**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-QSB**

| **x**                                                                                   | ** ** | **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 thetransition period from             to**

**CommissionFile Number:**       **0-27252**

**AML COMMUNICATIONS, INC.**

(Exact name ofsmall business issuer as specified in its charter)

| **Delaware**                     | ** ** | **77-0130894**       |
|----------------------------------|------------|----------------------|
| (State or Other  jurisdiction of |       | (IRS Employer        |
| incorporation or  organization)  |       | Identification  No.) |

 

| **1000 Avenida Acaso**                    |   |       |
|-------------------------------------------|--------|------------|
| **Camarillo,  California**                |   | **93012**  |
| (Address of  principal executive offices) |   | (Zip Code) |

 

**(805) 388-1345**

(Issuer’stelephone number including area code)

Check whether theissuer (1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.  Yes  x  No  o

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o  No  x

State the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

Common Stock Outstanding as of February 5, 2006:10,256,666 shares

Transitional Small Business Disclosure Format: Yes  o  No  x

 

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**AMLCommunications, Inc.**

**Index toForm 10-QSB**
|            |                                                                                                                                                                                                      |   |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Item 1.    | Financial Statements  (Unaudited)                                                                                                                                                                         |   |
|       |                                                                                                                                                                                                      |   |
|       | Unaudited Consolidated  Balance Sheet as of December 31, 2006                                                                                                                                             |   |
|       |                                                                                                                                                                                                      |   |
|       | Unaudited  Consolidated Statements of Operations for the three month periods ended December  31, 2006 and December 31, 2005 and for the nine month periods ended December  31, 2006 and December 31, 2005 |   |
|       |                                                                                                                                                                                                      |   |
|       | Unaudited Consolidated  Statements of Cash flows for the nine month periods ended December 31, 2006  and December 31, 2005                                                                                |   |
|       |                                                                                                                                                                                                      |   |
|       | Notes to  Unaudited Consolidated Financial Statements                                                                                                                                                     |   |
|       |                                                                                                                                                                                                      |   |
| Item 2.    | Management’s  Discussion and Analysis or Plan of Operation                                                                                                                                           |   |
|       |                                                                                                                                                                                                      |   |
| Item 3.    | Controls and  Procedures                                                                                                                                                                                  |   |
|       |                                                                                                                                                                                                      |   |
| Part  II   | Other  Information                                                                                                                                                                                        |   |
|       |                                                                                                                                                                                                      |   |
| Item  1.   | Legal  Proceedings                                                                                                                                                                                        |   |
|       |                                                                                                                                                                                                      |   |
| Item 2.    | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                                                              |   |
|       |                                                                                                                                                                                                      |   |
| Item 3.    | Defaults Upon Senior  Securities                                                                                                                                                                          |   |
|       |                                                                                                                                                                                                      |   |
| Item 4.    | Submission of  Matters to a Vote of Security Holders                                                                                                                                                      |   |
|       |                                                                                                                                                                                                      |   |
| Item  5.   | Other  Information                                                                                                                                                                                        |   |
|       |                                                                                                                                                                                                      |   |
| Item 6.    | Exhibits                                                                                                                                                                                                  |   |
|       |                                                                                                                                                                                                      |   |
| ** ** | SIGNATURES                                                                                                                                                                                                |   |

 

2

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**PART I -FINANCIAL INFORMATION**

**Item 1.****           Financial Statements**

**AML COMMUNICATIONS, INC.**

**CONSOLIDATED BALANCE SHEET**

**(unaudited)**
| ** **                                                                                                                   | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                   | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                   | ** ** | ** **                  | ** ** |
| Current Assets:                                                                                                              |       |                        |       |
| Cash and cash  equivalents                                                                                                   |       | $                           | 2,183,000  |   |
| Accounts  receivable, net of allowance for doubtful accounts of $32,000                                                      |       | 1,159,000                   |       |
| Inventories, net                                                                                                             |       | 1,842,000                   |       |
| Other current  assets                                                                                                        |       | 112,000                     |       |
| Total current  assets                                                                                                        |       | 5,296,000                   |       |
|                                                                                                                         |       |                        |       |
| Property and  Equipment, at cost                                                                                             |       | 5,871,000                   |       |
| Less:  Accumulated depreciation                                                                                              |       | (3,687,000                  | )          |
| Property and  Equipment, net                                                                                                 |       | 2,184,000                   |       |
|                                                                                                                         |       |                        |       |
| Deferred Tax  Asset                                                                                                          |       | 1,662,000                   |       |
| Intangible Assets:                                                                                                           |       |                        |       |
| Technologies,  net                                                                                                           |       | 751,000                     |       |
| Patents, net                                                                                                                 |       | 128,000                     |       |
| Customer lists,  net                                                                                                         |       | 47,000                      |       |
| Trademarks                                                                                                                   |       | 181,000                     |       |
| Other Assets                                                                                                                 |       | 17,000                      |       |
|                                                                                                                         |       | $                           | 10,266,000 |   |
| ** **                                                                                                                   |       |                        |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                               |       |                        |       |
|                                                                                                                         |       |                        |       |
| Current Liabilities:                                                                                                         |       |                        |       |
| Line of Credit                                                                                                               |       | $                           | 289,000    |   |
| Accounts payable                                                                                                             |       | 462,000                     |       |
| Current portion  of long term debt                                                                                           |       | 11,000                      |       |
| Accrued  expenses:                                                                                                           |       |                        |       |
| Accrued payroll  and payroll related expenses                                                                                |       | 272,000                     |       |
| Accrued income  taxes                                                                                                        |       | 23,000                      |       |
| Other accrued  liabilities                                                                                                   |       | 150,000                     |       |
| Total current  liabilities                                                                                                   |       | 1,207,000                   |       |
|                                                                                                                         |       |                        |       |
| Notes Payable,  net                                                                                                          |       | 621,000                     |       |
|                                                                                                                         |       |                        |       |
| Stockholders’ Equity:                                                                                                   |       |                        |       |
| Common stock,  $0.01 par value:15,000,000 shares authorized; 10,256,666 shares issued and  outstanding at December 31, 2006. |       | 103,000                     |       |
| Capital in  excess of par value                                                                                              |       | 13,583,000                  |       |
| Accumulated  deficit                                                                                                         |       | (5,248,000                  | )          |
| Total  stockholders’ equity                                                                                             |       | 8,438,000                   |       |
|                                                                                                                         |       | $                           | 10,266,000 |   |

 

The accompanying notes are an integral part of these financialstatements.

3

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**AMLCOMMUNICATIONS, INC.**

** CONSOLIDATED STATEMENTS OF OPERATIONS**

**(unaudited)**
| ** **                                                             | ** ** | **Three Month Periods Ended** | ** ** | **Nine Month Periods Ended** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                             | ** ** | **December 31,**                        | ** ** | **December 31,**                       | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                             | ** ** | **2006**                                     | ** ** | **2005**                                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Net sales                                                              |       | $                                            | 2,177,000  |                                        | $          | 2,495,000 |   | $ | 6,629,000 |   | $ | 7,523,000 |   |
| Cost of goods  sold                                                    |       | 1,204,000                                    |       | 1,295,000                                   |       | 3,767,000 |   | 4,061,000 |   |
| Gross profit                                                           |       | 973,000                                      |       | 1,200,000                                   |       | 2,862,000 |   | 3,462,000 |   |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Operating  expenses:                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Selling, general & administrative                                  |       | 560,000                                      |       | 591,000                                     |       | 1,782,000 |   | 1,739,000 |   |
| Research and development                                               |       | 341,000                                      |       | 303,000                                     |       | 985,000 |   | 902,000 |   |
| Total operating expenses                                               |       | 901,000                                      |       | 894,000                                     |       | 2,767,000 |   | 2,641,000 |   |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Income from  operations                                                |       | 72,000                                       |       | 306,000                                     |       | 95,000 |   | 821,000 |   |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Other income/(expense), net                                            |       | (5,000                                       | )          | (5,000                                      | )          | (18,000 | ) | 3,000 |   |
| Income before  provision for income taxes                              |       | 67,000                                       |       | 301,000                                     |       | 77,000 |   | 824,000 |   |
| Provision for  income taxes                                            |       | 7,000                                        |       | 7,000                                       |       | 23,000 |   | 23,000 |   |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Net income                                                             |       | $                                            | 60,000     |                                        | $          | 294,000 |   | $ | 54,000 |   | $ | 801,000 |   |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Basic earnings  per common share                                       |       | $                                            | 0.01       |                                        | $          | 0.03 |   | $ | 0.01 |   | $ | 0.08 |   |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Basic weighted  average number of shares of common stock outstanding   |       | 10,249,000                                   |       | 10,101,000                                  |       | 10,239,000 |   | 10,086,000 |   |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Diluted earnings  per common share                                     |       | $                                            | 0.01       |                                        | $          | 0.03 |   | $ | 0.01 |   | $ | 0.07 |   |
|                                                                   |       |                                         |       |                                        |       |   |   |   |   |
| Diluted weighted  average number of shares of common stock outstanding |       | 10,610,000                                   |       | 10,787,000                                  |       | 10,634,000 |   | 10,724,000 |   |

 

The accompanying notes are an integral part of these financialstatements.

4

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**AMLCOMMUNICATIONS, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**
| ** **                                                                         | ** ** | **Nine Month Periods Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                         | ** ** | **December 31,  2006**                 | ** ** | **December 31,  2005** | ** ** |
| Cash Flows from  Operating Activities:                                             |       |                                        |       |   |   |
| Net Income                                                                         |       | $                                           | 54,000     |   | $ | 801,000 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                                        |       |   |   |
| Depreciation and Amortization                                                      |       | 468,000                                     |       | 405,000 |   |
| Bad debt expense                                                                   |       | (5,000                                      | )          | 10,000 |   |
| Inventory Reserves                                                                 |       | 10,000                                      |       | (116,000 | ) |
| Loss (Gain) on sale of fixed assets                                                |       | —                                      |       | (1,000 | ) |
| Stock Option Expenses                                                              |       | 86,000                                      |       | — |   |
| Decrease  (increase) in:                                                           |       |                                        |       |   |   |
| Accounts receivable                                                                |       | (88,000                                     | )          | 17,000 |   |
| Inventories                                                                        |       | (270,000                                    | )          | 205,000 |   |
| Other current assets                                                               |       | 168,000                                     |       | 47,000 |   |
| Increase  (decrease) in:                                                           |       |                                        |       |   |   |
| Accounts payable                                                                   |       | 308,000                                     |       | (91,000 | ) |
| Accrued income taxes                                                               |       | 23,000                                      |       | (20,000 | ) |
| Accrued expenses                                                                   |       | (166,000                                    | )          | (78,000 | ) |
| Net cash  provided by operating activities                                         |       | 588,000                                     |       | 1,179,000 |   |
|                                                                               |       |                                        |       |   |   |
| Cash Flows from  Investing Activities:                                             |       |                                        |       |   |   |
| Purchases of property and equipment                                                |       | (809,000                                    | )          | (505,000 | ) |
| Proceeds for the sale of property and equipment                                    |       | —                                      |       | 1,000 |   |
| Long-Term cash investments                                                         |       | —                                      |       | (755,000 | ) |
| Net cash used in  investing activities                                             |       | (809,000                                    | )          | (1,259,000 | ) |
|                                                                               |       |                                        |       |   |   |
| Cash Flows from  Financing Activities:                                             |       |                                        |       |   |   |
| Proceeds from exercise of stock options                                            |       | 3,000                                       |       | 35,000 |   |
| Proceeds from line of credit, net                                                  |       | 41,000                                      |       | 234,000 |   |
| Payments on notes payable                                                          |       | (8,000                                      | )          | — |   |
| Principle payments capital lease obligations                                       |       | —                                      |       | (52,000 | ) |
| Net cash  provided by financing activities                                         |       | 36,000                                      |       | 217,000 |   |
|                                                                               |       |                                        |       |   |   |
| Net increase  (decrease) in Cash and Cash Equivalents                              |       | (185,000                                    | )          | 137,000 |   |
| Cash and Cash  Equivalents, beginning of period                                    |       | 2,368,000                                   |       | 1,588,000 |   |
| Cash and Cash  Equivalents, end of period                                          |       | $                                           | 2,183,000  |   | $ | 1,725,000 |   |
| Supplemental  disclosure of cash flow information:                                 |       |                                        |       |   |   |
| Cash paid during the period for:                                                   |       |                                        |       |   |   |
| Interest                                                                           |       | $                                           | 54,000     |   | $ | 25,000 |   |
| Income Taxes                                                                       |       | $                                           | 23,000     |   | $ | 23,000 |   |
| Supplemental  disclosure of non-cash flow investing and financing activity:        |       |                                        |       |   |   |
| Debt incurred to  purchase property and equipment                                  |       | $                                           | 127,000    |   | $ | 264,000 |   |

 

The accompanying notes are an integral part of thesefinancial statements.

5

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**AMLCOMMUNICATIONS, INC.**

**NOTES TOUNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December31, 2006**

**1.****             Basis of Presentation**

AMLCommunications (the “Company” or “We”) currently designs, manufactures, andmarkets radio frequency (RF) and microwave, low noise, medium and high poweramplifiers serving primarily the defense microwave market.  Our business is comprised of two reportablesegments consisting of amplifiers and related products that are designed,manufactured and marketed by AML Communications, Inc. for the defense microwave(AML) and high power microwave amplifiers that are designed, manufactured andmarketed by our division Microwave Power, Inc. (MPI) for the defensemarket.  Our defense industry productsare used primarily in electronic systems for tactical aircraft, ships, groundsystems, and missile systems.  Theseproducts are sold directly by us as well as through independent salesrepresentatives.  We had two reportablesegments (AML) and (MPI) for the nine month periods ended December 31, 2005 andthe same two reportable segments in the nine month periods ended December 31,2006.

Wewere incorporated in California in 1986 as Advanced Milliwave Laboratories,Inc.  Early in 1994, we changed our nameto AML Communications, Inc.  In December1995, in conjunction with the initial public offering of our common stock, wechanged our state of incorporation from California to Delaware.  In May 1996, we moved our principle officeand manufacturing facility to our current location, 1000 Avenida Acaso, Camarillo,California 93012.

The accompanying financial statements have beenprepared in conformity with accounting principles generally accepted in theUnited States.  However, certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States have been omitted or condensed pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”).  In the opinion of management, all adjustments(consisting of normal recurring adjustments) necessary for a fair presentationhave been included.  The results ofoperations and cash flows for the nine-month period presented are notnecessarily indicative of the results of operations for a full year.  These financial statements should be read inconjunction with the Company’s March 31, 2006 audited financial statements andnotes thereto included in the Company’s Annual Report on Form 10-KSB.

**2.****             Earnings Per Share**

**Statement of FinancialAccounting Standards No. 128, “Earnings per share” requires the presentation ofbasic earnings per share and diluted earnings per share.  Basic and diluted earnings per sharecomputations are presented by the Company conform to the standard and are basedon the weighted average number of shares of Common Stock outstanding during theyear.**

Basic earnings per share is computed by dividing net incomeor loss by the weighted average number of shares outstanding for the year.  “Diluted” earnings per share is computed bydividing net income or loss by the total of the weighted average number ofshares outstanding, and the dilutive effect of outstanding stock options andwarrants (applying the treasury stock method).

**The Company had approximately1,849,000 of granted stock options and warrants that were exercisable as ofDecember 31, 2006 and approximately 1,915,000 of granted stock options andwarrants exercisable at December 31, 2005.**

6

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**The following is areconciliation of the numerators and denominators of the basic and dilutedearnings per share computations:**
| **Nine months ended December 31, 2006** | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|------------------------------------------------------------------|------------|---------------------|------------|------------|------------|--------------------|------------|
| Basic earnings  per shares:                                      |       |                |       |       |       |               |       |
| Net income available to common stockholders                      |       | $                   | 54,000     |       | 10,239,000 |               | $          | 0.01 |   |
| Effect of  dilutive securities:                                  |       |                |       |       |       |               |       |
| Stock options & warrants                                     |       |                |       | 395,000    |       |               |       |
| Diluted earnings per  share:                                     |       | $                   | 54,000     |       | 10,634,000 |               | $          | 0.01 |   |

 
| **Nine months ended December 31, 2005** | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|------------------------------------------------------------------|------------|---------------------|------------|------------|------------|--------------------|------------|
| Basic earnings  per shares:                                      |       |                |       |       |       |               |       |
| Net income available to common stockholders                      |       | $                   | 801,000    |       | 10,086,000 |               | $          | 0.08 |   |
| Effect of  dilutive securities:                                  |       |                |       |       |       |               |       |
| Stock options & warrants                                     |       |                |       | 638,000    |       |               |       |
| Diluted earnings  per share:                                     |       | $                   | 801,000    |       | 10,724,000 |               | $          | 0.07 |   |

 

**3.**             **Accounts Receivable**

**Accountsreceivable as of December 31, 2006 are as follows:**
| Accounts receivable      |       | $      | 1,191,000 |       |
|--------------------------|------------|--------|-----------|------------|
| Allowance for  bad debts |       | 32,000 |      |
|                     | ** ** | $      | 1,159,000 | ** ** |

 

**4.**             **Inventories**

Inventoriesinclude costs of material, labor and manufacturing overhead and are stated atthe lower of cost (first-in, first-out) or market and consist of the following:
|                               | ** ** | **December 31, 2006** | ** ** |
|-------------------------------|------------|---------------------------------|------------|
|                          | ** ** | ** **                      | ** ** |
| Raw material,  net of reserve |       | $                               | 1,542,000  |   |
| Work-in-process               |       | 358,000                         |       |
| Finished goods                |       | 331,000                         |       |
|                          |       | $                               | 2,231,000  |   |

 

The reserve for inventory at December 31, 2006 was $389,000.

**5.****             Property& equipment**

Property and equipment are beingdepreciated and amortized on the straight-line basis over the followingestimated useful lives:
| Machinery and equipment |   | 3 to 5 years  |   |
|-------------------------|--------|---------------|--------|
| Furniture and  fixtures |   | 5 years       |   |
| Leasehold  improvements |   | Life of lease |   |
| Building                |   | 30 years      |   |

 

Depreciation expense was $107,000and $86,000 for the three months ended December 31, 2006 and December 31, 2005and $304,000 and $246,000 for the nine months ended December 31, 2006 andDecember 31, 2005 respectively.

The Company capitalizes expenditures that materially increaseasset lives and charges ordinary repairs and maintenance to operations asincurred.  When assets are sold orotherwise disposed of, the cost and related depreciation or amortization isremoved from the accounts and any resulting gain or loss is included in otherincome (expense) in the accompanying statements of operations.

7

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Property and equipment consist of the following:
|                          | ** ** | **December 31,  2006** | ** ** |
|--------------------------|------------|-----------------------------|------------|
| Building                 |       | $                           | 800,000    |   |
| Machinery and  equipment |       | 4,228,000                   |       |
| Furniture and  fixtures  |       | 153,000                     |       |
| Leasehold  improvements  |       | 690,000                     |       |
|                     |       | $                           | 5,871,000  |   |

 

During the three monthperiod ended December 31, 2006, we donated $41,000 of fully depreciatedmachinery and equipment to a registered charity. No gain or loss is recognizedin this transaction.

**6.****             Intangible Assets**

The Company accounts for its intangible assets under the applicable guidelines of SFAS 142 “goodwill and other intangible assets” and SFAS 144 “accounting for the impairment or disposal of long lived assets”.  Where intangible assets have finite lives, they are amortized over their useful life unless factors exist to indicate that the asset has been impaired.  The Company evaluates if the assets are impaired annually or on an interim basis if an event occurs or circumstances change to suggest that the assets value has diminished.  Under SFAS 142 intangible assets with indefinite useful lives are required to be tested annually for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets is measured by a comparison of the carrying amount of the assets to future net cash flows expected to be generated by the assets.  If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets.  During the nine months ended December 31, 2006, the Company recognized no impairment.

At December 31, 2006, intangibles consist of the following:
| Intangibles               | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net**  | ** ** |
|---------------------------|------------|---------------------------------|------------|-------------------------------|------------|----------|------------|
|                      |       |                            |       |                          |       |     |       |
| Amortized  intangibles:   |       |                            |       |                          |       |     |       |
| Patents                   |       | $                               | 189,000    |                          | $          | (61,000  | )          | $ | 128,000 |   |
| Existing Technology       |       | 961,000                         |       | (210,000                      | )          | 751,000  |       |
| Customer List             |       | 339,000                         |       | (292,000                      | )          | 47,000   |       |
|                      |       |                            |       |                          |       |     |       |
| Unamortized  intangibles: |       |                            |       |                          |       |     |       |
| Trademarks                |       | 181,000                         |       | —                        |       | 181,000  |       |
|                      |       | $                               | 1,670,000  |                          | $          | (563,000 | )          | $ | 1,107,000 |   |

 

Dueto the acquisition of MPI in the quarter ended June 30, 2004, we recorded the intangible assets above.  We assigned an 8 year life to patents, a 12year life to Existing Technology, and a 3 year life to Customer Lists.  All are subject to amortization.  The value assigned to trademarks, which havean indefinite life, should not be amortized.

Amortization expense from continuing operation for the nine months ended December 31, 2006 was $164,000.  We expect amortization expense for the next five years to be as follows:
| Year Ending March 31: | ** ** | ** ** | ** ** |
|--------------------------------------|------------|------------|------------|
| 2008                                 |       | $          | 122,000    |   |
| 2009                                 |       | $          | 103,000    |   |
| 2010                                 |       | $          | 103,000    |   |
| 2011                                 |       | $          | 103,000    |   |
| 2012                                 |       | $          | 103,000    |   |

 

8

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**7.****             Debt and leasecommitments**

Line of credit

At December 31, 2006, wehad a line of credit agreement with Bridge Bank. On July 17, 2006, we signed aBusiness Financing Agreement with Bridge Bank to renew our line of credit, witha credit facility of $2.0 million. Of this $2.0 million, $1.0 million may beused for cash advances against accounts receivables and $1.0 million may beused for equipment advances. Our ability to borrow under this agreement variesbased upon eligible accounts receivable and eligible equipment purchases. Weare obligated to pay the bank a finance charge at a rate per year equal to theprime rate, which in no event shall be less than 5.50%, plus .25% with respectto cash advances and a rate of such prime rate plus 2.0% with respect toequipment advances.  We are obligated topay an annual facility fee of $5,000 (0.50% of the gross facility amount) and$2,500 the second year.  We must maintaincertain financial requirements, including a Quick Ratio of 1.50 to 1.00, and tostay within 80% of planned quarterly revenue. We were in compliance with these requirements at December 31, 2006;however, there is no assurance that we will be in compliance at future dates.This agreement terminates on July 17, 2007 or upon a date that the bank choosesto terminate the agreement.  Any unpaidbalance is due and payable pursuant to the agreement on the termination date.  If the agreement is terminated within the first12 months following its execution on July 17, 2006, we will be required to payan early termination fee of 1.0% of the credit facility amount under the termsof the agreement. At December 31, 2006, we had an outstanding balance of $0under the accounts receivable agreement and $289,000 under the equipmentfinancing agreement while our remaining borrowing capacity is approximately$1,000,000 and $711,000 available under these agreements respectively.

Note Payable

On February 3, 2006 the Company purchased the building thathouses MPI located at 3350 Scott Blvd. 25 Santa Clara, California for apurchase price of $800,000.  The Companymade a down payment of $160,000.  Thebuilding is being financed by the bank promissory note in the amount of$640,000 with 6.760% interest payable in 83 regular payments of $4,425.88 eachwhich includes principle and interest and one irregular last payment of$556,594.48.  The Company’s final paymentis due February 10, 2013 and will be for all principle and interest not yet paid.  The note payable is secured by the deed oftrust on the building.  As of December31, 2006, the outstanding note amounted to $632,000 with $11,000 in currentportion.

Operating LeaseObligations

The Company leases its officespace, manufacturing facility under an operating lease expiring April2008.  Total rent expense under thisoperating lease was approximately $141,000 and $136,000 during the nine monthsended December 31, 2006 and 2005, respectively.

Total minimum lease payments under the above lease are asfollows:
|                             | ** ** | **Operating  Leases** | ** ** |
|-----------------------------|------------|-----------------------|------------|
| Year ending  March 31, |       |                  |       |
| 2007                        |       | $                     | 188,000    |   |
| 2008                        |       | 204,000               |       |
| 2009                        |       | 17,000                |       |
| Thereafter                  |       | —                |       |
|                        |       | $                     | 409,000    |   |

 

9

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**8.**             EquityTransactions

Stock Options

TheCompany adopted SFAS No. 123 (Revised 2004), *Share Based Payment*(“SFAS No. 123R”), under themodified-prospective transition method on April 1, 2006.  SFAS No. 123R requires companies tomeasure and recognize the cost of employee services received in exchange for anaward of equity instruments based on the grant-date fair value.  Share-based compensation recognized under themodified-prospective transition method of SFAS No. 123R includesshare-based compensation based on the grant-date fair value determined inaccordance with the original provisions of SFAS No. 123, *Accounting for Stock-Based Compensation,*forall share-based payments granted prior to and not yet vested as of April 1,2006 and share-based compensation based on the grant-date fair-value determinedin accordance with SFAS No. 123R for all share-based payments grantedafter April 1, 2006. SFAS No. 123R eliminates the ability to account forthe award of these instruments under the intrinsic value method proscribed byAccounting Principles Board (“APB”) Opinion No. 25, *Accounting for Stock Issued to Employees*,and allowed under the original provisions of SFAS No. 123.  Prior to the adoption of SFAS No. 123R,the Company accounted for our stock option plans using the intrinsic valuemethod in accordance with the provisions of APB Opinion No. 25 and relatedinterpretations.

Primarilyas a result of adopting SFAS No. 123R, the Company recognized $86,000 or$0.01 per basic and diluted earnings per share in share-based compensationexpense for the nine months ended December 31, 2006 and $31,000 or $0.00 perbasic and diluted earnings per share in share-based compensation expense forthe three months ended December 31, 2006. The fair value of our stock optionswas estimated using the Black-Scholes option pricing model.

Forperiods presented prior to the adoption of SFAS No. 123R, pro formainformation regarding net income and earnings per share as required by SFASNo. 123R has been determined as if we had accounted for our employee stockoptions under the original provisions of SFAS No. 123.  The fair value of these options was estimatedusing the Black-Scholes option pricing model. For purposes of pro formadisclosure, the estimated fair value of the options is amortized to expenseover the option’s vesting period.  Thereis no pro forma expense to recognize during the nine months ended December 31,2006.

In1995, the board of directors approved the creation of the 1995 Stock OptionPlan.  In November 2005, the boardestablished the 2005 Equity Incentive Plan (“2005 Plan”) with 150,000 sharesinitially approved.  The total aggregatenumber of shares initially reserved and available for grant and issuancepursuant to the 2005 Plan is 500,000 shares. Incentive stock option awards may be granted under the 2005 Plan only toemployees (including officers and directors who are also employees) of theCompany or of a Parent or subsidiary of the Company.  All other awards(including nonqualified stock options, restricted stock or stock awards) underthe 2005 Plan may be granted to employees, officers, directors, consultants,independent contractors and advisors of the Company or any Parent or Subsidiaryof the Company, provided such consultants, contractors and advisors render bonafide services not in connection with the offer and sale of securities in a capital-raisingtransaction

Pursuantto the 2005 Plan, during the nine months ended December 31, 2006, the Companygranted 269,000 stock options to the Company’s employees and two externaldirectors.

OnJune 8, 2006, the Company granted 59,000 stock options to nine employees asemployee compensation. All of the 59,000 stock options have a term of ten (10)years measured from the Grant Date and shall accordingly expire at the close ofbusiness on the Expiration Date, unless sooner terminated in accordance withthe plan.  The options will become vestedtwenty (20) percent per year over a five year period.  The option exercise price was $1.20 which wasthe same as fair value of the shares at the time of granting of the options.

OnAugust 7, 2006, the Company granted 65,000 stock options to five employees asemployee compensation.  All of the 65,000stock options have a term of ten (10) years measured from the Grant Date andshall accordingly expire at the close of business on the Expiration Date,unless sooner terminated in accordance with the plan.  The options will become vested twenty (20)percent per year over a five year period. The option exercise price was $0.85 which was the same as fair value ofthe shares at the time of granting of the options.

OnSeptember 7, 2006, the Company granted a total of 145,000 stock options to fiveemployees and two external directors as follows: 80,000 stock options to threeAML’s officers as employee compensations, 50,000 Non Qualified Stock Options totwo of MPI’s executives, and 15,000 Non Qualified Stock Options to two externaldirectors.

Ofthe first 80,000 stock options granted, 55,000 stock options have a term offive (5) years and 25,000 stock options have a term of ten (10) years measuredfrom the Grant Date and shall accordingly expire at the close of business onthe Expiration Date, unless sooner terminated in accordance with the plan.  All of the 80,000 stock options will becomevested thirty three (33) percent per year over a three year period.

10

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Thesecond 50,000 Non Qualified Stock Options granted have a term of five (5) yearsmeasured from the Grant Date and shall accordingly expire at the close ofbusiness on the Expiration Date, unless sooner terminated in accordance withthe plan.  All of the 50,000 stock optionswill become vested thirty three (33) percent per year over a three year period.

Thelast 15,000 Non Qualified Stock Options granted have a term of ten (10) yearsmeasured from the Grant Date and shall accordingly expire at the close ofbusiness on the Expiration Date, unless sooner terminated in accordance withthe plan.  The options will become vestedtwenty (20) percent per year over a five year period.

Theoption exercise price was $0.90 for all of the 145,000 stock options granted onSeptember 7, 2006, which was the same as fair value of the shares at the timeof granting of the options.

Following is a summary ofthe stock option activity:
|                                 | ** ** | **Options  outstanding** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|---------------------------------|------------|--------------------------|------------|----------------------------------------|------------|-------------------------------------|------------|
|                            |       |                     |       |                                   |       |                                |       |
| Outstanding,  March 31, 2006    |       | 1,937,750                |       | $                                      | 1.06       |                                | $          | 118,000 |   |
| Granted                         |       | 269,000                  |       | $                                      | 0.95       |                                |       |   |
| Forfeited                       |       | 86,500                   |       | $                                      | 1.77       |                                |       |   |
| Exercised                       |       | 22,500                   |       | $                                      | 0.15       |                                |       |   |
| Outstanding, December  31, 2006 |       | 2,097,750                |       | $                                      | 0.98       |                                | $          | 0 |   |

 

Following is a summary ofthe status of options outstanding at December 31, 2006:
| **Range of  Exercise Prices** | ** ** | **Total  Options  Outstanding** | ** ** | **Weighted  Average  Remaining  Life  (Years)** | ** ** | **Total  Weighted  Average  Exercise  Price** | ** ** | **Options  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|-----------------------------------------|------------|---------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|--------------------------|------------|--------------------------------------------|------------|
|                                    |       |                            |       |                                            |       |                                          |       |                     |       |                                       |       |
| $0.11 - $0.50                           |       | 243,700                         |       | 6.79                                            |       | $                                             | 0.15       |                     | 237,450    |                                       | $          | 0.14 |   |
| $0.51 - $1.00                           |       | 1,443,250                       |       | 6.31                                            |       | $                                             | 1.32       |                     | 1,197,000  |                                       | $          | 0.92 |   |
| $1.01 - $2.00                           |       | 346,050                         |       | 7.37                                            |       | $                                             | 1.30       |                     | 134,900    |                                       | $          | 1.44 |   |
| $2.01 - $5.00                           |       | 47,250                          |       | 3.00                                            |       | $                                             | 3.24       |                     | 47,250     |                                       | $          | 3.24 |   |
| $5.01 - $15.75                          |       | 17,500                          |       | 0.65                                            |       | $                                             | 5.44       |                     | 17,500     |                                       | $          | 5.44 |   |
| $0.11 -  $15.75                         |       | 2,097,750                       |       | 6.29                                            |       | $                                             | 0.98       |                     | 1,634,100  |                                       | $          | 0.96 |   |

 

For optionsgranted during the nine months ended December 31, 2006, the weighted-averagefair value of such options was $0.49.

The assumptionsused in calculating the fair value of options granted using the Black-Scholesoption-pricing model are as follows:

Stock OptionsGranted on June 8, 2006:
| Risk-free interest rate       |   | 5.04        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 40.37       | %      |
| Expected dividend yield       |   | 0           |   |

 

11

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Stock OptionsGranted on August 7, 2006:
| Risk-free interest rate       |   | 4.93        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 34.92       | %      |
| Expected dividend yield       |   | 0           |   |

 

Stock OptionsGranted on September 7, 2006:

105,000 stockoptions with a term of 5 years and three year vesting periods:
| Risk-free interest rate       |   | 4.74       | %      |
|-------------------------------|--------|------------|--------|
| Expected life of  the options |   | 5.00 years |   |
| Expected  volatility          |   | 36.11      | %      |
| Expected dividend yield       |   | 0          |   |

 

25,000 stock optionswith a term of 10 years and three year vesting periods:
| Risk-free interest rate       |   | 4.79        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 36.11       | %      |
| Expected dividend yield       |   | 0           |   |

 

15,000 stockoptions with a term of 10 years and five year vesting periods:
| Risk-free interest rate       |   | 4.79        | %      |
|-------------------------------|--------|-------------|--------|
| Expected life of  the options |   | 10.00 years |   |
| Expected  volatility          |   | 36.11       | %      |
| Expected dividend yield       |   | 0           |   |

 

Details of the Company’snon-vested options are as follows:
|                                 | ** ** | **Non-Vested  Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** | **Weighted  Average  Vesting Period** | ** ** | **Grant Date Fair  Value** | ** ** |
|---------------------------------|------------|-------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|--------------------------------------|------------|
| Non-vested -  March 31, 2006    |       | 400,900                 |       | $                                          | 1.07       |                                       |       |                                 |       |   |
| Granted                         |       | 269,000                 |       | 0.95                                       |       |                                       |       | 131,880                              |       |
| Forfeited                       |       | (72,500                 | )          | 1.23                                       |       |                                       |       |                                 |       |
| Vested                          |       | (131,875                | )          | 1.80                                       |       |                                       |       |                                 |       |
| Exercised                       |       | (1,875                  | )          | 0.16                                       |       |                                       |       |                                 |       |
| Non-vested - December  31, 2006 |       | 463,650                 |       | 1.02                                       |       | 2.3 Years                                  |       |                                 |       |
|                                 |            |                         |            |                                            |            |                                            |            |                                      |            |  |

 

The total compensationcost not yet recognized related to non-vested stock options is $262,000 whichis expected to be recognized over a period of 2.3 years.

Warrants

Following is a summary ofthe warrant activity:
|                                 | ** ** | **Warrants  outstanding** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
|---------------------------------|------------|---------------------------|------------|----------------------------------------|------------|-------------------------------------|------------|
| Outstanding,  March 31, 2006    |       | 222,928                   |       | $                                      | 0.50       |                                | $          | 118,000 |   |
| Granted                         |       | —                    |       |                                   |       |                                |       |
| Forfeited                       |       | 8,000                     |       | 0.02                                   |       |                                |       |
| Exercised                       |       | —                    |       |                                   |       |                                |       |
| Outstanding, December  31, 2006 |       | 214,928                   |       | 0.49                                   |       | $                                   | 20,000     |   |
|                                 |            |                           |            |                                        |            |                                     |            |  |  |

 

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Following is a summary ofthe status of warrants outstanding at December 31, 2006:
| **Range of  Exercise Prices** | ** ** | **Total  Warrants  Outstanding** | ** ** | **Weighted  Average  Remaining  Life  (Years)** | ** ** | **Total  Weighted  Average  Exercise  Price** | ** ** | **Warrants  Exercisable** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|---------------------------|------------|--------------------------------------------|------------|
|                                    |       |                             |       |                                            |       |                                          |       |                      |       |                                       |       |
| $0.24 - $1.00                           |       | 187,499                          |       | 1.54                                            |       | $                                             | 0.24       |                      | 187,499    |                                       | $          | 0.24 |   |
| $1.01 - $5.00                           |       | 27,429                           |       | 0.91                                            |       | $                                             | 2.19       |                      | 27,429     |                                       | $          | 2.19 |   |
| $0.24 -  $5.00                          |       | 214,928                          |       | 1.38                                            |       | $                                             | 0.49       |                      | 214,928    |                                       | $          | 0.49 |   |

 

**9.****             Segments**

The Company has two reportable segments consisting of (1) AML Communications, Inc. and (2) Microwave Power, Inc.  Our AML Communications segment includes low noise and high power amplifiers with frequencies that range from 50KHz to 26GHz.  These products are manufactured and sold through operations in Camarillo, California.  Microwave Power, Inc. is a designer, manufacturer and marketer of high power microwave amplifiers.  Our MPI segment includes solid state microwave amplifiers operating in the frequency range from 1 to 40 GHz with output power from 10mW to 500W.  These products are manufactured and sold through operations in Santa Clara, California.  The Company evaluates performance based on sales, gross profit margins, and operating profit before income taxes.

The following is information for the Company’s reportable segments for the three month period ended December 31, 2006 and the nine month period ended December 31, 2006:

**For the three months ended December 31, 2006**
| (In thousands)                                     | ** ** | **AML** | ** ** | **MPI** | ** ** | **Unallocated** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------|------------|---------|------------|-----------------|------------|-----------|------------|
|                                                    |       |    |       |    |       |            |       |      |       |
| Revenue                                                 |       | $       | 1,711      |    | $          | 466             |       | —    |       | $ | 2,177 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Gross Profit                                            |       | 632     |       | 341     |       | —          |       | $         | 973        |   |
| Depreciation  & amortization (includes intangibles) |       | 86      |       | 75      |       | —          |       | $         | 161        |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Interest expense                                        |       | 18      |       | —  |       | —          |       | $         | 18         |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Other, net                                              |       | 598     |       | 129     |       | —          |       | $         | 727        |   |
| Income/(Loss)  from continuing Operations before tax    |       | $       | (72        | )       | $          | 139             |       | —    |       | $ | 67 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Identifiable  assets                                    |       | $       | 5,529      |    | $          | 4,737           |       | —    |       | $ | 10,266 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Capital  Expenditures                                   |       | $       | 235        |    | 3          |            | —     |      | $          | 238 |   |
|                                                    |       |    |       |    |       |            |       |      |       |

 

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**For the nine months ended December 31, 2006**
| (In thousands)                                     | ** ** | **AML** | ** ** | **MPI** | ** ** | **Unallocated** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------|------------|---------|------------|-----------------|------------|-----------|------------|
|                                                    |       |    |       |    |       |            |       |      |       |
| Revenue                                                 |       | $       | 5,292      |    | $          | 1,337           |       | —    |       | $ | 6,629 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Gross Profit                                            |       | 1,992   |       | 870     |       | —          |       | $         | 2,862      |   |
| Depreciation  & amortization (includes intangibles) |       | 246     |       | 222     |       | —          |       | $         | 468        |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Interest expense                                        |       | 54      |       | —  |       | —          |       | $         | 54         |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Other, net                                              |       | 1,909   |       | 356     |       | —          |       | $         | 2,265      |   |
| Income/(Loss)  from continuing Operations before tax    |       | $       | (217       | )       | $          | 294             |       | —    |       | $ | 77 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Identifiable  assets                                    |       | $       | 5,529      |    | $          | 4,737           |       | —    |       | $ | 10,266 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Capital  Expenditures                                   |       | $       | 661        |    | $          | 148             |       | —    |       | $ | 809 |   |
|                                                    |       |    |       |    |       |            |       |      |       |

 

**10.****         ****Major customers and vendors**

Three customers provided 31% and 24% of net revenue for thenine months ended December 31, 2006 and 2005, respectively.  Total accounts receivable due from thesecustomers was approximately $500,000 and $214,000 as of December 31, 2006 and2005, respectively.

The Company extends credit to its customers based upon itsassessment of their credit worthiness and generally does not requirecollateral.  Credit losses have not beensignificant.

Three vendors accounted for 33% and 28% of the Company’s netpurchases for the nine months ended December 31, 2006 and 2005,respectively.  Total accounts payable dueto these vendors was $39,000 and $21,000 as of December 31, 2006 and 2005,respectively.

**11.****         ****Reclassifications**

**Certain comparative amounts have been reclassified toconform to the current year’s presentation.**

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**Item 2.    Management’s Discussion and Analysis or Planof Operation**

Someof the statements made by us in this Quarterly Report on Form 10-QSB areforward-looking in nature, including but not limited to, statementsrelating to our future revenue, product development, demand, acceptance andmarket share, gross margins, levels of research and development, our management’splans and objectives for our current and future operations, and otherstatements that are not historical facts. Forward-looking statements include, but are not limited to,statements that are not historical facts, and statements including forms of thewords “intend”, “believe”, “will”, “may”, “could”, “expect”, “anticipate”, “plan”,“possible”, and similar terms. Actual results could differ materially from theresults implied by the forward looking statements due to a variety of factors,many of which are discussed throughout this Quarterly Report and particularlyin the section titled “Additional Factors That May Affect Future Results” whichis included in the section titled “Management’s Discussion and Analysis or Planof Operation”. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date hereof.  We undertake no obligation to publiclyrelease any revisions to these forward-looking statements that mayreflect events or circumstances after the date hereof or to reflect theoccurrence of unanticipated events.  Factorsthat could cause actual results to differ materially from those expressed inany forward-looking statement made by us include, but are not limited to: 

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

·              ourability to attract and retain qualified, knowledgeable employees;

·              theimpact of general economic conditions on our business;

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

·              thelimited number of potential customers for our products;

·              thevariability in gross margins on our products; 

·              ourability to design and market new products successfully;

·              ourfailure to acquire new customers in the future;

·              deteriorationof business and economic conditions in our markets; 

·              intenselycompetitive industry conditions with increasing price competition; and

·              the rate of growth in the defensemarkets.

**Inthis document, the words “we,” “our,” “ours,” and “us” refer to AMLCommunications, Inc. and our division, Microwave Power, Inc.**

**Overview**

We design, manufacture, and market RF and microwave, lownoise, medium and high power amplifiers serving, primarily, the defensemicrowave market.  Our business iscomprised of two reportable segments, AML, which represented 79.1% of our 2006product revenue, and MPI, which represented 20.9% of our 2006 product revenue.

Our AML segment includes low noise, power amplifiers andintegrated sub assemblies with frequencies that range from 50 kHz to 26GHz.  In February 2001, we made astrategic decision to focus our resources on the defense markets.  As such, we moved rapidly to utilize ourknowledge base in Defense Microwave related design and manufacturing to offernew products, as well as variations of existing products.  The results of this strategy have been anincrease in revenues for Defense related products from $3.7 million in fiscal2003 to $6.3 million in fiscal 2004, and further increases to $6.6 million infiscal 2005, and $9.1 million in fiscal 2006.

We consider the AML segment to be our core business since ithas a larger revenue base and investments were made in this segment thataddress long term growth.  We devote mostof our management time and other resources to improving the prospects for thissegment.  Most of our sales and marketingexpenses are in the AML segment.  Themajority of our research and development spending is dedicated to this segmentas well.

Our MPI segment includes solid state microwave amplifiersoperating in the frequency range from 1 to 40 GHz with output power from 10mWto 500 W.  In June 2004, we acquiredMicrowave Power, Inc. and operate it as a division of AML.  The MPI division operates independently, withits own marketing, production, and general management team.  During this year, we expanded MPI’smanagerial and technical capabilities to address the potential for growth ofthe division as well as the anticipated knowledge dissemination because of theexpected retirement of key personnel.

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**Results of Operations**

**Three Months Ended December 31,2006 Compared to Three Months Ended December 31, 2005**

*Net sales. *Net sales for the threemonths ended December 31, 2006 were $2.2 million, as compared to net sales of$2.5 million for the three months ended December 31, 2005, a decrease of$318,000 or 12.7%. Sales for AML for the three months ended December 31, 2006were lower than sales during the same period of the prior year by $221,000primarily due to a slowdown in spot-market orders during the second quarter of2007.  Sales for MPI decreased by$97,000, compared to the same period of the prior year, due to reducedincidental orders.  AML and, to a lesserextent MPI, have devoted significant resources during the last three fiscalyears towards the development of products that address long term contracts toreduce reliance on spot-market and incidental orders.

*Gross profit. *Gross profit for the three months ended December 31,2006 was $973,000, or 44.7% of net sales, compared to a gross profit of $1.2million, or 48.0% of net sales for the three months ended December 31,2005.  Gross profit, as a percentage ofnet sales, decreased due to the reduced revenues while spending onmanufacturing overhead costs remained consistent.   This, however, is not considered a trend.

*Selling, general andadministrative costs. *Selling,general, and administrative costs were $560,000, or 25.7% of net sales, for thethree months ended December 31, 2006, as compared to $591,000, or 23.6% of netsales, for the three months ended December 31, 2005.  During the quarter, we incurred a $31,000increase in employee stock based compensation expense and a $13,000 increase indepreciation expense, offset by a $38,000 decrease in salary and relatedbenefits due to a headcount reduction and a $15,000 reduction in rentexpense.  

*Research and developmentcosts. *Research anddevelopment costs were $341,000, or 15.7% of net sales, for the three monthsended December 31, 2006, as compared to $303,000, or 12.1% of net sales, forthe three months ended December 31, 2005. The increase reflects the hiring of additional R&D employees andcontinued investment in R&D projects. 

*Other expense net. *Other expense was $5,000for the three months ended December 31, 2006 and the three months endedDecember 31, 2005. Interest expense of $18,000 is attributed to the notepayable related to the financing of the MPI building in Santa Clara, California.Interest income on short tem and long term cash investments was $13,000.

*Provision for income taxes.*For the three months ended December 31, 2006 and December 31, 2005, we recordeda provision of $7,000 for federal and state AMT taxes.

*Net income. *Net profit was $60,000, or$0.01 per share, for the three months ended December 31, 2006, compared to anet profit of $294,000, or $0.03 per share, for the three months ended December31, 2005.

**Nine Months Ended December 31,2006 Compared to Nine Months Ended December 31, 2005**

*Net sales. *Net sales for the ninemonths ended December 31, 2006 were $6.6 million, as compared to net sales of$7.5 million for the nine months ended December 31, 2005, a decrease of$894,000 or 11.9%. Sales for AML for the nine months ended December 31, 2006were lower than sales during the same period of the prior year by $548,000primarily due to a slowdown in orders for production items during theyear.  Sales for MPI decreased by$346,000, compared to the same period of the prior year, due to reducedincidental orders.  

*Gross profit. *Gross profit for the nine months ended December 31,2006 was $2.9 million, or 43.2% of net sales, as compared to a gross profit of$3.5 million, or 46.0% of net sales for the nine months ended December 31,2005. Gross profit, as a percentage of net sales, decreased due to the reducedrevenues while spending on manufacturing overhead costs remained consistent.

*Selling, general andadministrative costs. *Selling,general, and administrative costs were $1.8 million, or 26.9% of net sales, forthe nine months ended December 31, 2006, as compared to $1.7 million, or 23.1%of net sales, for the nine months ended December 31, 2005. We incurred a$86,000 increase in employee stock based compensation expense, a $55,000increase in depreciation expense due to MP’s building purchased and newcomputer equipments, and a $24,000 increase in outside consulting services,offset by a $27,000 decrease in salaries and related benefits due to aheadcount reduction, a $18,000 reduction in bad debt allowance and a $43,000reduction in rent expenses due to AML’s purchase of MPI’s facility.  

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*Research and developmentcosts. *Research anddevelopment costs were $985,000 or 14.9% of net sales, for the nine monthsended December 31, 2006, as compared to $902,000, or 11.9% of net sales, forthe nine months ended December 31, 2005. We incurred an $91,000 increase insalaries and related benefits, a result of continuing investment in R&Dprojects and a $9,000 increase in depreciation expense.  The increase reflects our commitment toinvest in long term, large size projects. 

*Other expense, net. *Other expense was $18,000for the nine months ended December 31, 2006, as compared to other income of$3,000 for the nine months ended December 31, 2005.  Interest expense of $54,000 is attributed tothe note payable related to the financing of the MPI building in Santa Clara,California.  Interest income on short temand long term cash investments was $36,000.

*Provision for income taxes.*For the nine months ended December 31, 2006 and December 31, 2005, we recordeda provision of $23,000 for federal and state AMT taxes.

*Net income. *Net profit was $54,000 or$0.01 per share, for the nine months ended December 31, 2006, compared to a netprofit of $801,000, or $0.08 per share, for the nine months ended December 31,2005.

**Liquidity and Capital Resources**

Historically, we have financedour operations primarily from internally generated funds and, to a lesserextent, loans from stockholders, and capital lease obligations. 

At December 31, 2006, wehad a line of credit agreement with Bridge Bank.  On July 17, 2006, we signed a BusinessFinancing Agreement with Bridge Bank to renew our line of credit, to $2.0million.  Of this $2.0 million, $1.0million may be used for cash advances against accounts receivables and $1.0million may be used for equipment advances. Our ability to borrow under this agreement varies based upon eligibleaccounts receivable and eligible equipment purchases.  We are obligated to pay the bank a financecharge at a rate per year equal to the prime rate, which in no event shall beless than 5.50%, plus .25% with respect to cash advances and a rate of suchprime rate plus 2.0% with respect to equipment advances.  We are obligated to pay an annual facilityfee of $5,000 (0.50% of the gross facility amount).  We must maintain certain financialrequirements, including a Quick Ratio of 1.50 to 1.0, and stay within 80% ofplanned quarterly revenue.  We were incompliance with these requirements at December 31, 2006.  However, there is no assurance that we willbe in compliance at future dates.  Thisagreement terminates on July 17, 2007 or upon a date that the bank chooses toterminate the agreement.  Any unpaidbalance is due and payable pursuant to the agreement on the terminationdate.  If the agreement is terminatedwithin the first 12 months following its execution on July 17, 2006, we will berequired to pay an early termination fee of 1.0% of the credit facility amountunder the terms of the agreement.  AtDecember 31, 2006, we had an outstanding balance of $0 under the accountsreceivable agreement and $289,000 under the equipment financing agreement whileour remaining borrowing capacity is approximately $1,000,000 and $711,000 availableunder these agreements respectively.

At December 31, 2006, we had $2.2 million in cash and cashequivalents.  For the nine months ended December31, 2006, our operating activities providedcash of approximately $588,000, as compared to $1.2 million in cash provided byour operating activities for the nine months ended December 31, 2005.  Netcash used in investing activities, for the acquisition of production equipment,amounted to $809,000 for the nine months ended December 31, 2006 and $1.3 million for the nine months ended December31, 2005. Net cash provided by financing activities was $36,000 for the ninemonths ended December 31, 2006 and$217,000 for the nine months ended December 31, 2005.

We anticipate capital expenditures of approximately $900,000in fiscal 2007.  We believe that fundsfor these expenditures will be provided by our operating activities.  However, we may choose to finance some ofthese expenditures through our financing agreement with Bridge Bank.  At December 31, 2006, we had a line of creditagreement with Bridge Bank, of which $1,000,000 may be used for equipmentadvances at a rate of such prime rate plus 2.0%.  At December 31, 2006, our remaining borrowingcapacity under the financing agreement for equipment advances was $711,000.

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In addition to the funds we raised in July 2003, wemay attempt to procure additional sources of financing in the event that thecapital available as of December 31, 2006 is insufficient for our operatingneeds and capital expenditures. These sources may include, but are not limitedto, additional sales of our securities. There are, however, no assurances that we will be able to successfullyobtain additional financing at terms acceptable to us.  Failure to obtain such financing could have amaterial adverse effect on our ability to operate as a going concern. 

Successful completion of our development program andattaining profitable operations are dependent upon our maintaining a level ofsales adequate to support our cost structure. In addition, realization of a major portion of the assets in theaccompanying balance sheet is dependent upon our ability to meet our financingrequirements and the success of our plans to sell our products.  The financial statements do not include anyadjustments relating to the recoverability and classification of recorded assetamounts or amounts and classifications of liabilities that might be necessaryshould we be unable to continue in existence. 

**Critical Accounting Policies**

Our discussion and analysis ofour financial conditions and results of operations are based upon our financialstatements, which have been prepared in accordance with generally acceptedaccounting principles in the United States. The preparation of financialstatements requires managers to make estimates and disclosures on the date ofthe financial statements.  On an on-goingbasis, we evaluate our estimates, including, but not limited to, those relatedto revenue recognition.  We useauthoritative pronouncements, historical experience, and other assumptions asthe basis for making judgments.  Actualresults could differ from those estimates. We believe that the following critical accounting policies affect ourmore significant judgments and estimates in the preparation of our financialstatements. 

*Revenuerecognition.*  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 reasonablyassured*

Revenue from the sale ofproducts is generally recognized after both the goods are shipped to thecustomer and acceptance has been received, if required.  Our products are custom made for ourcustomers, who primarily consist of original engineer manufacturers (OEMs), andwe do not accept returns.  Our productsare shipped complete and ready to be incorporated into higher level assembliesby our customers.  The terms of thecustomer arrangements generally pass title and risk of ownership to thecustomer at the time of shipment. 

Recording revenue from the sale of products involves the use ofestimates and management judgment.  Wemust make a determination at the time of sale whether the customer has theability to make payments in accordance with arrangements.  While we do utilize past payment history,and, to the extent available for new customers, public credit information inmaking our assessment, the determination of whether collectibility isreasonably assured is ultimately a judgment decision that must be made bymanagement. 

*Allowance for Doubtful Accounts*.  We maintain an allowance for doubtfulaccounts receivable based on customer-specific allowances, as well as a generalallowance.  Specific allowances aremaintained for customers which are determined to have a high degree ofcollectibility risk based on such factors, among others, as: (i) the aging of theaccounts receivable balance; (ii) the customer’s past payment experience; or(iii) a deterioration in the customer’s financial condition, evidenced by weakfinancial condition and/or continued poor operating results, reduced creditratings, and/or a bankruptcy filing.  Inaddition to the specific allowance, we maintain a general allowance for all itsaccounts receivables which are not covered by a specific allowance.  The general allowance is established based onsuch factors, among others, as: (i) the total balance of the outstandingaccounts receivable, including considerations of the aging categories of thoseaccounts receivable; (ii) past history of uncollectible accounts receivablewrite-offs; and (iii) the overall creditworthiness of the customer base.  A considerable amount of judgment is requiredin assessing the realizability of accounts receivables.  Should any of the factors considered indetermining the adequacy of the overall allowance change, an adjustment to theprovision for doubtful accounts receivable may be necessary. 

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*Inventory.*  Inventories are stated at the lower of costor market, cost being determined on the first-in, first-out method.  Inventories are written down if the estimatednet realizable value is less than the recorded value.  We review the carrying cost of ourinventories by product each quarter to determine the adequacy of our reservesfor obsolescence.  In accounting forinventories, we must make estimates regarding the estimated net realizablevalue of our inventory.  This estimate isbased, in part, on our forecasts of future sales and age of the inventory.

*Intangible Assets*.  We test intangible assets with indefinitelives for impairment on an annual basis or more frequently if certain eventsoccur.  If the assets are considered tobe impaired, the impairment to be recognized will be measured by the amount inwhich the carrying amount exceeds the fair value of the assets.  For our intangible assets with finite lives,including our customer lists, existing technology, and patents, we amortize thecosts of the assets over their useful lives and assess impairment at leastannually or whenever events and circumstances suggest the carrying value of anasset may not be recoverable.  Determiningthe life of the assets with finite lives is judgmental in nature and involvesthe use of estimates and assumptions. These estimates and assumptions involve a variety of factors, includingfuture market growth and conditions, forecasted revenues and costs and astrategic review of our business and operations.  We base our fair value estimates onassumptions we believe to be reasonable but that are unpredictable andinherently uncertain.  Actual futureresults may differ from those estimates. In the event we determine that an intangible asset is impaired in thefuture, an adjustment to the value of the asset would be charged to earnings inthe period such determination is made. 

*ExistingTechnology. *Ourexisting technology is based on a patent issued in 1990, which continues to bethe main technology of MPI.  It is asubstrate deposition technology that is mature and with no replacementtechnology forecasted.

**Additional Factors That MayAffect Future Results**

Future operating results may beimpacted by a number of factors that could cause actual results to differmaterially from those stated herein, which reflect management’s currentexpectations. These factors include: 

·                                          industry-specific factors (including thereliance upon 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 producecommercially viable products at competitive prices;  

·                                          our ability to produce products which meet thequality standards of both existing and potential new customers; 

·                                          our ability to accurately anticipate customerdemand; 

·                                          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; and

·                                          theability to integrate potential futureacquisitions into our existing operations.

We believe that, to the extentthat foreign sales are recognized, we may face increased risk associated withpolitical and economic instability, compliance with foreign regulatory rulesgoverning export requirements, tariffs and other trade barriers, differences inintellectual property protections, longer accounts receivable cycles, currencyfluctuations and general trade restrictions. If any of these risks materialize, they could have a material adverseeffect on our business, results of operations, and financial condition. 

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Wehave evaluated the credit exposure associated with conducting business withforeign customers and have concluded that such risk is acceptable.  Nevertheless, any significant change in theeconomy or deterioration 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 foreigncustomers are invoiced in U.S. dollars. Accordingly, we currently do not engage in foreign currency hedgingtransactions.  However, as we expandfurther into foreign markets, we may experience greater risk associated withgeneral business, political and economic conditions in those markets.  At such time, we may seek to lessen ourexposure through currency hedging transactions. We cannot assure you that a currency hedging strategy would besuccessful in avoiding currency exchange related losses.  In addition, should the relative value of theU.S. dollar in comparison to foreign currencies increase, the resultingincrease in the price of our products to foreign customers could result indecreased sales which could have a material adverse impact on our business,results of operations, and financial condition. 

We experience significantprice competition and expect price competition in the sale of our products toremain 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 ourcompetitors to offer new and existing products at prices necessary to gain orretain 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.  Substantiallyall of our competitors have, and potential future competitors could have,substantially greater technical, marketing, distribution and other resourcesthan we do and have, or could have, greater name recognition and marketacceptance of their products and technologies. 

The markets inwhich we compete are characterized by rapidly changing technology andcontinuous improvements in products and services.  Our future success depends on our ability toenhance our current products and to develop and introduce, in a timely manner,new products that keep pace with technological developments and that meet orexceed industry standards that compete effectively on the basis of price,performance and quality, that adequately address OEM customer and end-usercustomer requirements, and that achieve market acceptance.  We believe that to remain competitive in thefuture, we will need to continue to develop new products, which will requirethe investment of significant financial resources in new productdevelopment.  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 quarterly and annual results have in the past been,and will continue to be, subject to significant fluctuations due to a number offactors, any of which could have a material adverse effect on our business,financial condition and results of operations. There can be no assurance that we will not experience such fluctuationsin the future.  We establish ourexpenditure levels for product development and other operating expenses basedon expected revenues, and expenses are relatively fixed in the short term.  As a result, variations in timing of revenuescan cause significant variations in quarterly results of operations.  There can be no assurances that we will beprofitable on a quarter-to-quarter basis in the future.  We believe that period-to-period comparisonsof our financial results are not necessarily meaningful and should not berelied upon as an indication of future performance.  Due to these factors, it is likely that insome future quarter or quarters, our revenues or operating results will not meetthe expectations of public stock market analysts or investors.  In such event, the market price of our commonstock would be materially adversely affected. 

**Item 3.    Controls and Procedures**

(a)                                  *Evaluation of disclosure controlsand 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 that evaluation, our ChiefExecutive Officer and Director of Finance concluded that our disclosure controlsand procedures were effective as of the end of the applicable period to ensurethat the information required to be disclosed by the Company in reports that itfiles or submits under the Exchange Act (i) is recorded, processed, summarizedand reported within the time periods specified in Securities and ExchangeCommission rules and forms and (ii) is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Director of Finance, asappropriate to allow timely decisions regarding required disclosures.  

(b)                                 *Changes in internal controls overfinancial reporting*. There was nochange in our internal control over financial reporting during our most recentfiscal quarter that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

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#### **PART II – OTHER INFORMATION**

| **Item 1.** | **Legal Proceedings**                                                       |
|-------------|-----------------------------------------------------------------------------|
| ** **  | ** **                                                                  |
|        | Not Applicable.                                                             |
|        |                                                                        |
| **Item 2.** | **Unregistered Sales of Equity  Securities and Use of Proceeds**            |
| ** **  | ** **                                                                  |
|        | Not Applicable.                                                             |
|        |                                                                        |
| **Item 3.** | **Defaults Upon Senior Securities**                                         |
| ** **  | ** **                                                                  |
|        | Not Applicable.                                                             |
|        |                                                                        |
| **Item 4.** | **Submission of Matters to a Vote  of Security Holders**                    |
| ** **  | ** **                                                                  |
|        | Not Applicable.                                                             |
|        |                                                                        |
| **Item 5.** | **Other Information**                                                       |
| ** **  | ** **                                                                  |
|        | Not applicable.                                                             |
|        |                                                                        |
| **Item 6.** | **Exhibits**                                                                |
| ** **  | ** **                                                                  |
|        | The exhibits listed in the Exhibit Index are filed  as part of this report. |

 

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**SIGNATURES**

In accordance withSection 13 or 15(d) of the Exchange Act, the registrant caused this reportto be signed on its behalf by the undersigned, thereunto duly authorized. 
|        |   | AML Communications Inc. |                       |                     |
|--------|--------|-------------------------|----------------------------|--------------------------|
|   |   |                    |                       |                     |
|   |   | /s/: Jacob Inbar        |                       |                     |   |
|   |   | By:                     | Jacob Inbar, President and |                     |
|   |   |                    | Chief Executive Officer    | Dated: February 14, 2007 |
|        |        |                         |                            |                          |  |  |  |

 

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**EXHIBITINDEX**
| Exhibit   Number | ** ** | **Description**                                                                                                                                                                                                                     |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.1              |       | Merger Agreement entered into as of May 25, 2004 by  and among AML Communications Inc., a Delaware corporation, AML Holdings, LLC,  a California limited liability company and Microwave Power, Inc., a  California corporation (1) |
| 3.1              |       | Certificate of Incorporation (2)                                                                                                                                                                                                    |
| 3.2              |       | Bylaws (2)                                                                                                                                                                                                                          |
| 10.1             |       | Form of Indemnity Agreement (2)                                                                                                                                                                                                     |
| 10.2             |       | Lease, dated March 11, 1996, between the Company and  Parr-Bohn Properties, Ltd. II, a California Limited Partnership (3)                                                                                                      |
| 10.3             |       | Intellectual Property Security Agreement (4)                                                                                                                                                                                        |
| 10.4             |       | Loan and Security Agreement dated November 10, 2000  between the Company and Silicon Valley Bank (5)                                                                                                                                |
| 10.5             |       | Intellectual Property Security Agreement dated  November 10, 2000 between the Company and Silicon Valley Bank (5)                                                                                                                   |
| 10.6             |       | Warrant to purchase stock dated November 9, 2000  between the Company and Silicon Valley Bank (5)                                                                                                                                   |
| 10.7             |       | Accounts Receivable Purchase Agreement dated  November 20, 2001 between AML Communications, Inc. and Silicon Valley Bank  (6)                                                                                                       |
| 10.8             |       | Promissory Note dated December 30, 2001 between  Tiberiu, Mazilu, and AML Communications Inc. (6)                                                                                                                                   |
| 10.9             |       | Accounts Receivable Purchase Modifications Agreement  dated September 24, 2003 between Silicon Valley Bank and AML Communications  (7)                                                                                              |
| 10.10            |       | Form of Promissory Note date July 16, 2003 between  the Company and the following: Jacob Inbar, Tiberiu Mazilu, Edwin McAvoy,  Gerald Starek, Bob M. Hawkins, and The Oliver Family Trust (7)                                       |
| 10.11            |       | Form of Warrant dated July 16, 2003 between the Company  and the following: Jacob Inbar, Tiberiu Mazilu, Edwin McAvoy, Gerald Starek,  Bob M. Hawkins, and The Oliver Family Trust (7)                                              |
| 10.12            |       | Fourth Amended and Restated 1995 Stock Option  Agreement at June 10, 2002 (11)                                                                                                                                                      |
| 10.13            |       | Parr-Bohn Properties First Amendment to lease of  1000 Avenida Acaso, Camarillo, CA. (11)                                                                                                                                           |
| 10.14            |       | Interim Lease and Proposed Lease Terms (8)                                                                                                                                                                                          |
| 10.15            |       | Financing Agreement dated July 8, 2004 with Bridge  Bank (9)                                                                                                                                                                        |
| 10.16            |       | Enterprise Agreement Number 4627 dated August 26,  2004 (10)*                                                                                                                                                                       |
| 10.17            |       | Business Financing Modification Agreement with  Bridge Bank, dated July 27, 2005(12)                                                                                                                                                |
| 10.18            |       | Business Financing Modification Agreement with  Bridge Bank dated January 19, 2006 (13)                                                                                                                                             |
| 10.19            |       | Fifth Amended and Restated 1995 Stock Option  Agreement at July 12, 2005(14)                                                                                                                                                        |
| 10.20            |       | 2005 Equity Incentive Plan (15)                                                                                                                                                                                                     |
| 10.21            |       | Business Financing Agreement with Bridge Bank dated  July 17, 2006 (16)                                                                                                                                                             |
| 31.1             |       | Certification by the Chief Executive Officer (17)                                                                                                                                                                                   |
| 31.2             |       | Certification by the Director of Finance (17)                                                                                                                                                                                       |
| 32.1             |       | Certification pursuant to Section 906 of the  Sarbanes Oxley Act (17)                                                                                                                                                               |
| 32.2             |       | Certification pursuant to Section 906 of the  Sarbanes Oxley Act (17)                                                                                                                                                               |

 

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(1)                                  Previously filed with the Securities and ExchangeCommission as Exhibit 10.13 to the Company’s Form 10KSB for the fiscal yearended March 31, 2004.

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

(3)                                  Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 10-KSB for fiscal yearended March 31, 1996 and incorporated herein by reference

(4)                                  Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 10-QSB for the quarter endedDecember 31, 1999 and incorporated herein by reference.

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(5)                                  Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 10-QSB for the quarterended September 30, 2000 and incorporated herein by reference.

(6)                                  Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 10-QSB for the quarterended December 31, 2001 and incorporated herein by reference.

(7)                                  Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 10-QSB for the quarterended September 30, 2003 and incorporated herein by reference.

(8)                                  Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 8-K dated July 6, 2004 andincorporated herein by reference.

(9)                                  Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 10-QSB for the quarter endedJune 30, 2004 and incorporated herein by reference.

(10)                            Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 8-K dated September 1, 2004 andincorporated herein by reference.

(11)                            Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 10-KSB for the fiscal yearended March 31, 2004 and incorporated herein by reference.

(12)                            Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Form 10-KSB for the fiscal year endedMarch 31, 2005 and incorporated herein by reference.

(13)                            Previously filed with Securities and ExchangeCommission as an exhibit to the Company’s Form 10-QSB for the quarter endedDecember 31, 2005 and incorporated herein by reference.

(14)                            Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Proxy Statement dated July 29, 2005and incorporated herein by reference.

(15)                            Previously filed with the Securities and ExchangeCommission as an exhibit to the Company’s Proxy Statement dated July 28, 2006and incorporated herein by reference.

(16)                            Previously filed with Securities and ExchangeCommission as an exhibit to the Company’s Form 10-QSB for the quarter endedJune 30, 2006 and incorporated herein by reference.

(17)                            Filed herewith.

*  Confidentialtreatment requested as to certain portions, which portions were omitted andfiled separately with the Securities and Exchange Commission.

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