##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended December 31, 2006
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File number 1-1000
 SPARTON CORPORATION
  OHIO
 38-1054690
 2400 East Ganson Street, Jackson, Michigan 49202
 (517) 787-8600
 þ o
  o o þ
 o þ
  Shares Outstanding atClass of Common Stock
    
    January 31, 2007$1.25 Par Value
    
    9,798,273




---



##### 



TABLE OF CONTENTS
 Part I. Financial
InformationItem 1.
    
    Financial Statements (Interim, Unaudited)Condensed Consolidated Balance Sheets at December 31, 2006 and June 30, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three months and six months
ended December 31, 2006 and 2005
    
    
    4Condensed
Consolidated Statements of Cash Flows for the six months ended December 31,
2006 and 2005
    
    
    5Condensed Consolidated Statements of Shareowners Equity for the six months ended
December 31, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27Part II. Other
InformationItem 1.
    
    Legal Proceedings
    
    
    28Item 1(a).
    
    Risk Factors
    
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 6.
    
    Exhibits
    
    
    30Signatures
    
    
    30
 2




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##### 



Part I. Financial Information
Item 1. Financial Statements (Interim, Unaudited)
 
 December 31, 2006
    
    
    June 30, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    9,982,763
    
    
    $
    7,503,438Investment securities
    
    
    40,595
    
    
    
    15,969,136Accounts receivable
    
    
    25,947,120
    
    
    
    25,108,442Income taxes recoverable
    
    
    1,147,000
    
    
    
    Inventories and costs of contracts in progress
    
    
    50,016,705
    
    
    
    46,892,183Deferred income taxes
    
    
    2,572,072
    
    
    
    2,662,692Prepaid expenses and other current assets
    
    
    1,185,677
    
    
    
    1,462,190Total current assets
    
    
    90,891,932
    
    
    
    99,598,081Pension asset
    
    
    4,172,449
    
    
    
    4,420,932Property, plant and equipment  net
    
    
    18,148,367
    
    
    
    17,598,906Goodwill and other intangibles  net
    
    
    22,228,071
    
    
    
    22,469,807Other assets
    
    
    5,932,415
    
    
    
    5,970,010Total assets
    
    $
    141,373,234
    
    
    $
    150,057,736LIABILITIES AND SHAREOWNERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    3,869,149
    
    
    $
    3,815,833Accounts payable
    
    
    14,082,354
    
    
    
    16,748,814Salaries and wages
    
    
    4,141,272
    
    
    
    4,388,396Accrued health benefits
    
    
    1,343,071
    
    
    
    1,142,693Other accrued liabilities
    
    
    5,748,005
    
    
    
    4,996,408Income taxes payable
    
    
    
    
    
    
    308,814Total current liabilities
    
    
    29,183,851
    
    
    
    31,400,958Deferred income taxes  noncurrent
    
    
    9,000
    
    
    
    Long-term debt  noncurrent portion
    
    
    14,066,228
    
    
    
    16,010,616Environmental remediation  noncurrent portion
    
    
    5,654,574
    
    
    
    5,795,784Total liabilities
    
    
    48,913,653
    
    
    
    53,207,358Shareowners Equity:Preferred stock, no par value; 200,000 shares authorized,
none outstanding
    
    
    
    
    
    
    Common stock, $1.25 par value; 15,000,000 shares authorized,
9,798,273 shares outstanding (9,392,305 at June 30, 2006)
    
    
    12,247,841
    
    
    
    11,740,381Capital in excess of par value
    
    
    19,485,140
    
    
    
    15,191,990Retained earnings
    
    
    60,657,546
    
    
    
    70,183,104Accumulated other comprehensive income (loss)
    
    
    69,054
    
    
    
    (265,097
    )Total shareowners equity
    
    
    92,459,581
    
    
    
    96,850,378Total liabilities and shareowners equity
    
    $
    141,373,234
    
    
    $
    150,057,736
  3




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##### 



Three months ended
    
    
    Six months ended2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    53,056,457
    
    
    $
    37,693,154
    
    
    $
    101,373,228
    
    
    $
    74,999,272Costs of goods sold
    
    
    49,587,268
    
    
    
    33,852,764
    
    
    
    97,163,273
    
    
    
    69,578,214Gross profit
    
    
    3,469,189
    
    
    
    3,840,390
    
    
    
    4,209,955
    
    
    
    5,421,058Selling and administrative expenses
    
    
    4,393,064
    
    
    
    3,749,626
    
    
    
    8,714,296
    
    
    
    7,763,897Amortization of intangibles
    
    
    120,312
    
    
    
    
    
    
    
    241,736
    
    
    
    EPA related  net environmental remediation
    
    
    (210,807
    )
    
    
    
    
    
    
    (201,230
    )
    
    
    (29,198
    )Net (gain) loss on sale of property, plant and equipment
    
    
    (2,048
    )
    
    
    93,435
    
    
    
    (205,723
    )
    
    
    104,5914,300,521
    
    
    
    3,843,061
    
    
    
    8,549,079
    
    
    
    7,839,290Operating loss
    
    
    (831,332
    )
    
    
    (2,671
    )
    
    
    (4,339,124
    )
    
    
    (2,418,232
    )Other income (expense):Interest and investment income (loss)
    
    
    (79,904
    )
    
    
    263,379
    
    
    
    71,027
    
    
    
    527,827Interest expense
    
    
    (290,723
    )
    
    
    
    
    
    
    (587,722
    )
    
    
    Equity loss in investment
    
    
    (19,000
    )
    
    
    (18,000
    )
    
    
    (7,000
    )
    
    
    (1,000
    )Other  net
    
    
    (278,622
    )
    
    
    54,097
    
    
    
    (259,905
    )
    
    
    277,264(668,249
    )
    
    
    299,476
    
    
    
    (783,600
    )
    
    
    804,091Income (loss) before income taxes
    
    
    (1,499,581
    )
    
    
    296,805
    
    
    
    (5,122,724
    )
    
    
    (1,614,141
    )Provision (credit) for income taxes
    
    
    (122,000
    )
    
    
    95,000
    
    
    
    (1,281,000
    )
    
    
    (517,000
    )Net income (loss)
    
    $
    (1,377,581
    )
    
    $
    201,805
    
    
    $
    (3,841,724
    )
    
    $
    (1,097,141
    )Earnings (loss) per share  basic and diluted(1)
    
    $
    (0.14
    )
    
    $
    0.02
    
    
    $
    (0.39
    )
    
    $
    (0.11
    )
 
 (1)
    
    All share and per share information have been adjusted to reflect the impact of the 5% stock dividend
declared in October 2006.  4




---



##### 



Six months ended December 31,2006
    
    
    2005Cash Flows From Operating Activities:Net loss
    
    $
    (3,841,724
    )
    
    $
    (1,097,141
    )Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:Depreciation, amortization and accretion
    
    
    1,309,563
    
    
    
    979,431Deferred income taxes
    
    
    
    
    
    
    647,000Loss on sale of investment securities
    
    
    244,765
    
    
    
    19,381Equity loss in investment
    
    
    7,000
    
    
    
    1,000Pension expense
    
    
    248,483
    
    
    
    273,788Share-based compensation
    
    
    134,360
    
    
    
    175,440(Gain) loss on sale of property, plant and equipment
    
    
    (7,049
    )
    
    
    104,591Gain from sale of non-operating land
    
    
    (198,675
    )
    
    
    Other, primarily changes in customer and vendor claims
    
    
    47,420
    
    
    
    (391,238
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (838,678
    )
    
    
    6,356,280Environmental settlement receivable
    
    
    
    
    
    
    5,455,000Income taxes recoverable
    
    
    (1,147,000
    )
    
    
    (1,269,228
    )Inventories, prepaid expenses and other current assets
    
    
    (2,848,009
    )
    
    
    (492,657
    )Accounts payable and accrued liabilities
    
    
    (2,414,704
    )
    
    
    (7,601,824
    )Net cash (used in) provided by operating activities
    
    
    (9,304,248
    )
    
    
    3,159,823Cash Flows From Investing Activities:Purchases of investment securities
    
    
    
    
    
    
    (5,866,275
    )Proceeds from sale of investment securities
    
    
    15,578,362
    
    
    
    1,059,414Proceeds from maturity of investment securities
    
    
    465,645
    
    
    
    1,833,602Purchases of property, plant and equipment
    
    
    (2,167,460
    )
    
    
    (287,235
    )Proceeds from sale of non-operating land
    
    
    811,175
    
    
    
    Proceeds from sale of property, plant and equipment
    
    
    7,049
    
    
    
    Other, principally noncurrent other assets
    
    
    175
    
    
    
    (15,951
    )Net cash provided by (used in) investing activities
    
    
    14,694,946
    
    
    
    (3,276,445
    )Cash Flows From Financing Activities:Repayment of long-term debt
    
    
    (1,895,766
    )
    
    
    Proceeds from the exercise of stock options
    
    
    1,332,402
    
    
    
    456,423Tax effect from stock transactions
    
    
    175,911
    
    
    
    56,522Stock dividends  cash paid in lieu of fractional shares
    
    
    
    
    
    
    (3,662
    )Repurchases of common stock
    
    
    (2,523,920
    )
    
    
    (199,854
    )Cash dividend
    
    
    
    
    
    
    (889,409
    )Net cash used in financing activities
    
    
    (2,911,373
    )
    
    
    (579,980
    )Increase (decrease) in cash and cash equivalents
    
    
    2,479,325
    
    
    
    (696,602
    )Cash and cash equivalents at beginning of period
    
    
    7,503,438
    
    
    
    9,368,120Cash and cash equivalents at end of period
    
    $
    9,982,763
    
    
    $
    8,671,518
  5




---



##### 



Six months ended December 31, 2006Capital
    
    
    
    
    
    
    Accumulated otherCommon Stock
    
    
    in excess
    
    
    Retained
    
    
    comprehensiveShares
    
    
    Amount
    
    
    of par value
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance at July 1, 2006
    
    
    9,392,305
    
    
    $
    11,740,381
    
    
    $
    15,191,990
    
    
    $
    70,183,104
    
    
    $
    (265,097
    )
    
    $
    96,850,378Stock dividend (5% declared October 25, 2006)
    
    
    466,365
    
    
    
    582,956
    
    
    
    3,404,465
    
    
    
    (3,989,398
    )
    
    
    
    
    
    
    (1,977
    )Stock options exercised, net of common
stock surrendered to facilitate exercise
    
    
    232,347
    
    
    
    290,434
    
    
    
    1,041,968
    
    
    
    
    
    
    
    
    
    
    
    1,332,402Repurchases of common stock as part
of 2005 share repurchase program
    
    
    (292,744
    )
    
    
    (365,930
    )
    
    
    (463,554
    )
    
    
    (1,694,436
    )
    
    
    
    
    
    
    (2,523,920
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    134,360
    
    
    
    
    
    
    
    
    
    
    
    134,360Tax effect of stock transactions
    
    
    
    
    
    
    
    
    
    
    175,911
    
    
    
    
    
    
    
    
    
    
    
    175,911Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,841,724
    )
    
    
    
    
    
    
    (3,841,724
    )Net unrealized gain on investment
securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,606
    
    
    
    122,606Reclassification adjustment for net loss
realized and reported in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,545
    
    
    
    161,545Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,507,573
    )Balance at December 31, 2006
    
    
    9,798,273
    
    
    $
    12,247,841
    
    
    $
    19,485,140
    
    
    $
    60,657,546
    
    
    $
    69,054
    
    
    $
    92,459,581
 Six months ended December 31, 2005Capital
    
    
    
    
    
    
    Accumulated otherCommon Stock
    
    
    in excess
    
    
    Retained
    
    
    comprehensiveShares
    
    
    Amount
    
    
    of par value
    
    
    earnings
    
    
    income (loss)
    
    
    TotalBalance at July 1, 2005
    
    
    8,830,428
    
    
    $
    11,038,035
    
    
    $
    10,558,757
    
    
    $
    75,619,392
    
    
    $
    (44,198
    )
    
    $
    97,171,986Stock dividend (5% declared October 25, 2005)
    
    
    447,298
    
    
    
    559,123
    
    
    
    3,828,871
    
    
    
    (4,391,656
    )
    
    
    
    
    
    
    (3,662
    )Stock options exercised, net of common stock surrendered to facilitate
exercise
    
    
    123,710
    
    
    
    154,637
    
    
    
    301,786
    
    
    
    
    
    
    
    
    
    
    
    456,423Repurchases of common stock as part of 2005 share repurchase program
    
    
    (20,237
    )
    
    
    (25,296
    )
    
    
    (24,420
    )
    
    
    (150,138
    )
    
    
    
    
    
    
    (199,854
    )Cash dividend ($0.10 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (889,409
    )
    
    
    
    
    
    
    (889,409
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    175,440
    
    
    
    
    
    
    
    
    
    
    
    175,440Tax effect of stock transactions
    
    
    
    
    
    
    
    
    
    
    56,522
    
    
    
    
    
    
    
    
    
    
    
    56,522Comprehensive income (loss), net of tax:Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,097,141
    )
    
    
    
    
    
    
    (1,097,141
    )Net unrealized loss on investment securities owned
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (172,349
    )
    
    
    (172,349
    )Reclassification adjustment for net loss realized and reported in net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,791
    
    
    
    12,791Net unrealized gain on equity investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,000
    
    
    
    56,000Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,200,699
    )Balance at December 31, 2005
    
    
    9,381,199
    
    
    $
    11,726,499
    
    
    $
    14,896,956
    
    
    $
    69,091,048
    
    
    $
    (147,756
    )
    
    $
    95,566,747
  6




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##### 



NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of presentation
  Business Acquisition
 Business Combinations;
  Total
    
    
    SMSNet sales
    
    $
    101,373,000
    
    
    $
    24,741,000Costs of goods sold
    
    
    97,163,000
    
    
    
    22,578,000Gross profit
    
    $
    4,210,000
    
    
    $
    2,163,000Total assets at December 31, 2006
    
    $
    141,373,000
    
    
    $
    45,832,000
 Operations
 Use of estimates
 7




---



##### 



Revenue recognition
 Fair value of financial instruments
 Investment securities
 Other investment
 Market risk exposure
  Long-lived assets
 8




---



##### 



Other assets
 Common stock repurchases
 Supplemental cash flows information
 2006
    
    
    2005Net cash paid for:Income taxes
    
    $
    2,000
    
    
    $
    2,513,000Interest
    
    $
    575,000
    
    
    $
    
 Tax rate
 New accounting standards Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans,
  9




---



##### 



Fair Value Measurements
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 Accounting Changes and Error Corrections, Accounting Changes,
 NOTE 2. INVESTMENT SECURITIES
   YearsWithin 1
    
    
    1 to 5
    
    
    5 to 10
    
    
    Over 10
    
    
    TotalDebt securities:Corporate - primarily U.S.
    
    $
    2,000
    
    
    $
    21,000
    
    
    $
    1,000
    
    
    $
    
    
    
    $
    24,000State and municipal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,000
    
    
    
    17,000Total debt securities
    
    $
    2,000
    
    
    $
    21,000
    
    
    $
    1,000
    
    
    $
    17,000
    
    
    $
    41,000
  NOTE 3. INVENTORIES AND COSTS OF CONTRACTS IN PROGRESS
  10




---



##### 



December 31, 2006
    
    
    June 30, 2006Raw materials
    
    $
    35,722,000
    
    
    $
    29,388,000Work in process and finished goods
    
    
    14,295,000
    
    
    
    17,504,000$
    50,017,000
    
    
    $
    46,892,000
  NOTE 4. PENSION ASSET
 Periodic
benefit cost
 Three months ended
    
    Six months ended2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    111,000
    
    
    $
    144,000
    
    
    $
    247,000
    
    
    $
    257,000Interest cost
    
    
    141,000
    
    
    
    183,000
    
    
    
    316,000
    
    
    
    325,000Expected return on plan assets
    
    
    (194,000
    )
    
    
    (255,000
    )
    
    
    (434,000
    )
    
    
    (453,000
    )Amortization of prior service cost
    
    
    23,000
    
    
    
    27,000
    
    
    
    51,000
    
    
    
    48,000Amortization of net loss
    
    
    31,000
    
    
    
    55,000
    
    
    
    68,000
    
    
    
    97,000Net periodic benefit cost
    
    $
    112,000
    
    
    $
    154,000
    
    
    $
    248,000
    
    
    $
    274,000
  NOTE 5. GOODWILL AND OTHER INTANGIBLES
 Business Combinations Goodwill
and Other Intangible Assets
 Amortizable
    
    
    TotalGoodwill
    
    
    Intangibles
    
    
    IntangiblesBeginning balance at July 1, 2006
    
    $
    15,744,000
    
    
    $
    6,726,000
    
    
    $
    22,470,000Amortization
    
    
    
    
    
    
    (242,000
    )
    
    
    (242,000
    )Ending balance at December 31, 2006
    
    $
    15,744,000
    
    
    $
    6,484,000
    
    
    $
    22,228,000
  11




---



##### 



Goodwill
 Other intangibles
 NOTE 6. BORROWINGS
 Current
debt maturities
  Long-term debt
 December 31, 2006
    
    
    June 30, 2006Industrial Revenue bonds, face value
    
    $
    2,430,000
    
    
    $
    2,477,000Less unamortized purchase discount
    
    
    145,000
    
    
    
    150,000Industrial Revenue bonds, carrying value
    
    
    2,285,000
    
    
    
    2,327,000Bank loan
    
    
    9,000,000
    
    
    
    10,000,000Notes payable (to former Astro owners)
    
    
    6,650,000
    
    
    
    7,500,000Total long-term debt
    
    
    17,935,000
    
    
    
    19,827,000Less current portion
    
    
    3,869,000
    
    
    
    3,816,000Long-term debt, net of current portion
    
    $
    14,066,000
    
    
    $
    16,011,000
     12




---



##### 



NOTE 7. COMMITMENTS AND CONTINGENCIES
 Environmental Remediation
   Customer Relationships
    Product Issues
  13




---



##### 



NOTE 8. STOCK OPTIONS
 Share-Based Payment,
    Three months ended
    
    Six months ended2006
    
    2005
    
    2006
    
    2005Share-based compensation expense
    
    $
    68,000
    
    
    $
    110,000
    
    
    $
    134,000
    
    
    $
    175,000Related tax benefit
    
    $
    21,000
    
    
    $
    2,000
    
    
    $
    21,000
    
    
    $
    2,000Share-based compensation expense
impacted basic and diluted per share
amounts by approximately
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.02
  
 Options Outstanding
    

Options ExercisableWtd. Avg. Remaining
    
    Wtd. Avg.
    
    
    
    
    
    Wtd. Avg.Range of Exercise Prices
    
    Number of shares
    
    Contractual Life (years)
    
    Exercise Price
    
    Number of shares
    
    Exercise Price$6.52 to $8.57
    
    
    319,043
    
    
    
    6.03
    
    
    $
    7.77
    
    
    
    161,052
    
    
    $
    7.12
  14




---



##### 



Wtd. Avg. RemainingTotal Shares
    
    Wtd. Avg.
    
    Contractual
    
    AggregateUnder Option
    
    Exercise Price
    
    Term (years)
    
    Intrinsic ValueOutstanding at July 1, 2006
    
    
    542,924
    
    
    $
    6.69
    
    
    
    3.59
    
    
    $
    817,000Granted
    
    
    26,250
    
    
    
    8.48Exercised
    
    
    (232,347
    )Forfeited or expired
    
    
    (17,784
    )Outstanding at December 31, 2006
    
    
    319,043
    
    
    $
    7.77
    
    
    
    6.03
    
    
    $
    230,000Exercisable at December 31, 2006
    
    
    161,052
    
    
    $
    7.12
    
    
    
    3.67
    
    
    $
    210,000
   Expected option life
    
    10 yearsExpected volatility
    
    
    32.2
    %Risk- free interest rate
    
    
    4.7
    %Cash dividend yield
    
    
    0.0
    %Weighted average grant date fair value
    
    $
    4.75
 
  NOTE 9. EARNINGS (LOSS) PER SHARE
    Three months ended
    
    
    Six months ended2006
    
    
    2005
    
    
    2006
    
    
    2005Weighted average shares outstanding
    
    
    9,834,019
    
    
    
    9,815,865
    
    
    
    9,842,970
    
    
    
    9,785,226Effect of dilutive stock options
    
    
    
    
    
    
    62.995
    
    
    
    
    
    
    
    Weighted average dilutive stock options
    
    
    9,834,019
    
    
    
    9,878,860
    
    
    
    9,842,970
    
    
    
    9,785,226Basic and diluted income (loss) per share
    
    $
    (0.14
    )
    
    $
    0.02
    
    
    $
    (0.39
    )
    
    $
    (0.11
    )
 NOTE
10. COMPREHENSIVE INCOME (LOSS)
  15




---



##### 



Three months ended
    
    
    Six months ended2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss)
    
    $
    (1,378,000
    )
    
    $
    202,000
    
    
    $
    (3,842,000
    )
    
    $
    (1,097,000
    )Other comprehensive income (loss), net of taxInvestment securities owned
    
    
    161,000
    
    
    
    (45,000
    )
    
    
    284,000
    
    
    
    (160,000
    )Investment securities held by investee accounted
for by the equity method
    
    
    39,000
    
    
    
    42,000
    
    
    
    50,000
    
    
    
    56,000200,000
    
    
    
    (3,000
    )
    
    
    334,000
    
    
    
    (104,000
    )Comprehensive income (loss)
    
    $
    (1,178,000
    )
    
    $
    199,000
    
    
    $
    (3,508,000
    )
    
    $
    (1,201,000
    )
  December 31,2006
    
    
    June 30, 2006Accumulated other comprehensive income (loss), net of tax:Investment securities owned
    
    $
    
    
    
    $
    (284,000
    )Investment securities held by investee accounted for by the equity method
    
    
    69,000
    
    
    
    19,000Accumulated other comprehensive income (loss)
    
    $
    69,000
    
    
    $
    (265,000
    )
  NOTE 11. SUBSEQUENT EVENT
   Three months ended
    
    
    Six months ended2006
    
    
    2005
    
    
    2006
    
    
    2005Net sales
    
    $
    314,000
    
    
    $
    826,000
    
    
    $
    635,000
    
    
    $
    1,764,000Gross profit (loss)
    
    $
    (18,000
    )
    
    $
    3,000
    
    
    $
    (55,000
    )
    
    $
    41,000
  16




---



##### 



Current assets
    
    $
    1,879,000Property, plant and equipment (net)
    
    
    160,000Total assets
    
    $
    2,039,000Liabilities (all current)
    
    $
    1,773,000
 17




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
     18




---



##### 



RESULTS OF OPERATIONS
 Three months ended December 31:2006
    
    
    2005MARKET
    
    Sales
    
    
    % of Total
    
    
    Sales
    
    
    % of Total
    
    
    % ChangeMedical/Scientific Instrumentation
    
    $
    15,968,000
    
    
    
    30.1
    %
    
    $
    3,689,000
    
    
    
    9.9
    %
    
    
    332.9
    %Aerospace
    
    
    14,115,000
    
    
    
    26.6
    
    
    
    11,434,000
    
    
    
    30.3
    
    
    
    23.4Industrial/Other
    
    
    15,450,000
    
    
    
    29.1
    
    
    
    14,832,000
    
    
    
    39.3
    
    
    
    4.2Government
    
    
    7,523,000
    
    
    
    14.2
    
    
    
    7,738,000
    
    
    
    20.5
    
    
    
    (2.8
    )Totals
    
    $
    53,056,000
    
    
    
    100.0
    %
    
    $
    37,693,000
    
    
    
    100.0
    %
    
    
    40.8
    %
   2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    93.5
    
    
    
    89.8Gross profit
    
    
    6.5
    
    
    
    10.2Selling and administrative expenses
    
    
    8.3
    
    
    
    9.9Other operating (income) expenses  net
    
    
    (0.2
    )
    
    
    0.3Operating loss
    
    
    (1.6
    )
    
    
    (0.0
    )Other income (expense)  net
    
    
    (1.2
    )
    
    
    0.8Income (loss) before income taxes
    
    
    (2.8
    )
    
    
    0.8Provision (credit) for income taxes
    
    
    (0.2
    )
    
    
    0.3Net income (loss)
    
    
    (2.6
    )%
    
    
    0.5
    %
  19




---



##### 



Six months ended December 31:2006
    
    
    2005MARKET
    
    Sales
    
    
    % of Total
    
    
    Sales
    
    
    % of Total
    
    
    % ChangeMedical/Scientific Instrumentation
    
    $
    30,816,000
    
    
    
    30.4
    %
    
    $
    6,697,000
    
    
    
    9.0
    %
    
    
    360.2
    %Aerospace
    
    
    28,746,000
    
    
    
    28.4
    
    
    
    23,832,000
    
    
    
    31.8
    
    
    
    20.6Industrial/Other
    
    
    29,534,000
    
    
    
    29.1
    
    
    
    27,366,000
    
    
    
    36.4
    
    
    
    7.9Government
    
    
    12,277,000
    
    
    
    12.1
    
    
    
    17,104,000
    
    
    
    22.8
    
    
    
    (28.2
    )Totals
    
    $
    101,373,000
    
    
    
    100.0
    %
    
    $
    74,999,000
    
    
    
    100.0
    %
    
    
    35.7
    %
  20




---



##### 



2006
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %Costs of goods sold
    
    
    95.8
    
    
    
    92.8Gross profit
    
    
    4.2
    
    
    
    7.2Selling and administrative expenses
    
    
    8.6
    
    
    
    10.4Other operating (income) expenses  net
    
    
    (0.1
    )
    
    
    Operating loss
    
    
    (4.3
    )
    
    
    (3.2
    )Other income (expense)  net
    
    
    (0.8
    )
    
    
    1.0Loss before income taxes
    
    
    (5.1
    )
    
    
    (2.2
    )Credit for income taxes
    
    
    (1.3
    )
    
    
    (0.7
    )Net loss
    
    
    (3.8
    )%
    
    
    (1.5
    )%
    21




---



##### 



22




---



##### 



LIQUIDITY AND CAPITAL RESOURCES
        23




---



##### 



CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  Environmental Contingencies
  24




---



##### 



Government Contract Cost Estimates
  Commercial Inventory Valuation Allowances
   Allowance for Probable Losses on Receivables
  Pension Obligations
 Employers Accounting for Pensions,
 25




---



##### 



Business Combinations
   Goodwill and Customer Relationships
 Goodwill and Other
Intangible Assets.
  OTHER
 Litigation
  26




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk Exposure
   Item 4. Controls and Procedures
   27




---



##### 



Part II. Other Information
 Item 1. Legal Proceedings
  Environmental Remediation
       28




---



##### 



Customer Relationships
    Product Issues
  Item l(a). Risk Factors
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (c) Issuer
Repurchases of Equity Securities
  Total number
    
    Approximate dollar value ofTotal number of
    
    Average price
    
    shares purchased as part
    
    shares that may yet bePeriod
    
    shares purchased
    
    paid per share
    
    of publicly announced programs
    
    purchased under the programOctober 1-31
    
    
    17,404
    
    
    $
    8.58
    
    
    
    17,404
    
    
    $
    3,277,000November 1-30
    
    
    223,548
    
    
    
    8.58
    
    
    
    223,548
    
    
    
    1,358,000December 1-31
    
    
    27,700
    
    
    
    8.82
    
    
    
    27,700
    
    
    
    1,114,000Total
    
    
    268,652
    
    
    
    
    
    
    
    268,652
  29




---



##### 



Item 6. Exhibits
 2
    
    Membership Purchase Agreement for the acquisition of Astro
Instrumentation, LLC was filed with Form 8-K on June 2, 2006, and is incorporated herein
by reference.3.1
    
    Amended Articles of Incorporation of the Registrant were filed on Form 10-Q for
the three-month period
ended September 30, 2004, and are incorporated herein by reference.3.2
    
    Amended Code of Regulation of the Registrant were filed on Form 10-Q for the
three-month period ended
September 30, 2004, and are incorporated herein by reference.3.3
    
    The amended By-Laws of the Registrant were filed on Form 10-Q for the nine-month
period ended March
31, 2004, and are incorporated herein by reference.31.1
    
    Chief Executive Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Chief Financial Officer certification under Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Chief Executive Officer and Chief Financial Officer certification pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 SIGNATURES
  Date: February 14, 2007
    
    /s/ DAVID W. HOCKENBROCHTDavid W. Hockenbrocht, Chief Executive OfficerDate: February 14, 2007
    
    /s/ RICHARD L. LANGLEYRichard L. Langley, Chief Financial Officer
 30