** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C.20549

**FORM 10-QSB**

**x****     ****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended:  September30, 2006**

**or**

**o****        ****TRANSITION REPORT PURSUANT TOSECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For thetransition period from                  to**

**CommissionFile Number:     0-27252**

**AMLCOMMUNICATIONS, 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 November 8, 2006:10,256,666 shares

Transitional Small Business Disclosure Format: Yes  o   No  x

 

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**AML Communications, Inc.**

 
|             |       | **Index to Form 10-QSB**                                                                                                                                                                                     |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **  |       |                                                                                                                                                                                                         |
| Item 1.     |       | Financial Statements (Unaudited)                                                                                                                                                                             |
|        |       |                                                                                                                                                                                                         |
|        |       | Unaudited  Consolidated Balance Sheet as of September 30, 2006                                                                                                                                               |
|        |       |                                                                                                                                                                                                         |
|        |       | Unaudited  Consolidated Statements of Operations for the three month periods ended  September 30, 2006 and September 30, 2005 and for the six month periods ended  September 30, 2006 and September 30, 2005 |
|        |       |                                                                                                                                                                                                         |
|        |       | Unaudited  Consolidated Statements of Cash flows for the six month periods ended  September 30, 2006 and September 30, 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)**
| ** **                                                                                                                    | ** ** | **September 30,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                    | ** ** | ** **                   | ** ** |
| **ASSETS**                                                                                                                    | ** ** | ** **                   | ** ** |
| Current Assets:                                                                                                               |       |                         |       |
| Cash and cash  equivalents                                                                                                    |       | $                            | 1,891,000  |   |
| Accounts  receivable, net of allowance for doubtful accounts of $33,000                                                       |       | 1,316,000                    |       |
| Inventories, net                                                                                                              |       | 1,717,000                    |       |
| Other current  assets                                                                                                         |       | 116,000                      |       |
| Total current  assets                                                                                                         |       | 5,040,000                    |       |
|                                                                                                                          |       |                         |       |
| Property and  Equipment, at cost                                                                                              |       | 5,674,000                    |       |
| Less:  Accumulated depreciation                                                                                               |       | (3,621,000                   | )          |
| Property and  Equipment, net                                                                                                  |       | 2,053,000                    |       |
|                                                                                                                          |       |                         |       |
| Deferred Tax  Asset                                                                                                           |       | 1,662,000                    |       |
| Intangible Assets:                                                                                                            |       |                         |       |
| Technologies,  net                                                                                                            |       | 771,000                      |       |
| Patents, net                                                                                                                  |       | 134,000                      |       |
| Customer lists,  net                                                                                                          |       | 75,000                       |       |
| Trademarks                                                                                                                    |       | 181,000                      |       |
| Other Assets                                                                                                                  |       | 17,000                       |       |
|                                                                                                                          |       | $                            | 9,933,000  |   |
| ** **                                                                                                                    |       |                         |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                |       |                         |       |
|                                                                                                                          |       |                         |       |
| Current Liabilities:                                                                                                          |       |                         |       |
| Line of Credit                                                                                                                |       | $                            | 310,000    |   |
| Accounts payable                                                                                                              |       | 232,000                      |       |
| Current portion  of long term debt                                                                                            |       | 11,000                       |       |
| Accrued  expenses:                                                                                                            |       |                         |       |
| Accrued payroll  and payroll related expenses                                                                                 |       | 281,000                      |       |
| Accrued income  taxes                                                                                                         |       | 15,000                       |       |
| Other accrued  liabilities                                                                                                    |       | 117,000                      |       |
| Total current  liabilities                                                                                                    |       | 966,000                      |       |
|                                                                                                                          |       |                         |       |
| Notes Payable,  net                                                                                                           |       | 624,000                      |       |
|                                                                                                                          |       |                         |       |
| Stockholders’ Equity:                                                                                                    |       |                         |       |
| Common stock,  $0.01 par value:15,000,000 shares authorized; 10,234,166 shares issued and  outstanding at September 30, 2006. |       | 102,000                      |       |
| Capital in  excess of par value                                                                                               |       | 13,549,000                   |       |
| Accumulated  deficit                                                                                                          |       | (5,308,000                   | )          |
| Total  stockholders’ equity                                                                                              |       | 8,343,000                    |       |
|                                                                                                                          |       | $                            | 9,933,000  |   |

 

The accompanying notes are an integral part of these financialstatements.

3

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**AMLCOMMUNICATIONS, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(unaudited)**
| ** **                                                             | ** ** | **Three Month Periods Ended** | ** ** | **Six Month Periods Ended** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                             | ** ** | **September 30,**                       | ** ** | **September 30,**                     | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                             | ** ** | **2006**                                     | ** ** | **2005**                                   | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Net sales                                                              |       | $                                            | 2,150,000  |                                       | $          | 2,542,000 |   | $ | 4,452,000 |   | $ | 5,028,000 |   |
| Cost of goods  sold                                                    |       | 1,240,000                                    |       | 1,420,000                                  |       | 2,563,000 |   | 2,766,000 |   |
| Gross profit                                                           |       | 910,000                                      |       | 1,122,000                                  |       | 1,889,000 |   | 2,262,000 |   |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Operating  expenses:                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Selling, general & administrative                                  |       | 604,000                                      |       | 545,000                                    |       | 1,222,000 |   | 1,148,000 |   |
| Research and development                                               |       | 325,000                                      |       | 316,000                                    |       | 645,000 |   | 599,000 |   |
| Total operating expenses                                               |       | 929,000                                      |       | 861,000                                    |       | 1,867,000 |   | 1,747,000 |   |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Income (loss)  from operations                                         |       | (19,000                                      | )          | 261,000                                    |       | 22,000 |   | 515,000 |   |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Other income (expense), net                                            |       | (5,000                                       | )          | 5,000                                      |       | (13,000 | ) | 8,000 |   |
| Income/(loss)  before provision for income taxes                       |       | (24,000                                      | )          | 266,000                                    |       | 9,000 |   | 523,000 |   |
| Provision for  income taxes                                            |       | 8,000                                        |       | 8,000                                      |       | 15,000 |   | 16,000 |   |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Net  income/(loss)                                                     |       | $                                            | (32,000    | )                                          | $          | 258,000 |   | $ | (6,000 | ) | $ | 507,000 |   |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Basic  earnings/(loss) per common share                                |       | $                                            | (0.00      | )                                          | $          | 0.03 |   | $ | (0.00 | ) | $ | 0.05 |   |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Basic weighted  average number of shares of common stock outstanding   |       | 10,234,000                                   |       | 10,082,000                                 |       | 10,234,000 |   | 10,074,000 |   |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Diluted  earnings/(loss) per common share                              |       | $                                            | (0.00      | )                                          | $          | 0.02 |   | $ | (0.00 | ) | $ | 0.04 |   |
|                                                                   |       |                                         |       |                                       |       |   |   |   |   |
| Diluted weighted  average number of shares of common stock outstanding |       | 10,628,000                                   |       | 12,016,000                                 |       | 10,703,000 |   | 12,008,000 |   |

 

The accompanying notes are an integral part of these financialstatements.

4

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**AMLCOMMUNICATIONS, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(unaudited)**
| ** **                                                                                | ** ** | **Six Month Periods Ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                | ** ** | **September 30,  2006**               | ** ** | **September 30,  2005** | ** ** |
| Cash Flows from  Operating Activities:                                                    |       |                                       |       |   |   |
| Net Income/(Loss)                                                                         |       | $                                          | (6,000     | ) | $ | 507,000 |   |
| Adjustments to  reconcile net income/(loss) to net cash provided by operating activities: |       |                                       |       |   |   |
| Depreciation and Amortization                                                             |       | 307,000                                    |       | 267,000 |   |
| Bad debt expense                                                                          |       | (4,000                                     | )          | 10,000 |   |
| Inventory Reserves                                                                        |       | 12,000                                     |       | (53,000 | ) |
| Loss (Gain) on sale of fixed assets                                                       |       | —                                     |       | (1,000 | ) |
| Stock Option Expenses                                                                     |       | 55,000                                     |       | — |   |
| Decrease (increase) in:                                                                   |       |                                       |       |   |   |
| Accounts receivable                                                                       |       | (246,000                                   | )          | (44,000 | ) |
| Inventories                                                                               |       | (147,000                                   | )          | 128,000 |   |
| Other current assets                                                                      |       | 163,000                                    |       | 16,000 |   |
| Increase  (decrease) in:                                                                  |       |                                       |       |   |   |
| Accounts payable                                                                          |       | 79,000                                     |       | 73,000 |   |
| Accrued income taxes                                                                      |       | 15,000                                     |       | (21,000 | ) |
| Accrued expenses                                                                          |       | (191,000                                   | )          | (142,000 | ) |
| Net cash  provided by operating activities                                                |       | 37,000                                     |       | 740,000 |   |
|                                                                                      |       |                                       |       |   |   |
| Cash Flows from  Investing Activities:                                                    |       |                                       |       |   |   |
| Purchases of property and equipment                                                       |       | (571,000                                   | )          | (447,000 | ) |
|                                                                                      |       |                                       |       |   |   |
| Cash Flows from  Financing Activities:                                                    |       |                                       |       |   |   |
| Proceeds from exercise of stock options                                                   |       | —                                     |       | 17,000 |   |
| Proceeds from line of credit, net                                                         |       | 62,000                                     |       | 254,000 |   |
| Payments on notes payable                                                                 |       | (5,000                                     | )          | — |   |
| Principle payments capital lease obligations                                              |       | —                                     |       | (41,000 | ) |
| Net cash  provided by financing activities                                                |       | 57,000                                     |       | 230,000 |   |
|                                                                                      |       |                                       |       |   |   |
| Net increase  (decrease) in Cash and Cash Equivalents                                     |       | (477,000                                   | )          | 523,000 |   |
| Cash and Cash  Equivalents, beginning of period                                           |       | 2,368,000                                  |       | 1,588,000 |   |
| Cash and Cash  Equivalents, end of period                                                 |       | $                                          | 1,891,000  |   | $ | 2,111,000 |   |
| Supplemental  disclosure of cash flow information:                                        |       |                                       |       |   |   |
| Cash paid during the period for:                                                          |       |                                       |       |   |   |
| Interest                                                                                  |       | $                                          | 36,000     |   | $ | 10,000 |   |
| Income Taxes                                                                              |       | $                                          | 15,000     |   | $ | 16,000 |   |
| 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**

**September30, 2006**

**1.             Basis of Presentation**

Wecurrently design, manufacture, and market radio frequency (RF) and microwave,low noise, medium and high power amplifiers serving primarily the defensemicrowave market.  Our business iscomprised of two reportable segments consisting of amplifiers and relatedproducts that are designed, manufactured and marketed by AML Communications,Inc. for the defense microwave (AML) and high power microwave amplifiers thatare designed, manufactured and marketed by our division Microwave Power, Inc.(MPI) for the defense market.  Ourdefense industry products are used primarily in electronic systems for tacticalaircraft, ships, ground systems, and missile systems.  These products are sold directly by us aswell as through independent sales representatives.  We had two reportable segments (AML) and(MPI) for the six month periods ended September 30, 2005 and the same tworeportable segments in the six month periods ended September 30, 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 six-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 pershare is computed by dividing net income or loss by the weighted average numberof shares outstanding for the year.  “Diluted”earnings per share is computed by dividing net income or loss by the total ofthe weighted average number of shares outstanding, and the dilutive effect ofoutstanding stock options and warrants (applying the treasury stock method).

**The Company had approximately1,847,000 of granted stock options and warrants that were exercisable as ofSeptember 30, 2006 and approximately 1,934,000 of granted stock options andwarrants exercisable at September 30, 2005.**

6

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**The following is areconciliation of the numerators and denominators of the basic and dilutedearnings per share computations:**
| **Six months ended September 30, 2006** | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|------------------------------------------------------------------|------------|---------------------|------------|------------|------------|--------------------|------------|
| Basic earnings  per shares:                                      |       |                |       |       |       |               |       |
| Net income available to common stockholders                      |       | $                   | (6,000     | )          | 10,234,000 |               | $          | 0.00 |   |
| Effect of  dilutive securities:                                  |       |                |       |       |       |               |       |
| Stock options & warrants                                     |       |                |       | 469,000    |       |               |       |
| Diluted earnings per  share:                                     |       | $                   | (6,000     | )          | 10,703,000 |               | $          | 0.00 |   |

 
| **Six months ended September 30, 2005** | ** ** | **Net Income** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|------------------------------------------------------------------|------------|---------------------|------------|------------|------------|--------------------|------------|
| Basic earnings  per shares:                                      |       |                |       |       |       |               |       |
| Net income available to common stockholders                      |       | $                   | 507,000    |       | 10,074,000 |               | $          | 0.05 |   |
| Effect of dilutive  securities:                                  |       |                |       |       |       |               |       |
| Stock options & warrants                                     |       |                |       | 1,934,000  |       |               |       |
| Diluted earnings per  share:                                     |       | $                   | 507,000    |       | 12,008,000 |               | $          | 0.04 |   |

 

**3.             Accounts Receivable**

**Accountsreceivable as of September 30, 2006 are as follows:**
| Accounts receivable      |       | $      | 1,349,000 |       |
|--------------------------|------------|--------|-----------|------------|
| Allowance for  bad debts |       | 33,000 |      |
|                     | ** ** | $      | 1,316,000 | ** ** |

 

**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:
|                              | ** ** | **September 30, 2006** | ** ** |
|------------------------------|------------|------------------------|------------|
|                         |       |                   |       |
| Raw material, net of reserve |       | $                      | 1,508,000  |   |
| Work-in-process              |       | 339,000                |       |
| Finished goods               |       | 261,000                |       |
|                         |       | $                      | 2,108,000  |   |

 

The reserve for inventory at September 30, 2006 was $391,000.

**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 $120,000and $86,000 for the three months ended September 30, 2006 andSeptember 30, 2005 and $200,000 and $160,000 for the six months endedSeptember 30, 2006 and September 30, 2005 respectively.

The Companycapitalizes expenditures that materially increase asset lives and chargesordinary repairs and maintenance to operations as incurred.  When assets are sold or otherwise disposedof, the cost and related depreciation or amortization is removed from the accountsand any resulting gain or loss is included in other income (expense) in theaccompanying statements of operations.

Property andequipment consist of the following:
|                         | ** ** | **September 30,  2006** | ** ** |
|-------------------------|------------|-------------------------|------------|
| Building                |       | $                       | 800,000    |   |
| Machinery and equipment |       | 4,033,000               |       |
| Furniture and fixtures  |       | 151,000                 |       |
| Leasehold improvements  |       | 690,000                 |       |
|                    |       | $                       | 5,674,000  |   |

 

7

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**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 six months ended September 30 2006, the Company recognized no impairment.

At September 30, 2006, intangibles consist of the following:
| **Intangibles**           | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net**  | ** ** |
|---------------------------|------------|---------------------------------|------------|-------------------------------|------------|----------|------------|
|                      |       |                            |       |                          |       |     |       |
| Amortized  intangibles:   |       |                            |       |                          |       |     |       |
| Patents                   |       | $                               | 189,000    |                          | $          | (55,000  | )          | $ | 134,000 |   |
| Existing Technology       |       | 961,000                         |       | (190,000                      | )          | 771,000  |       |
| Customer List             |       | 339,000                         |       | (264,000                      | )          | 75,000   |       |
|                      |       |                            |       |                          |       |     |       |
| Unamortized  intangibles: |       |                            |       |                          |       |     |       |
| Trademarks                |       | 181,000                         |       | —                        |       | 181,000  |       |
|                      |       | $                               | 1,670,000  |                          | $          | (509,000 | )          | $ | 1,161,000 |   |

 

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 six months ended September 30, 2006 was $108,000.  We expect amortization expense for the next five years to be as follows:
| Year Ending March 31: | ** ** | ** ** | ** ** |
|--------------------------------------|------------|------------|------------|
| 2008                                 |       | $          | 132,000    |   |
| 2009                                 |       | $          | 103,000    |   |
| 2010                                 |       | $          | 103,000    |   |
| 2011                                 |       | $          | 103,000    |   |
| 2012                                 |       | $          | 103,000    |   |

 

**7.             Debt and lease commitments**

Line of credit

At September 30, 2006, we had a line of credit agreement with Bridge Bank. On July 17, 2006, we signed a Business Financing Agreement with Bridge Bank to renew our line of credit, with a credit facility of $2.0 million. Of this $2.0 million, $1.0 million may be used for cash advances against accounts receivables and $1.0 million may be used for equipment advances. Our ability to borrow under this agreement varies based upon eligible accounts receivable and eligible equipment purchases. We are obligated to pay the bank a finance charge at a rate per year equal to the prime rate, which in no event shall be less than 5.50%, plus .25% with respect to cash advances and a rate of such prime rate plus 2.0% with respect to equipment advances.  We are obligated to pay an annual facility fee of $5,000 (0.50% of the gross facility amount) and $2,500 the second year.  We must maintain certain financial requirements, including a Quick Ratio of 1.50 to 1.00, and to stay within 80% of planned quarterly revenue.  We were in compliance with these requirements at September 30, 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 chooses to terminate the agreement.  Any unpaid balance is due and payable pursuant to the agreement on the termination date.  If the agreement is terminated within the first 12 months following its execution on July 17, 2006, we will be required to pay an early termination fee of 1.0% of the credit facility amount under the terms of the agreement. At September 30, 2006, we had an outstanding balance of $0 under the accounts receivable agreement and our remaining borrowing capacity was approximately $1,000,000 available under this agreement and $690,000 available under the equipment financing agreement out of $1,000,000 available under this agreement.

8

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Note Payable

On February 3,2006 the Company purchased the building that houses MPI located at 3350 ScottBlvd. 25 Santa Clara, California for a purchase price of $800,000.  The Company made a down payment of $160,000.  The building is being financed by the bankpromissory note in the amount of $640,000 with 6.760% interest payable in 83regular payments of $4,425.88 each which includes principle and interest andone irregular last payment of $556,594.48. The Company’s final payment is due February 10, 2013 and will be for allprinciple and interest not yet paid.  Thenote payable is secured by the deed of trust on the building.  As of September 30, 2006, the outstandingnote was amounting to $634,000 with $11,000 in current portion.

Operating LeaseObligations

The Company leases its officespace, manufacturing facility under an operating lease expiring April2008.  Total rent expense under theseoperating lease was approximately $94,000 and $90,000 during the six monthsended September 30, 2006 and 2005, respectively.

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

 

**8.             Equity Transactions**

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 $55,000 inshare-based compensation expense for the six months ended September 30,2006.  The impact of this share-basedcompensation expense on the Company’s basic and diluted earnings per share was$0.01 per share.  The fair value of ourstock options was estimated using the Black-Scholes option pricing model.

9

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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 six months ended September 30,2006.

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 this 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 acapital-raising transaction

Pursuantto the 2005 Plan, during the six months ended September 30, 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 as employeecompensation. All of the 59,000 stock options 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.  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.

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 stockoptions will become vested thirty three (33) percent per year over a three yearperiod.

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.

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Following is asummary of the stock option activity:
|                                  | ** ** | **Options  outstanding** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  IntrinsicValue** | ** ** |
|----------------------------------|------------|--------------------------|------------|----------------------------------------|------------|-------------------------------|------------|
| Outstanding,  March 31, 2006     |       | 1,937,750                |       | $                                      | 1.06       |                          | $          | 118,000 |   |
| Granted                          |       | 269,000                  |       | $                                      | 0.95       |                          |       |   |
| Forfeited                        |       | 70,250                   |       | $                                      | 1.95       |                          |       |   |
| Exercised                        |       | —                   |       | —                                 |       |                          |       |
| Outstanding, September  30, 2006 |       | 2,136,500                |       | $                                      | 0.97       |                          | $          | (80,000 | ) |

 

Following is a summary ofthe status of options outstanding at September 30, 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                          |       | 266,200                         |       | 6.37                                                |       | $                                                 | 0.15       |                     | 259,950    |                                       | $          | 0.14 |   |
| $0.51 -  $1.00                          |       | 1,448,250                       |       | 6.49                                                |       | $                                                 | 1.30       |                     | 1,175,750  |                                       | $          | 0.92 |   |
| $1.01 -  $2.00                          |       | 357,300                         |       | 7.58                                                |       | $                                                 | 1.30       |                     | 131,400    |                                       | $          | 1.45 |   |
| $2.01 -  $5.00                          |       | 47,250                          |       | 3.25                                                |       | $                                                 | 3.24       |                     | 47,250     |                                       | $          | 3.24 |   |
| $5.01 -  $15.75                         |       | 17,500                          |       | 0.90                                                |       | $                                                 | 5.44       |                     | 17,500     |                                       | $          | 5.44 |   |
| $0.11 - $15.75                          |       | 2,136,500                       |       | 6.42                                                |       | $                                                 | 0.97       |                     | 1,631,850  |                                       | $          | 0.96 |   |

 

For optionsgranted during the six months ended September 30, 2006, the weighted-averagefair value of such options was $0.49.

The assumptionsused in calculating the fair value of options granted using the Black-Scholes option-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           |   |

 

Stock Options Grantedon 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          |   |

 

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

 

15,000 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           |   |

 

Warrants

Following is a summary ofthe warrant activity:
| Outstanding, March 31, 2006      |   | 222,928 |   |
|----------------------------------|--------|---------|--------|
| Granted                          |   | —  |   |
| Forfeited                        |   | 8,000   |   |
| Exercised                        |   | —  |   |
| Outstanding, September  30, 2006 |   | 214,928 |   |

 

Following is a summary ofthe status of warrants outstanding at September 30, 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                          |       | 1.79                                                |       | $                                                 | 0.24       |                      | 187,499    |                                       | $          | 0.24 |   |
| $1.01 -  $5.00                          |       | 27,429                           |       | 1.16                                                |       | $                                                 | 2.19       |                      | 27,429     |                                       | $          | 2.19 |   |
| $0.24 - $5.00                           |       | 214,928                          |       | 1.63                                                |       | $                                                 | 0.49       |                      | 214,928    |                                       | $          | 0.49 |   |

 

**9.             Segments**

The Company has two reportable segments consisting of (1) AML Communications, Inc. and (2) the 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.

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The following is information for the Company’s reportable segments for the three month periods ended September 30, 2006 and the six month periods ended September 30, 2006:

**For the three months ended September 30, 2006**
| (In thousands)                                     | ** ** | **AML** | ** ** | **MPI** | ** ** | **Unallocated** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------|------------|---------|------------|-----------------|------------|-----------|------------|
|                                                    |       |    |       |    |       |            |       |      |       |
| Revenue                                                 |       | $       | 1,761      |    | $          | 389             |       | —    |       | $ | 2,150 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Gross Profit                                            |       | 673     |       | 237     |       | —          |       | 910       |       |
| Depreciation  & amortization (includes intangibles) |       | 90      |       | 74      |       | —          |       | 164       |       |
|                                                    |       |    |       |    |       |            |       |      |       |
| Interest expense                                        |       | 17      |       | —  |       | —          |       | 17        |       |
|                                                    |       |    |       |    |       |            |       |      |       |
| Other, net                                              |       | 617     |       | 118     |       | —          |       | 753       |       |
| Loss from  continuing Operations before tax             |       | $       | (68        | )       | $          | 44              |       | —    |       | $ | (24 | ) |
|                                                    |       |    |       |    |       |            |       |      |       |
| Identifiable  assets                                    |       | $       | 5,336      |    | $          | 4,597           |       | —    |       | $ | 9,933 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Capital Expenditures                                    |       | $       | 191        |    | 16         |            | —     |      | $          | 207 |   |

 

**For the six months ended September 30, 2006**
| (In thousands)                                     | ** ** | **AML** | ** ** | **MPI** | ** ** | **Unallocated** | ** ** | **Total** | ** ** |
|---------------------------------------------------------|------------|---------|------------|---------|------------|-----------------|------------|-----------|------------|
|                                                    |       |    |       |    |       |            |       |      |       |
| Revenue                                                 |       | $       | 3,581      |    | $          | 871             |       | —    |       | $ | 4,452 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Gross Profit                                            |       | 1,359   |       | 530     |       | —          |       | 1,889     |       |
| Depreciation  & amortization (includes intangibles) |       | 162     |       | 145     |       | —          |       | 307       |       |
|                                                    |       |    |       |    |       |            |       |      |       |
| Interest expense                                        |       | 36      |       | —  |       | —          |       | 36        |       |
|                                                    |       |    |       |    |       |            |       |      |       |
| Other, net                                              |       | 1,307   |       | 230     |       | —          |       | 1,537     |       |
| Income from  continuing Operations before tax           |       | $       | (146       | )       | $          | 155             |       | —    |       | $ | 9 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Identifiable  assets                                    |       | $       | 5,336      |    | $          | 4,597           |       | —    |       | $ | 9,933 |   |
|                                                    |       |    |       |    |       |            |       |      |       |
| Capital Expenditures                                    |       | $       | 426        |    | $          | 145             |       | —    |       | $ | 571 |   |

 

**10.          Major customers and vendors**

Three customersprovided 27% and 28% of net revenue for the six months ended September 30, 2006and 2005, respectively.  Total accountsreceivable due from these customers was approximately $234,000 and $261,000 asof September 30, 2006 and 2005, respectively.

The Companyextends credit to its customers based upon its assessment of their creditworthiness and generally does not require collateral.  Credit losses have not been significant.

Three vendorsaccounted for 34% and 28% of the Company’s net purchases for the six monthsended September 30, 2006 and 2005, respectively.  Total accounts payable due to these vendorswas $75,000 and $16,000 as of September 30, 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:

·                      our ability to finance ouractivities and maintain our financial liquidity;

·                      our ability to attract andretain qualified, knowledgeable employees;

·                      the impact of generaleconomic conditions on our business;

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

·                      the limited number ofpotential customers for our products;

·                      the variability in grossmargins on our products;

·                      our ability to design andmarket new products successfully;

·                      our failure to acquire newcustomers in the future;

·                      deterioration of businessand economic conditions in our markets;

·                      intensely competitiveindustry conditions with increasing price competition; and

·                      the rate of growth in thedefense markets.

**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, low noise, medium and high poweramplifiers serving, primarily, the defense microwave market.  Our business is comprised of two reportablesegments, AML, which represented 79.1% of our 2006 product revenue, and MPI,which represented 20.9% of our 2006 product revenue.

Our AML segmentincludes low noise and power amplifiers with frequencies that range from 50 kHzto 26 GHz.  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 theAML segment to be our core business since it has a larger revenue base andinvestments were made in this segment that address long term growth.  We devote most of our management time andother resources to improving the prospects for this segment.  Most of our sales and marketing expenses arein the AML segment.  The majority of ourresearch and development spending is dedicated to this segment as well.

Our MPI segmentincludes solid state microwave amplifiers operating in the frequency range from1 to 40 GHz with output power from 10mW to 500 W.  In June 2004, we acquired Microwave Power,Inc. and operate it as a division of AML. The MPI division operates independently, with its own marketing,production, and general management team. During the quarter, we expanded MPI’s managerial and technicalcapabilities to address the potential for growth of the division as well as theanticipated knowledge dissemination because of the expected retirement of keypersonnel.

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**Results of Operations**

**Three Months EndedSeptember 30, 2006 Compared to Three Months Ended September 30, 2005**

*Netsales. *Net sales forthe three months ended September 30, 2006 were $2.2 million, as compared to netsales of $2.5 million for the three months ended September 30, 2005, a decreaseof $392,000 or 15.4%.  Defense relatedMicrowave Integrated Circuits (MIC) products accounted for $2.15 million, or99.8% of net sales for the three months ended September 30, 2006, compared to$2.5 million or 99.3% of net sales for the three months ended September 30,2005.  Sales for AML for the three monthsended September 30, 2006 were lower than sales during the same period of theprior year by $255,000 primarily due to a slowdown in spot-market orders duringfirst quarter of 2007.  Sales for MPIdecreased by $137,000, compared to the same period of the prior year, due toreduced incidental orders.  AML and, to alesser extent MPI, have devoted significant resources during the last threefiscal years towards the development of products that address long termcontracts to reduce reliance on spot-market and incidental orders.

*Grossprofit. *Gross profitfor the three months ended September 30, 2006 was $910,000, or 42.3% of netsales, compared to a gross profit of $1.1 million, or 44.1% of net sales forthe three months ended September 30, 2005. Gross profit, as a percentage of net sales, decreased due to the reducedrevenues while spending on manufacturing overhead costs remainedconsistent.   This, however, is not considereda trend.

*Selling,general and administrative costs. *Selling,general, and administrative costs were $604,000, or 28.1% of net sales, for thethree months ended September 30, 2006, as compared to $545,000, or 21.4% of netsales, for the three months ended September 30, 2005.  During the quarter, we incurred a $29,000increase in employee stock based compensation expense, a $31,000 increase inaudit and legal fees and a $20,000 increase in depreciation expense, offset bya $15,000 reduction in bad debt allowance.

*Researchand development costs. *Researchand development costs were $325,000, or 15.1% of net sales, for the threemonths ended September 30, 2006, as compared to $316,000, or 12.4% of netsales, for the three months ended September 30, 2005.  The increase reflects the hiring ofadditional R&D employees and continued investment in R&D projects.

*Otherexpense net. *Otherexpense was $5,000 for the three months ended September 30, 2006, as comparedto other income of $5,000 for the three months ended September 30, 2005.  The increase in interest expense isattributed to the note payable related to the financing of the MPI building inSanta Clara, California.

*Provisionfor income taxes.* For the three months ended September 30,2006, we recorded a provision of $8,000 for federal and state AMT taxes ascompared to the three months ended September 30, 2005, where we recorded$8,000.

*Netincome. *Net loss was$32,000, or $(0.00) per share, for the three months ended September 30, 2006,compared to a net profit of $258,000, or $0.03 per share, for the three monthsended September 30, 2005.

**Six Months EndedSeptember 30, 2006 Compared to Six Months Ended September 30, 2005**

*Netsales. *Net sales forthe six months ended September 30, 2006 were $4.5 million, as compared to netsales of $5.0 million for the six months ended September 30, 2005, a decreaseof $576,000 or 11.5%.  Defense relatedMIC products accounted for $4.4 million, or 99.7% of net sales for the six monthsended September 30, 2006, compared to $4.9 million or 98.8% of net sales forthe six months ended September 30, 2005. Sales for AML for the six months ended September 30, 2006 were lowerthan sales during the same period of the prior year by $327,000 primarily dueto a slowdown in orders for production items during the fourth quarter of 2006and the first quarter of 2007.  Sales forMPI decreased by $249,000, compared to the same period of the prior year, dueto reduced incidental orders.

*Grossprofit. *Gross profitfor the six months ended September 30, 2006 was $1.9 million, or 42.4% of netsales, as compared to a gross profit of $2.3 million, or 45.0% of net sales forthe six months ended September 30, 2005. Gross profit, as a percentage of netsales, decreased due to the reduced revenues while spending on manufacturingoverhead costs remained consistent.

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*Selling,general and administrative costs. *Selling,general, and administrative costs were $1.2 million, or 27.4% of net sales, forthe six months ended September 30, 2006, as compared to $1.1 million, or 22.8%of net sales, for the six months ended September 30, 2005. We incurred a$55,000 increase in employee stock based compensation expense, a $38,000increase in IT related outside consulting services, and a $23,000 increase incatalogs expense, offset by a $17,000 reduction in bad debt allowance and a$28,000 reduction in rent expenses due to AML’s purchase of MPI’s facility.

*Researchand development costs. *Researchand development costs were $645,000 or 14.5% of net sales, for the six monthsended September 30, 2006, as compared to $599,000, or 11.9% of net sales, forthe six months ended September 30, 2005. We incurred a $44,000 increase insalaries and related benefits, a result of continuing investment in R&Dprojects and a $6,000 increase in depreciation expense.  The increase reflects our commitment toinvest in long term, large size projects.

*Otherexpense, net. *Otherexpense was $13,000 for the six months ended September 30, 2006, as compared toother income of $8,000 for the six months ended September 30, 2005.  Interest expense of $36,000 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 $23,000.

*Provisionfor income taxes.* For the six months ended September 30,2006, we recorded a provision of $15,000 for federal and state AMT taxes ascompared to the six months ended September 30, 2005, where we recorded $16,000.

*Netincome. *Net loss was$6,000 or $(0.00) per share, for the six months ended September 30, 2006,compared to a net profit of $507,000, or $0.05 per share, for the six monthsended September 30, 2005.

**Liquidity and Capital Resources**

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

At September 30,2006, we had 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 September 30, 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.  AtSeptember 30, 2006, we had an outstanding balance of $0 under the accountsreceivable agreement and our remaining borrowing capacity was approximately$1,000,000 available for cash advances against accounts receivables, and$690,000 out of $1,000,000 was available for equipment advances under thisagreement.

At September 30, 2006, we had$1.9 million in cash and cash equivalents. For the six months ended September 30, 2006, our operating activitiesprovided cash of approximately $37,000, as compared to $740,000 in cashprovided by our operating activities for the six months ended September 30,2005.  Net cash used in investingactivities, for the acquisition of production equipment, amounted to $571,000for the six months ended September 30, 2006 and $447,000 for the six monthsended September 30, 2005.  Net cashprovided by financing activities was $57,000 for the six months ended September30, 2006 and $230,000 for the six months ended September 20, 2005.

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We anticipate capital expenditures of approximately$900,000 in fiscal 2007.  We believe thatfunds for 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 September 30, 2006, we had a line ofcredit agreement with Bridge Bank, of which $1,000,000 may be used forequipment advances at a rate of such prime rate plus 2.0%.  At September 30, 2006, our remainingborrowing capacity under the financing agreement for equipment advances was$690,000.

In addition to the funds raised in July 2003, we mayattempt to procure additional sources of financing in the event that thecapital available as of September 30, 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 ourdevelopment program and attaining profitable operations are dependent upon ourmaintaining a level of sales adequate to support our cost structure.  In addition, realization of a major portionof the assets in the accompanying balance sheet is dependent upon our abilityto meet our financing requirements and the success of our plans to sell ourproducts.  The financial statements donot include any adjustments relating to the recoverability and classificationof recorded asset amounts or amounts and classifications of liabilities thatmight be necessary should we be unable to continue in existence.

**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 related torevenue recognition.  We use authoritativepronouncements, historical experience, and other assumptions as the basis formaking judgments.  Actual results coulddiffer from those estimates.  We believethat the following critical accounting policies affect our more significantjudgments and estimates in the preparation of our financial statements.

*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 thesale of products is generally recognized after both the goods are shipped tothe customer 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 ofthe accounts receivable balance; (ii) the customer’s past payment experience;or (iii) a deterioration in the customer’s financial condition, evidenced byweak financial condition and/or continued poor operating results, reducedcredit ratings, and/or a bankruptcy filing. In addition to the specific allowance, we maintain a general allowancefor all its accounts 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 in determiningthe adequacy of the overall allowance change, an adjustment to the provisionfor 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. Determining the life of the assets with finite lives is judgmental innature and involves the use of estimates and assumptions.  These estimates and assumptions involve avariety of factors, including future market growth and conditions, forecastedrevenues and costs and a strategic review of our business and operations.  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.

*Existing Technology. *Our existing technology isbased on a patent issued in 1990, which continues to be the main technology ofMPI.  It is a substrate depositiontechnology that is mature and with no replacement technology forecasted.

**Additional Factors That May Affect 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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We have evaluated the credit exposure associated withconducting business with foreign customers and have concluded that such risk isacceptable.  Nevertheless, anysignificant change in the economy or deterioration in United States traderelations or the economic or political stability of foreign markets could havea material adverse effect on our business, results of operations, and financialcondition.

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, 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 quarterlyand annual results have in the past been, and will continue to be, subject tosignificant fluctuations due to a number of factors, any of which could have amaterial adverse effect on our business, financial condition and results of operations.  There can be no assurance that we will notexperience such fluctuations in the future. We establish our expenditure levels for product development and otheroperating expenses based on expected revenues, and expenses are relativelyfixed in the short term.  As a result,variations in timing of revenues can cause significant variations in quarterlyresults of operations.  There can be noassurances that we will be profitable on a quarter-to-quarter basis in thefuture.  We believe that period-to-periodcomparisons of our financial results are not necessarily meaningful and shouldnot be relied upon as an indication of future performance.  Due to these factors, it is likely that insome future quarter or quarters, our revenues or operating results will notmeet the 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 disclosurecontrols and procedures were effective as of the end of the applicable periodto ensure that the information required to be disclosed by the Company inreports that it files or submits under the Exchange Act (i) is recorded,processed, summarized and reported within the time periods specified inSecurities and Exchange Commission rules and forms and (ii) is accumulated andcommunicated to our management, including our Chief Executive Officer andDirector of Finance, as appropriate to allow timely decisions regardingrequired 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 tomaterially affect, 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 andUse of Proceeds**

NotApplicable.

**Item3.  Defaults Upon Senior Securities**

**Not Applicable.**

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

#### Our 2006 Annual Meeting of Stockholders (the “2006Annual Meeting”) was held on September 7, 2006, in Camarillo, California.  Three proposals, as described in our ProxyStatement, dated July 28, 2006, were voted on at the meeting.  The following is a brief description of thematters voted upon and the results of the voting:

**1.****              Election ofDirectors:**
| Nominees         | ** ** | **Number of Shares** | ** ** |
|------------------|------------|----------------------|------------|
|             |       |                 |       |   |   |
| Jacob Inbar      |       | For:                 |       | 8,290,963 |   |
|             |       | Withheld:            |       | 835,146 |   |
|             |       |                 |       |   |   |
| Richard Flatow   |       | For:                 |       | 8,951,037 |   |
|             |       | Withheld:            |       | 175,072 |   |
|             |       |                 |       |   |   |
| Tiberiu Mazilu   |       | For:                 |       | 8,140,091 |   |
|             |       | Withheld:            |       | 986,018 |   |
|             |       |                 |       |   |   |
| Edwin J. McAvoy  |       | For:                 |       | 8,159,591 |   |
|             |       | Withheld:            |       | 966,518 |   |
|             |       |                 |       |   |   |
| Gerald M. Starek |       | For:                 |       | 8,931,737 |   |
|             |       | Withheld:            |       | 194,372 |   |

 

**2.****              Ratification of theAppointment of Kabani & Company, Inc as our Independent Registered PublicAccounting Firm:**
| Nominees                    | ** ** | **Number of Shares** | ** ** |
|-----------------------------|------------|----------------------|------------|
|                        |       |                 |       |   |   |
| Kabani & Company,  Inc. |       | For:                 |       | 9,122,609 |   |
|                        |       | Against:             |       | 2,900 |   |
|                        |       | Abstain:             |       | 600 |   |

 

**3.****              To approve the AMLCommunications, Inc. 2005 Equity Incentive Plan:**
| Approve                          | ** ** | **Number of Shares** | ** ** |
|----------------------------------|------------|----------------------|------------|
|                             |       |                 |       |   |   |
|  2005 Equity Incentive Plan |       | For:                 |       | 5,425,409 |   |
|                             |       | Against:             |       | 886,249 |   |
|                             |       | Abstain:             |       | 6,515 |   |
|                             |       | Broker Non-Vote:     |       | 2,807,936 |   |

 

**Item5.  Other Information**

**Not applicable.**

**Item 6.    Exhibits**

The exhibits listed in the Exhibit Index are filed as part of thisreport.

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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: November 13, 2006 |

 

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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 Exchange Commissionas an exhibit to the Company’s Form 10-KSB for fiscal year ended March31, 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 quarterended December 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.

*  Confidential treatment requested as tocertain portions, which portions were omitted and filed separately with theSecurities and Exchange Commission.

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