**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-KSB/A**

 
| **ý** | **ANNUAL  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                          |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** **                                                                                                                                                                                        |
| ** ** | **For the fiscal year ended March 31,  2004**                                                                                                                                                |
| ** ** | ** **                                                                                                                                                                                        |
| **o**      | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                      |
| ** ** | ** **                                                                                                                                                                                        |
| ** ** | **For the transition period  from             to             ** |

 

**Commission File Number 0-27250**

 

**AML COMMUNICATIONS, INC.**

(Exact name of Registrant as specified in itscharter)

 
| **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 to Section 12(b)  of the Act: |

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

 
| Securities registered pursuant to Section 12(g)  of the Act:  Title of Class |
|-----------------------------------------------------------------------------------|
| **Common Stock, $.01 par value**                                                  |

 

Check whether the issuer (1) filed all reports required to befiled by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the Registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days. Yes ý  No o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B contained in this form, and will not becontained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-KSB or any amendment to this Form 10-KSB. o

 

Issuer’s revenues for its most recent fiscal year: $6,976,000

 

The aggregate market value of the voting and non-voting common equityheld by non-affiliates of the Registrant on June 18, 2004 wasapproximately $6,705,644. The per share stock price for computational purposeswas $1.25, based on the closing sale price per share for the Registrant’scommon stock on the OTC Bulletin Board on June 18, 2004. This value is notintended to be a representation as to the value or worth of the Registrant’scommon stock. The number of non-affiliates of the Registrant has beencalculated by subtracting the number of shares held by persons affiliated withthe Registrant from the number of outstanding shares.

 

The number of shares of the Registrant’s common stock outstanding on June 18,2004 was 7,837,584.

 

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant’sdefinitive Proxy Statement for the Annual Meeting of Stockholders to be held onSeptember 2, 2004, are incorporated by reference into Part III ofthis Form 10-KSB. The Proxy Statement will be filed within 120 daysafter the end of the fiscal year covered by this report.

 

Transitional Business Disclosure Format(Check One). Yes o  No ý

 

 

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EXPLANATORY NOTE

 

This annual report on Form 10-KSB/A is an amendment to the Form 10-KSB filed by the Registrant on June 29, 2004.

 

This annual report on Form 10-KSB/A is being filed to reflect the restatement of the Registrant’s Financial Statements (the “Restatement”). The restatement reflects the following:

 

•                  Additionaldisclosure of Revenue Recognition policies in accordance with SAB 101, asamended by SAB 104

•                  Reclassificationof related notes payable from long term liabilities to current liabilities

•                  Reclassificationof amounts previously shown on the statement of operations, as a gain in thechange in method of inventory overhead allocation to cost of sales, tocorrectly reflect the guidelines of APB 20, for the year ended March 31,2003

•                  Additionaltax footnote disclosures in connection with the tax provision at the March 31,2004 year end

•                  Additionaldisclosure relating to the acquisition of MPI, it’s cost structure, and the keyfactors for the acquisition

 

THIS REPORT DOES NOT OTHERWISE ATTEMPT TO UPDATE THE INFORMATION PROVIDED HEREIN BEYOND THE ORIGINAL FILING DATE.

 

 

**AML COMMUNICATIONS, INC.**

 

**INDEX TO FORM 10KSB/A**

 
| **PART I**     |                                                                                                               |   |
|----------------|--------------------------------------------------------------------------------------------------------------------|--------|
| ** **     |                                                                                                               |   |
| Item 1.        | Description of Business                                                                                            |   |
|           |                                                                                                               |   |
| Item  2.       | Description of Property                                                                                            |   |
|           |                                                                                                               |   |
| Item  3.       | Legal Proceedings                                                                                                  |   |
|           |                                                                                                               |   |
| Item 4.        | Submission of Matters to a vote of Security  Holders                                                               |   |
|           |                                                                                                               |   |
| **PART II**    |                                                                                                               |   |
| ** **     |                                                                                                               |   |
| Item 5.        | Market for Registrant’s Common Stock and  Related Stockholder Matters                                         |   |
|           |                                                                                                               |   |
| Item  6.       | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        |   |
|           |                                                                                                               |   |
| Item 7.        | Financial Statements (As restated)                                                                                 |   |
|           |                                                                                                               |   |
| Item 8.        | Changes In and Disagreements with  Accountants on Accounting and Financial Disclosure                              |   |
|           |                                                                                                               |   |
| Item 8A.       | Controls and Procedures                                                                                            |   |
|           |                                                                                                               |   |
| **PART III**   |                                                                                                               |   |
| ** **     |                                                                                                               |   |
| Item 9.        | Directors, Executive Officers, Promoters and  Control Persons/Compliance with 16(a) of the Securities Exchange Act |   |
|           |                                                                                                               |   |
| Item 10.       | Executive Compensation                                                                                             |   |
|           |                                                                                                               |   |
| Item 11.       | Security Ownership of Certain Beneficial  Owners and Management                                                    |   |
|           |                                                                                                               |   |
| Item 12.       | Certain Relationships and Related  Transactions                                                                    |   |
|           |                                                                                                               |   |
| Item 13.       | Exhibits and Reports on Form 8-K                                                                              |   |
|           |                                                                                                               |   |
| Item 14.       | Principal Accountant Fees and Services                                                                             |   |
|           |                                                                                                               |   |
| **SIGNATURES** |                                                                                                               |

 

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**Introductory Notes—Forward Looking Statementsand Certain Terminology**

 

Some of the statements made by us in this Annual Report onForm 10-KSB/A are forward-looking in nature, including but not limited to,statements relating to our future revenue, product development, demand,acceptance and market share, gross margins, levels of research and development,our management’s plans and objectives for our current and future operations,and other statements that are not historical facts. Forward-looking statementsinclude, 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 section titled“Management’s Discussion and Analysis of Financial Condition and Results ofOperations”. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof. Weundertake no obligation to publicly release any revisions to theseforward-looking statements that may reflect events or circumstances after thedate hereof or to reflect the occurrence of unanticipated events.

 

In this document, the words “we,” “our,” “ours,” and “us” refer toAML Communications Inc.

 

**PART I**

 

**ITEM 1.****DESCRIPTION OF BUSINESS**

 

**Introduction**

 

We were incorporated in California in 1986 as Advanced MilliwaveLaboratories, Incorporated. Early in 1994, we changed our name to AMLCommunications, Inc. In December 1995, in conjunction with theinitial public offering of our common stock, we changed our state ofincorporation from California to Delaware. In May 1996, we moved ourprincipal office and manufacturing facility to our current location, 1000Avenida Acaso, Camarillo, California, 93012.

 

We currently design, manufacture, and market RF and microwave, powerand low noise amplifiers for a variety of frequency ranges and transmissionprotocols serving the defense microwave and wireless communications markets.Our defense industry products are used in communications equipment integratedinto electronic systems for tactical aircraft, ships, ground systems, andmissile systems. Our wireless products consist of an array of low noise andpower amplifiers serving the wireless, PCS, and two-way messaging market aswell as Cellular Coverage Enhancement amplifiers.

 

We were founded to develop and manufacture hybrid microcircuit microwaveand RF amplifiers to support the communications market. In 1994, we becameactive in the Wireless market and developed a multicarrier linear poweramplifier supporting this market in the 300-450 MHz range. In late 1994, wedeveloped a multicarrier linear RF power amplifier specifically for boostingsignal strengths in the cellular communications market and marketed thismulticarrier product directly to the domestic cellular service providers.During 1995 and 1996, we developed derivative multicarrier cellular products atalternative power levels to support differing needs in the service providermarket.

 

In the fourth quarter of fiscal 1997, we experienced a significantdecrease in our revenue, attributable to several factors. Original equipmentmanufacturers (OEMs) offered significantly reduced prices on their improvedbase station products, and the service providers began to outsource theinfrastructure build out and maintenance to their OEM equipment providers whoused 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 US market.

 

1

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As a result, we decided to change our market focus and concentrate onselling to the OEM customer base. Late in fiscal 1997, we entered the satellitecommunications gateway market by offering a high power linear amplifier fordata transmission applications in a Low Earth Orbit (LEO) network. In fiscal1998, we received significant revenue from an OEM in the South American marketand introduced products for the PCS markets and the two-way messaging market.We also invested heavily in wireless products for the Korean and European OEMs.

 

During fiscal 1999, we developed a new generation of our originalcellular multicarrier products and continued to develop and diversify ourcustomer base. We experienced significant negative impacts to our revenuebecause of the delay and cancellation of programs.

 

In August 1999, we received our ISO 9001 certification, a uniformworldwide quality management system standard and undertook the transition ofour production technology from traditional batch assembly to a flexible,self-balancing, one piece flow process. We believethis substantially increased our capacity and production efficiency to supportgrowth.

 

In January 2000, to expand our Defense Microwave product line, wepurchased a product line and certain assets of a company serving the militarysmall signal amplifier market. This purchase was intended to bolster ourDefense Microwave product line and position that segment of our business forfuture growth in the market.

 

We believe our future success depends upon our ability to broaden ourproduct offerings, continue to increase our defense microwave customer base,and capture volume product delivery opportunities with increased gross margins.While we continually attempt to expand our customer base, we cannot give anyassurance that a major customer will not reduce, delay, or eliminate itspurchases from us. Such a reduction would have a material adverse effect on ourbusiness, results of operations, and financial condition.

 

A limited number of OEMs account for a majority of amplifierpurchasers in the communications equipment market, and our future success isdependent upon our ability to establish and maintain relationships with thesetypes of customers. Additionally our future depends on our ability to generatenew products, mostly as part of a standard line of products (i.e. products wedeveloped that are intended to be sold to many customers).

 

We have experienced, and expect to continue to experience, decliningaverage sales prices for our products. Consequently, 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 the Company will be able to develop products thatwill generate higher gross margins, or that we will be able to reducemanufacturing costs.

 

**Business Strategy**

 

The return of Jacob Inbar and the other co-founders in February 2001, resulted in our re-direction toward the defensemarkets. As such, we moved rapidly to utilize our knowledge base in DefenseMicrowave related design and manufacturing to offer new products, as well asvariations of existing products. The results of this strategy have been anincrease in revenues for Defense related products from $2.8 million infiscal 2002 to $3.7 million in fiscal 2003, and an increase to$6.3 million in fiscal 2004.

 

Utilizing our extensive knowledge in Microwave Integrated Circuits (“MIC”)design capabilities, we have expanded the products we offer as part of our fullline catalog. Such products are designed for and marketed to the DefenseMicrowave market. We also intend to utilize the MIC design capabilities towardhigher value added products such as subsystems.

 

2

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Due to our limited financial resources, as well as the adverse effectsof the global downturn in the wireless telecommunications infrastructure spending,we will limit the level of new product introductions to this market to thosewhich will provide adequate margins or those in which potential or existingcustomers will share the costs of the new product development. Therefore, we donot intend to introduce new products for the Telecom Wireless Market.

 

In June 2004, we completed the acquisition of Mircrowave Power,Inc. (referred to in this discussion as “MPI”). The acquisition of MPI is partof a strategic move to complement the existing AML product line and expand ourtechnology base. We plan to operate MPI from the current facility in SantaClara, with the current management in place, but plan to unify the Web-site ofMPI with ours for better market exposure with intent to offer a “one stop shop”for customers seeking low noise and high power amplifier solutions.

 

**Markets**

 

We sell our RF/Microwave amplifier products into various segments ofthe communications market with primary focus on the Defense Microwavemarketplace and to a lesser degree on segments of the wireless communications(PCS and two-way messaging), and Cellular Coverage Enhancement markets. Infiscal 2004, we derived approximately 90.8% of our revenues from the DefenseMicrowave market, 0.1% from the PCS and two-way messaging market, and 9.1% fromCellular Coverage Enhancement products. In comparison, in fiscal 2003 wederived 81.7% from Defense Customers, 4.8% from PCS and two-way messaging, and13.5% from Cellular Coverage Enhancement products.

 

*DefenseMicrowave Amplifiers.*  These hybrid microwave circuits utilizing MICtechnology are sold to Defense OEM customers with broadband, microwavefrequency, component requirements. These parts typically support applicationsincluding surveillance, signal detection, satellite communication, radar andtelemetry. They are used in both the transmission and reception signal paths.The technology permits accurate, reproducible, volume products supporting broadbandwidths and higher frequencies to be designed and manufactured. Moderatevolume requirements and custom design requirements characterize this market.

 

*Cellularand PCS.* Cellular networks utilize a number of base stations with high powerantennas to serve a geographical region. Each region is broken down into anumber of smaller geographical areas, or “cells.” Each cell has its own basestation which uses wireless technology to receive subscriberscalls and transmit those calls through the wireline Public Switched TelephoneNetwork (PSTN). Cellular networks operate within the 800 and 900 MHz bandwidthsof the radio spectrum. PCS networks operate in a substantially similar manneras cellular networks, except that PCS networks operate at 1800 and 1900 MHzbandwidths and utilize only digital transmission protocols. Transmissions atthe higher frequencies utilized by PCS networks have shorter transmission wavesas compared to cellular frequency transmissions, which tends to limit thedistances PCS transmissions can travel without significant degradation. Lowerfrequency signals penetrate into buildings and other obstacles better thanhigher frequency signals. Therefore, PCS networks operating at the higherfrequency ranges should require smaller operating cells and more base stationsthan existing cellular networks to cover the same total geographic region. Tothe Cellular and PCS markets, we provide linear multi-carrier RF low noiseamplifiers, which are located in base stations and work to increase the signalstrength of the received signal. The strategy of the cellular companies toexpand service utilizing the existing infrastructure while buying performanceenhancement devices, the kind manufactured by us, offers the possibility ofadditional sales in this marketplace.

 

*Two-WayMessaging.* The two-way messaging networks consist of a substantial number of localand nationwide transceivers that distribute and collect information fromnumerous handheld wireless messaging handsets. These handsets allow the user toperform functions such as accessing the internet, retrieving and responding toe-mail, and instant messaging, among others. The two-way messaging

 

3

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protocols are being adapted to delivergreater amounts of digital information, requiring high power, linearamplification for transmission from the base stations, and low noise towermount receive amplifiers to maximize the sensitivity of the base stationreception. We have provided low noise tower-mount receiveamplifiers and RF power amplifiers to two-way messaging OEM’s as well as toseveral network operators. Currently, the two largest markets for wirelessmessaging products are the U.S. and China.

 

**Products**

 

We designed and/or manufactured during the year low noise and poweramplifiers that were sold primarily into the Defense Microwave markets and to alesser degree to the Cellular and PCS, and two-way messaging markets.

 

*DefenseMicrowave.* We produce standard and custom hybrid microwave amplifier products. Wealso produce derivative products that are based upon minor modification ofthese items. The frequencies for these products range from 50kHzto 26GHz. Power levels range from less than one milliwatt to several watts.

 

*Cellularand PCS.* We have offered and continue to offer our coverage and capacityenhancing power and low noise amplifiers to the cellular and PCS marketplace.Within this product line are linear multicarrier RF power amplifiers suitablefor use in the amplification of analog and digital communications formats.These products range in power levels from 30 to 140 watts and provide flexiblefeatures/options such as AC or DC supply operation, replaceable input modulesthat allow wide variation and combination of signal gain and connection types.For the PCS market, we have developed several RF low noise receive and singlechannel power amplifiers for various OEMs. These products offer costeffective amplification of their respective formats to support the OEMrequirements. Typical power levels range from 4 watts to 80 watts.

 

*Two-WayMessaging.* We have developed a wide range of receive products to support thetwo-way messaging market. These products include tower mount receiveamplifiers, RF power amplifiers, and base station receive multi-couplers. Webelieve these products offer excellent performance in terms of maximizing receivesensitivity while minimizing the effects of interference from alternativeservices. We also offer derivative products of our cellular RF power amplifierproduct line to support the two-way messaging base station transmissionrequirements.

 

Our power amplifiers range in price from $500 to over $10,000 peramplifier, depending upon technology, complexity, quantity, and implementation.Our receive products range in price from $400 to $7,000 per amplifier,depending upon system requirements and implementation.

 

**Customers**

 

We sell products to wireless and Defense OEM manufacturers worldwide,including Raytheon, Boeing, Lockheed Sanders, Rockwell, ITT, andL3-Communications. We sell products to wireless network operators such asAT&T Wireless Services, Cingular Wireless and Verizon Wireless.

 

For the fiscal year ended March 31, 2004, our largest customer wasRaytheon, which accounted for approximately 13.3% of net sales. DFAS was oursecond largest customer with approximately 12.4% of net sales. For fiscal yearended March 31, 2003, DFAS was our largest customer accounting for 16.8%of net sales, with Raytheon as our second largest customer with approximately11.2% of net sales. The loss of either of these customers, or a significantloss, reduction or rescheduling of orders from any of our customers could havea material adverse effect on our business, results of operations and financialcondition.

 

4

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We rely heavily on acquiring new customers. The acquisition rate fornew Defense Microwave customers during fiscal 2004 was approximately 4 newcustomers per quarter compared to approximately 1 new customer per quarter forfiscal 2003.

 

**Marketing and Distribution; International Sales**

 

We sell our products through a combination of a technically proficientdirect sales force and a network of independent sales representatives selectedfor their familiarity with our potential customers and their knowledge of theDefense microwave markets. Both the direct sales personnel and independentsales representatives generate product sales, provide product and customerservice, and provide customer feedback for product development. In addition,the sales personnel and independent sales representatives receive support fromour marketing, product support and customer service departments.

 

Our marketing efforts are focused on establishing and developinglong-term relationships with potential customers. Sales cycles for certain ofour products are lengthy, typically ranging from six to eighteen months. Ourcustomers typically conduct significant technical evaluations of our productsbefore making purchase commitments. In addition, as is customary in theindustry, sales are made through standard purchase orders, which can be subjectto cancellation, postponement, or other types of delays. While certaincustomers provide us with forecasted needs, they are not bound by suchforecasts.

 

During the fiscal years ended March 31, 2004, international saleswere $1.0 million or 14.8% of net sales as compared to $266,000 or 5% ofnet sales in March 2003.

 

**Warranty**

 

Our warranty varies by product type and typically covers defects inmaterial and workmanship for one year from the date of delivery. We performwarranty obligations and other maintenance services at our facilities inSouthern California.

 

**Product Development**

 

We invest significant resources in the research and development of newmethods to improve amplifier performance, including reduced noise,and increased efficiency in the RF amplification process as well as seeking toreduce the cost and increase the manufacturing efficiency of new and existingproducts. Our research and development staff consisted of 9 people as of March 31,2004. Expenditures for research and development amounted to approximately$723,000 in fiscal 2004 and $1.2 million in fiscal 2003.

 

**Competition**

 

The Defense Microwave industry is highly competitive. Our maincompetitors include Celeritek, Miteq, CTT, and JCA Technology. Although most ofthe competitors have significantly higher resources than we have, we believethat our technical abilities in implementing MIC amplifiers do not differ toany great degree. We utilize our technological knowledge as well as price tocompete effectively.

 

We have experienced significant price competition and expect pricecompetition in the sale of RF/Microwave amplifiers to increase. No assurancecan be given that our competitors will not develop new technologies orenhancements to existing products or introduce new products that will offersuperior price or performance features. We expect our competitors to offer newand existing products at prices necessary to gain or retain market share. Someof our competitors have substantial financial resources, which may enable themto better withstand sustained price competition or a market downturn. There canbe no assurance that we will be able to compete successfully in the pricing ofour products, or otherwise.

 

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**Manufacturing and Suppliers**

 

Our headquarters and our manufacturing facility are located inCamarillo, California. Our manufacturing process involves the assembly ofnumerous individual components and precise fine-tuning by productiontechnicians. The parts and materials we use consist primarily of specializedprinted circuit boards, specialized subassemblies, fabricated housings, andsmall electric circuit components, such as integrated circuits, semiconductors,resistors and capacitors.

 

We maintain our ISO 9001 certification, a uniform worldwide qualitymanagement system standard, on our headquarters and manufacturing facilitylocated in Camarillo, California. Numerous customers and potential customersthroughout the world, particularly in Europe, require their suppliers be ISOcertified. In addition, many customers require their suppliers to purchasecomponents only from subcontractors that are ISO certified. We are currently inthe process of preparing for re-certification to the new ISO 9001-2000standard.

 

We currently procure, and expect to continue to procure, certaincomponents from single source manufacturers due to unique component designs aswell as certain quality and performance requirements. In addition, in order totake advantage of volume pricing discounts, we purchase certain customizedcomponents from single sources. Although we did not experience shortages duringfiscal year 2004, we have experienced this in the past, and may again in thefuture experience shortages of single-source components. In such event, we mayhave to make adjustments to both product designs and production schedules,which could result in delays in production and delivery of products. Suchdelays could have an adverse effect on our operating results and financialcondition.

 

**Intellectual Property**

 

We rely on trade secrets and execute confidentiality and non-disclosureagreements with our employees and limit access to and distribution of ourproprietary information. We own several patents relating to multi-carrier poweramplifier circuits and implementation. We have an on-going program, whichencourages applications for both U.S. and international patents for variousaspects of our technology. These efforts allow us to rely upon the knowledgeand experience of our management and technical personnel and our ability tomarket our existing products and to develop new products. The departure of anyof our management and technical personnel, the breach of their confidentialityand non-disclosure obligations with us, or the failure to achieve ourintellectual property objectives may have a material adverse effect on ourbusiness, financial condition and results of operations.

 

We believe our success depends upon the knowledge and experience of ourmanagement and technical personnel and our ability to market our existingproducts and to develop new products. We do not have non-compete agreementswith our employees who are employed on an “at-will” basis. Therefore, employeesmay, and have, left us to go to work for a competitor. While we believe that wehave adequately protected our proprietary technology, and we will take allappropriate and reasonable legal measures to protect it, the use of ourprocesses by a competitor could have a material adverse effect on our business,financial condition and results of operations.

 

Our ability to compete successfully and achieve future revenue growthwill depend, in part, on our ability to protect our proprietary technology andoperate without infringing upon the rights of others. We may not be able tosuccessfully protect our intellectual property and our intellectual property orproprietary technology may otherwise become known or be independently developedby competitors. In addition, the laws of certain countries in which ourproducts have been or may be sold may not protect our products and intellectualproperty rights to the same extent as the laws of the United States.

 

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The inability to protect our intellectual property and proprietarytechnology could have a material adverse effect on our business, financialcondition and results of operations. As the number of patents, copyrights andother intellectual property rights in our industry increases, and as thecoverage of these rights and the functionality of the products in the marketfurther overlap, we believe that companies in our industry may face morefrequent infringement claims. We may in the future be notified that we areinfringing upon certain patent or other intellectual property rights of others.Although we are not aware of any pending or threatened intellectual propertylawsuits against us, we cannot guarantee that such litigation or infringementclaims will not occur in the future. Such litigation or claims could result insubstantial costs and diversion of resources and could have a material adverseeffect on our business, results of operations and financial condition. A thirdparty claiming infringement may also be able to obtain an injunction or otherequitable relief, which could effectively block our ability or our customer’sability to distribute, sell, or import allegedlyinfringing products. If it appears necessary or desirable, we may seek licensesfrom third parties covering intellectual property that we are allegedlyinfringing. No assurance can be given, however, that any such licenses could beobtained on terms acceptable to us, if at all. The failure to obtain thenecessary licenses or other rights could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

**Government Regulation**

 

Radio frequency transmissions and emissions, and certain equipment usedin connection therewith, are regulated in the United States, Canada andinternationally. We often must obtain regulatory approval in connection withthe manufacture and sale of our products, and by our customers to operate ourproducts. We cannot assure you that the United States Federal CommunicationsCommission (FCC), International Telecommunications Union (ITU), EuropeanTelecommunications Standard Institute (ETSI), or other organizations chargedwith regulating the requirements of RF equipment, will not adopt more stringentregulations for the communications industry. If such regulations are adopted,AML, the OEMs, and the wireless system operators may be required to alter themanner in which radio signals are transmitted, or otherwise to alter theequipment transmitting such signals, which could materially and adverselyaffect our products and markets. The enactment by federal, state, local orinternational governments of new laws or regulations, or a change in theinterpretation of existing laws or regulations could affect the market for ourproducts. Recent deregulation of international communications industries, alongwith recent RF spectrum allocations made by the FCC, have increased thepotential demand for our products by providing users of those products withopportunities to establish new wireless personal communications services.However, we cannot assure you that the trend toward deregulation and current regulatorydevelopments favorable to the promotion of new and expanded personalcommunications services will continue or that other future regulatory changeswill have a positive impact us. The increasing demand for wirelesscommunications has exerted pressure on regulatory bodies worldwide to adopt newstandards for such products, generally following extensive investigation of anddeliberation over competing technologies. The delays inherent in thisgovernmental approval process may cause the cancellation, postponement orrescheduling of the installation of communications systems by our customers.

 

**Employees**

 

As of March 31, 2004, we had 56 full-time employees, including 9in research and development; 38 in manufacturing, production engineering andquality assurance; 6 in administration; and 3 in sales, marketing, order entryand customer support. We believe the success of our business depends, in part,on our ability to attract and retain qualified personnel, particularlyqualified scientific, technical and key management personnel. Our employees arenot governed by collective bargaining agreements. We believe our relationshipswith are employees are good.

 

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**Environmental Regulations**

 

We are subject to federal, state and local governmental regulationsrelating to the storage, discharge, handling, emission, generation, manufactureand disposal of toxic or other hazardous substances used to manufacture ourproducts. We believe we are currently in compliance in all material respectswith such regulations. Failure to comply with current or future regulationscould result in the imposition of substantial fines on us, suspension ofproduction, alteration of our manufacturing processes, cessation of ouroperations, or other actions which could materially and adversely affect ourbusiness, financial condition and results of operations.

 

**ITEM 2.****DESCRIPTION OF PROPERTY**

 

Our administrative, engineering, and manufacturing facilities arelocated in a 25,000 square foot leased building in Camarillo, California. Thelease for this space expires in April 2008. We believe that our currentfacilities are in reasonable condition and provide adequate expansioncapabilities.

 

**ITEM 3.****LEGAL PROCEEDINGS**

 

We may be subject to, from time to time, various legal proceedingsrelating to claims arising out of our operations in the ordinary course of ourbusiness. We are not currently a party to any legal proceedings, the adverseoutcome of which, individually or in the aggregate, would have a materialadverse effect on the business, financial condition, or results of operationsof the Company.

 

**ITEM 4.****SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

Not applicable

 

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**PART II**

 

**ITEM 5.****MARKET FOR REGISTRANT’S COMMON STOCK ANDRELATED STOCKHOLDER MATTERS**

 

***Market Information***

 

Our common stock currently trades on NASDAQ’s OTC Bulletin Board underthe symbol “AMLJ.OB”. Our common stock traded on the Nasdaq Small Cap Marketfrom October 8, 2001 to August 13, 2002 and on the Nasdaq NationalMarket prior to that time. The table below sets forth for the periods indicated(1) the high and low bid prices for the Company’s common stock for theperiods it traded on the OTC Bulletin Board and (2) the high and lowintraday sales prices for the common stock during periods it traded on theNasdaq Small Cap and National Markets. For the quarter in which the commonstock transitioned from Nasdaq to the OTC BulletinBoard, the table reflects the higher of the two methods in the “high” columnand the lower of the two methods in the “low” column. The bidprices represent inter-dealer quotations, without adjustments for retailmark-ups, markdowns or commissions and may not necessarily represent actualtransactions. The source of the information for the high and low bid prices isthe OTC Bulletin Board.

 
| ** **                            | ** ** | **Price Range of  Common Stock** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|
| ** **                            | ** ** | **High**                              | ** ** | **Low** | ** ** |
| Fiscal year ended March 31, 2003 |       |                                  |       |   |   |
| First quarter                         |       | $                                     | 0.80       |   | $ | 0.38 |   |
| Second quarter                        |       | $                                     | 0.18       |   | $ | 0.06 |   |
| Third quarter                         |       | $                                     | 0.18       |   | $ | 0.08 |   |
| Fourth quarter                        |       | $                                     | 0.19       |   | $ | 0.10 |   |
|                                  |       |                                  |       |   |   |
| Fiscal year ended March 31, 2004 |       |                                  |       |   |   |
| First quarter                         |       | $                                     | 0.24       |   | $ | 0.20 |   |
| Second quarter                        |       | $                                     | 0.58       |   | $ | 0.52 |   |
| Third quarter                         |       | $                                     | 1.50       |   | $ | 1.26 |   |
| Fourth quarter                        |       | $                                     | 1.87       |   | $ | 1.60 |   |

 

At June 14, 2004 there were approximately 81 holders of record ofthe Company’s common stock. This number does not include the number of personswhose stock is in nominee or in “street name” accounts through brokers.

 

***Dividends***

 

We have not paid cash dividends and do not anticipate paying cashdividends in the foreseeable future. We expect to utilize future earnings tofinance future growth. The actual amount of any dividends paid would be subjectto the discretion of our Board of Directors and would depend on operations,financial and business requirements, compliance with bank covenants and otherfactors.

 

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*Equity Compensation Plans*

 

The following table gives information about our common stock that maybe issued under our existing equity compensation plans as of March 31,2004:

 

**Equity Compensation Plan Information**

 
| **Plan  Category**                                      | ** ** | **Number of Securities to  be Issued Upon Exercise  of Outstanding Options  and Rights** | ** ** | **Weighted Average  Exercise Price of  Outstanding Options  and Rights** | ** ** | **Number of Securities  Remaining Available for  Future Issuance Under  Equity Compensation Plans  (Excluding Securities  Reflected in Column (a))** | ** ** |
|---------------------------------------------------------|------------|------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **(a)**                                                                                  | ** ** | **(b)**                                                                  | ** ** | **(c)**                                                                                                                                                   | ** ** |
| Equity compensation plans approved by  security holders |       | 1,863,614                                                                                |       | $                                                                        | 1.82       |                                                                                                                                                      | 408,010    |   |
|                                                         |            |                                                                                          |            |                                                                          |            |                                                                                                                                                           |            |  |

 

*Recent Sales of Unregistered Securities*

 

We did not issue any securities in unregistered offerings in fiscal2004.

 

**ITEM 6.****MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Results of Operations**

 

The following table summarizes the Company’s results of operations bothin dollars and as a percentage of net sales for the fiscal years ended March 31,2003 and 2004.

 
| ** **                                                                    | ** ** | **Year Ended March 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                                    | ** ** | **2003**                      | ** ** | **2004** | ** ** |
| ** **                                                                    | ** ** | **(Dollars in thousands)**    | ** ** |
| Revenues                                                                      |       |                          |       |   |   |   |   |   |   |
| MIC                                                                           |       | $                             | 3,689      |   | 81.7 | % | $ | 6,333 |   | 90.8 | % |
| PCS and wireless messaging                                                    |       | 218                           |       | 4.8 |   | 8 |   | 0.1 |   |
| Cellular, wireless telephony and other                                        |       | 608                           |       | 13.5 |   | 635 |   | 9.1 |   |
| Total net sales                                                               |       | 4,515                         |       | 100.0 |   | 6,976 |   | 100.0 |   |
| Cost of goods sold                                                            |       | 3,013                         |       | 66.7 |   | 3,571 |   | 51.2 |   |
| Gross profit (loss)                                                           |       | 1,502                         |       | 33.3 |   | 3,405 |   | 48.8 |   |
|                                                                          |       |                          |       |   |   |   |   |   |   |
| Operating expenses:                                                           |       |                          |       |   |   |   |   |   |   |
| Selling, general and administrative                                           |       | 1,243                         |       | 27.5 |   | 1,376 |   | 19.7 |   |
| Research and development                                                      |       | 1,231                         |       | 27.3 |   | 723 |   | 10.4 |   |
| Operating profit (loss)                                                       |       | (972                          | )          | (21.5 | ) | 1,306 |   | 18.7 |   |
| Other (expense), net                                                          |       | (216                          | )          | (4.8 | ) | (75 | ) | 1.1 |   |
| (Loss) profit before income taxes                                             |       | (1,188                        | )          | (26.3 | ) | 1,231 |   | 17.6 |   |
| Income tax expense                                                            |       | —                        |       | — |   | 98 |   | 1.4 |   |
| Net profit (loss) before cumulative effect  of change in accounting principle |       | (1,188                        | )          | (26.3 | )% | 1,133 |   | 16.2 |   |
| Cumulative effect of change in accounting  principle                          |       | —                        |       | — |   | 120 |   | 1.7 |   |
| Net profit (loss)                                                             |       | $                             | (1,188     | ) | (26.3 | )% | $ | 1,013 |   | 14.5 | % |

 

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**Fiscal Years Ended March 31, 2004 and 2003**

 

*Net sales.*  Net sales for fiscal 2004 were$7.0 million, compared to $4.5 million in fiscal 2003. The increasein net sales is attributable to continuous growth in the defense sector coupledwith some returning sales in the cellular market. The PCS product line made up$218,000, or 4.8% of net sales in fiscal 2003,decreasing to $8,000 or 0.1% of net sales in fiscal 2004. This decline is dueto the economic slow down in the wireless, PCS, and two-way messaging markets.We anticipate that sales of our PCS and two-way messaging products willcontinue to decrease due to reduced capital expenditures for new equipment byOEM’s and service providers given the current economic conditions within thewireless market. Sales of cellular and other products were $635,000, 9.1% ofnet sales in fiscal 2004, as compared to $608,000, 13.5%of net sales in fiscal 2003. In general, the global wireless communicationsmarket remains weak. MIC sales continue to increase with sales of$6.3 million in fiscal 2004, 90.8% of net sales, compared to$3.7 million in fiscal 2003, 81.7% of net sales. The increase in sales ofMIC products is the result of our aggressive penetration of the fractured MICmarket and an increase in demand for defense related MIC products related tothe procurement of upgrade, replacement, and spare parts for defenseapplications. As a result of planned increases in defense spending, weanticipate that MIC sales will continue to be a significant portion of ourrevenue. Additionally, the Company entered into a definitive agreement onMay 26, 2004 to acquire Microwave Power, Inc. (“MPI”) with the intentof achieving new channels to market and subsequently increase sales.

 

*Grossprofit.* Gross profit for fiscal 2004 was $3.3 million, or 47.1% of netsales, compared to a gross profit in fiscal 2003, of $1.5 million, or33.3% of net sales. The increase in margin can be attributed to lower materialcosts in the MIC product line, which accounts for 90.8% of our net sales. Inconnection with the change in the method of inventory overhead allocation, theCompany offset $275,000 of raw materials overhead relating to inventorybalances at March 31, 2003, against inventory reserve during the yearended March 31, 2004. In prior fiscal years, we had allocated a portion ofoverhead expenses to our raw materials inventory. However, because our rawmaterials inventory is generally used to meet custom orders, any leftover partsusually have little or no value to us. As these parts are not critical to ouroperations, we decided to attribute no portion of our manufacturing expense tothem. A total of $120,000 of this offset has been reclassed to the statement ofoperations as of March 31, 2004*.*

 

*Selling,general, and administrative costs.*  Selling, general and administrative costs forfiscal 2004 were $1.4 million, or 19.7% of net sales, compared to$1.2 million, or 27.5% of net sales, for fiscal 2003. The increase isattributed to additional personnel, new consulting services for the purpose ofprocess improvement, and increased financing fees in connection with increasingour line of credit.

 

*Researchand development costs.*  Research and development costs for fiscal2004 were $723,000, or 10.4% of net sales, compared to $1.2 million, or27.3% of net sales, for the corresponding period in fiscal 2003. The decreaseis primarily due to a reduction in depreciation expenses due to assetscompleting their life cycles, combined with a reduction of personnel at the endof fiscal 2003. We intend to expand the research and development department byhiring additional engineers, acquiring capital equipment, and redirecting ourfocus to the development of new products.

 

*Otherexpense, net.* Other expense for fiscal 2004 was $75,000 as compared to $216,000 forfiscal 2003. The decrease is mainly due to the recognition of a $170,000 losson the sale of a fixed asset during fiscal 2003.

 

*Income taxexpense.* For the twelve months ended March 31, 2004, the Company recorded aprovision of $98,000 for state income taxes due to the suspension by theCalifornia Franchise Tax Board of the utilization of loss carry forwards, ascompared to the twelve months ended March 31, 2003, in which the Companyrecognized the benefits from loss carry forwards.

 

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*Cumulativeeffect of change in accounting principle.*  The Company recorded $120,000 of additionalcosts for the fiscal year ended March 31, 2004, as a result in the changein the method of inventory overhead allocation.

 

**Liquidity and Capital Resources**

 

Historically, we have financed our operations primarily from internallygenerated funds and, to a lesser extent, loans from stockholders and capitallease obligations.

 

Between July 1, 2000 and December 31, 2001, the Companyentered into capital leases for the purpose of acquiring production and testequipment valued in aggregate at $740,000. The terms of the leases range from36 months to 60 months and the interest charges range from 8.6% to15.6%. The total amount remaining on the leases at March 31, 2004 is$157,000.

 

In December 2001, we received a loan of $50,000 fromDr. Tiberiu Mazilu, PhD, an officer and director of the Company. Thepromissory note calls for quarterly interest payments to Dr. Mazilucommencing on September 30, 2002, with the interest payment calculatedquarterly and based on the prime interest rate plus 1.25%. The principal amountof the note is due on January 2, 2005 but would become due and payable bythe Company immediately upon the consolidation or merger of the Company intoanother entity, the death of Dr. Mazilu, or the Company’s termination ofDr. Mazilu’s employment with the Company.

 

In December 2002, the Company entered into a non-cancelablecapital lease to acquire test equipment valued in aggregate at approximately$50,000. The terms of the lease call for 36 equal monthly payments of $1,699commencing in December 2002 and at an annual interest rate of 13.7%.

 

In July 2003 the Company raised $245,000 ($100,000 of which was aconversion from an advance received in June 2003) from current officersand directors and $43,000 from other investors in the form of notes payablewith warrants attached. The funds were used for working capital. The promissorynotes bear interest at the rate of 8% and have a two-year maturity. Warrants topurchase a total of 240,000 shares or our common stock were issued inconnection with the funding. The per share exercise price of the warrants is$0.24. The warrants expire five years from the date of issuance. The Companyhas valued these warrants at $35,000 and is expensing this value over the termof the notes payable. For the twelve months ended March 31, 2004, a totalof $13,000 was charged to the statement of operations.

 

On November 20, 2001 we entered into an Accounts ReceivablePurchase Agreement with Silicon Valley Bank, which replaced an AccountsReceivable Financing Agreement we had entered into with the bank on November 20,2000. We paid the bank $7,500 upon execution of the Accounts ReceivablePurchase Agreement. Pursuant to the Accounts Receivable Purchase Agreement, thebank has the right (but not the obligation) to purchase receivables from us at80% of their face value, net of deferred revenue and offsets, if any. In September 2003,we modified our agreement with Silicon Valley Bank. Under the modificationagreement, the aggregate amount of all receivables purchased by the bank cannotexceed $2,000,000. We are obligated to pay the bank a monthly finance chargewhich is computed as the greater of $6,500 or 1% above the prime rate, perannum, on the average daily account balance outstanding for the month. We alsopay the bank a monthly collateral handling fee of 0.75% per month on theaverage daily account balance outstanding for the month. The bank refunds to usany amount remaining from paid accounts after deducting the 80% advance, themonthly finance charge, the collateral handling fee and any other adjustmentsmade or fees due pursuant to the Account Receivable Purchase Agreement. Thebank may require us to repurchase receivables it has purchased if they remain unpaidafter 90 days from the invoice date, if the account debtor has filed (orhas filed against it) bankruptcy or other insolvency proceedings, if we breachthe Accounts Receivable Purchase Agreement or if the account debtor asserts anyclaim relating to the receivable.

 

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At March 31, 2004, we had $977,000 in cash and cash equivalents.The Company’s operating activities provided cash of approximately $976,000 infiscal 2004, primarily as a result of increased revenues coupled with areduction in operating expenses. Cash provided from investing activitiesamounted to $25,000 due to net proceeds from the sale of property and equipmentof $48,000 offset by the purchase of equipment for $23,000. Cash provided fromfinancing activities was $219,000, which was primarily a result of cashprovided by investors of $289,000, payments of lease obligations of $106,000and net receivables from our line of credit of $402,000. We anticipate capitalexpenditures of approximately $530,000 in fiscal 2005.

 

In addition to the funds raised in July 2003, we may attempt toprocure additional sources of financing in the event that the capital availableas of March 31, 2004, is insufficient for our operating needs. Thesesources may include, but are not limited to, additional sales of oursecurities. There are, however, no assurances that we will be able tosuccessfully obtain additional financing at terms acceptable to us. Failure toobtain such financing could have a material adverse effect on our ability tooperate as a going concern.

 

Successful completion of our development program and attainingprofitable operations are dependent upon our maintaining a level of salesadequate to support our cost structure. In addition, realization of a majorportion of the assets in the accompanying balance sheet is dependent upon ourability to meet our financing requirements and the success of our plans to sellour products. The financial statements do not include any adjustments relatingto the recoverability and classification of recorded asset amounts or amountsand classifications of liabilities that might be necessary should we be unableto continue in existence.

 

**Contractual Obligations**

 

The following table summarizes our contractual obligations, includingpurchase commitments at March 31, 2004, and the effect that suchobligations are expected to have on our liquidity and cash flow in futureperiods.

 
| ** **                                            | ** ** | **Payment due by period** | ** ** |
|-------------------------------------------------------|------------|---------------------------|------------|
| **Contractual  Cash Obligations**                     | ** ** | **Total**                 | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **Thereafter** | ** ** |
| ** **                                            | ** ** | **(In Thousands)**        | ** ** |
| Long-term debt obligations including  related parties |       | $                         | 338        |   | $ | 50 |   | $ | 288 |   | $ | — |   | $ | — |   |
| Capital Lease obligations                             |       | 189                       |       | 140 |   | 49 |   | — |   | — |   |
| Operating leases                                      |       | 741                       |       | 172 |   | 553 |   | 16 |   | — |   |
| Total contractual cash obligations                    |       | $                         | 1,268      |   | $ | 362 |   | $ | 890 |   | $ | 16 |   | $ | — |   |

 

**Critical Accounting Policies**

 

Our discussion and analysis of our financial conditions and results ofoperations are based upon our financial statements, which have been prepared inaccordance with generally accepted accounting principles in the United States.The preparation of financial statements requires managers to make estimates anddisclosures on the date of the financial statements. On an on-going basis, weevaluate our estimates, including, but not limited to, those related to revenuerecognition. We use authoritative pronouncements, historical experience andother assumptions as the basis for making judgments. Actual results coulddiffer from those estimates. We believe that the following critical accountingpolicies affect our more significant judgments and estimates in the preparationof our financial statements.

 

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*Revenue recognition.*  We generate our revenue through the sale ofproducts.  Our policy is to recognizerevenue when the applicable revenue recognition criteria have been met, whichgenerally include the following:

 

•        *Persuasive evidence of an arrangement exists;*

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

•        *Price is fixed or determinable; and*

•        *Collectibility is reasonably assured*

 

Revenue from the sale of products is generally recognized after boththe goods are shipped to the customer and acceptance has been received, ifrequired. Our products are custom made for our customers, who primarily consistof original engineer manufacturers (OEMs), and we do not accept returns. Ourproducts are shipped complete and ready to be incorporated into higher levelassemblies by our customers. The terms of the customer arrangements generallypass title and risk of ownership to the customer at the time of shipment.

 

Recording revenue from the sale of products involves the use ofestimates and management judgment. We must make a determination at the time ofsale whether the customer has the ability to make payments in accordance witharrangements. While we do utilize past payment history, and, to the extentavailable 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.

 

*Inventory.*  We are required to make judgments based onhistorical experience and future expectations as to the realizability ofinventory. We make these assessments based on the following factors:I) existing orders, II) age of the inventory, III) historicalexperience. Management has reviewed the accounting policies regarding theapplication of overhead to its inventories and ceased the application ofoverhead to its raw materials in the year ended March 31, 2004. Due to thechange in the method of inventory overhead allocation, the Company recognizedan additional $120,000 in costs of goods sold for the year ended March 31,2004. Additionally, inventory was reduced by $273,000 and offset againstinventory reserve in March 2004. In prior fiscal years, we had allocated aportion of overhead expenses to our raw materials inventory. However, becauseour raw materials inventory is generally used to meet custom orders, anyleftover parts usually have little or no value to us. As these parts are notcritical to our operations, we decided to attribute no portion of ourmanufacturing expense to them.

 

**Additional Factors That May Affect Future Results**

 

Future operating results may be impacted by a number of factors thatcould cause actual results to differ materially from those stated herein, whichreflect management’s current expectations. These factors include:

 

•                  industry-specific factors (including the relianceupon growth of the defense microwave market, significant competitioncharacterized by rapid technological change, new product development, productobsolescence, and significant price erosion over the life of a product);

 

•                  our ability to timely develop and produce commerciallyviable products at competitive prices;

 

•                  our ability to produce products which meet the qualitystandards of both existing and potential new customers;

 

•                  our ability to accurately anticipate customer demand;

 

•                  our ability to manage expense levels, in light ofvarying revenue streams;

 

•                  the availability and cost of components;

 

•                  the impact of worldwide economic and politicalconditions on our business.

 

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We may be required to procure additional sources of financing in theevent that the capital available as of March 31, 2004 is insufficient forour operating needs. These sources may include, but are not limited to,additional sales of our securities. There are, however, no assurances that wewill be able to successfully obtain additional financing at terms acceptable tous. Failure to obtain such financing could have a material adverse effect onour financial condition.

 

We believe that, to the extent that foreign sales are recognized, wemay face increased risk associated with political and economic instability,compliance with foreign regulatory rules governing export requirements, tariffsand other trade barriers, differences in intellectual property protections,longer accounts receivable cycles, currency fluctuations and general traderestrictions. If any of these risks materialize, they could have a materialadverse effect on our business, results of operations, and financial condition.

 

We have evaluated the credit exposure associated with conducting businesswith foreign customers and have concluded that such risk is acceptable.Nevertheless, any significant change in the economy or adeterioration in United States trade relations or the economic orpolitical stability of foreign markets could have a material adverse effect onour business, 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 hedging transactions. However,as we expand further into foreign markets, we may experience greater riskassociated with general business, political and economic conditions in thosemarkets. At such time, we may seek to lessen our exposure through currencyhedging transactions. We cannot assure you that a currency hedging strategywould be successful in avoiding currency exchange related losses. In addition,should the relative value of the U.S. dollar in comparison to foreigncurrencies increase, the resulting increase in the price of our products to foreigncustomers could result in decreased sales which could have a material adverseimpact on our business, results of operations, and financial condition.

 

We experience significant price competition and expect pricecompetition in the sale of our products to remain intense. We cannot assure youthat our competitors will not develop new technologies or enhancements toexisting products or introduce new products that will offer superior price orperformance features. We expect our competitors to 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 by rapidly changingtechnology and continuous improvements in products and services. Our futuresuccess depends on our ability to enhance our current products and to developand introduce, in a timely manner, new products that keep pace withtechnological developments, that meet or exceed industry standards,that compete effectively on the basis of price, performance and quality,that adequately address OEM customer and end-user customer requirements, andthat achieve market acceptance. We believe that to remain competitive in thefuture we will need to continue to develop new products, which will require theinvestment of significant financial resources in new product development. Inthe event our newly developed products are not timely developed or do not gainmarket acceptance, our business, results of operations and financial conditioncould be materially adversely affected.

 

Our quarterly and annual results have in the past been, and willcontinue to be, subject to significant fluctuations due to a number of factors,any of which could have a material adverse effect on our business, financialcondition and results of operations. There can be no assurance that we will notexperience such fluctuations in the future. We establish our expenditure levelsfor product development and other operating expenses based on expectedrevenues, and expenses are relatively fixed in the short term. As a result,variations in timing of revenues can cause significant variations in quarterlyresults of operations. There can be no assurances that we will be profitable ona quarter-to-quarter basis in the future. We believe that period-to-periodcomparisons of our financial results are not necessarily meaningful and shouldnot be relied upon as an indication of future performance. Due to thesefactors, it is likely that in some future quarter or quarters our revenues oroperating results will not meet the expectations of public stock market analystsor investors. In such event, the market price of our common stock would bematerially adversely affected.

 

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**Factors Affecting Business, Operating Results and Financial Condition**

 

*An investment in our securities is veryspeculative and involves a high degree of risk. You should carefully considerthe following risk factors, along with the other matters referred to in thisAnnual Report, before you decide to buy our securities. If you decide to buyour securities, you should be able to afford a complete loss of yourinvestment.*

 

**Risks Associated With Our Business**

 

***Most of our sales are made to the defenseindustry. Our business and financial results could be adversely affected ifdefense spending is curtailed, which would cause the value of your investmentto decline.***

 

As a percentage of total revenues, our net sales to our two largestcustomers during the fiscal year ended March 31, 2004 totaledapproximately 25.7%, accounting for $1.8 million of our revenues in fiscal2004. These customers rely on the defense industry for orders and the defenseindustry relies upon the United States government for funding. Changes infunding may occur if there is a change in the current administration. Adecrease in business from the defense industry to our customers would have amaterial adverse effect on our results of operations and financial conditionand the value of your investment.

 

There is a significant risk that sales from the wireless sector may notrepeat. Although we have seen an increase in the revenues generated from thecellular market in the fiscal year ended March 31, 2004, there are noassurances that such an increase indicates a trend or that the Company will beable to secure any additional orders in the future.

 

***Our market is subject to rapid technologicalchange, and to compete effectively, we must continually introduce new productsor enhancements that achieve market acceptance.***

 

The market for our products is characterized by rapidly changingtechnology, frequent new product introductions, changes in customerrequirements, and evolving industry standards. We believe that we have beensuccessful to date in investing in research and development to meet these needsand delivering products before our competitors. We believe that our futuresuccess will depend upon continued development and timely introduction ofproducts capable of collecting or processing new types of telecommunicationssignals. However, we expect that new technologies will continue to emerge. Ourfuture performance will depend on the successful development, introduction, andmarket acceptance of new and enhanced products that address these changes aswell as current and potential customer requirements. The introduction of newand enhanced products may cause our customers to defer or cancel orders forexisting products. There can be no assurance that we will be able to developand market new products successfully in the future or respond effectively totechnological changes, or that new products introduced by others will notrender our products or technologies noncompetitive or obsolete.

 

We also may not be able to develop the underlying core technologiesnecessary to create new products and enhancements or to license thesetechnologies from third parties. Product development delays may result fromnumerous factors, including:

 

•                  changing product specifications and customerrequirements;

 

•                  difficulties in hiring and retaining necessary technicalpersonnel;

 

•                  difficulties in reallocating engineering resources andovercoming resource limitations;

 

•                  difficulties with contract manufacturers;

 

•                  changing market or competitive product requirements;and

 

•                  unanticipated engineering complexities.

 

The development of new, technologically advanced products is a complexand uncertain process requiring high levels of innovation and highly skilledengineering and development personnel, as well as the accurate anticipation oftechnological and market trends. We cannot ensure that we will be able to

 

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identify, develop, manufacture, market, orsupport new or enhanced products successfully, if at all, or on a timely basis.Further, we cannot ensure that our new products will gain market acceptance orthat we will be able to respond effectively to product announcements bycompetitors, technological changes, or emerging industry standards. Any failureto respond to technological change would significantly harm our business.

 

***Our business, operating results and financialcondition could be negatively impacted if demand for our products is less thanwe anticipate or if we fail to hire qualified employees. As a result, the valueof your securities may decline.***

 

Our growth depends on our ability to successfully develop and marketour products. The development and marketing of our products is dependent on anumber of factors, including our ability to:

 

•                  recruit and maintain a base of qualified engineers;

 

•                  initiate, develop and sustain corporate andgovernment relationships;

 

•                  attract, hire, integrate and retain qualified salesand sales support employees; and

 

•                  accurately assess the demands of the market.

 

Demand for our products might be less than we anticipate, or we may notbe successful in recruiting and maintaining the personnel we need to developand sell our products. In either case, our business, operating results andfinancial condition could be negatively impacted and the value of yoursecurities may decline.

 

***We may be unable to compete successfully inour market. If we cannot compete successfully, our operating results will beadversely affected.***

 

The markets in which we compete are characterized by rapidly changingtechnology and continuous improvements in products and services. Our futuresuccess depends on our ability to enhance our current products and to developand introduce, in a timely manner, new products that keep pace withtechnological developments, that meet or exceed industry standards,that compete effectively on the basis of price, performance and quality,that adequately address OEM customer and end-user customer requirements, andthat achieve market acceptance. We believe that to remain competitive in thefuture we will need to continue to develop new products, which will require usto invest significant funds into research activities. In the event our newlydeveloped products are not timely developed or do not gain market acceptance,our business, results of operations and financial condition could be materiallyadversely affected.

 

Our primary competitors are Celeritek and Miteq who are much largerthan we are and who have more in the way of financial and other resources thanwe have. We have tried to create a niche market in the manufacturing ofmicrowave integrated circuits for use by the defense industry however we haveno contractual agreement with the contractors with whom we do business and wecannot assure you that these contractors will continue ordering parts from usor that they will order at the same or greater levels than they have done inthe past. If our customers severely reduced their orders or ceased orderingfrom us altogether, our business, results of operations and financialcondition, as well as the value of your securities, could be materiallyadversely affected.

 

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

 

A significant portion of our revenue is derived from fixed-pricecontracts. Under fixed-price contracts, unexpected increases in the cost todevelop or manufacture a product, whether due to

 

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inaccurate estimates in the biddingprocess, unanticipated increases in materials costs, inefficiencies, or otherfactors, are borne by us. We have experienced cost overruns in the past thathave resulted in losses on certain contracts, and may experience additionalcost overruns in the future. Such cost overruns would increase our operatingexpenses, reduce our net income and earnings per share, and have a materiallyadverse effect on our future results of operations and financial condition.

 

***Our future revenues are inherentlyunpredictable, our operating results are likely to fluctuate from period toperiod, and if we fail to meet the expectations of securities analysts orinvestors, our stock price could decline significantly.***

 

Our quarterly and annual operating results have fluctuated in the pastand are likely to fluctuate significantly in the future due to a variety offactors, some of which are outside our control. Accordingly, we believe thatperiod-to-period comparisons of our results of operations are not meaningfuland should not be relied upon as indications of future performance. Some of thefactors that could cause our quarterly or annual operating results to fluctuateinclude conditions inherent in government contracting and our business such asthe timing of cost and expense recognition for contracts, the United StatesGovernment contracting and budget cycles, and contract closeouts. Because webase our operating expenses on anticipated revenue trends and a high percentageof our expenses are fixed in the short term, any delay in generating orrecognizing forecasted revenues could significantly harm our business.Fluctuations in quarterly results, competition, or announcements ofextraordinary events such as acquisitions or litigation may cause revenues tofall below the expectations of securities analysts and investors. In thisevent, the trading price of our common stock would significantly decline. Inaddition, there can be no assurance that an active trading market will besustained for our common stock. The stock market in recent years hasexperienced extreme price and volume fluctuations that have particularlyaffected the market prices of many technology companies. These fluctuations, aswell as general economic and market conditions, may adversely affect the futuremarket price of our common stock.

 

**Risks Associated With Ownership of Our Securities**

 

***We have not paid cash dividends and it isunlikely that we will pay cash dividends in the foreseeable future.***

 

We plan to use all of our earnings, to theextent we have earnings, to fund our operations. We do not plan to pay any cashdividends in the foreseeable future. We cannot guarantee that we will, at anytime, generate sufficient surplus cash that would be available for distributionas a dividend to the holders of our common stock. You should not expect toreceive cash dividends on our common stock.

 

***We have the ability to issue additionalshares of our common stock without asking for shareholder approval, which couldcause your investment to be diluted.***

 

Our Articles of Incorporation currently authorize the Board ofDirectors 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.

 

***We may raise additional capital through asecurities offering that could dilute your ownership interest.***

 

We require substantial working capital to fund our business. If weraise additional funds through the issuance of equity, equity-related orconvertible debt securities, these securities may have rights, preferences orprivileges senior to those of the holders of our common stock. The issuance ofadditional common stock or securities convertible into common stock by ourmanagement will also have the effect of further diluting the proportionateequity interest and voting power of holders of our common stock.

 

18

----

 

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

 

Trading of our common stock is sporadic. It is not likely that anactive market for our common stock will develop or be sustained soon. You maynot be able to liquidate our securities if you need money.

 

***We are subject to the Penny Stock Rules andthese rules may adversely affect trading in our common stock.***

 

Our common stock is a “low-priced” security under rules promulgatedunder the Securities Exchange Act of 1934. In accordance with these rules,broker-dealers participating in transactions in low-priced securities mustfirst deliver a risk disclosure document which describes the risks associatedwith such stocks, the broker-dealer’s duties in selling the stock, the customer’srights and remedies and certain market and other information. Furthermore, thebroker-dealer must make a suitability determination approving the customer forlow-priced stock transactions based on the customer’s financial situation,investment experience and objectives. Broker-dealers must also disclose theserestrictions in writing to the customer, obtain specific written consent fromthe customer, and provide monthly account statements to the customer. Theeffect of these restrictions probably decreases the willingness ofbroker-dealers to make a market in our common stock, decreases liquidity of ourcommon stock and increases transaction costs for sales and purchases of ourcommon stock as compared to other securities.

 

***We recently acquired Microwave Power, Inc.The combination of our business with that of Microwave Power, Inc. may notresult in the benefits we anticipated.***

 

On May 26, 2004 we announced our intent to acquire MicrowavePower, Inc. and on June 18, 2004 the acquisition closed. Acquisitionsinvolve a number of special risks, including diversion of management’sattention from the core business and the failure to retain key personnel in theacquired business. We cannot guarantee that this acquisition will beprofitable, or that we will be able to integrate the business of MicrowavePower, Inc. with our business without substantial costs, delays, or otheroperational or financial problems.

 

**Quantitative and Qualitative Disclosures AboutMarket Risk**

 

We have some risk exposure from interest rates being unfavorable. At March 31,2004, our line of credit facilities were the only debt facilities subject tovariable interest rates. We will monitor the level of risk by keeping variablerate exposures at acceptable levels.

 

19

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**ITEM 7.****FINANCIAL STATEMENTS**

 

**INDEX TO FINANCIAL STATEMENTS**

 
| Report of Registered Public Accounting Firm                                                              |   |
|----------------------------------------------------------------------------------------------------------|--------|
|                                                                                                     |   |
| Balance Sheet as of March 31, 2004,  (restated)                                                     |   |
|                                                                                                     |   |
| Statements of Operations for the years ended March 31, 2003,  (restated) and March 31, 2004    |   |
|                                                                                                     |   |
| Statements of Stockholders’ Equity for the  years ended March 31, 2003 and March 31, 2004 |   |
|                                                                                                     |   |
| Statements of Cash Flows for the years ended March 31, 2003,  (restated) and March 31, 2004    |   |
|                                                                                                     |   |
| Notes to Financial Statements                                                                            |   |

 

20

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM**

 

To the Board of Directors

AML Communications, Inc.

Camarillo, California

 

We have audited the balance sheets of AML Communications, Inc. as of March 31,2004 and 2003, and the related statements of operations, stockholders’ equity,and cash flows for each of the two years in the period ended March 31,2004. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluatingthe overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of AML Communications,Inc. as of March 31, 2004 and 2003, and the results of their operationsand their cash flows for each of the two years in the period ended March 31,2004 in conformity U.S. generally accepted accounting principles.

 

As described in Note 2 to the financial statements, the Company changedits method of inventory overhead allocation during the year ended March 31,2004.

 

As discussed in Note 1, the 2003 financial statements have beenrestated to correct the presentation of comparative amounts previouslydisclosed as a gain from the change in method of inventory overhead allocation.

 
| /s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP |   |
|-----------------------------------------------------|--------|
| SINGER LEWAK GREENBAUM & GOLDSTEIN LLP     |

 

Los Angeles, California

June 4, 2004, except for Note 1 as to which the date is April 12,2005

 

F-21

----

 

**AML COMMUNICATIONS, INC.**

**BALANCE SHEET**

**AS OF MARCH 31, 2004**

**(As restated – see note 1)**

 
| **ASSETS**                                                                                           |   |       |      |
|------------------------------------------------------------------------------------------------------|--------|------------|-----------|
| Current Assets:                                                                                      |   |       |      |
| Cash and cash equivalents                                                                            |   | $          | 977,000   |   |
| Accounts receivable, net of allowance for  doubtful accounts of $34,000                              |   | 665,000    |      |
| Inventories, net                                                                                     |   | 1,115,000  |      |
| Other current assets                                                                                 |   | 136,000    |      |
| Total current assets                                                                                 |   | 2,893,000  |      |
| Property and Equipment, at cost                                                                      |   | 3,585,000  |      |
| Less: Accumulated depreciation and  amortization                                                     |   | (3,177,000 | )         |
| Property and Equipment, net                                                                          |   | 408,000    |      |
| Other assets                                                                                         |   | 43,000     |      |
|                                                                                                 |   | $          | 3,344,000 |   |
|                                                                                                 |   |       |      |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                       |   |       |      |
| Current Liabilities:                                                                                 |   |       |      |
| Accounts payable                                                                                     |   | $          | 355,000   |   |
| Line of credit, net                                                                                  |   | 80,000     |      |
| Current portion of capital lease  obligations                                                        |   | 114,000    |      |
| Current portion of notes payable – officers                                                     |   | 50,000     |      |
| Accrued expenses:                                                                                    |   |       |      |
| Accrued payroll and payroll related  expenses                                                        |   | 229,000    |      |
| Accrued state income taxes                                                                           |   | 98,000     |      |
| Other accrued expenses                                                                               |   | 148,000    |      |
| Total current liabilities                                                                            |   | 1,074,000  |      |
| Note Payable—Officers, net of current  portion                                                  |   | 226,000    |      |
| Note Payable—Investors, net                                                                     |   | 40,000     |      |
| Capital lease obligations, net of current  portion                                                   |   | 74,000     |      |
|                                                                                                 |   |       |      |
| Commitments and Contingencies                                                                        |   |       |      |
|                                                                                                 |   |       |      |
| Stockholders’ Equity:                                                                           |   |       |      |
| Common stock, $.01 par value: 15,000,000  shares authorized; shares issued and outstanding 7,837,584 |   | 73,000     |      |
| Capital in excess of par value                                                                       |   | 10,338,000 |      |
| Accumulated deficit                                                                                  |   | (8,481,000 | )         |
| Total stockholders’ equity                                                                      |   | 1,930,000  |      |
|                                                                                                 |   | $          | 3,344,000 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-22

----

 

**AML COMMUNICATIONS, INC.**

**STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDED MARCH 31, 2003 AND2004**

 
| ** **                                                                                         | ** ** | **Year Ended**                  | ** ** |
|----------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                                         | ** ** | **March 31,  2003**        | ** ** | **March 31,  2004** | ** ** |
| ** **                                                                                         | ** ** | **(As restated - see  note 1)** | ** ** | ** ** | ** ** |
| Net sales                                                                                          |       | $                               | 4,515,000  |   | $ | 6,976,000 |   |
| Cost of goods sold                                                                                 |       | 3,013,000                       |       | 3,571,000 |   |
| Gross profit (loss)                                                                                |       | 1,502,000                       |       | 3,405,000 |   |
| Operating Expenses:                                                                                |       |                            |       |   |   |
| Selling, general and administrative                                                                |       | 1,243,000                       |       | 1,376,000 |   |
| Research and development                                                                           |       | 1,231,000                       |       | 723,000 |   |
|                                                                                               |       | 2,474,000                       |       | 2,099,000 |   |
| (Loss) profit from operations                                                                      |       | (972,000                        | )          | 1,306,000 |   |
|                                                                                               |       |                            |       |   |   |
| Other income (expense):                                                                            |       |                            |       |   |   |
| Interest income                                                                                    |       | 1,000                           |       | 1,000 |   |
| Interest expense                                                                                   |       | (68,000                         | )          | (124,000 | ) |
| Other                                                                                              |       | (149,000                        | )          | 48,000 |   |
|                                                                                               |       | (216,000                        | )          | (75,000 | ) |
|                                                                                               |       |                            |       |   |   |
| (Loss) profit before provision for income  taxes                                                   |       | (1,188,000                      | )          | 1,231,000 |   |
| Provision for income taxes                                                                         |       | —                          |       | 98,000 |   |
| Net (loss) profit before change in method  of inventory overhead allocation                        |       | $                               | (1,188,000 | ) | $ | 1,133,000 |   |
| Loss from change in method of inventory  overhead allocation                                       |       |                            |       | 120,000 |   |
| Net (loss) profit                                                                                  |       | $                               | (1,188,000 | ) | $ | 1,013,000 |   |
|                                                                                               |       |                            |       |   |   |
| Basic (loss) earnings per common share  before change in method of inventory overhead allocation   |       | $                               | (0.15      | ) | $ | 0.14 |   |
|                                                                                               |       |                            |       |   |   |
| Earnings (loss) per common share from  change in method of inventory overhead allocation           |       | $                               | —     |   | $ | (0.01 | ) |
|                                                                                               |       |                            |       |   |   |
| Net (loss) earnings available to common  shareholders                                              |       | $                               | (0.15      | ) | $ | 0.13 |   |
|                                                                                               |       |                            |       |   |   |
| Basic weighted average number of shares of  common stock outstanding                               |       | 7,830,000                       |       | 7,838,000 |   |
|                                                                                               |       |                            |       |   |   |
| Diluted (loss) earnings per common share  before change in method of inventory overhead allocation |       | $                               | (0.15      | ) | $ | 0.12 |   |
|                                                                                               |       |                            |       |   |   |
| Earnings (loss) per common share from  change in method of inventory overhead allocation           |       | $                               | —     |   | $ | (0.01 | ) |
|                                                                                               |       |                            |       |   |   |
| Diluted (loss) earnings per common share                                                           |       | $                               | (0.15      | ) | $ | 0.11 |   |
|                                                                                               |       |                            |       |   |   |
| Diluted weighted average number of shares  of common stock outstanding                             |       | 7,830,000                       |       | 9,362,000 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-23

----

 

 

**AML COMMUNICATIONS, INC.**

**STATEMENTS OF STOCKHOLDERS’ EQUITY**

**FOR THE YEARS ENDED MARCH 31, 2003 AND 2004**

 
| ** **                                                | ** ** | ** **       | ** ** | ** **    | ** ** | ** **         | ** ** | ** **      | ** ** | ** ** | ** ** | **Retained**  | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|------------------|------------|---------------|------------|--------------------|------------|-----------------|------------|------------|------------|---------------|------------|------------|------------|
| ** **                                                | ** ** | ** **       | ** ** | ** **    | ** ** | **Capital in**     | ** ** | ** **      | ** ** | ** ** | ** ** | **Earnings/** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **Common Stock** | ** ** | **Excess of** | ** ** | **Treasury Stock** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| ** **                                                | ** ** | **Shares**       | ** ** | **Amount**    | ** ** | **Par Value**      | ** ** | **Shares**      | ** ** | **Amount** | ** ** | **Deficit**   | ** ** | **Totals** | ** ** |
| Balance, March 31, 2002                                   |       | 7,829,456        |       | $             | 73,000     |               | $          | 10,524,000      |       | (114,500   | )          | $             | (223,000   | )          | $          | (8,306,000 | ) | $ | 2,068,000 |   |
| Retirement of Treasury Stock                              |       | —           |       | —        |       | $                  | (223,000   | )               | 114,500    |       | 223,000    |          | —     |       | —     |   |
| Net loss                                                  |       | —           |       | —        |       | —             |       | —          |       | —     |       | (1,188,000    | )          | (1,188,000 | )          |
| Balance, March 31, 2003                                   |       | 7,829,456        |       | $             | 73,000     |               | $          | 10,301,000      |       | —     |       | —        |       | $          | (9,494,000 | ) | $ | 880,000 |   |
| Options Exercised                                         |       | 8,128            |       | —        |       | 1,000              |       | —          |       | —     |       | —        |       | 1,000      |       |
| Value of Warrants issued in connection with notes payable |       | —           |       | —        |       | 36,000             |       | —          |       | —     |       | —        |       | 36,000     |       |
| Net Income (loss)                                         |       | —           |       | —        |       | —             |       | —          |       | —     |       | 1,013,000     |       | 1,013,000  |       |
| Balance, March 31, 2004                                   |       | 7,837,584        |       | $             | 73,000     |               | $          | 10,338,000      |       | —     |       | —        |       | $          | (8,481,000 | ) | $ | 1,930,000 |   |
|                                                           |            |                  |            |               |            |                    |            |                 |            |            |            |               |            |            |            |  |  |  |  |  |

 

The accompanying notes are an integral partof these financial statements.

 

F-24

----

 

**AML COMMUNICATIONS, INC.**

**STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED MARCH 31, 2003 AND 2004**

 
| ** **                                                                                        | ** ** | **Year Ended**                       | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                        | ** ** | **March 31,  2003**                  | ** ** | **March 31,  2004** | ** ** |
| ** **                                                                                        | ** ** | **(As restated  – see note 1)** | ** ** | ** ** | ** ** |
| Cash Flows from Operating Activities:                                                             |       |                                 |       |   |   |
| Net Profit (loss)                                                                                 |       | $                                    | (1,188,000 | ) | $ | 1,133,000 |   |
| Adjustments to reconcile net loss to net  profit (loss) to net cash used in operating activities: |       |                                 |       |   |   |
| Interest on debt discount fees                                                                    |       | —                               |       | 13,000 |   |
| Depreciation and amortization                                                                     |       | 569,000                              |       | 251,000 |   |
| Bad debt expense                                                                                  |       | (21,000                              | )          | (2,000 | ) |
| Loss (gain) from cumulative effect of  change in method of inventory overhead allocation          |       | —                               |       | (120,000 | ) |
| Loss (gain) on sale of fixed assets                                                               |       | 149,000                              |       | (48,000 | ) |
| Changes in assets and liabilities:                                                                |       |                                 |       |   |   |
| Decrease (increase) in:                                                                           |       |                                 |       |   |   |
| Accounts receivable                                                                               |       | 857,000                              |       | (54,000 | ) |
| Inventories                                                                                       |       | (56,000                              | )          | (56,000 | ) |
| Other current assets                                                                              |       | 102,000                              |       | (1,000 | ) |
| Other assets                                                                                      |       | (5,000                               | )          | — |   |
| Increase (decrease) in:                                                                           |       |                                 |       |   |   |
| Accounts payable                                                                                  |       | (396,000                             | )          | (212,000 | ) |
| Accrued state income taxes                                                                        |       | —                               |       | 98,000 |   |
| Accrued expenses                                                                                  |       | (130,000                             | )          | (26,000 | ) |
| Net cash from operating activities                                                                |       | (119,000                             | )          | 976,000 |   |
| Cash Flows from Investing Activities:                                                             |       |                                 |       |   |   |
| Purchases of property and equipment                                                               |       | (20,000                              | )          | (23,000 | ) |
| Proceeds from the sale of property and  equipment                                                 |       | 171,000                              |       | 48,000 |   |
| Net cash provided by investing activities                                                         |       | 151,000                              |       | 25,000 |   |
| Cash Flows from Financing Activities:                                                             |       |                                 |       |   |   |
| Proceeds from exercise of stock options                                                           |       | —                               |       | 1,000 |   |
| Proceeds from private stock placement                                                             |       | —                               |       | — |   |
| Proceeds from line of credit, net                                                                 |       | 232,000                              |       | (402,000 | ) |
| Proceeds from note payable                                                                        |       | —                               |       | 288,000 |   |
| Principal payments capital lease  obligations                                                     |       | (229,000                             | )          | (106,000 | ) |
| Net cash provided by Financing activities                                                         |       | 3,000                                |       | (219,000 | ) |
| Net increase in Cash and Cash Equivalents                                                         |       | 35,000                               |       | 782,000 |   |
| Cash and Cash Equivalents, beginning of  year                                                     |       | 160,000                              |       | 195,000 |   |
| Cash and Cash Equivalents, end of year                                                            |       | $                                    | 195,000    |   | $ | 977,000 |   |
| Supplemental disclosures of cash flow  information:                                               |       |                                 |       |   |   |
| Cash paid during the period for:                                                                  |       |                                 |       |   |   |
| Interest                                                                                          |       | $                                    | 68,000     |   | $ | 124,000 |   |
| Income taxes                                                                                      |       | $                                    | —     |   | $ | — |   |
| Non-cash transactions:                                                                            |       |                                 |       |   |   |
| Debt incurred to purchase equipment                                                               |       | $                                    | 100,000    |   | $ | 21,000 |   |
| unamortized debt discount fees                                                                    |       | $                                    | —     |   | $ | 22,000 |   |

 

The accompanying notes are an integral partof these financial statements.

 

F-25

----

 

**AML COMMUNICATIONS, INC.**

 

**NOTES TO FINANCIAL STATEMENTS**

 

**March 31, 2004**

 

**1.****              Organization (Asrestated)**

 

*Line of Business*

 

AML Communications, Inc. (the “Company”) is a designer,manufacturer, and marketer of amplifiers and related products that address thedefense microwave markets.

 

*Restatement*

 

Subsequent to the issuance of our financial statements for the fiscal year ended March 31, 2004, our management determined that:

 

•                  The currentportion of related notes payable should be reclassified from long termliabilities to current liabilities

•                  Amountspreviously shown on the statement of operations, as a gain in the change inmethod of inventory overhead allocation should be reclassified to cost ofsales, to correctly reflect the guidelines of APB 20, for the year ended March31, 2003.

 

As a result, the financialstatements for the fiscal year ended March 31, 2003, and 2004, have beenrestated.  A summary of the significanteffects of these restatements are as follows:

 
| ** **                                            | ** ** | **As previously** | ** ** | **Restatement** | ** ** | **As**       | ** ** | ** **    | ** ** |
|-------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|---------------|------------|
| ** **                                            | ** ** | **Reported**      | ** ** | **Adjustment**  | ** ** | **Restated** | ** ** | **Reference** | ** ** |
| ** **                                            | ** ** | ** **        | ** ** | ** **      | ** ** | ** **   | ** ** | ** **    | ** ** |
| Balance sheet at March 31 2004:                       |       |              |       |            |       |         |       |          |       |
| Current portion of notes payable – officers      |       | —            |       | (50,000         | )          | 50,000       |       | (1            | )          |
| Note payable – officers, net of current  portion |       | 276,000           |       | (50,000         | )          | 226,000      |       | (1            | )          |

 
| ** **                                                                            | ** ** | **As previously** | ** ** | **Restatement** | ** ** | **As**       | ** ** | ** **    | ** ** |
|---------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------|------------|--------------|------------|---------------|------------|
| ** **                                                                            | ** ** | **Reported**      | ** ** | **Adjustment**  | ** ** | **Restated** | ** ** | **Reference** | ** ** |
| ** **                                                                            | ** ** | ** **        | ** ** | ** **      | ** ** | ** **   | ** ** | ** **    | ** ** |
| Statement of operations for the fiscal year  ended March 31 2003:                     |       |              |       |            |       |         |       |          |       |
|                                                                                  |       |              |       |            |       |         |       |          |       |
| Cost of goods sold                                                                    |       | $                 | 3,288,000  |            | (275,000   | )            | 3,013,000  |          | (2         | ) |
| Gross Profit                                                                          |       | 1,227,000         |       | 275,000         |       | 1,502,000    |       | (2            | )          |
| Loss from operations                                                                  |       | (1,247,000        | )          | 275,000         |       | (972,000     | )          | (2            | )          |
| Net loss before provision for income taxes                                            |       | (1,463,000        | )          | 275,000         |       | (1,188,000   | )          | (2            | )          |
| Net loss before change in method of  inventory overhead allocation                    |       | (1,463,000        | )          | 275,000         |       | (1,188,000   | )          | (2            | )          |
| Loss from change in method of inventory overhead  allocation                          |       | (275,000          | )          | 275,000         |       | —       |       | (2            | )          |
| Basic loss per common share before change  in method of inventory overhead allocation |       | $                 | (0.19      | )               | $          | 0.04         |       | $             | (0.15      | ) | (2 | ) |
| Earnings per common share from change in  method of inventory overhead allocation     |       | $                 | 0.04       |            | $          | (0.04        | )          | $             | 0.00       |   | (2 | ) |
| Diluted loss per common share before change  in inventory overhead allocation         |       | $                 | (0.19      | )               | $          | 0.04         |       | $             | (0.15      | ) | (2 | ) |
| Earnings per common share from change in  method of inventory overhead allocation     |       | $                 | 0.04       |            | $          | (0.04        | )          | $             | 0.00       |   | (2 | ) |

 

----

(1) The current portion of a related party note payable was reclassed to current liabilities.

 

(2) The gain from the change inmethod of inventory overhead allocation was reclassed to cost of sales as itwas determined that the change in method of inventory overhead allocation had nocumulative effect on the fiscal year ended March 31, 2003.

 

F-26

----

 

**2. Summary of Significant Accounting Policies (As restated)**

 

*Basis of Presentation*

 

The accompanying financial statements have been prepared in conformitywith generally accepted accounting principles generally accepted in the UnitedStates.

 

*Concentration of Cash*

 

The Company considers all liquid investments with an original maturityof three months or less to be cash equivalents. As of March 31, 2004, theCompany had cash and cash equivalent balances totaling $904,000 in financialinstitutions, which were in excess of federally insured amounts.

 

*Credit Risk*

 

The Company performs ongoing credit evaluations of its customers’financial conditions and generally does not require collateral on accountsreceivable, therefore, the accounts receivable are unsecured and the Company isat risk to the extent that such amounts become non-collectable. During fiscal2004, the Company had sales to two customers that represented 13.3% and 12.4%of net sales, respectively, as compared to fiscal 2003, in which the Companyhad sales to two customers, which represented 16.8% and 11.2% of net sales,respectively. As of March 31, 2004, these two customers comprised 23.1%and 1.1%, of accounts receivable, respectively.

 

The Company’s customers are comprised primarily of defense subcontractors, cellular service providers and original equipment manufacturers (“OEMs”).Customers are located primarily throughout the United States. However, theCompany also sells to customers worldwide. During the fiscal year endedMarch 31, 2004, international sales were $1 million, or 14.8% of netsales, as compared to international sales of $266,000, or 5% of net sales infiscal year ended March 31, 2003.

 

*Revenue recognition.*

 

Our policy is to recognize revenue when the applicable revenuerecognition criteria have been met in accordance with Staff Accounting Bulletin(“SAB”) No. 101, “Revenue Recognition in Financial Statements” updated by (SAB’s)No. 103 and No. 104, “Update of codification of Staff Accounting Bulletin” andincorporates the following:

 

•        *Persuasiveevidence of an arrangement exists;*

•        *Delivery hasoccurred or services have been rendered;*

•        *Price isfixed or determinable; and*

•        *Collectibilityis reasonably assured*

 

Revenue from the sale of products is generally recognized after boththe goods are shipped to the customer and acceptance has been received, ifrequired. Our products are custom made for our customers, who primarily consistof original engineer manufacturers (OEMs), and we do not accept returns. Ourproducts are shipped complete and ready to be incorporated into higher levelassemblies by our customers. The terms of the customer arrangements generallypass title and risk of ownership to the customer at the time of shipment.

 

Recording revenue from the sale of products involves the use ofestimates and management judgment. We must make a determination at the time ofsale whether the customer has the ability to make payments in accordance witharrangements. While we do utilize past payment history, and, to the extentavailable 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.

 

F-27

----

 

*Inventories and Change in Accounting Principle*

 

Inventories include costs of materials, as well as labor andmanufacturing overhead on work in process and finished goods, and are stated atthe lower of cost (first-in, first-out) or market, and consist of thefollowing:

 

| ** **      | ** ** | **March 31, 2004** | ** ** |
|-----------------|------------|-------------------------|------------|
| Raw materials   |       | $                       | 651,000    |   |
| Work in process |       | 290,000                 |       |
| Finished goods  |       | 174,000                 |       |
|            |       | $                       | 1,115,000  |   |

 

The reserve for inventory at March 31, 2004 was $199,000.Management has reviewed the accounting policies regarding the application ofoverhead to its inventories and has ceased the application of overhead to itsraw materials for the fiscal year ended March 31, 2004. In connection withthe change in the method of inventory overhead allocation, the Company offset$275,000 of raw materials overhead relating to inventory balances atMarch 31, 2003, against inventory reserve during the year ended March 31,2004. A total of $120,000 of this offset has been released to the statement ofoperations as of March 31, 2004.

 

*Depreciation and Amortization*

 

Property and equipment are being depreciated and amortized on thestraight-line basis over the following estimated useful lives:

 

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

 

Included in property and equipment is approximately $240,000 ofequipment, which is leased under non-cancelable leases, accounted for ascapital leases, which expire through January 2006.

 

Depreciation expense for the years ended March 31, 2003 andMarch 31, 2004 were $569,000 and $251,000, respectively. Included in theaccumulated depreciation is the depreciation for capital leases, which amountedto $160,000 as of March 31, 2004.

 

The Company capitalizes expenditures that materially increase assetlives and charges ordinary repairs and maintenance to operations as incurred.When assets are sold or otherwise disposed of, the cost and relateddepreciation or amortization is removed from the accounts and any resultinggain or loss is included in other income (expense) in the accompanyingstatements of operations.

 

F-28

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Property and equipment consist of the following:

 

| ** **              | ** ** | **March 31, 2004** | ** ** |
|-------------------------|------------|-------------------------|------------|
| Machinery and equipment |       | $                       | 2,789,000  |   |
| Furniture and fixtures  |       | 131,000                 |       |
| Leasehold improvements  |       | 665,000                 |       |
|                    |       | $                       | 3,585,000  |   |

 

*Warranty and Customer Support*

 

The Company typically warrants its products against defects inmaterials and workmanship for a period of one year from the date of shipment. Aprovision for estimated future warranty and customer support is recorded whenproducts are shipped. To date, warranty and customer support costs have not beenmaterial.

 

*Earnings (Loss) Per Share*

 

Earnings per share calculations are in accordance with Statement ofFinancial Accounting Standards (SFAS) No. 128, “Earnings per Share”.Accordingly, “basic” earnings per share are computed by dividing net income orloss by the weighted average number of shares outstanding for the year. “Diluted”earnings per share is computed by dividing net income or loss by the total ofthe weighted average number of shares outstanding plus, if applicable, thedilutive effect of outstanding stock options (applying the treasury stockmethod). Where losses are incurred in fiscal years, the number of outstandingoptions are not included due to the effect being anti-dilutive.

 
| **Year  ended March 31, 2004**         | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|---------------------------------------------|------------|----------------|------------|------------|------------|---------------|------------|
| Basic earnings per share                    |       |           |       |       |       |          |       |
| Net income available to common stockholders |       | $              | 1,013,070  |       | 7,837,584  |          | $          | 0.13 |   |
| Effect of dilutive securities               |       |           |       |       |       |          |       |
| Stock options                               |       | —         |       | 1,524,875  |       | —        |       |
| Diluted earnings per share                  |       |           |       |       |       |          |       |
| Net income available to common stockholders |       | $              | 1,013,070  |       | 9,362,459  |          | $          | 0.11 |   |

 
| **Year  ended March 31, 2003**         | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|---------------------------------------------|------------|----------------|------------|------------|------------|---------------|------------|
| Basic earnings per share                    |       |           |       |       |       |          |       |
| Net income available to common stockholders |       | $              | (1,187,671 | )          | 7,829,459  |          | $          | (0.15 | ) |
| Effect of dilutive securities               |       |           |       |       |       |          |       |
| Stock options                               |       | —         |       | —     |       | —        |       |
| Diluted earnings per share                  |       |           |       |       |       |          |       |
| Net income available to common stockholders |       | $              | (1,188,000 | )          | 7,829,459  |          | $          | (0.15 | ) |

 

F-29

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*Use of Estimate in Preparation of Financial Statements*

 

The preparation of financial statements, in conformity with generallyaccepted accounting principles, requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

*Product Lines*

 

The Company operates as one reportable business segment. The Companydesigns and manufactures RF and microwave, power and low noise amplifiers for avariety of frequency ranges and transmission protocols serving the DefenseMicrowave and Wireless Communications Markets. The revenues earned by eachproduct line are as follows:

 
| ** **                  | ** ** | **Year Ended March 31,** | ** ** |
|-----------------------------|------------|-------------------------------|------------|
| ** **                  | ** ** | **2003**                      | ** ** | **2004** | ** ** |
| ** **                  | ** ** | **(Dollars in thousands)**    | ** ** |
| Revenues                    |       |                          |       |   |   |   |   |   |   |
| Cellular and other          |       | $                             | 608        |   | 13.5 | % | $ | 635 |   | 9.1 | % |
| PCS and two-way messaging   |       | 218                           |       | 4.8 |   | 8 |   | 0.1 |   |
| Defense microwave and other |       | 3,689                         |       | 81.7 |   | 6,333 |   | 90.8 |   |
| Total net sales             |       | $                             | 4,515      |   | 100.0 | % | $ | 6,976 |   | 100.0 | % |

 

*Research and Development Costs*

 

Research and development costs are charged to expense as incurred.

 

*Fair Value of Financial Instruments*

 

The Company measures its financial assets and liabilities in accordancewith generally accepted accounting principles. For certain of the Company’sfinancial instruments, including cash and cash equivalents, accountsreceivable, notes payable-related parties, accounts payable, and accruedexpenses, the carrying amounts approximate fair value due to their shortmaturities. The amount shown for short-term loans also approximates fair valuebecause current interest rates offered to the Company for short-term loans ofsimilar maturities are substantially the same or the difference is immaterial.

 

*Stock-Based Compensation*

 

The Company measures compensation expense for its stock-based employeecompensation plans using the intrinsic value method and provides pro formadisclosures of net loss and basic and diluted net loss per share as if the fairvalue-based method had been applied in measuring compensation expense. Thecompany applies SFAS No. 123, *Accounting for Stock-BasedCompensation,* updated by SFAS 148, *“Accountingfor stock based compensation—transition and disclosure”* andAccounting Principles board Opinion No. 25 and related Interpretations inaccounting for its employee stock-based compensation plan.

 

F-30

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*Advertising Costs*

 

The Company expenses advertising costs as incurred. Advertising costsfor the years ended March 31, 2003 and 2004 were $29,000 and $28,000,respectively.

 

*Recently Issued Accounting Pronouncements*

 

In April 2003, the Financial Accounting Standards Board issuedStatement of Financial Accounting Standard (SFAS) No. 149, Amendment ofStatement 133 on Derivative Instruments and Hedging Activities. The Statementfurther clarifies accounting for derivative instruments. The company believesthe adoption of this Statement will have no material impact on its financialstatements.

 

In May 2003, the FASB issued Statement of Financial AccountingStandards No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity,” (“SFAS 150”). SFAS 150establishes standards for how an issuer classifies and measures certainfinancial instruments with characteristics of both liabilities and equity. Itrequires that an issuer classify a financial instrument that is within itsscope as a liability (or an asset in some circumstances). Many of thoseinstruments were previously classified as equity. SFAS 150 is effectivefor financial instruments entered into or modified after May 31, 2003, andotherwise is effective at the beginning of the first interim period beginningafter June 15, 2003. We do not believe the adoption of SFAS 150 willhave a material impact on our consolidated financial statements.

 

**3. Debt and Lease Commitments**

 

*Accounts Receivable Financing*

 

On November 20, 2001 we entered into an Accounts ReceivablePurchase Agreement with Silicon Valley Bank, which replaced an AccountsReceivable Financing Agreement we had entered into with the bank onNovember 20, 2000. We paid the bank $7,500 upon execution of the AccountsReceivable Purchase Agreement. Pursuant to the Accounts Receivable PurchaseAgreement, the bank has the right (but not the obligation) to purchasereceivables from us at 80% of their face value, net of deferred revenue andoffsets, if any. In September 2003, we modified our agreement with SiliconValley Bank. Under the modification agreement, the aggregate amount of allreceivables purchased by the bank cannot exceed $2,000,000. We are obligated topay the bank a monthly finance charge which is computed as the greater of$6,500 or 1% above the prime rate, per annum, on the average daily accountbalance outstanding for the month. We also pay the bank a monthly collateralhandling fee of 0.75% per month on the average daily account balanceoutstanding for the month. The bank refunds to us any amount remaining frompaid accounts after deducting the 80% advance, the monthly finance charge, thecollateral handling fee and any other adjustments made or fees due pursuant tothe Account Receivable Purchase Agreement. The bank may require us torepurchase receivables it has purchased if they remain unpaid after90 days from the invoice date, if the account debtor has filed (or hasfiled against it) bankruptcy or other insolvency proceedings, if we breach theAccounts Receivable

 

F-31

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Purchase Agreement or if the account debtor asserts any claim relatingto the receivable. As of March 31, 2004, there was $80,000 in netoutstanding borrowings under the agreement.

 

*Capital and Operating Lease Obligations*

 

The Company leases its office space, manufacturing facility and certainequipment under long-term operating leases expiring at various dates throughApril 2006. Total rent expense under these operating leases wasapproximately $169,000 and $146,000 during the years ended March 31, 2003and 2004, respectively. Included in property and equipment is approximately$240,000 of equipment, which is leased under non-cancelable leases, accountedfor as capital leases, which expire through January 2006. The effectiveinterest rate for these leases range from 8.6% to 15.0%. The accumulateddepreciation under capital leases amounted to $160,000 as of March 31,2004.

 

Total minimum lease payments under the above leases are as follows:

 
| ** **                              | ** ** | **Capital Leases** | ** ** | **Operating Leases** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|--------------------|------------|----------------------|------------|-----------|------------|
| Year ending March 31,              |       |               |       |                 |       |      |       |
| 2005                                    |       | $                  | 140,000    |                 | $          | 172,000   |       | $ | 312,000 |   |
| 2006                                    |       | 49,000             |       | 179,000              |       | 228,000   |       |
| 2007                                    |       | —             |       | 184,000              |       | 184,000   |       |
| 2008                                    |       | —             |       | 190,000              |       | 190,000   |       |
| 2009                                    |       | —             |       | 16,000               |       | 16,000    |       |
| Thereafter                              |       | —             |       | —               |       | —    |       |
|                                    |       | $                  | 189,000    |                 | $          | 887,000   |       | $ | 930,000 |   |
| Less—Amount representing interest  |       | (36,000            | )          |                 |       |      |       |
| Present value of minimum lease payments |       | 153,000            |       |                 |       |      |       |
| Less—Current portion               |       | (114,000           | )          |                 |       |      |       |
|                                    |       | $                  | 39,000     |                 |       |      |       |   |

 

**4. Income Taxes (As restated)**

 

The Company accounts for income taxes under the provisions of Statementof Financial Accounting Standards No. 109 (“SFAS 109”). UnderSFAS 109, deferred income tax assets or liabilities are computed based onthe temporary difference between the financial statement and income tax basesof assets and liabilities using the currently enacted marginal income tax rate.Deferred income tax expenses or credits are based on the changes in thedeferred income tax assets or liabilities from period to period.

 

F-32

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The componentsof the income tax provision for the years ended March 31, 2004 and 2003, wereas follows:

 

| ** ** | ** ** | **March 31, 2003** | ** ** | **March 31, 2004** | ** ** |
|------------|------------|--------------------|------------|--------------------|------------|
| Current    |       | $                  | —     |               | $          | 98,000 |   |
| Deferred   |       | $                  | —     |               | $          | — |   |
|       |       | $                  | —     |               | $          | 98,000 |   |

 

Differences between the benefit from income taxes and income taxes atthe statutory federal income tax rate for years ended March 31, 2003 and 2004are as follows:

 

| ** **                                              | ** ** | **March 31, 2003** | ** ** | **March 31, 2004** | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                              | ** ** | **Percent**             | ** ** | **Percent**             | ** ** |
| Income tax expense (benefit) at statutory  federal rate |       | (34.0                   | )%         | 34.0                    | %          |
| State income taxes, net of federal income  tax          |       | —                  |       | 8.0                     | %          |
| Effect of permanent differences                         |       | 0.2                     |       | 0.2                     |       |
| Change in valuation allowance                           |       | 33.9                    |       | (34.2                   | )          |
|                                                    |       | 0.0%                    |       | 8.0                     | %          |

 

Under SFAS 109, deferred tax assets may be recognized fortemporary differences that will result in deductible amounts in future periodsand for loss carry forwards. A valuation allowance is recognized if, based onthe weight of available evidence, it is more likely than not that some portionor all of the deferred tax asset will not be realized.

 

A detail of the Company’s deferred tax assets and liabilities as ofMarch 31, 2004 follows:

 

| Inventory reserves                    |   | $          | 79,000 |   |
|---------------------------------------|--------|------------|--------|--------|
| Allowance for doubtful accounts       |   | 14,000     |   |
| Accrued vacation                      |   | 23,000     |   |
| Accrued warranty and customer support |   | 19,000     |   |
| Other                                 |   | (45,000    | )      |
| General tax credit carry-forwards     |   | 1,374,000  |   |
| Net operating loss carry-forwards     |   | 3,713,000  |   |
| Depreciation                          |   | (134,000   | )      |
|                                  |   | 5,043,000  |   |
| Valuation allowance                   |   | (5,043,000 | )      |
|                                  |   | $          | — |   |

 

As of March 31, 2004, the Company had federal net operating losscarry-forwards of approximately $11 million, expiring at various datesthrough 2022.

 

F-33

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**5. Stockholders’ Equity**

 

*Stock Option Plan*

 

The Company’s Stock Incentive Plan provides for the granting ofnon-qualified and incentive stock options to purchase up to 3,000,000 shares ofcommon stock for periods not to exceed 10 years. Options typically vest25% after one year from the date of grant with remaining options vesting at a rateof 25% per year thereafter. Options may be granted to employees, officers,directors and consultants. Activity under this plan is as follows(1):

 
| ** **                         | ** ** | **Number of  Shares** | ** ** | **Weighted Average Exercise Price** | ** ** |
|------------------------------------|------------|-----------------------|------------|-------------------------------------|------------|
| Outstanding at March 31, 2002 |       | 1,599,625             |       | $                                   | 2.16       |   |
| Granted                            |       | 533,500               |       | 0.26                                |       |
| Exercised                          |       | —                |       | —                              |       |
| Canceled                           |       | (266,628              | )          | .74                                 |       |
| Expired/Forfeited                  |       | —                |       | —                              |       |
| Outstanding at March 31, 2003 |       | 1,866,497             |       | $                                   | 1.83       |   |
|                               |       |                  |       |                                |       |   |
| Granted                            |       | 210,300               |       | 0.59                                |       |
| Exercised                          |       | (8,125                | )          | .20                                 |       |
| Canceled                           |       | (205,059              | )          | 1.02                                |       |
| Outstanding at March 31, 2004 |       | 1,863,613             |       | $                                   | 1.79       |   |
| Exercisable at March 31, 2004 |       | 1,524,875             |       | $                                   | 1.24       |   |

 

The weighted average fair value for options granted during each yearwas $.53 and $0.42 for fiscal 2004 and fiscal 2003, respectively.

 

The number of common stock options available for grant as of each yearwas 408,010 for fiscal 2004 and 222,961 for fiscal 2003.

 

Options outstanding at March 31, 2004 and related weighted averageprice and life information 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           |       | 374,000                         |       | 9.01                                         |       | $                                            | 0.16       |                     | 270,875    |                                  | $          | 0.14 |   |
| $0.51 – $1.00           |       | 1,321,188                       |       | 7.62                                         |       | $                                            | 0.90       |                     | 1,116,562  |                                  | $          | 0.93 |   |
| $1.01 – $2.00           |       | 60,425                          |       | 6.89                                         |       | $                                            | 1.68       |                     | 42,000     |                                  | $          | 1.70 |   |
| $2.01 – $5.00           |       | 48,250                          |       | 6.08                                         |       | $                                            | 3.26       |                     | 47,000     |                                  | $          | 3.27 |   |
| $5.01 – $15.75          |       | 59,750                          |       | 3.43                                         |       | $                                            | 8.80       |                     | 48,438     |                                  | $          | 12.03 |   |
| $0.11 – $15.75          |       | 1,863,613                       |       | 7.70                                         |       | $                                            | 1.09       |                     | 1,524,875  |                                  | $          | 1.24 |   |

 

F-34

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The Company has adopted only the disclosure provisions of SFASNo. 123, “Accounting for Stock-Based Compensation” and FAS No. 148, “Accountingfor Stock Based Compensation—Transition and Disclosure”. It applies APB OpinionNo. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations in accounting for its plans and does not recognize compensationexpense for its stock- based compensation plans other than for restricted stockand options issued to outside third parties. If the Company had elected torecognize compensation expense based upon the fair value at the grant date forawards under its plan consistent with the methodology prescribed by SFASNo. 123, and FAS No. 148, the Company’s net loss and loss per sharewould be reduced to the pro forma amounts indicated below for the years endedMarch 31, 2004 and 2003:

 
| ** **                  | ** ** | **2004** | ** ** | **2003** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|
| Net profit (loss)           |       |     |       |     |       |
| As reported                 |       | $        | 1,013,000  |     | $          | (1,188,000 | ) |
| Stock compensation Expense  |       | $        | (109,451   | )        | $          | (242,917 | ) |
| Pro forma                   |       | $        | 903,549    |     | $          | (1,430,917 | ) |
|                        |       |     |       |     |       |
| Basic loss per common share |       |     |       |     |       |
| As reported                 |       | $        | 0.13       |     | $          | (0.15 | ) |
| Pro forma                   |       | $        | 0.12       |     | $          | (0.18 | ) |

 

For purposes of computing the pro forma disclosures required by SFASNo. 123, the fair value of each option granted to employees and directorsis estimated using the Black-Scholes option-pricing model with the followingweighted-average assumptions for the years ended March 31, 2004 and 2003:dividend yields of 0% and 0%, respectively; expected volatility of 160% and141%, respectively; risk-free interest rates of 2.9% and 3.3%, respectively;and expected lives of 4.83 and 4.33, respectively. The weighted-average fairvalue of options granted during the year ended March 31, 2004 for whichthe exercise price equals the market price on the grant date was $0.55, and theweighted-average exercise price was $0.61.

 

The Black-Scholes option valuation model was developed for use inestimating the fair value of traded options which have no vesting restrictionsand are fully transferable. In addition, option valuation models require theinput of highly subjective assumptions including the expected stock pricevolatility. Because the Company’s employee stock options have characteristicssignificantly different from those of traded options, and because changes inthe subjective input assumptions can materially affect the fair value estimate,in management’s opinion, the existing models do not necessarily provide areliable single measure of the fair value of its employee stock options.

 

(1)           The Company’s StockIncentive Plan provides for the granting of non-qualified and incentive stockoptions to purchase up to 3,000,000 shares of common stock. This number waserroneously reported as 2,096,586 in the Form 10-KSB filed on June 29,2003. The number of shares reserved for this plan was increased to 3,000,000 onSeptember 11, 2002, when our stockholders and our directors approved the “FourthAmended and Restated 1995 Stock Incentive Plan.”

 

*Warrants*

 

In connection with the renewal of the Company’s accounts receivablefinancing facility through Silicon Valley Bank in November 2000, theCompany sold Silicon Valley Bank warrants to purchase an aggregate of 27,429shares of the Company’s common stock at $2.1875 per common share and recorded acharge of $59,000 for the year ended March 31, 2001. This warrant expiresin November 2007, and as of March 31, 2004, none of the sharesrelated to this warrant have been exercised.

 

In connection with the March 2001 private placement of $500,000 bya group of investors led by Jacob Inbar, we issued warrants to the non-employeeinvestors to purchase a total of 40,000 shares of

 

F-35

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our common stock at a price of $1.125. We did not record a charge inconnection to these warrants as the charge is considered to be immaterial tothe financial statements. These warrants expire in March 2006, and as ofMarch 31, 2004, none of the shares related to this warrant have beenexercised.

 

In connection with the September 2001 private placement of$100,000 by a group of investors led by Jacob Inbar, we issued warrants to thenon-employee investors to purchase a total of 8,000 shares of our common stockat a price of $0.65. We did not record a charge in connection to these warrantsas the charge is considered to be immaterial to the financial statements. Thesewarrants expire in September 2006 and as of March 31, 2004, none ofthe shares related to this warrant have been exercised.

 

In connection with an agreement for investor relations services to beperformed during the year ended March 31, 2002, we issued warrants toCastleRook Financial Partners, LLC to purchase a total of 75,000 shares of theCompany’s common stock at a price of $0.72. We did not record a charge inconnection to these warrants as the charge is considered to be immaterial tothe financial statements. These warrants expire in August 2003, and as ofMarch 31, 2004, none of the shares related to this warrant have beenexercised.

 

In connection with the July 2003 private placement of $245,000($100,000 of which was a conversion from an advance received in June 2003)from current officers and directors and $43,000 from other investors in theform of notes payable, warrants were attached. A total of 240,000 warrants wereissued in connection with the funding and each warrant entitles the holder topurchase one share of the Company’s common stock at an exercise price of $0.24.The warrants expire five years from the date of issuance and as ofMarch 31, 2004, none of the shares related to these warrants have beenexercised. The Company has valued these warrants at $35,000 and is expensingthis value over the term of the notes payable. For the twelve months endedMarch 31, 2004, a total of $13,000 was charged to the statement ofoperations. Notes payable to both the officers and directors and investors havebeen shown net of unamortized discount factor on the balance sheet.

 

**7. Employee Benefit Plan**

 

The Company has a defined contribution 401(k) employee retirement plan(the “Plan”). Under the terms of the Plan, eligible employees, as defined, maycontribute from 1% to 16% of their pre-tax earnings to the Plan. At itsdiscretion, the Company may match the employees’ contribution up to 6%. TheCompany made no discretionary matching contribution for the years endedMarch 31, 2003 and 2004. However, the Company made a 3% contribution toits employees in fiscal year ending March 31, 2004 as a contribution tofiscal year ending March 31, 2002.

 

**8. Legal Proceedings**

 

The Company may be subject, from time to time, to various legalproceedings relating to claims arising out of its operations in the ordinarycourse of its business. The Company currently is not party to any legalproceedings, the adverse outcome of which, individually or in the aggregate,management believes would have a material adverse effect on the business,financial condition or results of operations of the Company.

 

F-36

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**9. Related Party Transactions**

 

In December 2001, we executed a promissory note with a principalvalue of $50,000 in favor of Mr. Tiberiu Mazilu, PhD, an officer anddirector of the Company. The terms of the note call for quarterly interestpayments to Dr. Mazilu commencing on September 30, 2002, with theinterest payment calculated quarterly based on the prime interest rate plus1.25%. The principal amount of the note is due on January 2, 2005 butwould become due and payable by the Company immediately upon the consolidationor merger of the Company into another entity, the death of Dr. Mazilu, orthe Company’s termination of Dr. Mazilu’s employment with the Company.

 

In July 2003 the Company executed promissory notes in favor ofcurrent officers and directors for $245,000 in connection with the capitalraised. The promissory notes bear interest at the rate of 8% and have atwo-year maturity. A total of 204,166 warrants were issued in connection withthese notes and each warrant entitles the holder to purchase one share of theCompany’s common stock at an exercise price of $0.24. The warrants expire fiveyears from the date of issuance.

 

**10. Significant Fourth Quarter Adjustments**

 

The Company’s management team has changed its accounting policyregarding the application of overhead to raw materials. In connection with thechange in the method of inventory overhead allocation, the Company offset$275,000 of raw materials overhead relating to inventory balances atMarch 31, 2003, against inventory reserve during the year ended March 31,2004. A total of $120,000 of this offset has been released to the statement ofoperations as of March 31, 2004.

 

**11. Subsequent Events (As restated)**

 

On May 25,2004, the Company signed a definitive agreement for the acquisition ofMicrowave Power, Inc. (“MPI”), which was completed on June 18, 2004. MPI wasmerged into the Company’s wholly owned subsidiary, with the subsidiary as thesurviving entity. The total consideration for the acquisition was $3,028,000.Pursuant to the acquisition agreement, 2,117,108 shares as consideration forthe acquisition and 21,174 shares to be issued to the broker were committed, orauthorized for issuance by our board of directors, as of June 18, 2004. Thedifference between the amount of “net assets acquired” and the purchase priceconsists of approximately $145,000 in transactional costs and approximately$30,000 (21,174 shares at $1.43 per share) worth of shares of the common stockissued to the broker.  Transactionalcosts included legal, accounting, and appraisal fees. There was no change inMPI’s management and the Company entered into employment agreements with two ofMPI’s senior officers, its past President and Secretary. MPI will continue tooperate as the Company’s division from its facility in Santa Clara, which isowned by MPI’s prior shareholders and leased to the Company.

 

The MicrowavePower, Inc. (MPI) acquisition was driven by a number of key factors, including:

 

1)              Technologically,MPI’s semi-monolithic, gold filled via’s, air bridge andmicrowave-monolithic-ceramic (MMCC) technology provide access to processes thatthe Company believes are complimentary and additive to those available to AMLprior to the acquisition.

 

2)              MPI’sproduct base addresses higher power and higher frequency sectors of themicrowave market.  This acquisition isintended to strengthen the Company’s product offerings to this market by addinghigher power microwave amplifiers.

 

A summary of the unaudited condensed balance sheet of MPI as ofMarch 31,2004 are as follows:

 
| **Microwave  Power Inc.  (“MPI”)  BALANCE SHEET** | ** ** | **March 31, 2004** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                  | ** ** | **(Unaudited)**         | ** ** |
| Cash                                                        |       | $                       | 1,163,000  |   |
| Receivables                                                 |       | 64,000                  |       |
| Inventory                                                   |       | 476,000                 |       |
| Property and equipment                                      |       | 113,000                 |       |
| Total assets acquired                                       |       | $                       | 1,816,000  |   |
| Current liabilities                                         |       | (11,000                 | )          |
|                                                        |       |                    |       |
| Net assets acquired                                         |       | $                       | 1,805,000  |   |

 

F-37

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Unaudited pro forma results of operations as if the Company hadacquired MPI as of March 31, 2004 and 2003 are as follows:

 
| **Microwave  Power Inc.  (“MPI”)** | ** ** | **March 31,  2004** | ** ** | **March 31,  2003** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                                   | ** ** | **(unaudited)**          | ** ** | **(unaudited)**          | ** ** |
| Revenue                                      |       | $                        | 8,733,000  |                     | $          | 5,940,000 |   |
| Net Income                                   |       | 1,576,000                |       | (907,000                 | )          |
| Basic and diluted earnings per share         |       | $                        | 0.20       |                     | $          | (0.12 | ) |

 

The Company is currently in the process of performing the purchaseprice allocation for the acquisition.

 

F-38

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**ITEM 8****. CHANGES IN ANDDISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

Not Applicable

 

**ITEM 8A****. DISCLOSURE CONTROLS AND PROCEDURES**

 

(a)  *Evaluation of disclosure controls and procedures*.  As of the end of the period covered by thisreport, we carried out an evaluation, under the supervision and with theparticipation of our management, including our Chief Executive Officer andDirector of Finance, of the effectiveness of the design and operation of ourdisclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)under the Securities Exchange Act of 1934, as amended. Based upon thatevaluation, our Chief Executive Officer and Director of Finance concluded thatour disclosure controls and procedures were effective as of the end of theapplicable period to ensure that information required to be disclosed by theCompany in reports that it files or submits under the Exchange Act (i)  is recorded, processed, summarized andreported within the time periods specified in Securities and ExchangeCommission rules and forms and (ii)  isaccumulated and communicated to our management, including our Chief ExecutiveOfficer and Director of Finance, as appropriate to allow timely decisionsregarding required disclosures.

 

(b)  *Changes ininternal controls over financial reporting*.  There was no change in the Company’s internalcontrol over financial reporting during the Company’s most recent fiscalquarter that has materially affected, or is reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

39

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**PART III**

 

**ITEM 9****. DIRECTORS AND EXECUTIVE OFFICERS**

 

Informationrequired by this item is incorporated by reference to the information under thecaptions “Executive Compensation” and “Election of Directors” in the Company’sdefinitive proxy statement for the 2004 Annual Meeting of Stockholders to beheld on September 2, 2004.

 

**ITEM 10****. EXECUTIVE COMPENSATION**

 

Informationrequired by this item is incorporated by reference to the information under thecaptions “Executive Compensation” and “Election of Directors” in the Company’sdefinitive proxy statement for the 2004 Annual Meeting of Stockholders to beheld on September 2, 2004.

 

**ITEM 11****. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

 

Informationrequired by this item is incorporated by reference to the information under thecaption “Principal Stockholders” in the Company’s definitive proxy statementfor the 2004 Annual Meeting of the Stockholders to be held on September 2,2004.

 

**ITEM 12****. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Informationrequired by this item is incorporated by reference to the information under thecaption “Certain Relationships and Related Transactions” in the Company’sdefinitive proxy statement for the 2004 Annual Meeting of Stockholders to beheld on September 2, 2004.

 

**ITEM 13****. EXHIBITS AND REPORTS ON FORM 8-K**

 
| **(a)**    | ** ** | **The following are attached as Exhibits to this Form 10-KSB:**                                                                                                                               |
|------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                         |
| 3.1        |       | Certificate of Incorporation(1)                                                                                                                                                                    |
| 3.2        |       | Bylaws(1)                                                                                                                                                                                          |
| 10.1       |       | Form of Indemnity Agreement(1)                                                                                                                                                                     |
| 10.2       |       | Lease, dated March 11, 1996, between the Company and Parr-Bohn  Properties, Ltd. II, a California Limited Partnership(2)                                                                      |
| 10.3       |       | Intellectual Property Security Agreement.(3)                                                                                                                                                       |
| 10.4       |       | Loan and Security Agreement dated November 10, 2000 between the  Company and Silicon Valley Bank. (4)                                                                                         |
| 10.5       |       | Intellectual Property Security Agreement dated November 10, 2000  between the Company and Silicon Valley Bank. (4)                                                                            |
| 10.6       |       | Warrant to purchase stock dated November 9, 2000 between the  Company and Silicon Valley Bank. (4)                                                                                            |
| 10.7       |       | Accounts Receivable Purchase Agreement dated November 20, 2001  between AML Communications Inc. and Silicon Valley Bank. (5)                                                                  |
| 10.8       |       | Promissory Note dated December 30, 2001 between Tiberiu, Mazilu,  and AML Communications Inc.(5)                                                                                              |
| 10.9       |       | Accounts Receivable Purchase Modifications Agreement dated  September 24, 2003 between Silicon Valley Bank and AML Communications  (6)                                                        |
| 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 (6) |

 

40

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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 (6) |
|-------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.12 |   | Fourth Amended and Restated 1995 Stock Option Agreement at  June 10, 2002 (7)                                                                                                          |
| 10.13 |   | Merger Agreement between the Company and Microwave Power, Inc.  executed on May 26, 2004 (7)                                                                                           |
| 10.14 |   | Parr-Bohn Properties First Amendment to lease of 1000 Avenida Acaso,  Camarillo, CA. (7)                                                                                                    |
| 10.15 |   | Employment Agreement with Dr. Marina Bujalti, of MPI, dated  June 18, 2004.(7)                                                                                                    |
| 10.16 |   | Employment Agreement with Dr. Franco Sechi, of MPI, dated  June 18, 2004.(7)                                                                                                      |
| 18    |   | Letter from Independent Accountants to the Company dated April 18,  2005.(8)                                                                                                                |
| 23.1  |   | Consent of Independent Accountants (8)                                                                                                                                                      |
| 24.1  |   | Power of Attorney (7)                                                                                                                                                                       |
| 31.1  |   | Certification by the Chief Executive Officer (8)                                                                                                                                            |
| 31.2  |   | Certification by the Director of Finance (8)                                                                                                                                                |
| 32    |   | Certification pursuant to Section 906 of the Sarbanes Oxley Act  (8)                                                                                                                   |

 

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

 

(2)          Previously filed with the Securities andExchange Commission as an exhibit to the Company’s Form 10-KSB for fiscalyear ended March 31, 1996 and incorporated herein by reference

 

(3)          Previously filed with the Securities andExchange Commission as an exhibit to the Company’s Form 10-QSB for thequarter ended December 31, 1999 and incorporated herein by reference.

 

(4)          Previously filed with the Securities andExchange Commission as an exhibit to the Company’s Form 10-QSB for thequarter ended September 30, 2000 and incorporated herein by reference.

 

(5)          Previously filed with the Securities andExchange Commission as an exhibit to the Company’s Form 10-QSB for thequarter ended December 31, 2001 and incorporated herein by reference.

 

(6)          Previously filed with the Securities andExchange Commission as an exhibit to the Company’s Form 10-QSB for thequarter ended December 31, 2002 and incorporated herein by reference.

 

(7)          Previously filed with the Securities andExchange Commission as an exhibit to the Company’s form 10-KSB for the fiscalyear ended March 31, 2004.

 

(8)          Filed herewith.

 

**(b)****          Reports on Form 8-K**

 

1.               8K, August 7, 2003 Earnings Releasefor Quarter 1, ending June 30, 2003 for fiscal year 2004.

 

2.               8K, October 29, 2003 EarningsRelease for Quarter 2, ending September 30, 2003 for fiscal year 2004.

 

3.               8K, February 2, 2004 EarningsRelease for Quarter 3, ending December 31, 2003 for fiscal year 2004.

 

4.               8K, June 15, 2004 Earings Releasefor Quarter 4 and fiscal year ended March 31, 2004.

 

a.               8K, March 8, 2004 AML Signs Letterof Intent to Acquire MPI.

 

b.              8K, May 26, 2004 AML SignsDefinitive Agreement

 

41

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**ITEM 14****. PRINCIPAL ACCOUNTANT FEES AND SERVICES**

 

The following table sets forth fees billed to us by our auditors duringthe fiscal years ended March 31, 2004 and March 31, 2003 for:(i) services rendered for the audit of our annual financial statements andthe review of our quarterly financial statements, (ii) services by ourauditor that are reasonably related to the performance of the audit or reviewof our financial statements and that are not reported as Audit Fees,(iii) services rendered in connection with tax compliance, tax advice andtax planning, and (iv) all other fees for services rendered. “All otherfees” includes fees related to (or paid for) in the fiscal year endedMarch 31, 2004 and fees related to in fiscal year ended March 31,2003. Included in “Audit Related Fees” for fiscal year ended March 31,2004, is $21,000 for audit services directly related to the Microwave PowerInc, (“MPI”) acquisition.

 
| ** ** | ** ** | ** **         | ** ** | **March 31, 2004** | ** ** | **March 31, 2003** | ** ** |
|------------|------------|--------------------|------------|-------------------------|------------|-------------------------|------------|
| (i)        |       | Audit Fees         |       | $                       | 45,951     |                    | $          | 43,090 |   |
| (ii)       |       | Audit Related Fees |       | $                       | 24,788     |                    | $          | 5,833 |   |
| (iii)      |       | Tax Fees           |       | $                       | —     |                    | $          | — |   |
| (iv)       |       | All Other Fees     |       | $                       | 2,260      |                    | $          | 4,188 |   |

 

42

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrantcaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 
| AML Communications, Inc. |                                                    |
|--------------------------|---------------------------------------------------------|
|                     |                                                    |
|                     | /s/ Jacob Inbar                                         |   |   |
|                     | By: Jacob Inbar, President and  Chief Executive Officer | Dated: April 18, 2005 |
|                          |                                                         |  |  |

 

In accordance with the Exchange Act, this report has been signed belowby the following persons on behalf of the registrant and in the capacities andon the dates indicated.

 
| **Signature**           | ** ** | **Title**                                                     | ** ** | **Date**       |
|-------------------------|------------|---------------------------------------------------------------|------------|----------------|
| ** **              | ** ** | ** **                                                    | ** ** | ** **     |
| /s/   JACOB INBAR  |       | President, Chief Executive Officer and  Chairman of the Board |       | April 18, 2005 |
| Jacob Inbar             |
|                    |       |                                                          |       |           |
| *****                   |       | Vice President-Engineering and Director                       |       | April 18, 2005 |
| Tiberiu Mazilu          |
|                    |       |                                                          |       |           |
| *****                   |       | Secretary, Vice President-Sales, and  Director                |       | April 18, 2005 |
| Edwin J. McAvoy         |
|                    |       |                                                          |       |           |
| /s/   SUSAN KELLEY |       | Director of Finance Chief Accounting  Officer                 |       | April 18, 2005 |
| Susan Kelley            |
|                    |       |                                                          |       |           |
| *****                   |       | Director                                                      |       | April 18, 2005 |
| David A. Derby          |
|                    |       |                                                          |       |           |
| *****                   |       | Director                                                      |       | April 18, 2005 |
| Richard W. Flatow       |
|                    |       |                                                          |       |           |
| *****                   |       | Director                                                      |       | April 18, 2005 |
| Gerald M. Starek        |

 

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| *By:                          | /s/ Jacob Inbar |   |
|-------------------------------|-----------------|--------|
| Jacob Inbar, Attorney in Fact |            |
| April 18, 2005                |            |
|                               |                 |        |  |  |

 

43

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