9,466     |       | 100.0      | %          |
| Cost of goods sold                      |       | 4,610                                |       | 48.8       |       | 744     |       | 7.8        |       | 5,354     |       | 56.6       |       |
| Gross profit                            |       | $                                    | 2,635      |       | 27.8       | %       | $          | 1,477      |       | 15.6      | %          | $          | 4,112      |   | 43.4 | % |
| Operating expenses:                     |       |                                 |       |       |       |    |       |       |       |      |       |       |       |
| Selling, general and  administrative    |       | 1,620                                |       | 17.1       |       | 641     |       | 6.8        |       | 2,261     |       | 23.9       |       |
| Research and development                |       | 1,106                                |       | 11.7       |       | 127     |       | 1.3        |       | 1,233     |       | 13.0       |       |
| Operating profit                        |       | (91                                  | )          | (.9        | )          | 709     |       | 7.6        |       | 618       |       | 6.5        |       |
| Other income (expense),  net            |       | (8                                   | )          | 0.0        |       | 5       |       | 0.0        |       | (3        | )          | 0.0        |       |
| Profit before income  taxes             |       | (99                                  | )          | (.9        | )          | 714     |       | 7.6        |       | 615       |       | 6.5        |       |
| Income tax expense  (credit)            |       | (1,630                               | )          | 17.2       |       | —  |       | 0.0        |       | (1,630    | )          | 17.2       |       |
| Net profit                              |       | $                                    | 1,531      |       | 16.1       | %       | $          | 714        |       | 7.6       | %          | $          | 2,245      |   | 23.7 | % |

 

**Fiscal Years Ended March 31, 2007 and 2006**

*Net sales.**  *Net sales for fiscal 2007 were $8.9 million, comparedto $9.5 million in fiscal 2006. AML’s revenues decreased by $185,000 dueto a higher ratio of developmental programs versus production items. Revenuesfrom our MPI division decreased by $427,000 compared to the same period lastyear due to reduced incidental orders. Sales to two customers, Raytheon andNorthrop Grumman, represented 12.6% and 8.7% of net sales in 2007,respectively, as compared to sales to two customers, Raytheon and L 3Communications, who represented 12.3% and 6.6% of net sales in 2006,respectively.

Sales for the last quarterof fiscal 2007 were $2.2 million. This was below our forecast, and was a resultof our heavy new product development, which caused inefficiencies and delays indelivery. The Company, however, views projects that it considers “long term yetdemand heavy” initial development projects as investments that will benefitshareholders in the future.

Domestic and internationalnet sales were approximately 72.7% and 27.3% of our net sales, respectively,for the year ended March 31, 2007. For the year ended March 31, 2006,domestic and international net sales were approximately 82.1% and 17.9% of ournet sales, respectively. Net sales are attributed to geographic areas based onthe location of the customer to which our products are shipped. Internationalnet sales primarily consist of sales to customers in France, Germany, andIsrael. However, certain OEM customers take possession of our productsdomestically and then distribute these products to their internationalcustomers. Because we account for all of those net sales as domestic revenues,we cannot be certain of the extent to which our domestic and international netsales is impacted by the practices of our customers.

*Gross profit.**  *Gross profit for fiscal 2007 was $3.7 million, or41.6% of net sales, compared to a gross profit in fiscal 2006, of $4.1 million,or 43.4% of net sales. The decrease in margin was due to the lower volume ofsales while spending on manufacturing overhead costs remained consistent. This,however, is not considered a trend.

*Selling, general, andadministrative costs.**  *Selling,general and administrative costs for fiscal 2007 were $2.4 million, or 26.6% ofnet sales, compared to $2.3 million, or 23.9% of net sales, for fiscal 2006. Administrativeexpenses were increased by $117,000 due to employee stock-based compensationexpense. MPI’s selling expenses were higher due to additional recruitment andcommission expenses in the amounts of $54,000 and $16,000, respectively.

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*Researchand development costs.**  *Researchand development costs for fiscal 2007 were $1.4 million, or 15.9% of net sales,compared to $1.2 million, or 13.0% of net sales, for the corresponding periodin fiscal 2006. The increase is attributable to $150,000 in costs relating tonew hires for developmental programs, and general pay increases. An additional$20,000 increase was due to R&D consulting services and $13,000 fordepreciation expenses.

*Otherexpense, net.**  *Otherexpense for fiscal 2007 was $25,000, as compared to $3,000 for fiscal 2006. Theincrease is attributable to interest expenses on the note payable connected toMPI’s building purchase and the outstanding line of credit with Bridge Bank.

In 2008, we expect total operating expenses toincrease as we continue to invest in infrastructure and new productdevelopment. We expect operating expenses generally will increase more slowlythan increases in revenue.

*Provisionfor income taxes.**  *Werecorded tax credits of $1,662,000 in fiscal 2006 and identified tax credits onthe balance sheet as a Deferred Tax Allowance. This represents both tax creditsand net operating losses carried forward. An additional tax allowance of$1,662,000 was recognized this year.

The Company’s management decided to recognize theadditional tax allowance of $1,662,000 this year based on the followingassumptions and circumstances:

During the last quarter offiscal 2007, the Company received $4.1 million of non-routine orders from ourexisting customer and three new customers. Of these orders, $2.6 million or 22%of the Company’s forecasted annual revenues for fiscal 2008 are planned to beshipped during fiscal 2008. The Company is expecting to realize $260,000 or 10%of pre-tax profit from these non-routine orders. To facilitate the Company’sproductivity and satisfy the customers’ expectations, the Company has heavilyinvested in capital equipment acquisitions. During the last quarter of fiscal2007, the Company acquired automatic test equipment and automatic assemblyequipment. The Company spent an additional $380,000 during the first twomonths of fiscal 2008 in acquiring capital equipment.

**Liquidity andCapital Resources**

Historically, we have financed our operationsprimarily from internally generated funds and, to a lesser extent, loans fromstockholders and capital lease obligations.

At March 31, 2007, we had a line of creditagreement with Bridge Bank. On July 17, 2006, we signed a BusinessFinancing Agreement with Bridge Bank to renew our line of credit, to $2.0million. Of this $2.0 million, $1.0 million may be used for cash advancesagainst accounts receivables and $1.0 million may be used for equipmentadvances. Our ability to borrow under this agreement varies based upon eligibleaccounts receivable and eligible equipment purchases. We are obligated to paythe bank a finance charge at a rate per year equal to the prime rate, which inno event shall be less than 5.50%, plus .25% with respect to cash advances anda rate of such prime rate plus 2.0% with respect to equipment advances. We areobligated to pay an annual facility fee of $5,000 (0.50% of the gross facilityamount). We must maintain certain financial requirements, including a QuickRatio of 1.50 to 1.0, and stay within 80% of planned quarterly revenue. We werein compliance with these requirements at March 31, 2007. However, there isno assurance that we will be in compliance at future dates. This agreementterminates on July 17, 2007 or upon a date that the bank chooses toterminate the agreement. Any unpaid balance is due and payable pursuant to theagreement on the termination date. If the agreement is terminated within thefirst 12 months following its execution on July 17, 2006, we will berequired to pay an early termination fee of 1.0% of the credit facility amountunder the terms of the agreement. At March 31, 2007, we had an outstandingbalance of $0 under the accounts receivable agreement and $470,000 under theequipment financing agreement and thus our remaining borrowing capacity isapproximately $1,000,000 and $530,000 available under these agreements,respectively.

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At March 31, 2007, we had $2,078,000 in cash andcash equivalents. Our operating activities provided cash of approximately $584,000in fiscal 2007, compared to providing cash of $1.3 million in 2006. Net cashused in investing activities amounted to $1.1 million in 2007, primarily due tocapital equipment expenditures, as compared to net cash used in investingactivities of $1.3 million in 2006, of which nearly $1.2 million was receivedfrom the MPI acquisition. Net cash provided by financing activities was$215,000 in 2007, due to proceeds from our line of credit, as compared to netcash provided by financing activities of $864,000 in 2006.

We anticipate capital expenditures of approximately$700,000 in fiscal 2008. We believe that funds will be provided by ouroperating activities. However, we may choose to finance some of theseexpenditures through our financing agreement with Bridge Bank. At March 31,2007, we had a line of credit agreement with Bridge Bank, of which $1,000,000may be used for equipment advances at a rate of such prime rate plus 2.0%. At March 31,2007, our remaining borrowing capacity under the financing agreement forequipment advances was $530,000.

In addition to the funds raised in July 2003, wemay attempt to procure additional sources of financing in the event that thecapital available as of March 31, 2007 is insufficient for our operatingneeds and capital expenditures. These sources may include, but are not limitedto, additional sales of our securities. There are, however, no assurances thatwe will be able to successfully obtain additional financing at terms acceptableto us. Failure to obtain such financing could have a material adverse effect onour ability to operate as a going concern.

Successful completion ofour development program and attaining profitable operations are dependent uponour maintaining a level of sales adequate to support our cost structure. Inaddition, realization of a major portion of the assets in the accompanyingbalance sheet is dependent upon our ability to meet our financing requirementsand the success of our plans to sell our products. The financial statements donot include any adjustments relating to the recoverability and classificationof recorded asset amounts or amounts and classifications of liabilities thatmight be necessary should we be unable to continue in existence.

**ContractualObligations**

Thefollowing table summarizes our contractual obligations, including purchasecommitments at March 31, 2007, and the effect that such obligations areexpected to have on our liquidity and cash flow in future periods.

| ** **                                 | ** ** | ** **                           | ** ** | **Payment due by period** | ** ** |
|--------------------------------------------|------------|--------------------------------------|------------|------------------------------------------|------------|
| **Contractual Cash Obligations** | ** ** | ** **                           | ** ** | **Total**                                | ** ** | **Less than 1 year** | ** ** | **1 - 3 years** | ** ** | **3 - 5 years** | ** ** | **Thereafter** | ** ** |
| ** **                                 | ** ** | **(Dollars in Thousands)** | ** ** |
| Long term lease  obligations               |       | $                                    | —     |                                     |       | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Capital lease  obligations                 |       | —                               |       |                                     | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Operating leases                           |       | 212                                  |       |                                     | 196        |   |   |   | 16 |   |   |   | — |   |   |   | — |   |   |
| Total contractual  cash obligations        |       | $                                    | 212        |                                     |       | $ | 196 |   |   |   | $ | 16 |   |   |   | $ | — |   |   |   | $ | — |   |   |
|                                            |            |                                      |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**Critical AccountingPolicies**

Our discussion and analysis of our financialconditions and results of operations are based upon our financial statements,which have been prepared in accordance with generally accepted accountingprinciples in the United States. The preparation of financial statementsrequires managers to make estimates and disclosures on the date of thefinancial statements. On an on-going basis, we evaluate our estimates,including, but not limited to, those related to revenue recognition. We useauthoritative pronouncements, historical experience, and other assumptions asthe basis for making judgments. Actual 

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results could differ fromthose estimates. We believe that the following critical accounting policiesaffect our more significant judgments and estimates in the preparation of ourfinancial statements.

*Revenue recognition.**  *We generate our revenue through the sale of products.Our policy is to recognize revenue when the applicable revenue recognitioncriteria have been met, which generally include the following:

·       *Persuasive evidence of an arrangement exists;*

·       *Delivery has occurred or services have been rendered;*

·       *Price isfixed or determinable; and*

·       *Collectibility is reasonably assured*

Revenue from the sale of products is generallyrecognized after both the goods are shipped to the customer and acceptance hasbeen received, if required. Our products are custom made for our customers, whoprimarily consist of original engineer manufacturers (OEMs), and we do notaccept returns. Our products are shipped complete and ready to be incorporatedinto higher level assemblies by our customers. The terms of the customerarrangements generally pass title and risk of ownership to the customer at thetime of shipment.

Recording revenue from the sale of products involvesthe use of estimates and management judgment. We must make a determination atthe time of sale whether the customer has the ability to make payments inaccordance with arrangements. While we do utilize past payment history, and, tothe extent available for new customers, public credit information in making ourassessment, the determination of whether collectibility is reasonably assuredis ultimately a judgment decision that must be made by management.

*Allowancefor Doubtful Accounts.*   We maintain an allowancefor doubtful accounts receivable based on customer-specific allowances, as wellas a general allowance. Specific allowances are maintained for customers whichare determined to have a high degree of collectibility risk based on suchfactors, among others, as: (i) the aging of the accounts receivablebalance; (ii) the customer’s past payment experience; or (iii) adeterioration in the customer’s financial condition, evidenced by weakfinancial condition and/or continued poor operating results, reduced creditratings, and/or a bankruptcy filing. In addition to the specific allowance, wemaintain a general allowance for all of our accounts receivables that are notcovered by a specific allowance. The general allowance is established based onsuch factors, among others, as: (i) the total balance of the outstandingaccounts receivable, including considerations of the aging categories of thoseaccounts receivable; (ii) past history of uncollectible accountsreceivable write-offs; and (iii) the overall creditworthiness of thecustomer base. A considerable amount of judgment is required in assessing therealizability of accounts receivables. Should any of the factors considered indetermining the adequacy of the overall allowance change, an adjustment to theprovision for doubtful accounts receivable may be necessary.

*Inventory.**  *Inventories are stated at the lower of cost ormarket, cost being determined on the first-in, first-out method. Inventoriesare written down if the estimated net realizable value is less than therecorded value. We review the carrying cost of our inventories by product eachquarter to determine the adequacy of our reserves for obsolescence. Inaccounting for inventories we must make estimates regarding the estimated netrealizable value of our inventory. This estimate is based, in part, on ourforecasts of future sales and age of the inventory.

*IntangibleAssets.*   We test intangible assets withindefinite lives for impairment on an annual basis or more frequently ifcertain events occur. If the assets are considered to be impaired, theimpairment to be recognized will be measured by the amount in which thecarrying amount exceeds the fair value of the assets. For our intangible assetswith finite lives, including our customer lists, existing technology, andpatents, we amortize the costs of the assets over their useful lives and assessimpairment at least annually 

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or whenever events andcircumstances suggest the carrying value of an asset may not be recoverable. Determiningthe life of the assets with finite lives is judgmental in nature and involvesthe use of estimates and assumptions. These estimates and assumptions involve avariety of factors, including future market growth and conditions, forecastedrevenues and costs and a strategic review of our business and operations. Webase our fair value estimates on assumptions we believe to be reasonable butthat are unpredictable and inherently uncertain. Actual future results maydiffer from those estimates. In the event we determine that an intangible assetis impaired in the future, an adjustment to the value of the asset would becharged to earnings in the period such determination is made.

*Existing Technology.****  ***Our existing technology isbased on a patent issued in 1990, which continues to be the main technology ofMPI. It is a substrate deposition technology that is mature and with noreplacement technology forecasted.

**Additional FactorsThat May Affect Future Results**

Future operatingresults may be impacted by a number of factors that could cause actual resultsto differ materially from those stated herein, which reflect management’scurrent expectations. These factors include:

·       industry-specificfactors (including the reliance upon growth of the defense microwave market,significant competition characterized by rapid technological change, newproduct development, product obsolescence, and significant price erosion overthe life of a product);

·       ourability to timely develop and produce commercially viable products atcompetitive prices;

·       ourability to produce products which meet the quality standards of both existingand potential new customers;

·       ourability to accurately anticipate customer demand;

·       ourability to manage expense levels, in light of varying revenue streams;

·       theavailability and cost of components;

·       theimpact of worldwide economic and political conditions on our business; and

·       theability to integrate potential future acquisitions into our existingoperations.

We believe that, to the extent that foreign sales arerecognized, we may face increased risks associated with political and economicinstability, compliance with foreign regulatory rules governing exportrequirements, tariffs and other trade barriers, differences in intellectualproperty protections, longer accounts receivable cycles, currency fluctuationsand general trade restrictions. If any of these risks materialize, they couldhave a material adverse effect on our business, results of operations, andfinancial condition.

We have evaluated the credit exposure associated withconducting business with foreign customers and have concluded that such risk isacceptable. Nevertheless, any significant change in the economy ordeterioration in United States trade relations or the economic or politicalstability of foreign markets could have a material adverse effect on ourbusiness, results of operations, and financial condition.

Sales to foreign customers are invoiced in U.S.dollars. Accordingly, we currently do not engage in foreign currency hedgingtransactions. However, as we expand further into foreign markets, we mayexperience greater risk associated with general business, political andeconomic conditions in those markets. At such time, we may seek to lessen ourexposure through currency hedging transactions. We cannot assure you that acurrency hedging strategy would be successful in avoiding currency exchangerelated losses. In addition, should the relative value of the U.S. dollar incomparison to foreign currencies 

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increase, the resultingincrease in the price of our products to foreign customers could result indecreased sales which could have a material adverse impact on our business,results of operations, and financial condition.

We experience significant price competition and expectprice competition in the sale of our products to remain intense. We cannotassure you that our competitors will not develop new technologies or enhancementsto existing products or introduce new products that will offer superior priceor performance features. We expect our competitors will offer new and existingproducts at prices necessary to gain or retain market share. Several of ourcompetitors have substantial financial resources, which may enable them towithstand sustained price competition or a downturn in the pricing of theirproducts in the future. Substantially all of our competitors have, andpotential future competitors could have, substantially greater technical,marketing, distribution and other resources than we do and have, or could have,greater name recognition and market acceptance of their products andtechnologies.

The markets in which we compete are characterized byrapidly changing technology and continuous improvements in products andservices. Our future success depends on our ability to enhance our currentproducts and to develop and introduce, in a timely manner, new products thatkeep pace with technological developments that meet or exceed industrystandards, which compete effectively on the basis of price, performance andquality, that adequately address OEM customer and end-user customerrequirements, and that achieve market acceptance. We believe that to remaincompetitive in the future we will need to continue to develop new products,which will require the investment of significant financial resources in newproduct development. In the event our newly developed products are not timelydeveloped or do not gain market acceptance, our business, results of operationsand financial condition could be materially adversely affected.

Our quarterly and annualresults have in the past been, and will continue to be, subject to significantfluctuations due to a number of factors, any of which could have a materialadverse effect on our business, financial condition and results of operations. Therecan be no assurance that we will not experience such fluctuations in the future.We establish our expenditure levels for product development and other operatingexpenses based on expected revenues, and expenses are relatively fixed in theshort term. As a result, variations in timing of revenues can cause significantvariations in quarterly results of operations. There can be no assurances thatwe will be profitable on a quarter-to-quarter basis in the future. We believethat period-to-period comparisons of our financial results are not necessarilymeaningful and should not be relied upon as an indication of future performance.Due to these factors, it is likely that in some future quarter or quarters ourrevenues or operating results will not meet the expectations of public stockmarket analysts or investors. In such event, the market price of our commonstock would be materially adversely affected.

**Factors AffectingBusiness, Operating Results and Financial Condition**

*An investment in our securities is very speculativeand involves a high degree of risk. You should carefully consider the followingrisk factors, along with the other matters referred to in this Annual Report,before you decide to buy our securities. If you decide to buy our securities,you should be able to afford a complete loss of your investment.*

**Risks AssociatedWith Our Business**

***Most of our salesare made to the defense industry. Our business and financial results could beadversely affected if defense spending is curtailed, which would cause thevalue of your investment to decline.***

As a percentage of totalrevenues, our net sales to our two largest customers; Raytheon and NorthropGrumman, during the fiscal year ended March 31, 2007 totaled approximately21.3%, accounting for $1.9 million of our revenues in fiscal 2007. Thesecustomers rely on the defense industry for orders and the 

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defenseindustry relies upon the United States and foreign governments for funding. Changesin funding may occur if there is a change in the current administration or thegovernment reduces defense spending. A decrease in business from the defenseindustry to our customers would have a material adverse effect on our resultsof operations and financial condition and the value of your investment.

***Our market is subject to rapid technological change, and tocompete effectively, we must continually introduce new products or enhancementsthat achieve market acceptance.***

The marketfor our products is characterized by rapidly changing technology, frequent newproduct introductions, changes in customer requirements, and evolving industrystandards. We believe that we have been successful to date in investing in researchand development to meet these needs and delivering products before ourcompetitors. We believe that our future success will depend upon continueddevelopment and timely introduction of products capable of collecting orprocessing new types of telecommunications signals. However, we expect that newtechnologies will continue to emerge. Our future performance will depend on thesuccessful development, introduction, and market acceptance of new and enhancedproducts that address these changes as well as current and potential customerrequirements. The introduction of new and enhanced products may cause ourcustomers to defer or cancel orders for existing products. There can be noassurance that we will be able to develop and market new products successfullyin the future or respond effectively to technological changes, or that newproducts introduced by others will not render our products or technologiesnoncompetitive or obsolete.

We also may not be able to develop the underlying coretechnologies necessary to create new products and enhancements or to licensethese technologies from third parties. Product development delays may resultfrom numerous factors, including:

·       changing productspecifications and customer requirements;

·       difficulties in hiring andretaining necessary technical personnel;

·       difficulties in reallocatingengineering resources and overcoming resource limitations;

·       difficulties with contractmanufacturers;

·       changing market orcompetitive product requirements; and

·       unanticipated engineeringcomplexities.

The development of new, technologically advanced productsis a complex and uncertain process requiring high levels of innovation andhighly skilled engineering and development personnel, as well as the accurateanticipation of technological and market trends. We may not be able toidentify, develop, manufacture, market, or support new or enhanced productssuccessfully, if at all, or on a timely basis. Further, our new products maynot gain market acceptance or we may not be able to respond effectively toproduct announcements by competitors, technological changes, or emergingindustry standards. Any failure to respond to technological change wouldsignificantly harm our business.

***Our business, operating results and financial conditioncould be negatively impacted if demand for our products is less than weanticipate or if we fail to hire qualified employees. As a result, the value ofyour securities may decline.***

Our growth depends on our ability to successfully developand market our products. The development and marketing of our products isdependent on a number of factors, including our ability to:

·       recruit and maintain a baseof qualified engineers;

·       initiate, develop andsustain corporate and government relationships;

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·       attract, hire, integrate andretain qualified sales and sales support employees; and

·       accurately assess thedemands of the market.

Demand forour products might be less than we anticipate, or we may not be successful inrecruiting and maintaining the personnel we need to develop and sell ourproducts. In either case, our business, operating results and financialcondition could be negatively impacted and the value of your securities maydecline.

Our primary competitors are Teledyne Defense, Miteq, and EndwaveDefense Systems****and Sofia Wireless. These competitors are much larger than we areand have more in the way of financial and other resources than we have. We havetried to create a niche market in the manufacturing of microwave integratedcircuits for use by the defense industry. However, we have no contractualagreements with contractors with whom we do business that requires them to purchaseminimum quantities and we cannot assure you that these contractors willcontinue ordering parts from us or that they will order at the same or greaterlevels than they have done in the past. If our customers severely reduced theirorders or ceased ordering from us altogether, our business, results ofoperations and financial condition, as well as the value of your securities,could be materially adversely affected.

***Unexpected increases in the cost todevelop or manufacture our products under fixed-price contracts may cause us toexperience unreimbursed cost overruns.***

A significant portion of our revenue is derived fromfixed-price contracts. Under fixed-price contracts, unexpected increases in thecost to develop or manufacture a product, whether due to inaccurate estimatesin the bidding process, unanticipated increases in materials costs,inefficiencies, or other factors, are borne by us. We have experienced costoverruns in the past that have resulted in losses on certain contracts, and mayexperience additional cost overruns in the future. Such cost overruns wouldincrease our operating expenses, reduce our net income and earnings per share,and have a materially adverse effect on our future results of operations andfinancial condition.

***Our future revenues are inherently unpredictable, ouroperating results are likely to fluctuate from period to period, and if we failto meet the expectations of securities analysts or investors, our stock pricecould decline significantly.***

Our quarterly and annual operating results have fluctuatedin the past and are likely to fluctuate significantly in the future due to avariety of factors, some of which are outside our control. Accordingly, webelieve that period-to-period comparisons of our results of operations are notmeaningful and should not be relied upon as indications of future performance. Someof the factors that could cause our quarterly or annual operating results tofluctuate include conditions inherent in government contracting and ourbusiness such as the timing of cost and expense recognition for contracts, theUnited States Government contracting and budget cycles, and contract closeouts.Because we base our operating expenses on anticipated revenue trends and a highpercentage of our expenses are fixed in the short term, any delay in generatingor recognizing forecasted revenues could significantly harm our business. Fluctuationsin quarterly results, competition, or announcements of extraordinary eventssuch as acquisitions or litigation may cause revenues to fall below theexpectations of securities analysts and investors. In this event, the tradingprice of our common stock would significantly decline. In addition, there canbe no assurance that an active trading market will be sustained for our commonstock. The stock market in recent years has experienced extreme price andvolume fluctuations that have particularly affected the market prices of manytechnology companies. These fluctuations, as well as general economic andmarket conditions may adversely affect the future market price of our commonstock.

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***We may engage infuture acquisitions that dilute our stockholders equity and cause us to usecash, incur debt, or assume contingent liabilities.***

We completed ouracquisition of Microwave Power, Inc. on June 18, 2004 and acquired acontrolling interest of Mica-Tech, Inc. on April 11, 2007. As part ofour business strategy, we expect to continue to review opportunities to buyother businesses or technologies that would complement our current products,expand the breadth of our markets, or enhance our technical capabilities, orthat may otherwise offer growth opportunities. If we buy other businesses,products or technologies in the future, we could:

·       incursignificant unplanned expenses and personnel costs;

·       issuestock, or assume stock option plans that would dilute our current stockholders’percentage ownership;

·       usecash, which may result in a reduction of our liquidity;

·       incurdebt; or

·       assumeliabilities.

These purchasesalso involve numerous risks, including:

·       problems integrating thepurchased operations, technologies, personnel or products;

·       unanticipatedcosts, litigation and other contingent liabilities;

·       diversionof management’s attention from our core business;

·       adverseeffects on existing business relationships with suppliers and customers;

·       risksassociated with entering into markets in which we have no, or limited, priorexperience;

·       unconsummatedtransactions; and

·       potentialloss of our key employees or the key employees of an acquired organization.

We may not be able tosuccessfully integrate any businesses, products, technologies or personnel thatwe might acquire, or to realize expected benefits of acquisitions that mayoccur in the future. If this occurs, our business and financial results may beadversely affected.

**Risks Associated With Ownership of Our Securities**

***We have not paid cash dividends and it is unlikely that wewill pay cash dividends in the foreseeable future.***

We plan to use all of our earnings, to the extent we haveearnings, to fund our operations. We do not plan to pay any cash dividends inthe foreseeable future. We cannot guarantee that we will, at any time, generatesufficient surplus cash that would be available for distribution as a dividendto the holders of our common stock. You should not expect to receive cashdividends on our common stock.

***We have the ability to issue additional shares of ourcommon stock without asking for shareholder approval, which could cause yourinvestment to be diluted.***

Our Articles of Incorporation currently authorize the Boardof Directors to issue up to 15,000,000 shares of common stock. The power of theBoard of Directors to issue shares of common stock or warrants or options topurchase shares of common stock is generally not subject to shareholderapproval. Accordingly, any additional issuance of our common stock may have theeffect of further diluting your investment.

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***We may raise additional capitalthrough a securities offering that could dilute your ownership interest.***

We require substantial workingcapital to fund our business. If we raise additional funds through the issuanceof equity, equity-related or convertible debt securities, these securities mayhave rights, preferences or privileges senior to those of the holders of ourcommon stock. The issuance of additional common stock or securities convertibleinto common stock by our management will also have the effect of furtherdiluting the proportionate equity interest and voting power of holders of ourcommon stock.

***There is no active public market for our securities, so youmay not be able to liquidate your securities if you need money.***

Trading of our common stock is sporadic. It is not likelythat an active market for our common stock will develop or be sustained soon. Youmay not be able to liquidate our securities if you need money.

***We are subject to the Penny Stock Rules and these rules mayadversely affect trading in our common stock.***

Our common stock is a “low-priced”security under rules promulgated under the Securities Exchange Act of 1934.In accordance with these rules, broker-dealers participating in transactions inlow-priced securities must first deliver a risk disclosure document whichdescribes the risks associated with such stocks, the broker-dealer’s duties inselling the stock, the customer’s rights and remedies and certain market andother information. Furthermore, the broker-dealer must make a suitabilitydetermination approving the customer for low-priced stock transactions based onthe customer’s financial situation, investment experience and objectives. Broker-dealersmust also disclose these restrictions in writing to the customer, obtainspecific written consent from the customer, and provide monthly accountstatements to the customer. The effect of these restrictions probably decreasesthe willingness of broker-dealers to make a market in our common stock, decreasesliquidity of our common stock and increases transaction costs for sales andpurchases of our common stock as compared to other securities.

**Quantitative andQualitative Disclosures about Market Risk**

We have some risk exposure from interest rates beingunfavorable. At March 31, 2007, our line of credit facilities were theonly debt facilities subject to variable interest rates. We will monitor thelevel of risk by keeping variable rate exposures at acceptable levels.

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**ITEM 7.**                FINANCIALSTATEMENTS

**INDEXTO FINANCIAL STATEMENTS**

|                                                                                                                       | ** ** | ** ** | **Page** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|------------|----------|------------|
| Report of Independent Registered Public Accounting  Firm                                                              |       | 24         |     |
| Consolidated  Balance Sheet as of March 31, 2007                                                                 |       | 25         |     |
| Consolidated Statements of Income for the years ended  March 31, 2007 and March 31, 2006                    |       | 26         |     |
| Consolidated Statements of Stockholders’ Equity for  the years ended March 31, 2007 and March 31, 2006 |       | 27         |     |
| Consolidated Statements of Cash Flows for the years  ended March 31, 2007 and March 31, 2006                |       | 28         |     |
| Notes to Consolidated Financial Statements                                                                            |       | 29         |     |
|                                                                                                                       |            |            |          |            |  |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

Board of Directors and Shareholders

AML Communications, Inc.Camarillo, CA

We have audited the accompanying consolidated balancesheet of AML Communications, Inc. and subsidiary as of March 31,2007, and the related consolidated statements of income, stockholders’ equity,and cash flows for each of the years in the two-year period ended March 31,2007. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.

We conducted our audits in accordance with standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In ouropinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of AML Communications, Inc.and subsidiary as of March 31, 2007, and the results of its operations andits cash flows for each of the years in the two-year period ended March 31,2007 in conformity with accounting principles generally accepted in the UnitedStates of America.
| /s/ KABANI &  COMPANY, INC. |   |
|--------------------------------------|--------|
| CERTIFIED PUBLIC  ACCOUNTANTS        |   |
| Los Angeles, California              |   |
| June 22, 2007                   |   |

 

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**AML COMMUNICATIONS, INC. & SUBSIDIARYCONSOLIDATED BALANCE SHEETAS OF MARCH 31, 2007**

| **ASSETS**                                                                                            | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|------------|------------|
| Current Assets:                                                                                       |       |       |       |
| Cash and cash equivalents                                                                             |       | $          | 2,078,000  |   |
| Accounts receivable, net of allowance for doubtful  accounts of $24,515                               |       | 1,307,000  |       |
| Inventories, net                                                                                      |       | 1,714,000  |       |
| Note receivable                                                                                       |       | 210,000    |       |
| Other current assets                                                                                  |       | 106,000    |       |
| Deferred Tax Asset—current                                                                       |       | 709,000    |       |
| Total current assets                                                                                  |       | 6,124,000  |       |
| Property and Equipment, at cost                                                                       |       | 6,151,000  |       |
| Less: Accumulated depreciation and amortization                                                       |       | (3,801,000 | )          |
| Property and Equipment, net                                                                           |       | 2,350,000  |       |
| Deferred Tax Asset                                                                                    |       | 2,615,000  |       |
| Intangible  Assets:                                                                                   |       |       |       |
| Technologies, net                                                                                     |       | 731,000    |       |
| Patents, net                                                                                          |       | 122,000    |       |
| Customer lists, net                                                                                   |       | 19,000     |       |
| Trademarks                                                                                            |       | 181,000    |       |
|                                                                                                  |       | 1,053,000  |       |
| Other Assets                                                                                          |       | 33,000     |       |
|                                                                                                  |       | $          | 12,175,000 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                        |       |       |       |
| Current  Liabilities:                                                                                 |       |       |       |
| Line of Credit                                                                                        |       | $          | 470,000    |   |
| Accounts payable                                                                                      |       | 593,000    |       |
| Current portion of long term debt                                                                     |       | 11,000     |       |
| Accrued expenses:                                                                                     |       |       |       |
| Accrued payroll and payroll related expenses                                                          |       | 377,000    |       |
| Other accrued liabilities                                                                             |       | 130,000    |       |
| Total current liabilities                                                                             |       | 1,581,000  |       |
| Notes Payable                                                                                         |       | 618,000    |       |
| Commitments                                                                                           |       | —     |       |
| Stockholders’  Equity:                                                                           |       |       |       |
| Common stock, $0.01 par value:15,000,000 shares  authorized; shares issued and outstanding 10,256,666 |       | 103,000    |       |
| Capital in excess of par value                                                                        |       | 13,616,000 |       |
| Accumulated deficit                                                                                   |       | (3,743,000 | )          |
| Total stockholders’ equity                                                                       |       | 9,976,000  |       |
|                                                                                                  |       | $          | 12,175,000 |   |

 

The accompanying notes are an integral part to these consolidated financial statements

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**AML COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF INCOME**

| ** **                                                             | ** ** | **For the Years Ended** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                             | ** ** | **March 31, 2007**           | ** ** | **March 31, 2006** | ** ** |
| Net sales                                                              |       |                                   | $          | 8,854,000 |   |   |   | $ | 9,466,000 |   |   |
| Cost of goods  sold                                                    |       |                                   | 5,171,000  |   |   |   | 5,354,000 |   |   |
| Gross profit                                                           |       |                                   | 3,683,000  |   |   |   | 4,112,000 |   |   |
| Operating Expenses:                                                    |       |                                   |       |   |   |   |   |   |   |
| Selling, general and administrative                                    |       |                                   | 2,356,000  |   |   |   | 2,261,000 |   |   |
| Research and development                                               |       |                                   | 1,405,000  |   |   |   | 1,233,000 |   |   |
| Total operating expenses                                               |       |                                   | 3,761,000  |   |   |   | 3,483,000 |   |   |
| Income (loss)  from operations                                         |       |                                   | (78,000    | ) |   |   | 618,000 |   |   |
| Other income (expense):                                                |       |                                   |       |   |   |   |   |   |   |
| Interest income                                                        |       |                                   | 50,000     |   |   |   | 37,000 |   |   |
| Interest expense                                                       |       |                                   | (75,000    | ) |   |   | (40,000 | ) |   |
| Other                                                                  |       |                                   | 000        |   |   |   | 000 |   |   |
| Total other income (expense)                                           |       |                                   | (25,000    | ) |   |   | (3,000 | ) |   |
| Income (loss) before provision for income taxes                        |       |                                   | (103,000   | ) |   |   | 615,000 |   |   |
| Provision for  income taxes                                            |       |                                   | 1,662,000  |   |   |   | 1,630,000 |   |   |
| Net profit                                                             |       |                                   | $          | 1,559,000 |   |   |   | $ | 2,245,000 |   |   |
| Basic earnings per common share                                        |       |                                   | $          | 0.15 |   |   |   | $ | 0.22 |   |   |
| Basic weighted average number of shares of common  stock outstanding   |       |                                   | 10,243,000 |   |   |   | 10,098,000 |   |   |
| Diluted earnings per common share                                      |       |                                   | $          | 0.15 |   |   |   | $ | 0.21 |   |   |
| Diluted weighted  average number of shares of common stock outstanding |       |                                   | 10,669,000 |   |   |   | 10,699,000 |   |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

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**AML COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFOR THE YEARS ENDED MARCH 31, 2007 AND 2006**

| ** **                              | ** ** | **Common Stock** | ** ** | **Capital in  Excess of** | ** ** | **Retained  Earnings/  Accumulated** | ** ** | ** **  | ** ** |
|-----------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|--------------------------------------|------------|-------------|------------|
| ** **                              | ** ** | **Shares**            | ** ** | **Amount**                          | ** ** | **Par Value**                   | ** ** | **Deficit** | ** ** | **Totals** | ** ** |
| Balance,  March 31, 2005           |       | 10,057,116            |       | $                                   | 101,000    |                                 | $          | 13,386,000  |       | $ | (7,547,000 | ) | $ | 5,940,000 |   |
| Options Exercised                       |       | 177,050               |       | 1,000                               |       | 108,000                              |       | —      |       | 109,000 |   |
| Net Income                              |       | —                |       | —                              |       | —                               |       | 2,245,000   |       | 2,245,000 |   |
| Balance,  March 31, 2006           |       | 10,234,166            |       | 102,000                             |       | 13,494,000                           |       | (5,302,000  | )          | 8,294,000 |   |
| Options Exercised                       |       | 22,500                |       | 1,000                               |       | 3,000                                |       | —      |       | 4,000 |   |
| Stock Options Granted  for Compensation |       | —                |       | —                              |       | 119,000                              |       | —      |       | 119,000 |   |
| Net Income                              |       | —                |       | —                              |       | —                               |       | 1,559,000   |       | 1,559,000 |   |
| Balance,  March 31, 2007           |       | 10,256,666            |       | $                                   | 103,000    |                                 | $          | 13,616,000  |       | $ | (3,743,000 | ) | $ | 9,976,000 |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

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**AML COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

| ** **                                                                              | ** ** | **For the Years Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                              | ** ** | **March 31, 2007**           | ** ** | **March 31, 2006** | ** ** |
| **Cash Flows from Operating  Activities:**                                              | ** ** |                                   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Net Income                                                                              |       |                                   | $          | 1,559,000 |   |   |   | $ | 2,245,000 |   |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                   |       |   |   |   |   |   |   |
| Depreciation                                                                            |       |                                   | 420,000    |   |   |   | 322,000 |   |   |
| Bad debt expense                                                                        |       |                                   | (12,000    | ) |   |   | (13,000 | ) |   |
| Inventory Reserves                                                                      |       |                                   | 14,000     |   |   |   | (36,000 | ) |   |
| Stock Options Granted for Compensation                                                  |       |                                   | 119,000    |   |   |   | — |   |   |
| Amortization                                                                            |       |                                   | 216,000    |   |   |   | 216,000 |   |   |
| Changes in assets and  liabilities:                                                     |       |                                   |       |   |   |   |   |   |   |
| Decrease  (increase) in:                                                                |       |                                   |       |   |   |   |   |   |   |
| Accounts receivable                                                                     |       |                                   | (229,000   | ) |   |   | 238,000 |   |   |
| Inventories                                                                             |       |                                   | (147,000   | ) |   |   | 184,000 |   |   |
| Other current assets                                                                    |       |                                   | (52,000    | ) |   |   | (129,000 | ) |   |
| Other assets—Deferred Tax Asset                                                    |       |                                   | (1,662,000 | ) |   |   | (1,662,000 | ) |   |
| Increase (decrease) in:                                                                 |       |                                   |       |   |   |   |   |   |   |
| Accounts payable                                                                        |       |                                   | 439,000    |   |   |   | (94,000 | ) |   |
| Accrued income taxes                                                                    |       |                                   | —     |   |   |   | (18,000 | ) |   |
| Accrued expenses                                                                        |       |                                   | (81,000    | ) |   |   | 19,000 |   |   |
| Net cash provided  by operating activities                                              |       |                                   | 584,000    |   |   |   | 1,272,000 |   |   |
| **Cash  Flows from Investing Activities:**                                              | ** ** |                                   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Purchases of property and equipment                                                     |       |                                   | (1,088,000 | ) |   |   | (1,357,000 | ) |   |
| Proceeds from the sale of property and equipment                                        |       |                                   | —     |   |   |   | — |   |   |
| Long-term cash investments                                                              |       |                                   | —     |   |   |   | — |   |   |
| Cash received in the MPI acquisition                                                    |       |                                   | —     |   |   |   | — |   |   |
| Net cash provided  by (used in) investing activities                                    |       |                                   | (1,088,000 | ) |   |   | (1,357,000 | ) |   |
| **Cash  Flows from Financing Activities:**                                              | ** ** |                                   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Proceeds from exercise of stock options                                                 |       |                                   | 3,000      |   |   |   | 109,000 |   |   |
| Proceeds from line of credit, net                                                       |       |                                   | 222,000    |   |   |   | 169,000 |   |   |
| Proceeds (payments) notes payable                                                       |       |                                   | (10,000    | ) |   |   | 639,000 |   |   |
| Principal payments on capital lease obligations, net                                    |       |                                   | —     |   |   |   | (53,000 | ) |   |
| Net cash provided  by (used in) financing activities                                    |       |                                   | 215,000    |   |   |   | 864,000 |   |   |
| Net increase (decrease) in Cash and Cash Equivalents                                    |       |                                   | (289,000   | ) |   |   | 779,000 |   |   |
| Cash and Cash  Equivalents, beginning of period                                         |       |                                   | 2,367,000  |   |   |   | 1,588,000 |   |   |
| Cash and Cash  Equivalents, end of period                                               |       |                                   | $          | 2,078,000 |   |   |   | $ | 2,367,000 |   |   |

 

The accompanying notes are an integral part of these consolidated financial statements.

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007**

**1.   Line ofBusiness**

AML Communications is adesigner, manufacturer, and marketer of amplifiers, subsystems, and relatedproducts that address the defense microwave and wireless communicationsmarkets. The Company currently conducts its operations through two reportablesegments: (1) amplifiers and related products that are designed,manufactured, and marketed by the Company, and (2) high power microwaveamplifiers that are designed, manufactured, and marketed through its division,Microwave Power, Inc.

**2.**   Summaryof Significant Accounting Policies

*Basis ofPresentation*

The accompanying consolidated financial statementsinclude the accounts of AML Communications, Inc. (“AML”) and its whollyowned subsidiary, Microwave Power, Inc. (“MPI”), (collectively, the “Company”).All significant inter-company accounts and transactions have been eliminated inconsolidation.

The accompanyingconsolidated financial statements have been prepared in accordance with the rules andregulations of the Securities and Exchange Commission for the presentation offinancial information, and include all the information and footnotes requiredby generally accepted accounting principles for complete financial statements.In the opinion of management, all adjustments considered necessary for a fairpresentation have been included.

*Concentration ofCash*

The Company considers allliquid investments with an original maturity of three months or less to be cashequivalents. As of March 31, 2007, the Company had cash and cashequivalent balances totaling $1,397,000 in financial institutions, which werein excess of federally insured amounts.

*Credit Risk*

The Company performs ongoing credit evaluations of itscustomers’ financial conditions and generally does not require collateral onaccounts receivable, therefore, the accounts receivable are unsecured and theCompany is at risk to the extent that such amounts become non-collectable. Duringfiscal 2007, the Company had sales to two customers that represented 12.6% and8.7% of net sales, respectively, as compared to fiscal 2006, in which theCompany had sales to two customers, which represented 12.3% and 6.6% of netsales, respectively. As of March 31, 2007, these two customers comprised16.0% and 5.9%, of accounts receivable, respectively.

The Company’s customersare comprised primarily of defense subcontractors, cellular service providers,and original equipment manufacturers (“OEMs”). Customers are located primarilythroughout the United States. However, the Company also sells to customersworldwide. During the fiscal year ended March 31, 2007, internationalsales were $2.4 million, or 27.3% of net sales, as compared to $1.7 million, or17.9% of net sales in fiscal year ended March 31, 2006.

29

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

*Revenue Recognition*

We generate ourrevenue through the sale of products. Our policy is to recognize revenue whenthe applicable revenue recognition criteria have been met, which generallyinclude the following:

·       *Persuasive evidence of an arrangement exists;*

·       *Delivery has occurred or services have been rendered;*

·       *Price isfixed or determinable; and*

·       *Collectibility is reasonably assured*

Revenue from the sale of products is generallyrecognized after both the goods are shipped to the customer and acceptance hasbeen received, if required. Our products are custom made for our customers, whoprimarily consist of original engineer manufacturers (OEMs), and we do notaccept returns. Our products are shipped complete and ready to be incorporatedinto higher level assemblies by our customers. The terms of the customer arrangementsgenerally pass title and risk of ownership to the customer at the time ofshipment.

Recording revenue from thesale of products involves the use of estimates and management judgment. We mustmake a determination at the time of sale whether the customer has the abilityto make payments in accordance with arrangements. While we do utilize pastpayment history, and, to the extent available for new customers, public creditinformation in making our assessment, the determination of whether collectibilityis reasonably assured is ultimately a judgment decision that must be made bymanagement.

*Inventories*

Inventories are stated at the lower of cost or market,cost being determined on the first-in, first-out method. Inventories arewritten down if the estimated net realizable value is less than the recordedvalue. We review the carrying cost of our inventories by product each quarterto determine the adequacy of our reserves for obsolescence. In accounting forinventories we must make estimates regarding the estimated net realizable valueof our inventory. This estimate is based, in part, on our forecasts of futuresales and age of the inventory.

Inventoriesinclude costs of material, and manufacturing overhead on work-in-process and finished goods, and are stated at thelower of cost (first-in, first-out) or market and consist of the following:

| ** **                     | ** ** | **March 31, 2007** | ** ** |
|--------------------------------|------------|------------------------------|------------|
| Raw materials,  net of reserve |       |                         | $          | 1,138,000 |   |   |
| Work in process                |       |                         | 323,000    |   |   |
| Finished goods                 |       |                         | 253,000    |   |   |
|                           |       |                         | $          | 1,714,000 |   |   |

 

The reserve for inventoryat March 31, 2007 was $393,000.

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

*Depreciation andAmortization*

Propertyand equipment are being depreciated and amortized on the straight-line basisover the following estimated useful lives:

| Machinery and  equipment |   | 3 to 5 years  |   |
|--------------------------|--------|---------------|--------|
| Furniture and fixtures   |   | 5 years       |   |
| Leasehold  improvements  |   | Life of lease |   |
| Building                 |   | 30 years      |   |

 

Depreciation expense for the years ended March 31,2007 and March 31, 2006 was $420,000 and $322,000 respectively.

The Company capitalizes expenditures that materiallyincrease asset lives and charges ordinary repairs and maintenance to operationsas incurred. When assets are sold or otherwise disposed of, the cost andrelated depreciation or amortization is removed from the accounts and anyresulting gain or loss is included in other income (expense) in theaccompanying statements of operations.

Propertyand equipment consist of the following:

| ** **               | ** ** | **March 31, 2007** | ** ** |
|--------------------------|------------|------------------------------|------------|
| Building                 |       |                         | $          | 800,000 |   |   |
| Machinery and  equipment |       |                         | 4,508,000  |   |   |
| Furniture and  fixtures  |       |                         | 153,000    |   |   |
| Leasehold improvements   |       |                         | 690,000    |   |   |
|                     |       |                         | $          | 6,151,000 |   |   |

 

On February 3, 2006,the Company purchased the building that houses MPI, which is located at 3350 ScottBlvd. 25 Santa Clara, California, for a purchase price of $800,000. The Companymade a down payment of $160,000. The building is being financed by the bankpromissory note in the amount of $640,000 with 6.760% interest payable in 83regular payments of $4,425.88, each which includes principle and interest, andone irregular last payment of $556,594.48. The Company’s final payment is dueon February 10, 2013 and will be for all principle and interest not yetpaid. The note payable is secured by the deed of trust on the building.

*Intangible Assets*

The Company accounts for its intangible assets underthe applicable guidelines of SFAS 142 “goodwill and other intangible assets”and SFAS 144 “accounting for the impairment or disposal of long lived assets”. Whereintangible assets have finite lives, they are amortized over their useful lifeunless factors exist to indicate that the asset has been impaired. The Companyevaluates if the assets are impaired annually or on an interim basis if anevent occurs or circumstances change to suggest that the assets value hasdiminished. Under SFAS 144, when deemed necessary, the Company completes theevaluation of the recoverability of its long-lived assets by comparing thecarrying amount of the assets against the estimated undiscounted future cashflows associated with them. If such evaluations indicate that the futureundiscounted cash flows of long-lived assets are not sufficient to recover thecarrying value of such assets, 

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

the assets are adjusted totheir estimated fair values. Under SFAS 142 intangible assets with indefiniteuseful lives are required to be tested annually for impairment or wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. If the assets are considered to be impaired, theimpairment to be recognized is measured by the amount by which the carryingamount exceeds the fair value of the assets. During the year ended March 31,2007, the Company recognized no impairment.

At March 31,2007, intangibles consisted of the following:

| **Intangibles**           | ** ** | ** ** | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
|---------------------------|------------|------------|------------|---------------------------------|------------|-------------------------------|------------|---------|------------|
| Amortized intangibles:    |       |       |       |                            |       |                          |       |    |       |   |   |
| Patents                   |       |       | $          | 189,000                         |       |                          |       | $       | (67,000    | ) |   | $ | 122,000 |   |
| Existing Technology       |       |       | 961,000    |                            |       |                          | (230,000   | )       |       | 731,000 |   |
| Customer List             |       |       | 339,000    |                            |       |                          | (320,000   | )       |       | 19,000 |   |
| Unamortized  intangibles: |       |       |       |                            |       |                          |       |    |       |   |   |
| Trademarks                |       |       | 181,000    |                            |       |                          | —     |    |       | 181,000 |   |
|                      |       |       | $          | 1,670,000                       |       |                          |       | $       | (617,000   | ) |   | $ | 1,053,000 |   |

 

The Company assigned an 8 year life to patents, a 12year life to Existing Technology, and a 3 year life to Customer Lists. All aresubject to amortization. Trademarks were assigned as having an indefinite life.

Amortizationexpense from continuing operation for the year ended March 31, 2007 was$216,000. The Company expects the amortization expenses for the next five yearsto be as follows:

| **Year Ending March 31,** | ** ** | ** ** | ** ** | **Annual Amount** | ** ** |
|------------------------------------------|------------|------------|------------|------------------------|------------|
| 2008                                     |       |       | $          | 122,000                |       |   |
| 2009                                     |       |       | $          | 103,000                |       |   |
| 2010                                     |       |       | $          | 103,000                |       |   |
| 2011                                     |       |       | $          | 103,000                |       |   |
| 2012                                     |       |       | $          | 103,000                |       |   |

 

*Warranty andCustomer Support*

The Company typicallywarrants its products against defects in materials and workmanship for a periodof one year from the date of shipment. A provision for estimated futurewarranty and customer support is recorded when products are shipped. To date,warranty and customer support costs have not been material.

*Earnings Per Share*

Statement of Financial Accounting Standards No. 128,“Earnings per share” requires the presentation of basic earnings per share anddiluted earnings per share. Basic and diluted earnings per share computationsare presented by the Company conform to the standard and are based on theweighted average number of shares of Common Stock outstanding during the year.

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

Basic earnings per share is computed by dividing netincome or loss by the weighted average number of shares outstanding for theyear. “Diluted” earnings per share is computed by dividing net income or lossby the total of the weighted average number of shares outstanding, and thedilutive effect of outstanding stock options (applying the treasury stockmethod).

The Company had 1,865,000 of granted stock options andwarrants that were exercisable as of March 31, 2007 and 1,760,000 ofgranted stock options and warrants exercisable at March 31, 2006.

Thefollowing is a reconciliation of the numerators and denominators of the basicand diluted earnings per share computations:

| **Year ended March 31, 2007** | ** ** | ** ** | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|---------------------------------------------------|------------|------------|------------|---------------------|------------|------------|------------|--------------------|------------|
| Basic earnings per  shares:                       |       |       |       |                |       |       |       |               |       |
| Net income available to common stockholders       |       | $          | 1,559,000  |                | 10,243,000 |       |       | $                  | 0.15       |   |   |
| Effect of dilutive  securities:                   |       |       |       |                |       |       |       |               |       |
| Stock options                                     |       |       |       | 284,000             |       |       |       |               |       |
| Warrants                                          |       |       |       | 142,000             |       |       |       |               |       |
| Diluted earnings per share:                       |       | $          | 1,559,000  |                | 10,669,000 |       |       | $                  | 0.15       |   |   |

 

| **Year ended March 31, 2006** | ** ** | ** ** | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|---------------------------------------------------|------------|------------|------------|---------------------|------------|------------|------------|--------------------|------------|
| Basic earnings per  shares:                       |       |       |       |                |       |       |       |               |       |
| Net income available to common stockholders       |       | $          | 2,245,000  |                | 10,098,000 |       |       | $                  | 0.22       |   |   |
| Effect of dilutive  securities:                   |       |       |       |                |       |       |       |               |       |
| Stock options                                     |       |       |       | 449,000             |       |       |       |               |       |
| Warrants                                          |       |       |       | 152,000             |       |       |       |               |       |
| Diluted earnings per share:                       |       | $          | 2,245,000  |                | 10,699,000 |       |       | $                  | 0.21       |   |   |

 

*Segments*

The Company has two reportable segments consisting of (1) AMLCommunications, Inc. (“AML”) and (2) the Microwave Power, Inc. (“MPI”).Our AML segment designs, manufactures, and markets amplifiers and relatedproducts that address the defense microwave and wireless communications markets.These products are manufactured and sold through operations in Camarillo,California. Our MPI segment designs, manufactures, and markets high powermicrowave amplifiers. These products are manufactured and sold throughoperations in Santa Clara, California. The Company evaluates performance basedon sales, gross profit margins and operating profit before income taxes.

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

Thefollowing is information for the Company’s reportable segments for the yearsended March 31, 2007 and March 31, 2006:

**For the year ended March 31, 2007:**

| ** **                                                   | ** ** | **AML**                              | ** ** | **MPI** | ** ** | **Unallocated** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------|------------|---------|------------|-----------------|------------|-----------|------------|
| ** **                                                   | ** ** | **(Dollars in Thousands)** | ** ** |
| Revenue                                                      |       | $                                    | 7,060      |    | $          | 1,794           |       |      | —     |   |   | $ | 8,854 |   |
| Gross Profit                                                 |       | 2,608                                |       | 1,075   |       |            | —     |      |       | 3,683 |   |
| Depreciation &  amortization (includes intangibles) |       | 341                                  |       | 295     |       |            | —     |      |       | 636 |   |
| Interest expense                                             |       | 75                                   |       | —  |       |            | —     |      |       | 75 |   |
| Other, net                                                   |       | 2,551                                |       | 524     |       |            | —     |      |       | 3,075 |   |
| Income (loss)  from continuing operations before  tax        |       | (359                                 | )          | 256     |       |            | —     |      |       | (103 | ) |
| Identifiable  assets                                         |       | 7,488                                |       | 4,687   |       |            | —     |      |       | 12,175 |   |
| Capital Expenditures                                         |       | $                                    | 942        |    | 146        |            |       | —    |       |   | $ | 1,088 |   |
|                                                              |            |                                      |            |         |            |                 |            |           |            |  |  |  |  |  |

 

**For the year ended March 31, 2006:**

| ** **                                                   | ** ** | **AML**                              | ** ** | **MPI** | ** ** | **Unallocated** | ** ** | **Total** | ** ** |
|--------------------------------------------------------------|------------|--------------------------------------|------------|---------|------------|-----------------|------------|-----------|------------|
| ** **                                                   | ** ** | **(Dollars in Thousands)** | ** ** |
| Revenue                                                      |       | $                                    | 7,245      |    | $          | 2,221           |       |      | —     |   |   | $ | 9,466 |   |
| Gross Profit                                                 |       | 2,635                                |       | 1,477   |       |            | —     |      |       | 4,112 |   |
| Depreciation &  amortization (includes intangibles) |       | 299                                  |       | 239     |       |            | —     |      |       | 538 |   |
| Interest expense                                             |       | 40                                   |       | —  |       |            | —     |      |       | 40 |   |
| Other, net                                                   |       | 2,395                                |       | 524     |       |            | —     |      |       | 2,919 |   |
| Income (loss)  from continuing operations before tax         |       | (99                                  | )          | 714     |       |            | —     |      |       | 615 |   |
| Identifiable  assets                                         |       | 5,421                                |       | 4,503   |       |            | —     |      |       | 9,924 |   |
| Capital Expenditures                                         |       | $                                    | 1,314      |    | 43         |            |       | —    |       |   | $ | 1,357 |   |
|                                                              |            |                                      |            |         |            |                 |            |           |            |  |  |  |  |  |

 

*Use of Estimate inPreparation of Financial Statements*

The preparation offinancial statements, in conformity with generally accepted accountingprinciples, requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

*Product Lines*

TheCompany operates as two reportable business segments. The AML segment designsand manufactures RF and microwave, power and low noise, medium and high poweramplifiers for a variety of frequency ranges and transmission protocols servingthe defense microwave, commercial microwave, and wireless communicationsmarkets. The MPI segment manufactures solid state microwave amplifiers. Thisproprietary technology is especially designed for broadband and high power. Sometypical applications 

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

include telecommunications, radar, simulators,transmitters, and test instrumentation. The revenues earned by each productline are as follows:

**For the Fiscal Year Ended March 31, 2007:**

| ** **                   | ** ** | **AML**                              | ** ** | ** ** | ** ** | **MPI** | ** ** | ** ** | ** ** | **Total** | ** ** | ** ** | ** ** |
|------------------------------|------------|--------------------------------------|------------|------------|------------|---------|------------|------------|------------|-----------|------------|------------|------------|
| ** **                   | ** ** | **(Dollars in thousands)** | ** ** |
| Revenues                     |       |                                 |       |       |       |    |       |       |       |      |       |       |       |
| Defense microwave  and other |       | $                                    | 6,785      |       | 76.6       | %       | $          | 1,794      |       | 20.3      | %          | $          | 8,579      |   | 96.9 | % |
| PCS and two-way  messaging   |       | 252                                  |       | 2.8        |       | —  |       | —     |       | 252       |       | 2.8        |       |
| Cellular and  other          |       | 23                                   |       | 0.3        |       | —  |       | —     |       | 23        |       | 0.3        |       |
| Total net sales              |       | $                                    | 7,060      |       | 79.7       | %       | $          | 1,794      |       | 20.3      | %          | $          | 8,854      |   | 100.0 | % |

 

**For the Fiscal Year Ended March 31,2006**:

| ** **                   | ** ** | **AML**                              | ** ** | ** ** | ** ** | **MPI** | ** ** | ** ** | ** ** | **Total** | ** ** | ** ** | ** ** |
|------------------------------|------------|--------------------------------------|------------|------------|------------|---------|------------|------------|------------|-----------|------------|------------|------------|
| ** **                   | ** ** | **(Dollars in thousands)** | ** ** |
| Revenues                     |       |                                 |       |       |       |    |       |       |       |      |       |       |       |
| Defense microwave  and other |       | $                                    | 6,938      |       | 73.2       | %       | $          | 2,180      |       | 23.1      | %          | $          | 9,118      |   | 96.3 | % |
| PCS and two-way  messaging   |       | 196                                  |       | 2.1        |       | 41      |       | .4         |       | 237       |       | 2.5        |       |
| Cellular and  other          |       | 111                                  |       | 1.2        |       | —  |       | —     |       | 111       |       | 1.2        |       |
| Total net sales              |       | $                                    | 7,245      |       | 76.5       | %       | $          | 2,221      |       | 23.5      | %          | $          | 9,466      |   | 100.0 | % |

 

Thefollowing table summarizes the international sales by segment for the fiscalyear ended March 31, 2007:

| ** **           | ** ** | **AML**                              | ** ** | ** ** | ** ** | **MPI** | ** ** | ** ** | ** ** | **Total** | ** ** | ** ** | ** ** |
|----------------------|------------|--------------------------------------|------------|------------|------------|---------|------------|------------|------------|-----------|------------|------------|------------|
| ** **           | ** ** | **(Dollars in thousands)** | ** ** |
| International  Sales |       | $                                    | 1,570      |       | 17.7       | %       | $          | 845        |       | 9.6       | %          | $          | 2,415      |   | 27.3 | % |
| Domestic sales       |       | 5,490                                |       | 62.0       |       | 949     |       | 10.7       |       | 6,439     |       | 72.7       |       |
| Total Sales          |       | $                                    | 7,060      |       | 79.7       | %       | $          | 1,794      |       | 20.3      | %          | $          | 8,854      |   | 100.0 | % |

 

Thefollowing table summarizes the international sales by segment for the fiscalyear ended March 31, 2006:

| ** **           | ** ** | **AML**                              | ** ** | ** ** | ** ** | **MPI** | ** ** | ** ** | ** ** | **Total** | ** ** | ** ** | ** ** |
|----------------------|------------|--------------------------------------|------------|------------|------------|---------|------------|------------|------------|-----------|------------|------------|------------|
| ** **           | ** ** | **(Dollars in thousands)** | ** ** |
| International  Sales |       | $                                    | 1,328      |       | 14.1       | %       | $          | 373        |       | 3.9       | %          | $          | 1,701      |   | 17.9 | % |
| Domestic sales       |       | 5,917                                |       | 62.5       |       | 1,848   |       | 19.5       |       | 7,765     |       | 82.1       |       |
| Total Sales          |       | $                                    | 7,245      |       | 76.6       | %       | $          | 2,221      |       | 23.4      | %          | $          | 9,466      |   | 100.0 | % |

 

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

*Research andDevelopment Costs*

Research and developmentcosts for fiscal 2007 were $1,405,000, or 15.9% of net sales, compared to$1,233,000, or 13.0% of net sales, for the corresponding period in fiscal 2006.The increase of $172,000 is attributed to additional new hires and general wageincreases. Research and development costs are charged to expense as incurred.

*Fair Value ofFinancial Instruments*

The Company measures itsfinancial assets and liabilities in accordance with generally acceptedaccounting principles. For certain of the Company’s financial instruments,including cash and cash equivalents, accounts receivable, notes payable—relatedparties, accounts payable, and accrued expenses, the carrying amountsapproximate fair value due to their short maturities. The amount shown forshort-term loans also approximates fair value because current interestrates offered to the Company for short-term loans of similar maturities aresubstantially the same or the difference is immaterial.

*Stock-BasedCompensation*

The Company adopted SFAS No. 123 (Revised 2004), *Share Based Payment*(“SFAS No. 123R”),under the modified-prospective transition method on April 1, 2006. SFAS No. 123Rrequires companies to measure and recognize the cost of employee servicesreceived in exchange for an award of equity instruments based on the grant-datefair value. Share-based compensation recognized under the modified-prospectivetransition method of SFAS No. 123R includes share-based compensation basedon the grant-date fair value determined in accordance with the originalprovisions of SFAS No. 123, *Accountingfor Stock-Based Compensation,*for all share-based payments grantedprior to and not yet vested as of April 1, 2006 and share-basedcompensation based on the grant-date fair-value determined in accordance withSFAS No. 123R for all share-based payments granted after April 1,2006. SFAS No. 123R eliminates the ability to account for the award ofthese instruments under the intrinsic value method proscribed by AccountingPrinciples Board (“APB”) Opinion No. 25, *Accountingfor Stock Issued to Employees*, and allowed under the originalprovisions of SFAS No. 123. Prior to the adoption of SFAS No. 123R,the Company accounted for our stock option plans using the intrinsic valuemethod in accordance with the provisions of APB Opinion No. 25 and relatedinterpretations.

Primarily as a result of adopting SFAS No. 123R,the Company recognized $119,000 or $0.01 per basic and diluted earnings pershare in share-based compensation expense for the year ended March 31,2007. The fair value of our stock options was estimated using the Black-Scholesoption pricing model.

The weighted average assumptions used incalculating the fair value of options granted using the Black-Scholes option—pricingmodel are as follows:

| Risk-free interest rate      |   | 4.9%       |   |
|------------------------------|--------|------------|--------|
| Expected life of the options |   | 9.39 years |   |
| Expected volatility          |   | 69.1%      |   |
| Expected dividend yield      |   | —     |   |

 

For periods presentedprior to the adoption of SFAS No. 123R, pro forma information regardingnet income and earnings per share as required by SFAS No. 123R has beendetermined as if we had accounted 

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

for ouremployee stock options under the original provisions of SFAS No. 123. Thefair value of these options was estimated using the Black-Scholes option pricingmodel. For purposes of pro forma disclosure, the estimated fair value of theoptions is amortized to expense over the option’s vesting period. There is nopro forma expense to recognize during the year ended March 31, 2007.

*Advertising Costs*

The Company expensesadvertising costs as incurred. Advertising costs for the years ended March 31,2007 and 2006 were $83,000 and $50,000, respectively.

*Recently IssuedAccounting Pronouncements*

In February 2006 FASB issued SFAS No. 155, “Accountingfor Hybrid Financial Instruments”. SFAS No. 155 amends SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities”, and SFAF No. 140, “Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities”. SFAS No. 155 permits fair value remeasurement for any hybridfinancial instrument that contains an embedded derivative that otherwise wouldrequire bifurcation, clarifies which interest-only strips and principle-onlystrips are not subject to the requirements of SFAS No. 133, establishes arequirement to evaluate instruments that contain an embedded derivativerequiring bifurcation, clarifies that concentrations of credit risk in the formof subordination are not embedded derivatives and amends SFAS No. 140 toeliminate the prohibition on qualifying special-purpose entity from holding aderivative statement is effective for all financial instruments acquired orissued after beginning of the Company’s first fiscal quarter that begins September 15,2006. Management is currently evaluating the effect of this pronouncement onfinancial statements.

In March 2006,FASB issued SFAS 156 “Accounting for Servicing of Financial Assets’ thisStatement amends FASB Statement No. 140 Accounting for Transfers andServicing of Financial Assets and Extinguishments of Liabilities, with respectto accounting for separately recognized servicing assets and servicingliabilities. The Statement:

1.                Requires an entityto recognize a servicing asset or servicing liability each time it undertakesan obligation to service a financial asset by entering into a servicingcontract.

2.                Requires allseparately recognized servicing liabilities to be initially measured at fairvalue, if practicable

3.                Permits an entityto choose ‘Amortization Method’ or Fair value measurement method’ for eachclass of separately recognized servicing assets liabilities.

4.                At its initialadoption permits a one time reclassification of available-for-sale securitiesto trading securities by entities with recognized servicing rights, withoutcalling into question the treatment of other available—for-sale securitiesunder Statement 115, provided that the available-for-sale securities areidentified in some manner as offsetting the entity’s exposure to changes infair value of servicing liabilities that a servicer elects to subsequentlymeasure at fair value.

5.                Requires separatepresentation of servicing assets and servicing liabilities subsequentlymeasured at fair value in the statement of financial position and additionaldisclosures for all separately recognized servicing assets and servicingliabilities.

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

This Statement is effective as of the beginning of theCompany’s first fiscal year that begins after September 15, 2006. Managementis currently evaluating the effect of this pronouncement on financialstatements.

In September 2006, FASB issued SFAS 157 ‘FairValue Measurements’. This Statement defines fair value, establishes a frameworkfor measuring fair value in generally accepted accounting principles (GAAP),and expands disclosures about fair value measurements. This Statement appliesunder other accounting pronouncements that require or permit fair valuemeasurements, the Board having previously concluded in those accountingpronouncements that fair value is the relevant measurement attribute.Accordingly, this Statement does not require any new fair value measurements.However, for some entities, the application of this Statement will changecurrent practice. This Statement is effective for financial statements issuedfor fiscal years beginning after November 15, 2007, and interim periodswithin those fiscal years. Management is currently evaluating the effect ofthis pronouncement on financial statements.

In September 2006, the FASB issued SFAS 158 (“SFAS158”), “Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and132(R)”. This statement requires an employer to recognize the over funded orunder funded status of a defined benefit postretirement plan as an asset orliability in its statement of financial position and to recognize changes inthat funded status in the year in which the changes occur through comprehensiveincome of a business entity. This statement also requires an employer tomeasure the funded status of a plan as of the date of its year end statement offinancial position, with limited exceptions. The Company will be required toinitially recognize the funded status of a defined benefit postretirement planand to provide the required disclosures as of the end of the fiscal year endingafter December 15, 2006. The requirement to measure plan assets andbenefit obligations as of the date of the employer’s fiscal year end statementof financial position is effective for fiscal years ending after December 15,2008, or fiscal 2009 for the Company. Management is currently evaluating theeffect of this pronouncement on financial statements.

In February 2007, theFASB issued SFAS No. 159 (“SFAS 159”), “The Fair Value Option forFinancial Assets and Financial Liabilities—Including an amendment of FASBStatement No. 115”. SFAS 159 permits entities to choose to measuremany financial instruments and certain other items at fair value. Unrealizedgains and losses on items for which the fair value option has been elected willbe recognized in earnings at each subsequent reporting date. SFAS 159 will beeffective for the Company on January 1, 2008. Management is currentlyevaluating the effect of this pronouncement on financial statements.

**3.   Debt andLease Commitments**

*Accounts ReceivableFinancing*

At March 31, 2007, wehad a line of credit agreement with Bridge Bank. On July 17, 2006, wesigned a Business Financing Agreement with Bridge Bank to renew our line ofcredit, to $2.0 million. Of this $2.0 million, $1.0 million may be used forcash advances against accounts receivables and $1.0 million may be used forequipment advances. Our ability to borrow under this agreement varies basedupon eligible accounts receivable and eligible equipment purchases. We are obligatedto pay the bank a finance charge at a rate per year equal to the prime rate,which in no event shall be less than 5.50%, plus .25% with 

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

respectto cash advances and a rate of such prime rate plus 2.0% with respect toequipment advances. We are obligated to pay an annual facility fee of $5,000(0.50% of the gross facility amount). We must maintain certain financialrequirements, including a Quick Ratio of 1.50 to 1.0, and stay within 80% ofplanned quarterly revenue. We were in compliance with these requirements at March 31,2007. However, there is no assurance that we will be in compliance at futuredates. This agreement terminates on July 17, 2007 or upon a date that thebank chooses to terminate the agreement. Any unpaid balance is due and payablepursuant to the agreement on the termination date. If the agreement isterminated within the first 12 months following its execution on July 17,2006, we will be required to pay an early termination fee of 1.0% of the creditfacility amount under the terms of the agreement. At March 31, 2007, wehad an outstanding balance of $0 under the accounts receivable agreement and$470,000 under the equipment financing agreement and thus our remainingborrowing capacity is approximately $1,000,000 and $530,000 available underthese agreements, respectively.

Note Payable

On February 3, 2006 the company purchased thebuilding that houses MPI, which is located at 3350 Scott Blvd. 25 SantaClara, California, for a purchase price of $800,000. The Company made a downpayment of $160,000. The building is being financed by the bank promissory notein the amount of $640,000 with 6.760% interest payable in 83 regular paymentsof $4,425.88, each which includes principle and interest, and one irregularlast payment of $556,594.48. The Company’s final payment is due February 10,2013 and will be for all principle and interest not yet paid. The note payableis secured by the deed of trust on the building. As of March 31, 2007, theoutstanding note amounted to $629,000 with $11,000 in current portion.

The future aggregate payments arising from this loanis as follows:

Dueduring the fiscal year ended March 31,

| ** ** | ** ** | **Annual Amount** | ** ** |
|------------|------------|------------------------|------------|
| 2008       |       |                   | $          | 53,000 |   |   |
| 2009       |       |                   | 53,000     |   |   |
| 2010       |       |                   | 53,000     |   |   |
| 2011       |       |                   | 53,000     |   |   |
| 2012       |       |                   | 53,000     |   |   |
| Thereafter |       |                   | 601,000    |   |   |
|       |       |                   | $          | 866,000 |   |   |

 

Operating Lease Obligations

The Company leases its office space, manufacturingfacility under an operating lease expiring April 2008. Total rent expenseunder this operating lease was approximately $188,000 and $183,000 during theyears ended March 31, 2007 and 2006, respectively.

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

Totalminimum lease payments under the above lease are as follows:

| ** **                  | ** ** | **Operating  Leases** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| Year ending  March 31, |       |                  |       |
| 2008                        |       | $                     | 196,000    |   |
| 2009                        |       | 16,000                |       |
| Thereafter                  |       | —                |       |
|                        |       | $                     | 212,000    |   |

 

**4.**   IncomeTaxes

The Company accounts for income taxes under theprovisions of Statement of Financial Accounting Standards No. 109 (“SFAS109”). Under SFAS 109, deferred income tax assets or liabilities are computedbased on the temporary difference between the financial statement and incometax bases of assets and liabilities using the currently enacted marginal incometax rate. Deferred income tax expenses or credits are based on the changes inthe deferred income tax assets or liabilities from period to period.

Thecomponents of the income tax provision for the years ended March 31, 2006and 2007, were as follows: 

| ** ** | ** ** | **March 31, 2006** | ** ** | **March 31, 2007** | ** ** |
|------------|------------|------------------------------|------------|------------------------------|------------|
| Current    |       |                         | $          | 32,000                       |       |   |   | $ | — |   |   |
| Deferred   |       |                         | $          | (1,662,000                   | )          |   |   | $ | (1,662,000 | ) |   |
|       |       |                         | $          | (1,630,000                   | )          |   |   | $ | (1,662,000 | ) |   |

 

Differencesbetween the benefit from income taxes and income taxes at the statutory federalincome tax rate for years ended March 31, 2006 and 2007 are as follows: 

| ** **                                              | ** ** | **March 31,   2006** | ** ** | **March 31,  2007** | ** ** |
|---------------------------------------------------------|------------|--------------------------------|------------|--------------------------|------------|
| ** **                                              | ** ** | **Amount**                     | ** ** | **Percent**              | ** ** | **Amount** | ** ** | **Percent** | ** ** |
| Income tax  expense/(benefit) at statutory federal rate |       | $                              | 209,000    |                     | 34.0       | % | $ | (35,000 | ) | 34.0 | % |
| State income  taxes, net of federal income  tax         |       | (237,000                       | )          | -38.5                    |       | (50,000 | ) | 48.8 |   |
| Effect of permanent differences                         |       | 61,000                         |       | 9.9                      |       | 112,000 |   | -109.2 |   |
| Tax credits                                             |       | —                         |       |                     |       | (45,000 | ) | 43.9 |   |
| Change in valuation  allowance                          |       | (1,662,000                     | )          | -270.2                   |       | (1,651,000 | ) | 1610.2 |   |
| Other                                                   |       | (1,000                         | )          | -.1                      |       | 7,000 |   | -6.8 |   |
|                                                    |       | $                              | 1,630,000  |                     | 264.9      | % | $ | (1,662,000 | ) | 1620.9 | % |

 

40

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

Under SFAS 109, deferred tax assets may be recognizedfor temporary differences that will result in deductible amounts in futureperiods and for loss carry forwards. A valuation allowance is recognized if,based on the weight of available evidence, it is more likely than not that someportion or all of the deferred tax asset will not be realized. Based on thelevel historical income and projections of future income over the periods inwhich the deferred tax assets are deductible, management believes it is morelikely than not the Company will realize $1,662,000 of the benefits from thedeductible differences.

Adetail of the Company’s deferred tax assets and liabilities as of March 31,2007 follows:

| Inventory  reserves                    |   | $          | 168,000   |   |
|----------------------------------------|--------|------------|-----------|--------|
| Allowance for  doubtful accounts       |   | 11,000     |      |
| Accrued vacation                       |   | 63,000     |      |
| Non-cash employee  compensation        |   | 6,000      |      |
| Accrued warranty  and customer support |   | 8,000      |      |
| Other                                  |   | (172,000   | )         |
| General tax credit carry-forwards      |   | 1,811,000  |      |
| Net operating  loss carry-forwards     |   | 3,473,000  |      |
| Depreciation                           |   | (19,000    | )         |
|                                   |   | 5,349,000  |      |
| Valuation  allowance                   |   | (2,025,000 | )         |
|                                   |   | $          | 3,324,000 |   |

 

As of March 31, 2007,the Company had federal net operating loss carry-forwards of approximately $8.8million, expiring at various dates through 2024.

**5.**   Stockholders’Equity

Stock Option Plan

The Company’s StockIncentive Plan provides for the granting of non-qualified and incentive stockoptions to purchase up to 3,500,000 shares of common stock for periods not toexceed 10 years. Options typically vest 20% after one year from the dateof grant with remaining options vesting at a rate of 20% per year thereafter.Options may be granted to employees, officers, directors and consultants. 

*Plan Duration*

In 1995, the board of directors approved the creationof the 1995 Stock Option Plan. In November 2005, the board established the2005 Equity Incentive Plan (“2005 Plan”) with 150,000 shares initially approved.Incentive stock option awards may be granted under the 2005 Plan only toemployees (including officers and directors who are also employees) of theCompany or of a Parent or subsidiary of the Company. All other awards(including nonqualified stock options, restricted stock or stock awards) underthe 2005 Plan may be granted to employees, officers, directors, consultants,independent contractors and advisors of the Company or any Parent or Subsidiaryof the Company, provided such consultants, contractors and advisors render bonafide services not in connection with the offer and sale of securities in acapital-raising transaction.

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

Activityunder the 2005 plan is as follows (1): 

| **2005 Equity Incentive Plan** | ** ** | ** ** | ** ** | **Number of  Shares** | ** ** | **Weighted Average  Exercise Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|-----------------------------------------------|------------|------------|------------|----------------------------|------------|------------------------------------------------|------------|-------------------------------------|------------|
| Outstanding at  March 31, 2006                |       | 1,937,750  |       |                       | $          | 1.06                                           |       |                                |       | $ | 117,660 |   |   |
| Granted                                       |       | 414,000    |       |                       | 0.97       |                                           |       |                                |       |   |   |
| Exercised                                     |       | (22,500    | )          |                       | 0.15       |                                           |       |                                |       |   |   |
| Canceled                                      |       | (96,500    | )          |                       | 1.94       |                                           |       |                                |       |   |   |
| Outstanding at  March 31, 2007                |       | 2,232,750  |       |                       | $          | 0.97                                           |       |                                |       | $ | 341,982 |   |   |
| Exercisable at  March 31, 2007                |       | 1,650,050  |       |                       | $          | 0.95                                           |       |                                |       |   |   |   |

 

The weighted average fair value for options grantedduring each year was $0.50 and $0.53 for fiscal 2007 and fiscal 2006,respectively. 

The number of common stock options available for grantas of each year was 310,574 for fiscal 2007 and 628,074 for fiscal 2006. 

Optionsoutstanding at March 31, 2007 and related weighted average price and lifeinformation is as follows: 

| **Range of  Exercise Prices** | ** ** | ** ** | ** ** | **Total  Options  Outstanding** | ** ** | **Weighted  Average  Remaining  Life  (Years)** | ** ** | **Total  Weighted  Average  Exercise  Price** | ** ** | **Options  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|-----------------------------------------|------------|------------|------------|---------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
| $0.11 - $0.50                           |       |       | 243,700    |                            |       |                                            | 6.58       |                                          |       |                     | $          | 0.15                                       |       |   | 237,450 |   |   | $ | 0.14 |   |   |
| $0.51 - $1.00                           |       |       | 1,588,250  |                            |       |                                            | 6.05       |                                          |       |                     | $          | 0.92                                       |       |   | 1,217,000 |   |   | $ | 0.92 |   |   |
| $1.01 - $2.00                           |       |       | 342,300    |                            |       |                                            | 7.36       |                                          |       |                     | $          | 1.30                                       |       |   | 137,100 |   |   | $ | 1.44 |   |   |
| $2.01 - $5.00                           |       |       | 43,500     |                            |       |                                            | 3.73       |                                          |       |                     | $          | 3.19                                       |       |   | 43,500 |   |   | $ | 3.19 |   |   |
| $5.01 - $15.75                          |       |       | 15,000     |                            |       |                                            | 3.60       |                                          |       |                     | $          | 5.44                                       |       |   | 15,000 |   |   | $ | 5.44 |   |   |
| $0.11 - $15.75                          |       |       | 2,232,750  |                            |       |                                            | 6.30       |                                          |       |                     | $          | 0.97                                       |       |   | 1,650,050 |   |   | $ | 0.95 |   |   |

 

**GRANTED**

Pursuant to the 2005 Plan, during the year ended March 31,2007, the Company granted 414,000 stock options to the Company’s employees andtwo external directors.

On June 8, 2006, the Company granted 59,000 stockoptions to nine employees as employee compensation. All of the 59,000 stockoptions have a term of ten (10) years measured from the Grant Date andshall accordingly expire at the close of business on the Expiration Date,unless sooner terminated in accordance with the plan. The options will becomevested twenty (20) percent per year over a five year period. The optionexercise price was $1.20, which was the same as fair value of the shares at thetime of granting of the options.

On August 7, 2006, the Company granted 65,000stock options to five employees as employee compensation. All of the 65,000stock options have a term of ten (10) years measured from the Grant Dateand shall accordingly expire at the close of business on the Expiration Date,unless sooner terminated in accordance with the plan. The options will becomevested twenty (20) percent per year over a 

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

five year period.The option exercise price was $0.85, which was the same as fair value of theshares at the time of granting of the options.

On September 7, 2006, the Company granted a totalof 145,000 stock options to five employees and two external directors asfollows: 80,000 stock options to three AML’s officers as employeecompensations, 50,000 Non Qualified Stock Options to two of MPI’s executives,and 15,000 Non Qualified Stock Options to two external directors.

Of the first 80,000 stock options granted, 55,000stock options have a term of five (5) years and 25,000 stock options havea term of ten (10) years measured from the Grant Date and shall accordinglyexpire at the close of business on the Expiration Date, unless soonerterminated in accordance with the plan. All of the 80,000 stock options willbecome vested thirty three (33) percent per year over a three year period.

The second 50,000 Non Qualified Stock Options grantedhave a term of five (5) years measured from the Grant Date and shallaccordingly expire at the close of business on the Expiration Date, unlesssooner terminated in accordance with the plan. All of the 50,000 stock optionswill become vested thirty three (33) percent per year over a three yearperiod.

The last 15,000 Non Qualified Stock Options grantedhave a term of ten (10) years measured from the Grant Date and shallaccordingly expire at the close of business on the Expiration Date, unlesssooner terminated in accordance with the plan. The options will become vestedtwenty (20) percent per year over a five year period. The option exercise pricewas $0.90 for all of the 145,000 stock options granted on September 7,2006, which was the same as fair value of the shares at the time of granting ofthe options.

On February 5, 2007, the Company granted 145,000stock options to five employees as employee compensation. All of the 145,000stock options have a term of ten (10) years measured from the Grant Dateand shall accordingly expire at the close of business on the Expiration Date,unless sooner terminated in accordance with the plan. The options will becomevested twenty (20) percent per year over a five year period. The option exerciseprice was $0.99, which was the same as fair value of the shares at the time ofgranting of the options.

The assumptions used in calculating the fair value ofoptions granted using the Black-Scholes option- pricing model are as follows:

StockOptions Granted on June 8, 2006:

| Risk-free  interest rate      |   | 5.04        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 40.37       | %      |
| Expected dividend yield       |   | 0           |   |

 

StockOptions Granted on August 7, 2006:

| Risk-free  interest rate      |   | 4.93        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 34.92       | %      |
| Expected dividend yield       |   | 0           |   |

 

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

Stock Options Granted on September 7, 2006:

105,000stock options with a term of 5 years and three year vesting periods:

| Risk-free  interest rate      |   | 4.74       | %      |
|-------------------------------|--------|------------|--------|
| Expected life of  the options |   | 5.00 years |   |
| Expected  volatility          |   | 36.11      | %      |
| Expected dividend yield       |   | 0          |   |

 

25,000stock options with a term of 10 years and three year vesting periods:

| Risk-free  interest rate      |   | 4.79        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 36.11       | %      |
| Expected dividend yield       |   | 0           |   |

 

15,000stock options with a term of 10 years and five year vesting periods:

| Risk-free  interest rate      |   | 4.79        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 36.11       | %      |
| Expected dividend yield       |   | 0           |   |

 

StockOptions Granted on February 5, 2007:

| Risk-free  interest rate      |   | 4.74        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 32.84       | %      |
| Expected dividend yield       |   | 0           |   |

 

Detailsof the Company’s non-vested options are as follows:

| ** **                           | ** ** | **Non-Vested   Options** | ** ** | **Weighted   Average   Exercise Price** | ** ** | **Weighted   Average   Vesting Period** | ** ** | **Grant Date   Fair Value** | ** ** |
|--------------------------------------|------------|-------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------|------------|
| Non-vested—March 31,  2006 |       |                          | 400,900    |                                                   |       |                                                   | $          | 1.07                                       |       |   |   |   |   |   |   |   |   |   |
| Granted                              |       |                          | 414,000    |                                                   |       |                                                   | 0.97       |                                       |       |   |   |   |   |   | 208,044 |   |   |
| Forfeited                            |       |                          | (73,750    | )                                                      |       |                                                   | 1.22       |                                       |       |   |   |   |   |   |   |   |   |
| Vested                               |       |                          | (156,575   | )                                                      |       |                                                   | 2.06       |                                       |       |   |   |   |   |   |   |   |   |
| Exercised                            |       |                          | (1,875     | )                                                      |       |                                                   | 0.16       |                                       |       |   |   |   |   |   |   |   |   |
| Non-vested—March 31,  2007 |       |                          | 582,700    |                                                   |       |                                                   | 1.01       |                                       |       |   | 1.55 Years |   |   |   |   |   |   |

 

The total compensationcost not yet recognized related to non-vested stock options is $306,000, whichis expected to be recognized over a period of 1.97 years.

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

*Warrants*

Followingis a summary of the warrants activity:

| ** **                        | ** ** | **Warrants   outstanding** | ** ** | **Weighted   Average   Exercise   Price** | ** ** | **Aggregate   Intrinsic   Value** | ** ** |
|-----------------------------------|------------|---------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------|------------|
| Outstanding,  March 31, 2006 |       |                            | 222,928    |                                                     |       |                                        | $          | 0.50 |   |   | $ | 162,000 |   |
| Granted                           |       |                            | —     |                                                     |       |                                        |       |   |   |   |   |
| Forfeited                         |       |                            | 8,000      |                                                     |       |                                        | 0.02       |   |   |   |   |
| Exercised                         |       |                            | —     |                                                     |       |                                        |       |   |   |   |   |
| Outstanding,  March 31, 2007 |       |                            | 214,928    |                                                     |       |                                        | 0.49       |   |   | $ | 187,000 |   |

 

Followingis a summary of the status of warrants outstanding at March 31, 2007:

| **Range of  Exercise Prices** | ** ** | ** ** | ** ** | **Total  Warrants  Outstanding** | ** ** | **Weighted  Average  Remaining  Life (Years)** | ** ** | **Total  Weighted  Average  Exercise   Price** | ** ** | **Warrants  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|-----------------------------------------|------------|------------|------------|----------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------|------------|----------------------------------------|------------|
| $0.24 -  $1.00                          |       |       | 187,499    |                             |       |                                                | 1.29       |                                                |       |                      | $          | 0.24                                   |       |   |   | 187,499 |   |   |   | $ | 0.24 |   |   |
| $1.01 -  $5.00                          |       |       | 27,429     |                             |       |                                                | 0.67       |                                                |       |                      | $          | 2.19                                   |       |   |   | 27,429 |   |   |   | $ | 2.19 |   |   |
| $0.24 - $5.00                           |       |       | 214,928    |                             |       |                                                | 1.13       |                                                |       |                      | $          | 0.49                                   |       |   |   | 214,928 |   |   |   | $ | 0.49 |   |   |

 

**6.**                 EmployeeBenefit Plan

The Company has a definedcontribution 401(k) employee retirement plan (the “Plan”). Under the termsof this Safe Harbor Plan, (covering the period of 4/1/06 to 3/31/07) theQualified Matching Contribution is defined as follows: The matchingcontribution of 100% of salary deferral contributions up to 3% of pay, plus 50%of salary deferral contributions from 3% to 5% of pay for the plan year, fiscalyear ended March 31, 2007. The pay may be restricted to the annual paylimit announced by the IRS*. (* This limit will be adjusted to reflect anyannual cost-of living increases announced by the IRS.) All eligible employeesmay participate in this plan. After meeting the three-month minimum ofemployment with the Company, employees become eligible and may choose to enrollat the next quarterly open enrollment. Contributions to the Plan for fiscalyear 2006 and 2007 were $95,000 and $110,000 respectively.

**7.**                 LegalProceedings

The Company may besubject, from time to time, to various legal proceedings relating to claimsarising out of its operations in the ordinary course of its business. TheCompany currently is not party to any legal proceedings, the adverse outcome ofwhich, individually or in the aggregate, management believes would have amaterial adverse effect on the business, financial condition or results ofoperations of the Company.

**8.**                 SubsequentEvents (Unaudited)

On April 11, 2007, the Company completed theacquisition of a controlling position in Mica-Tech, Inc., in acash-for-stock transaction. Under the terms of the agreement, AML purchased 51%or 

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**AML COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2007**

4,146,400 shares ofMica-Tech’s outstanding common stock for an aggregate price of $800,000.Mica-Tech, Inc., designs, manufactures, and markets an intelligentsatellite communication system to provide Supervisory Control And DataAcquisition (SCADA) of the electric power grid. The satellite system ismarketed to power utility companies and enables remote control of substationsfor reducing black-outs and enhancing power/load regulation during peak demandhours. The Federal Energy Regulatory Commission (FERC) has mandated the powerutility companies to electronically control substations for purposes ofmonitoring power quality and increase power grid reliability. Mica-Tech’ssatellite system provides an immediate and low cost solution for substationcontrol. Mica-Tech has successfully deployed its products with a major SouthernCalifornia utility company. Penetration into the countrywide utility companiesmarket is in the initial phase. Mica-Tech’s website is located athttp://www.mica-tech.com.

The Company paid $210,000 of the purchase pricethrough the cancellation of Mica-Tech’s two promissory notes in the aggregateprincipal amount of $210,000 and $590,000 of the purchase price was paid incash. The cash portion of the purchase consideration was paid from workingcapital of the Company.

Asummary of the assets acquired and liabilities for Mica-Tech assumed in theacquisition is as follows:

| Estimated fair values: |   |       |      |
|------------------------|--------|------------|-----------|
| Current Assets         |   | $          | 529,000   |   |
| Liabilities  assumed   |   | (1,166,000 | )         |
| Net assets  acquired   |   | (637,000   | )         |
| Consideration  paid    |   | 800,000    |      |
| Goodwill               |   | $          | 1,437,000 |   |

 

Goodwill of $1,437,000represents the excess of the purchase price over the fair value of the nettangible and identifiable intangible assets acquired.

**9.**                 SupplementalDisclosure of Cash Flows

The Company prepares its statements of cash flowsusing the indirect method as defined under the Financial Accounting Standard95.

The Company paid $0 and $32,000income tax and $74,000 and $40,000 interest during the years ended March 31,2007 and 2006, respectively.

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**ITEM 8.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

**ITEM 8A.**        CONTROLSAND PROCEDURES

(a)           *Evaluationof disclosure controls and procedures*.   As of the end of theperiod covered by this report, we carried out an evaluation, under thesupervision and with the participation of our management, including our ChiefExecutive Officer and Director of Finance, of the effectiveness of the designand operation of our disclosure controls and procedures, as defined inRules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended. Based upon that evaluation, our ChiefExecutive Officer and Director of Finance concluded that our disclosurecontrols and procedures were effective as of the end of the applicable periodto ensure that the information required to be disclosed by the Company inreports that it files or submits under the Exchange Act (i) is recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms and (ii) is accumulatedand communicated to our management, including our Chief Executive Officer andDirector of Finance, as appropriate to allow timely decisions regardingrequired disclosures.

(b)          *Changes in internal controls over financial reporting*.   Therewas no change in our internal control over financial reporting during our mostrecent fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

**ITEM 8B.**       OTHERINFORMATION

Not Applicable.

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**PART III**

**ITEM 9.**                DIRECTORS,EXECUTIVE OFFICERS OF REGISTRANT

Information required bythis item is incorporated by reference to the information under the captions“Executive Compensation” and “Election of Directors” in the Company’sdefinitive proxy statement for the 2007 Annual Meeting of Stockholders to beheld on September 13, 2007.

**ITEM 10.**         EXECUTIVECOMPENSATION

Information required bythis item is incorporated by reference to the information under the captions“Executive Compensation” and “Election of Directors” in the Company’sdefinitive proxy statement for the 2007 Annual Meeting of Stockholders to beheld on September 13, 2007.

**ITEM 11.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information required bythis item is incorporated by reference to the information under the caption“Principal Stockholders” in the Company’s definitive proxy statement for the2007 Annual Meeting of the Stockholders to be held on September 13, 2007.

**ITEM 12.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS

Information required bythis item is incorporated by reference to the information under the caption“Certain Relationships and Related Transactions” in the Company’s definitiveproxy statement for the 2007 Annual Meeting of Stockholders to be held onSeptember 13, 2007.

**ITEM13.**         EXHIBITS AND REPORTS ON FORM 8-K

**(a)   The following are attached as Exhibits tothis Form 10-KSB:**

| 2.1   |   | Merger  Agreement entered into as of May 25, 2004 by and among AML  Communications Inc., a Delaware corporation, AML Holdings, LLC, a California  limited liability company and Microwave Power, Inc., a California  corporation(1) |
|-------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1   |   | Certificate  of Incorporation(2)                                                                                                                                                                                                              |
| 3.2   |   | Bylaws(2)                                                                                                                                                                                                                                     |
| 10.1  |   | Form of  Indemnity Agreement(2)                                                                                                                                                                                                          |
| 10.2  |   | Lease,  dated March 11, 1996, between the Company and Parr-Bohn  Properties, Ltd. II, a California Limited Partnership(3)                                                                                                                |
| 10.3  |   | Intellectual  Property Security Agreement(4)                                                                                                                                                                                                  |
| 10.4  |   | Loan  and Security Agreement dated November 10, 2000 between the Company and  Silicon Valley Bank(5)                                                                                                                                     |
| 10.5  |   | Intellectual  Property Security Agreement dated November 10, 2000 between the Company  and Silicon Valley Bank(5)                                                                                                                        |
| 10.6  |   | Warrant  to purchase stock dated November 9, 2000 between the Company and Silicon  Valley Bank(5)                                                                                                                                        |
| 10.7  |   | Accounts  Receivable Purchase Agreement dated November 20, 2001 between AML  Communications, Inc. and Silicon Valley Bank(6)                                                                                                             |
| 10.8  |   | Promissory  Note dated December 30, 2001 between Tiberiu, Mazilu, and AML  Communications Inc.(6)                                                                                                                                        |
| 10.9  |   | Accounts  Receivable Purchase Modifications Agreement dated September 24, 2003  between Silicon Valley Bank and AML Communications(7)                                                                                                    |
| 10.10 |   | Form of  Promissory Note date July 16, 2003 between the Company and the  following: Jacob Inbar, Tiberiu Mazilu, Edwin McAvoy, Gerald Starek, Bob M.  Hawkins, and The Oliver Family Trust(7)                                       |

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| 10.11 |   | Form of  Warrant dated July 16, 2003 between the Company and the following: Jacob  Inbar, Tiberiu Mazilu, Edwin McAvoy, Gerald Starek, Bob M. Hawkins, and The  Oliver Family Trust(7) |
|-------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.12 |   | Fourth  Amended and Restated 1995 Stock Option Agreement at June 10, 2002(8)                                                                                                                |
| 10.13 |   | Parr-Bohn  Properties First Amendment to lease of 1000 Avenida Acaso, Camarillo, CA.(8)                                                                                                          |
| 10.14 |   | Employment  Agreement with Dr. Marina Bujatti, of MPI, dated June 18, 2004.(8)                                                                                                         |
| 10.15 |   | Employment  Agreement with Dr. Franco Sechi, of MPI, dated June 18, 2004.(8)                                                                                                           |
| 10.16 |   | Interim  Lease and Proposed Lease Terms(9)                                                                                                                                                       |
| 10.17 |   | Financing  Agreement dated July 8, 2004 with Bridge Bank(10)                                                                                                                                |
| 10.18 |   | Enterprise  Agreement Number 4627 dated August 26, 2004(11)                                                                                                                                 |
| 10.19 |   | Business  Financing Modification with Bridge Bank, dated December 23, 2005(12)                                                                                                              |
| 10.20 |   | Business  Financing Modification with Bridge Bank dated January 19,2006(12)                                                                                                                 |
| 10.21 |   | Fifth  Amended and Restated 1995 Stock Option Agreement at July 12, 2005(13)                                                                                                                |
| 10.22 |   | Loan  Agreement with Bank of America for purchase of MPI building(12)                                                                                                                            |
| 10.23 |   | 2005  Equity Incentive Plan(14)                                                                                                                                                                  |
| 10.24 |   | Business  Financing Agreement with Bridge Bank dated July 17, 2006(15)                                                                                                                      |
| 10.25 |   | Stock  Purchase Agreement with Mica-Tech, dated April 11, 2007(16)                                                                                                                          |
| 10.26 |   | Option  Agreement with shareholders and optionholders of Mica-Tech, dated  April 11, 2007(16)                                                                                               |
| 31.1  |   | Certification  by the Chief Executive Officer(17)                                                                                                                                                |
| 31.2  |   | Certification  by the Director of Finance(17)                                                                                                                                                    |
| 32    |   | Certification  pursuant to Section 906 of the Sarbanes Oxley Act(17)                                                                                                                        |

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       (1) Previously filed with the Securities and Exchange Commission as Exhibit 10.13to the company’s Form 10-KSB for the fiscal year ended March 31,2004.

       (2) Previously filed with the Securities and Exchange Commission as anexhibit to the Registration Statement on Form SB-2 (No. 33-99102-LA)and incorporated herein by reference.

       (3) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 10-KSB for fiscal year ended March 31,1996 and incorporated herein by reference

       (4) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 10-QSB for the quarter ended December 31,1999 and incorporated herein by reference.

       (5) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 10-QSB for the quarter ended September 30,2000 and incorporated herein by reference.

       (6) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 10-QSB for the quarter ended December 31,2001 and incorporated herein by reference.

       (7) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 10-QSB for the quarter ended December 31,2002 and incorporated herein by reference.

       (8) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 10-KSB for the fiscal year ended March 31,2004 and incorporated herein by reference.

       (9) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 8-K dated July 6, 2004 andincorporated herein by reference.

(10) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 10-QSB for the quarter ended June 30,2004 and incorporated herein by reference.

(11) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 8-K dated May 4, 2007 (unredactedversion) and incorporated herein by reference.

(12) Previously filed with Securities and Exchange Commission as anexhibit to the Company’s Form 10-QSB for the quarter ended December 31,2005 and incorporated herein by reference.

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(13) Previously filed with the Securities and Exchange Commission as anattachment to the Company’s Proxy Statement dated July 29, 2005.

(14) Previously filed with Securities and Exchange Commission as anexhibit to the Company’s Form S-8 Registration Statement (no. 333-131588)dated February 6, 2006 and incorporated herein by reference.

(15) Previously filed with Securities and Exchange Commission as anexhibit to the Company’s Form 10-QSB for the quarter ended June 30,2006 and incorporated herein by reference.

(16) Previously filed with the Securities and Exchange Commission as anexhibit to the Company’s Form 8-K dated April 20, 2007 andincorporated herein by reference.

(17)   Filedherewith.

**ITEM 14.**         PRINCIPALACCOUNTANT FEES AND SERVICES

Thefollowing table sets forth fees billed to us by our auditors during the fiscalyears ended March 31, 2006 and March 31, 2007 for: (i) servicesrendered for the audit of our annual financial statements and the review of ourquarterly financial statements, (ii) services by our auditor that arereasonably related to the performance of the audit or review of our financialstatements and that are not reported as Audit Fees, (iii) servicesrendered in connection with tax compliance, tax advice and tax planning, and (iv) allother fees for services rendered. “All other fees” include fees related to (orpaid for) in the fiscal year ended March 31, 2006 and fees related tofiscal year ended March 31, 2007.

| ** ** | ** ** | ** **          | ** ** | **For the period ending** | ** ** |
|------------|------------|---------------------|------------|------------------------------------------|------------|
| ** ** | ** ** | ** **          | ** ** | **March 31, 2006**             | ** ** | **March 31, 2007** | ** ** |
| (i)        |       | Audit fees          |       |                                     | $          | 63,000 |   |   |   | $ | 59,000 |   |   |
| (ii)       |       | Audit related  fees |       |                                     | 25,000     |   |   |   | — |   |   |
| (iii)      |       | Tax fees            |       |                                     | —     |   |   |   | — |   |   |
| (iv)       |       | All other fees      |       |                                     | 2,000      |   |   |   | — |   |   |
|       |       |                |       |                                     | $          | 90,000 |   |   |   | $ | 59,000 |   |   |

 

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**SIGNATURES**

Inaccordance with Section 13 or 15(d) of the Exchange Act, theregistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

|        |   | **AML COMMUNICATIONS, INC.**     |
|--------|--------|---------------------------------------|
|   | By:    | /s/ JACOB INBAR                       |
|   |   | Jacob Inbar,                          |
|   |   | President and Chief Executive Officer |
|   |   | Dated: June 29, 2007             |

 

KNOW ALL THESE PERSONS BY THESE PRESENTS, that eachperson whose signature appears below constitutes and appoints Jacob Inbar andHeera Lee, and each of them, jointly and severally, his attorneys in fact, eachwith full power of substitution, for him in any and all capacities, to sign anyand all amendments to this Report on Form 10-KSB, and to file thesame, with exhibits thereto and other documents in connection therewith, withthe Securities and Exchange Commission, hereby ratifying and confirming allthat each said attorneys-in-fact or his substitute or substitutes, may do orcause to be done by virtue hereof.

Inaccordance with the Exchange Act, this report has been signed below by thefollowing persons on behalf of the registrant and in the capacities and on thedates indicated.
|                        | **Signature** | ** **                                     | ** ** | ** **          | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|------------------------|---------------|------------------------------------------------|------------|---------------------|-----------|------------|------------|------------|----------|------------|
| /S/ JACOB  INBAR       |          | President, Chief  Executive Officer and        |       | June 29, 2007  |
|                   |          | Chairman of the Board                          |       |                |
| /S/ TIBERIU  MAZILU    |          | Vice President-Engineering  and Director       |       | June 29, 2007  |
| /S/ EDWIN J.  MCAVOY   |          | Secretary, Vice  President-Sales, and Director |       | June 29, 2007  |
| /S/ HEERA LEE          |          | Director of Finance and Principal Accounting   |       | June 29, 2007  |
|                   |          | Officer                                        |       |                |
| /S/ RICHARD W.  FLATOW |          | Director                                       |       | June 29, 2007  |
| /S/  GERALD M. STAREK  |          | Director                                       |       | June 29,  2007 |

 

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