UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q




þ  QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended:   June 30, 2008





or





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





For the
transition period from ______ to _______





Commission
File Number:       0-27250





AML
COMMUNICATIONS, INC.


(Exact
name of registrant as specified in its charter)





Delaware
            77-0130894(State
      or Other jurisdiction of
            (IRS
      Employerincorporation
      or organization)
            Identification
      No.)1000
      Avenida AcasoCamarillo,
      California
            93012(Address
      of principal executive offices)
            (Zip
      Code)








(805)
      388-1345(Registrant’s
      telephone number including area
code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter 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  þ   No 
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definition of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.





Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer o (Do
      not check if a smaller reporting company)
              Smaller
      reporting company þ




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


Yes o No þ





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Common
Stock Outstanding as of August 4: 10,609,665 shares











AML
      Communications, Inc.Index to Form 10-QItem
      1.
            Financial
      Statements (Unaudited)Unaudited
      Consolidated Balance Sheet as of June 30, 2008Unaudited
      Consolidated Statements of Operations for the three month periods ended
      June 30, 2008 and June 30, 2007Unaudited
      Consolidated Statements of Cash flows for the three month periods ended
      June 30, 2008 and June 30, 2007Notes
      to Unaudited Consolidated Financial StatementsItem
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      OperationItem
      3.
            Quantitative
      and Qualitative Disclosures About Market RiskItem
      4.
            Controls
      and ProceduresPart
      II
            Other
      InformationItem
      1.
            Legal
      ProceedingsItem
      1A.
            Risk
      FactorsItem
      2.
            Unregistered
      Sales of Equity Securities and Use of ProceedsItem
      3.
            Defaults
      Upon Senior SecuritiesItem
      4.
            Submission
      of Matters to a Vote of Security HoldersItem
      5.
            Other
      InformationItem
      6.
            ExhibitsSIGNATURES





2


PART
I - FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements





AML
COMMUNICATIONS, INC.


CONSOLIDATED
BALANCE SHEET


(Unaudited)


June
      30, 2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            977,000Accounts
      receivable, net
            
            
            2,114,000Inventories,
      net
            
            
            3,104,000Note
      receivable
            
            
            5,000Prepaid
      expenses
            
            
            155,000Deferred
      tax asset – current
            
            
            531,000Total
      current assets
            
            
            6,886,000Property
      and equipment, at cost
            
            
            7,243,000Less:
      Accumulated depreciation
            
            
            (4,702,000
            )Property
      and equipment, net
            
            
            2,541,000Deferred
      tax asset
            
            
            3,633,000Intangible
      Assets:Technologies,
      net
            
            
            2,637,000Patents,
      net
            
            
            92,000Customer
      relationship, net
            
            
            79,000Trademarks
      and brand names
            
            
            220,0003,028,000Deposits
            
            
            34,000$
            16,122,000LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      Liabilities:Line
      of credit
            
            $
            778,000Accounts
      payable
            
            
            1,263,000Current
      portion of long term debt
            
            
            12,000Short
      term note payable
            
            
            43,000Accrued
      expenses:Accrued
      payroll and payroll related expenses
            
            
            285,000Other
      accrued liabilities
            
            
            213,000Total
      current liabilities
            
            
            2,594,000Long
      term notes payable
            
            
            603,000Due
      to related party
            
            
            7,000Other
      liability
            
            
            67,000Commitments
            
            
            -Stockholders’
      Equity:Common
      stock, $0.01 par value:15,000,000 shares authorized;10,422,166
      shares issued and outstanding at June 30, 2008.
            
            
            104,000Capital
      in excess of par value
            
            
            13,867,000Accumulated
      deficit
            
            
            (1,120,000
            )Total
      stockholders’ equity
            
            
            12,851,000$
            16,122,000





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


3


AML
COMMUNICATIONS, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)








Three
      Month Periods EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007Net
      sales
            
            $
            3,260,000
            
            
            $
            2,704,000Cost
      of goods sold
            
            
            1,782,000
            
            
            
            1,546,000Gross
      profit
            
            
            1,478,000
            
            
            
            1,158,000Operating
      expenses:Selling,
      general & administrative
            
            
            734,000
            
            
            
            784,000Research
      and development
            
            
            481,000
            
            
            
            575,000Total
      operating expenses
            
            
            1,215,000
            
            
            
            1,359,000Income/(loss)
      from operations
            
            
            263,000
            
            
            
            (201,000
            )Gain
      on settlement of debt
            
            
            521,000
            
            
            
            —Other
      income/(Interest & other expense), net
            
            
            (33,000
            )
            
            
            (36,000
            )Total
      other income (expense)
            
            
            488,000
            
            
            
            (36,000
            )Income/(loss)
      before provision for income taxes and minority interest
            
            
            751,000
            
            
            
            (237,000
            )Provision
      for income taxes
            
            
            300,000
            
            
            
            7,000Minority
      interest
            
            
            —
            
            
            
            198,000Net
      income/(loss)
            
            $
            451,000
            
            
            $
            (46,000
            )Basic
      earnings (loss) per common share
            
            $
            0.04
            
            
            $
            (0.00
            )Basic
      weighted average number of shares of common stock
    outstanding
            
            
            10,422,000
            
            
            
            10,257,000Diluted
      earnings (loss) per common share
            
            $
            0.04
            
            
            $
            (0.00
            )Diluted
      weighted average number of shares of common stock
    outstanding
            
            
            11,130,000
            
            
            
            10,257,000





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





4


AML
COMMUNICATIONS, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Three
      Month Periods EndedJune
      30,
              2008
            
            
            June
      30,
              2007Cash
      Flows from Operating Activities:Net
      income (loss)
            
            $
            451,000
            
            
            $
            (46,000
            )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
            
            
            171,000
            
            
            
            154,000Bad
      debt expense
            
            
            3,000
            
            
            
            (6,000
            )Inventory
      reserves
            
            
            9,000
            
            
            
            (2,000
            )Stock
      options granted for compensation
            
            
            36,000
            
            
            
            36,000Amortization
            
            
            68,000
            
            
            
            130,000Gain
      on settlement of debt
            
            
            (521,000
            )
            
            
            —Minority
      interest
            
            
            —
            
            
            
            (198,000
            )Changes
      in assets and liabilities:Decrease
      (increase) in:Accounts
      receivable
            
            
            187,000
            
            
            
            (634,000
            )Inventories
            
            
            (239,000
            )
            
            
            (492,000
            )Other
      current assets
            
            
            17,000
            
            
            
            (50,000
            )Deferred
      Tax Assets
            
            
            300,000
            
            
            
            —Increase
      (decrease) in:Accounts
      payable
            
            
            (50,000
            )
            
            
            (218,000
            )Accrued
      income taxes
            
            
            (27,000
            )
            
            
            8,000Accrued
      expenses
            
            
            (493,000
            )
            
            
            (117,000
            )Net
      cash provided by (used in) operating activities
            
            
            (88,000
            )
            
            
            (1,435,000
            )Cash
      Flows from Investing Activities:Purchases
      of property and equipment
            
            
            (35,000
            )
            
            
            (68,000
            )Cash
      used in Mica-Tech acquisition
            
            
            —
            
            
            
            (13,000
            )Net
      cash used in investing activities
            
            
            (35,000
            )
            
            
            (81,000
            )Cash
      Flows from Financing Activities:Proceeds from (payments on) line
      of credit
            
            
            (96,000
            )
            
            
            103,000Proceeds from exercise of stock
      options
            
            
            —
            
            
            
            —Payments on notes
      payable
            
            
            (9,000
            )
            
            
            (78,000
            )Principle
      payments capital lease obligations
            
            
            —
            
            
            
            (4,000
            )Net
      cash provided by (used in) financing activities
            
            
            (105,000
            )
            
            
            21,000Net
      decrease in Cash and Cash Equivalents
            
            
            (228,000
            )
            
            
            (1,495,000
            )Cash
      and Cash Equivalents, beginning of period
            
            
            1,205,000
            
            
            
            2,078,000Cash
      and Cash Equivalents, end of period
            
            $
            977,000
            
            
            $
            583,000Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
            
            $
            35,000
            
            
            $
            43,000Income
      Taxes
            
            $
            45,000
            
            
            $
            —Supplemental
      disclosure of non-cash flow investing and financing
    activity:Debt
      incurred to purchase property and equipment
            
            $
            —
            
            
            $
            398,000





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





5





AML
COMMUNICATIONS, INC.


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2008





1.
            Basis
      of Presentation





AML
Communications (the “Company” or “we”) currently design, manufacture, and market
radio frequency (RF) and microwave, low noise, medium and high power amplifiers
and subsystems serving primarily the Defense Electronic Warfare Market. Our
business is comprised of three reportable segments. AML
Communications, Inc. (AML) designs, manufactures, and markets amplifiers
and related products for the defense microwave. Our division Microwave
Power, Inc. (MPI) designs, manufactures, and markets high power microwave
amplifiers for the defense market. Our defense industry products are used
primarily in electronic systems for tactical aircraft, ships, ground systems,
and missile systems. These products are sold directly by us as well as through
independent sales representatives. On April 11, 2007, we acquired a
controlling interest of Mica-Tech, Inc. (Mica-Tech) and subsequently
acquired the remaining interest on February 19, 2008. Our wholly owned
subsidiary Mica-Tech designs, manufactures, and markets an intelligent
communication system to provide Supervisory Control And Data Acquisition (SCADA)
of the electric power grid. We had three reportable segments (AML), (MPI), and
(Mica-Tech) for the three month period ended June 30, 2008 and June 30,
2007.




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





The accompanying financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States.  However, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
omitted or condensed pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”).  In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation have been included.  The results of operations and cash
flows for the three-month period presented are not necessarily indicative of the
results of operations for a full year.  These financial statements
should be read in conjunction with the Company’s audited financial statements
and notes thereto included in the Company’s Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2008.





Principles
of Consolidation





The
accompanying consolidated financial statements include the accounts of AML, its
wholly owned division, MPI, and its wholly owned subsidiary,
Mica-Tech.  All significant inter-company accounts and transactions
have been eliminated in consolidation.  The three month period ended
June 30, 2007 includes 81days of Mica-Tech’s results of operations prospectively
from the date of the acquisition, or April 11, 2007 through June 30,
2007.





2.
            Earnings
      Per Share





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





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





The Company had approximately 1,902,000
of granted stock options and warrants that were exercisable as of June 30, 2008
and approximately 1,922,000 of granted stock options and warrants exercisable at
June 30, 2007.





6


The
following is a reconciliation of the numerators and denominators of the basic
and diluted earnings per share computations:





Three months ended
      June 30, 2008
            
            Net Income
            
            
            Shares
            
            
            Per ShareBasic
      earnings per shares:Net
      income available to common stockholders
            
            $
            451,000
            
            
            
            10,422,000
            
            
            $
            0.04Effect
      of dilutive securities:Stock
      options & warrants
            
            
            
            
            
            
            708,000Diluted
      earnings per share:
            
            $
            451,000
            
            
            
            11,130,000
            
            
            $
            0.04Three months ended
      June 30, 2007
            
            Net Loss
            
            
            Shares
            
            
            Per ShareBasic
      and Diluted loss per shares:Net
      loss available to common stockholders
            
            $
            (46,000
            )
            
            
            10,257,000
            
            
            $
            (0.00
            )




3.
            Accounts
      Receivable





Accounts
receivable as of June 30, 2008 are as follows:





Accounts
      receivable
            
            $
            2,213,000Allowance
      for bad debts
            
            
            99,000$
            2,114,000





4.
            Inventories





Inventories
include costs of material, labor and manufacturing overhead and are stated at
the lower of cost (first-in, first-out) or market and consist of the
following:





June 30, 2008Raw
      material, net of reserve
            
            $
            2,254,000Work-in-process
            
            
            703,000Finished
      goods
            
            
            147,000$
            3,104,000





5.
            Property
      & equipment





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





Machinery
      and equipment
            3
      to 5 yearsFurniture
      and fixtures
            5
      yearsLeasehold
      improvements
            Life
      of leaseBuilding
            30
      years





Depreciation expense was $171,000 and
$154,000 for the three months ended June 30, 2008 and June 30, 2007
respectively.





The
Company capitalizes expenditures that materially increase asset lives and
charges ordinary repairs and maintenance to operations as
incurred.  When assets are sold or otherwise disposed of, the cost and
related depreciation or amortization is removed from the accounts and any
resulting gain or loss is included in other income (expense) in the accompanying
statements of operations.





Property and equipment consist of the
following:




June
      30, 2008Building
            
            $
            800,000Machinery
      and equipment
            
            
            5,575,000Furniture
      and fixtures
            
            
            178,000Leasehold
      improvements
            
            
            690,000Accumulated
      depreciation
            
            
            (4,702,000
            )$
            2,541,000





7





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 three months
ended June 30, 2008, the Company recognized no impairment.





At June
30, 2008, intangibles consist of the following:




Intangibles
            
            Gross
      Carrying
              Amount
            
            
            Accumulated
              Amortization
            
            
            NetAmortized
      intangibles:Patents
            
            $
            464,000
            
            
            $
            (372,000
            )
            
            $
            92,000Existing
      Technology
            
            
            3,166,000
            
            
            
            (529,000
            )
            
            
            2,637,000Customer
      Lists
            
            
            339,000
            
            
            
            (339,000
            )
            
            
            —Customer
      Relationship
            
            
            131,000
            
            
            
            (52,000
            )
            
            
            79,000Trademarks
      and Brand Names
            
            
            43,000
            
            
            
            (4,000
            )
            
            
            39,000Backlog
            
            
            18,000
            
            
            
            (18,000
            )
            
            
            —Unamortized
      intangibles:Trademarks
            
            
            181,000
            
            
            
            —
            
            
            
            181,000$
            4,342,000
            
            
            $
            (1,314,000
            )
            
            $
            3,028,000




Due to
the acquisition of MPI in the quarter ended June 30, 2004 and the
acquisition of Mica-Tech on April 11, 2007 (51%) and February 19, 2008
(100%), we recorded the intangible assets above. For the intangible assets we
acquired from MPI acquisition, we assigned an 8-year life to Patents, a 12-year
life to Existing Technology, and a 3-year life to Customer Lists. All items are
subject to amortization. The value assigned to Trademarks, which have an
indefinite life, should not be amortized. For the intangible assets we acquired
from the Mica-Tech acquisition, we initially assigned a 12-year life to Existing
Technology, a 3-year life to Customer Relationship, a 1-year life to Backlog and
an indefinite life to Trademarks and Brand Names. During the quarter ended
September 30, 2007, Mica-Tech’s management thoroughly reevaluated the life
span of Mica-Tech’s intangible asset and assigned a new life span to these
intangible assets: a 15-year life to Existing Technology, a 6-year life to
Customer Relationship, and a 15-year life to Trademarks and Brand Names. All
items stated are subject to amortization. Backlog was amortized on fulfillment
of orders.




Upon the
acquisition of Mica-Tech’s remaining interest on February 19, 2008,
Mica-Tech’s intangible assets were revalued by an appraiser. The new fair market
values of Mica-Tech’s intangible assets, after any associated tax adjustments,
are reflected on the financial statement.







8


Amortization
expense from continuing operation for the three months ended June 30, 2008 was
$68,000.  We expect amortization expense for the next five years to be
as follows:





Year Ending March 31:2009
            
            $
            273,0002010
            
            $
            273,0002011
            
            $
            273,0002012
            
            $
            273,0002013
            
            $
            253,000




7.
            Debt
      and lease commitments





Line of
credit





At June
30, 2008, AML had a line of credit agreement with Bridge Bank. On
August 15, 2006, we signed a Business Financing Modification 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. On April 5, 2007, we modified this agreement to add a
new $600,000 equipment term loan to our existing line of credit and then
increased this term loan by an additional $300,000 for a total of $900,000 on
June 22, 2007. 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 0.25% with respect to cash
advances and a rate of such prime rate plus 3.0% with respect to equipment
advances and the additional equipment term loans. We are obligated to pay a
facility fee of $5,000 (0.50% of the facility amount) for the first year of the
agreement and $2,500 the second year. We must maintain certain financial
requirements, including a minimum Asset Coverage Ratio of 1.50 to 1.00 beginning
with the month ending October 31, 2007 and monthly thereafter. We are also
required to stay within 80% of our planned quarterly revenue. We were in
compliance with these requirements at June 30, 2008; however, there is no
assurance that we will be in compliance at future dates. This agreement to
provide cash advances against accounts receivables terminates on August 15,
2008 or upon a date that the bank or AML chooses to terminate the agreement. Any
unpaid balance is due and payable pursuant to the agreement on the termination
date. If the agreement was terminated within the first 12 months following
its execution on July 17, 2006, we would have been required to pay an early
termination fee of 1.0% of the credit facility amount under the terms of the
agreement. At June 30, 2008, we had an outstanding balance of $0 under the
accounts receivable agreement and $719,000 under the equipment financing
agreement. The three equipment term loans mature on November 30, 2008,
July 31, 2009, and March 31, 2010. Our remaining borrowing capacity is
approximately $1,000,000 under the accounts receivable agreement and $0 under
the equipment financing agreement as the availability period for the equipment
term loans has expired as of October 7, 2007.




Notes
Payable





On
February 3, 2006, the Company purchased the building that houses MPI located at
3350 Scott Blvd. Bldg #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 a bank promissory note in the amount of $640,000
with 6.760% interest, payable in 83 regular payments of $4,425.88 each which
includes principal and interest and one final payment of
$556,594.48.  The Company’s final payment is due February 10, 2013 and
will be for all principal and interest not yet paid.  The note payable
is secured by the deed of trust on the building.  As of June 30, 2008,
the outstanding note amounted to $615,000 with $12,000 in current
portion.





On
December 20, 2006, Mica-Tech raised $200,000 from an outside investor in the
form of short term note payable.  The funds were used for working
capital.  The promissory note bears interest at the rate of
10%.  Mica-Tech makes equal monthly payments of $25,000, which
includes a principal and an accrued interest on the remaining principal
balance.  Mica-Tech defaulted on its April, May, and June payment due
to a cash deficiency.  The default was waived by the lender at no
cost. The total amount remaining on the note at June 30, 2008 was
$43,000.  Mica-Tech defaulted on the July payment as well and the note
is currently due on demand.





Mica-Tech
was advanced working capital from its former president and a major shareholder,
over a period of time which totaled to $685,000 as of April 10,
2007.  On April 10, 2007, Mica-Tech converted these advancements in
the form of a single note for the amount of $685,000, with an annual interest
rate of 10%.  Of the $685,000, $200,000 was converted into 200,000
shares of Mica-Tech’s common stock at the closing of the acquisition on April
11, 2007.  In connection to the merger on February 19, 2008,
Mica-Tech and Steven Ow entered into an amended and restated promissory note in
the principal amount of $522,000. The interest rate on the note was reduced to
8% per annum and the maturity date was extended until April 4, 2010. On
May 19, 2008, Mica-Tech and Steven Ow entered into an agreement that
settles the promissory note in the amount of $531,000, including $9,000 in
accrued interest, and deferred compensation of $128,000. The consideration for
this settlement will be paid by three equal payments of $40,000 and one last
payment of $30,000. As of June 30, 2008, first two payments of $40,000 were made
to Steven Ow and the remaining balance due was $70,000 included in accounts
payable. Mica-Tech paid an additional $40,000 to Steven Ow on July 15, 2008. As
part of settlement, the Company recorded gain on settlement of debt amounting to
$521,000 during the period ended June 30, 2008.




9


Operating
Lease Obligations




The lease for AML’s office space and
manufacturing facility expired in April 2008 and we entered into a new
lease, which will expire in April 2015. Until they moved into the AML
facility in May 2008, Mica-Tech was leasing its office space and manufacturing
facility under an operating lease expiring October 2008. Total rent expense
under these operating leases was approximately $56,000 and $62,000 during the
three months ended June 30, 2008 and 2007, respectively.




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




Operating
      LeasesYear
      ending March 31,2009
            
            $
            243,0002010
            
            
            207,0002011
            
            
            207,0002012
            
            
            207,0002013
            
            
            207,000Thereafter
            
            
            414,000$
            1,485,000





8.
            Equity
      Transactions





Stock
Options





The
Company adopted SFAS No. 123 (Revised 2004), Share Based Payment(“SFAS
No. 123R”), under the modified-prospective transition method on April 1,
2006.  SFAS No. 123R requires companies to measure and recognize
the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value.  Share-based
compensation recognized under the modified-prospective transition method of SFAS
No. 123R includes share-based compensation based on the grant-date fair
value determined in accordance with the original provisions of SFAS
No. 123, Accounting for
Stock-Based Compensation,for all 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 determined in accordance with SFAS No. 123R for all
share-based payments granted after April 1, 2006. SFAS No. 123R eliminates
the ability to account for the award of these instruments under the intrinsic
value method proscribed by Accounting 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 value method in
accordance with the provisions of APB Opinion No. 25 and related
interpretations.





Primarily
as a result of adopting SFAS No. 123R, the Company recognized $36,000 or
$0.00 per basic and diluted earnings per share in share-based compensation
expense for the three months ended June 30, 2008 and $36,000 or $0.00 per basic
and diluted earnings per share in share-based compensation expense for the three
months ended June 30, 2007. The fair value of our stock options was estimated
using the Black-Scholes option pricing model.





In 1995,
the board of directors approved the creation of the 1995 Stock Option
Plan.  In November 2005, the board established the 2005 Equity
Incentive Plan ("2005 Plan").  The number of shares reserved and
available for grant and issuance shall be increased on the first day of January
of each year so that the total of all Common Stock available for Awards shall be
the maximum amount allowable under Regulation 260.140.45 of Title 10
of the California Code of Regulations. The total of all Common Stock available
for grant and issuance under the 2005 Plan was 3,077,000 shares as of
June 30, 2008. The number of shares initially approved for issuance under the
2005 Plan was 150,000 shares of our common stock. The Company filed a
registration statement on Form S-8 with SEC to register the unregistered
shares under the Plan or 2,927,000 shares on May 20, 2008. Incentive stock
option awards may be granted under the 2005 Plan only to employees (including
officers and directors who are also employees) of the Company or of a parent or
subsidiary of the Company.  All other awards (including nonqualified stock
options, restricted stock or stock awards) under the 2005 Plan may be granted to
employees, officers, directors, consultants, independent contractors and
advisors of the Company or any parent or subsidiary of the Company, provided
such consultants, contractors and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction





10


During
the three months ended June 30, 2008, the Company granted no stock
options.





Following
is a summary of the stock option activity:





Options
              outstanding
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Aggregate
              Intrinsic
      ValueOutstanding,
      March 31, 2008
            
            
            4,016,305
            
            
            $
            1.12
            
            
            $
            925,036Granted
            
            
            -
            
            
            
            -Forfeited
            
            
            81,605
            
            
            $
            1.20Exercised
            
            
            -Outstanding,
      June 30, 2008
            
            
            3,934,700
            
            
            $
            1.12
            
            
            $
            17,400





Following
is a summary of the status of options outstanding at June 30, 2008:





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
            
            86,200
            
            4.69
            
            $0.16
            
            86,200
            
            $0.16$0.51
      - $1.00
            
            1,605,250
            
            5.20
            
            $0.92
            
            1,314,332
            
            $0.91$1.01
      - $2.00
            
            2,212,250
            
            7.69
            
            $1.27
            
            282,650
            
            $1.33$2.01
      - $5.00
            
            31,000
            
            1.70
            
            $3.19
            
            31,000
            
            $3.19$0.11
      - $15.75
            
            3,934,700
            
            6.23
            
            $1.12
            
            1,714,182
            
            $0.99





Details
of the Company's non-vested options are as follows:





Non-Vested
              Options
            
            
            Weighted
      Average
              Exercise
      Price
            
            Weighted
      Average
              Vesting
      Period
            
            Grant
      Date Fair
              ValueNon-vested
      - March 31, 2008
            
            
            2,377,973
            
            
            $
            1.22
            
            1.44
      YearsGranted
            
            
            —
            
            
            
            —
            
            
            
            
            —Forfeited
            
            
            (81,605
            )
            
            
            1.20Vested
            
            
            (75,850
            )
            
            
            1.28Exercised
            
            
            —
            
            
            
            —Non-vested
      – June 30,
      2008
            
            
            2,220,518
            
            
            
            1.22
            
            1.62
      Years





The total
compensation cost relating to non-vested stock options that is not yet
recognized is $224,000, which is expected to be recognized over a period of 2.42
years.





Warrants





Following
is a summary of the warrant activity:





Warrants
              outstanding
            
            
            Weighted
              Average
              Exercise
              Price
            
            
            Aggregate
              Intrinsic
      ValueOutstanding,
      March 31, 2008
            
            
            213,315
            
            
            $
            0.39
            
            
            $
            236,000Granted
            
            
            —Forfeited
            
            
            —Exercised
            
            
            —Outstanding,
      June 30, 2008
            
            
            213,315
            
            
            
            0.39
            
            
            $
            168,000





11





Following
is a summary of the status of warrants outstanding at June 30,
2008:









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
            
            
            
            0.04
            
            
            $
            0.24
            
            
            
            187,499
            
            
            $
            0.24$1.01
      - $5.00
            
            
            
            25,816
            
            
            
            4.65
            
            
            $
            0.04
            
            
            
            —
            
            
            
            —$0.24
      - $5.00
            
            
            
            213,315
            
            
            
            1.88
            
            
            $
            0.39
            
            
            
            187,499
            
            
            $
            0.24





9.
            Segments





The
Company has three reportable segments consisting of (1) AML, (2) MPI and (3)
Mica-Tech.  Our AML 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.  MPI 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.  Our Mica-Tech
segment designs, manufactures and markets an intelligent satellite communication
system that provides a highly reliable and secure communications link between
remote sites and control centers, utilizing Supervisory Control And Data
Acquisition (SCADA) technology.  The Company evaluates performance
based on sales, gross profit margins, and operating profit before income
taxes.





The
following is information for the Company’s three reportable segments for the
three month period ended June 30, 2008 and the three month period ended June 30,
2007.





For
the three months ended June 30, 2008





(In thousands)
            
            AML
            
            
            MPI
            
            
            Mica-Tech
            
            
            Unallocated
            
            
            TotalRevenue
            
            $
            2,702
            
            
            $
            488
            
            
            $
            70
            
            
            
            —
            
            
            $
            3,260Gross
      Profit
            
            
            1,185
            
            
            
            272
            
            
            
            21
            
            
            
            —
            
            
            $
            1,478Depreciation
      & amortization(includes
      intangibles)
            
            
            148
            
            
            
            56
            
            
            
            35
            
            
            
            —
            
            
            $
            239Interest
      expense
            
            
            27
            
            
            
            —
            
            
            
            8
            
            
            
            —
            
            
            $
            35Income/(Loss)
      from continuingOperations
      before tax and minority interest
            
            $
            296
            
            
            $
            76
            
            
            $
            379
            
            
            
            —
            
            
            $
            751Net
      Income
            
            $
            296
            
            
            $
            76
            
            
            $
            379
            
            
            $
            (300
            )
            
            $
            451Identifiable
      assets
            
            $
            9,086
            
            
            $
            5,053
            
            
            $
            1,983
            
            
            
            —
            
            
            $
            16,122Capital
      Expenditures
            
            $
            30
            
            
            $
            5
            
            
            $
            0
            
            
            
            —
            
            
            $
            35





12





For
the three months ended June 30, 2007





(In thousands)
            
            AML
            
            
            MPI
            
            
            Mica-Tech
            
            
            Unallocated
            
            
            TotalRevenue
            
            $
            2,241
            
            
            $
            419
            
            
            $
            44
            
            
            
            —
            
            
            $
            2,704Gross
      Profit
            
            
            912
            
            
            
            239
            
            
            
            7
            
            
            
            —
            
            
            $
            1,158Depreciation
      & amortization(includes
      intangibles)
            
            
            127
            
            
            
            63
            
            
            
            94
            
            
            
            ---
            
            
            $
            284Interest
      expense
            
            
            27
            
            
            
            —
            
            
            
            16
            
            
            
            ---
            
            
            $
            43Income/(Loss)
      from continuingOperations
      before tax and minority interest
            
            $
            126
            
            
            $
            41
            
            
            $
            (404
            )
            
            
            ---
            
            
            $
            (237
            )Net
      Income
            
            $
            119
            
            
            $
            41
            
            
            $
            (206
            )
            
            
            ---
            
            
            $
            (46
            )Identifiable
      assets
            
            $
            7,138
            
            
            $
            4,743
            
            
            $
            2,596
            
            
            
            ---
            
            
            $
            14,477Capital
      Expenditures
            
            $
            459
            
            
            
            5
            
            
            
            2
            
            
            
            ---
            
            
            $
            466





10.
            Related
      Party Transaction





Mica-Tech
was advanced working capital from its former president and a major shareholder,
over a period of time which totaled to $685,000 as of April 10,
2007.  On April 10, 2007, Mica-Tech converted these advancements in
the form of a single note for the amount of $685,000, with an annual interest
rate of 10%.  Of the $685,000, $200,000 was converted into 200,000
shares of Mica-Tech’s common stock at the closing of the acquisition on April
11, 2007.  In connection to the merger on February 19, 2008,
Mica-Tech and Steven Ow entered into an amended and restated promissory note in
the principal amount of $522,000. The interest rate on the note was reduced to
8% per annum and the maturity date was extended until April 4, 2010. On
May 19, 2008, Mica-Tech and Steven Ow entered into an agreement that
settles the promissory note in the amount of $531,000, including $9,000 in
accrued interest, and deferred compensation of $128,000. The consideration for
this settlement will be paid by three equal payments of $40,000 and one last
payment of $30,000. As of June 30, 2008, first two payments of $40,000 were made
to Steven Ow and the remaining balance due was $70,000 included in accounts
payable. Mica-Tech paid an additional $40,000 to Steven Ow on July 15, 2008. As
part of settlement, the Company recorded gain on settlement of debt amounting to
$521,000 during the period ended June 30, 2008.




11.
            Acquisition
      of Mica-Tech, Inc.




On
April 11, 2007, the Company acquired a controlling position in Mica-Tech,
in a cash-for-stock transaction. Under the terms of the agreement, AML purchased
51% or 4,146,400 shares of Mica-Tech’s outstanding common stock for an aggregate
price of $800,000. The Company capitalized $70,000 in acquisition
cost.




On
February 19, 2008, the Company entered into an agreement and plan of merger
to acquire the remaining interest in Mica-Tech or 49% of the outstanding common
stock of Mica-Tech. Under the terms of the agreement, a wholly-owned subsidiary
of the Company would merge with Mica-Tech. Following the merger, Mica-Tech would
become wholly-owned by the Company. Mica-Tech and its major shareholders
provided customary representations and warranties regarding due authority, good
standing, operations, and financial conditions.




13


The
Mica-Tech shareholders in the aggregate received $1,000 for their Mica-Tech
common stock. In addition, the Company granted approximately 109,000 options to
purchase Company common stock to Larry Janssen, and other current employees of
Mica-Tech at the Company common stock trading price on February 19, 2008.
The Company granted 1,200,000 options to purchase Company common stock to Steven
Ow at the Company common stock trading price on February 19, 2008. Another
shareholder, Jeff Romney was granted a warrant to purchase 816 shares of Company
common stock. None of the options and warrants is exercisable until certain
revenue conditions of Mica-Tech are satisfied.




A summary
of the assets acquired and liabilities assumed in the acquisition
follows:




February 19,
      2008Cash
            
            $
            40,000Receivables,
      net
            
            
            121,000Inventory
            
            
            286,000Property
      and equipment, net
            
            
            48,000Prepaid
      assets
            
            
            23,000Intangible
      assets
            
            
            3,158,000Total
      assets acquired
            
            $
            3,676,000Current
      liabilities
            
            
            (1,089,000
            )Notes
      payable
            
            
            (583,000
            )Net
      assets acquired
            
            $
            2,004,000Consideration
      paid in:Cash
            
            
            801,000Capitalization
      of acquisition cost
            
            
            70,000Loss
      from operations from April 11, 2007—February 19, 2008
            
            
            (484,000
            )Negative
      Goodwill
            
            $
            (1,617,000
            )




The
acquisition of Mica Tech by the Company resulted in negative goodwill of
$1,617,000, which was allocated against the intangible assets of the
Company.




Of the
$1,540,000 in acquired intangible assets from the Mica-Tech acquisition, $84,000
was assigned to Customer Relationship (6-year useful life), $1,416,000 to
Existing Technology (15-year useful life), and $40,000 to Trademarks and Brand
Name (15-year useful life). All items stated are subject to
amortization.




12.
            Major
      customers and vendors





Three
customers provided 44.9% and 25.8% of net revenue for the three months ended
June 30, 2008 and 2007, respectively.  Total accounts receivable due
from these customers was approximately $376,000 as of June 30,
2008.





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





Three
vendors accounted for 40.9% and 34.1% of the Company’s net purchases for the
three months ended June 30, 2008 and 2007, respectively.  Total
accounts payable due to these vendors was $91,000 as of June 30,
2008.





13.
            Reclassifications





Certain
comparative amounts have been reclassified to conform to the current period’s
presentation.







14


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





Some of
the statements made by us in this Quarterly Report on Form 10-Q are
forward-looking in nature, including but not limited to, statements relating to
our future revenue, product development, demand, acceptance and market share,
gross margins, levels of research and development, our management's plans and
objectives for our current and future operations, and other statements that are
not historical facts.  Forward-looking statements include, but are not
limited to, statements that are not historical facts, and statements including
forms of the words "intend", "believe", "will", "may", "could", "expect",
"anticipate", "plan", "possible", and similar terms. Actual results could differ
materially from the results implied by the forward looking statements due to a
variety of factors, many of which are discussed throughout this Quarterly Report
and particularly in the section titled “Additional Factors That May Affect
Future Results” which is included in the section titled “Management’s Discussion
and Analysis or Plan of Operation”. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof.  We undertake no obligation to publicly release any revisions
to these forward-looking statements that may reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated
events.  Factors that could cause actual results to differ materially
from those expressed in any forward-looking statement made by us include, but
are not limited to:





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


·
              our
      ability to attract and retain qualified, knowledgeable
      employees;


·
              the
      impact of general economic conditions on our
  business;


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


·
              the
      limited number of potential customers for our
  products;


·
              the
      variability in gross margins on our
products;


·
              our
      ability to design and market new products
  successfully;


·
              our
      failure to acquire new customers in the
future;


·
              deterioration
      of business and economic conditions in our
  markets;


·
              intensely
      competitive industry conditions with increasing price competition;
      and


·
              the
      rate of growth in the defense
markets.





In this
document, the words "we," "our," "ours," and "us" refer to AML Communications,
Inc. and our sub division, Microwave Power, Inc. and our wholly owned
subsidiary, Mica-Tech, Inc.





Overview





Our
business is comprised of three reportable segments, AML Communications, Inc.
(“AML”), Microwave Power, Inc. (“MPI”), and Mica-Tech, Inc
(“Mica-Tech”).  AML and MPI design, manufacture, and market RF and
microwave amplifiers and subsystems serving, primarily, the Defense Electronic
Warfare Market.  AML and MPI represented 77.7% and 14.5% of our 2008
net revenue, respectively. Mica-Tech designs, manufactures, and markets an
intelligent communication system to provide Supervisory Control and Data
Acquisition (SCADA) of the electric power grid. Mica-Tech represented 7.8% of
our 2008 net revenue.





Our AML
segment includes low noise, power amplifiers and integrated sub assemblies with
frequencies that range from 50 kHz to 26 GHz.  In February 2001, we
made a strategic decision to focus our resources on the defense
markets.  As such, we moved rapidly to utilize our knowledge base in
defense microwave related design and manufacturing to offer new products, as
well as variations of existing products.  The results of this strategy
have been an increase in revenues for defense related products, from $3.7
million in fiscal 2003 to $9.9 million in fiscal 2008.





We
consider the AML segment to be our core business since it has a larger revenue
base, and investments have been made in this segment that address long term
growth.  We devote most of our management time and other resources to
improving the prospects for this segment.  Most of our sales and
marketing expenses are from the AML segment.  The majority of our
research and development spending is dedicated to this segment as
well.





Our MPI
segment includes solid state microwave amplifiers operating in the frequency
range from 1 to 40 GHz with output power from 10mW to 500 W.  In June
2004, we acquired MPI and have since operated it as a division of
AML.  The MPI division operates independently, with its own marketing,
production, and general management team. We continue to expand MPI’s managerial
and technical capabilities to address the potential for growth of this
division.


15





Our
Mica-Tech segment designs and manufactures the UltraSatNet, an Intelligent
Satellite Utility Communication Solution for the monitoring and control of power
grid distribution.  Following the acquisition in February 2008, the
company has focused on the Demand Response market. Mica-Tech’s Demand Response
Program is an intelligent energy management program that allows businesses to
lower their energy costs and earn cash incentives. Mica-Tech’s customers realize
savings on their energy costs and additionally earn cash by simply agreeing to
reduce peak period electricity consumption a few times during the year to help
stabilize the electric grid. Our customers are paid regardless of whether the
reduction in peak electricity consumption is called for. To facilitate close
contact with developments and to reduce operating costs, we have relocated the
Mica-Tech operation to the AML Camarillo headquarters in May 2008.




Results of
Operations




Three
Months Ended June 30, 2008 Compared to Three Months Ended June 30,
2007




Net sales.Net
sales for the three months ended June 30, 2008 were approximately $3.3 million,
as compared to net sales of approximately $2.7 million for the three months
ended June 30, 2007, an increase of approximately $557,000 or 20.6%. AML’s
revenues increased by $463,000 or 20.6% due to commencement of production for
the large program orders received during fiscal year 2008. Our participation in
new programs and the addition of new customers increased during the
quarter.  MPI and Mica-Tech contributed $488,000 and $70,000,
respectively, to our total sales during this quarter.




Gross profit.  Gross profit
for the three months ended June 30, 2008 was approximately $1.5 million, or
45.3% of net sales, compared to a gross profit of $1.2 million, or 42.8% of net
sales for the three months ended June 30, 2007.  Recent acquisition of
automated equipment, coupled with the reduction in manual operations, has
enhanced our ability to increase shipments with reduced costs and improved
manufacturing efficiencies.




Selling, general and administrative
costs.Selling, general, and administrative costs were
$734,000, or 22.5% of net sales, for the three months ended June 30, 2008, as
compared to $784,000, or 29.0% of net sales, for the three months ended June 30,
2007.  Mica-Tech’s administrative cost has been reduced by $104,000,
as compared to the same period of the last year, mainly due to decrease in
payroll related expenses and amortization expense on its intangible assets. To
reduce operating costs, we have relocated the Mica-Tech operation to the AML
facility in May 2008.




Research and development
costs.Research and development costs were $481,000, or 14.8%
of net sales, for the three months ended June 30, 2008, as compared to $575,000,
or 21.3% of net sales, for the three months ended June 30,
2007.  Change in R&D costs for both AML and MPI is insignificant
compared to the same period of the last year. Mica-Tech’s R&D expenses are
reduced by $93,000, mainly due to a reduction in payroll related expenses and
outside consulting expenses.




Other
Income  net.Other income was $488,000 for the three
months ended June 30, 2008, compared to other expense of $5,000 for the three
months ended June 30, 2007. During the quarter, Mica-Tech realized a special
gain of $521,000 from the settlement of a promissory note. This is considered a
one-time event.




Provision for income taxes.
During the quarter, the company utilized its deferred tax assets reserve to
record income tax expenses of $300,000. The company has no tax liability at the
end of the quarter due to the deferred tax benefits accounted for in the prior
years. We recorded a provision of $7,000 for federal and state AMT taxes for the
three months ended June 30, 2007.




Net
income(loss).Net income was $451,000, or $0.04 per share, for
the three months ended June 30, 2008, compared to a net loss of $46,000, or
$0.00 per share, for the three months ended June 30, 2007.




Liquidity and Capital
Resources





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





16


At June
30, 2008, AML had a line of credit agreement with Bridge Bank. On
August 15, 2006, we signed a Business Financing Modification 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. On April 5, 2007, we modified this agreement to add a
new $600,000 equipment term loan to our existing line of credit and then
increased this term loan by an additional $300,000 for a total of $900,000 on
June 22, 2007. 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 0.25% with respect to cash
advances and a rate of such prime rate plus 3.0% with respect to equipment
advances and the additional equipment term loans. We are obligated to pay a
facility fee of $5,000 (0.50% of the facility amount) for the first year of the
agreement and $2,500 the second year. We must maintain certain financial
requirements, including a minimum Asset Coverage Ratio of 1.50 to 1.00 beginning
with the month ending October 31, 2007 and monthly thereafter. We are also
required to stay within 80% of our planned quarterly revenue. We were in
compliance with these requirements at March 31, 2008; however, there is no
assurance that we will be in compliance at future dates. This agreement to
provide cash advances against accounts receivables terminates on August 15,
2008 or upon a date that the bank or AML chooses to terminate the agreement. Any
unpaid balance is due and payable pursuant to the agreement on the termination
date. If the agreement was terminated within the first 12 months following
its execution on July 17, 2006, we would have been required to pay an early
termination fee of 1.0% of the credit facility amount under the terms of the
agreement. At June 30, 2008, we had an outstanding balance of $0 under the
accounts receivable agreement and $719,000 under the equipment financing
agreement. The three equipment term loans mature on November 30, 2008,
July 31, 2009, and March 31, 2010. Our remaining borrowing capacity is
approximately $1,000,000 under the accounts receivable agreement and $0 under
the equipment financing agreement as the availability period for the equipment
term loans has expired as of October 7, 2007.




At June
30, 2008, we had $977,000 in cash and cash equivalents.  For the three
months ended June 30, 2008, our operating activities used cash of approximately
$88,000, as compared to $1.4 million in cash used in our operating activities
for the three months ended June 30, 2007.  Net cash used in investing
activities, primarily for the acquisition of production equipment, amounted to
$35,000 for the three months ended June 30, 2008 and $81,000 for the three
months ended June 30, 2007.  Net cash used in financing activities was
$105,000 for the three months ended June 30, 2008, as compared to $21,000 in
cash provided by our financing activities for the three months ended June 30,
2007.





We anticipate capital expenditures of
approximately $900,000 in fiscal year 2009.  We believe that funds for
these expenditures will be provided by our operating
activities.  However, we may choose to finance some of these
expenditures through our financing agreement with Bridge Bank.  At
June 30, 2008, our remaining borrowing capacity under this agreement was
$1,000,000.





In addition to the funds we raised in
July 2003, we may attempt to procure additional sources of financing in the
event that the capital available as of June 30, 2008 is insufficient for our
operating needs and capital expenditures. These sources may include, but are not
limited to, additional sales of our securities.  There are, however,
no assurances that we will be able to successfully obtain additional financing
at terms acceptable to us.  Failure to obtain such financing could
have a material adverse effect on our ability to operate as a going
concern.





Successful completion of our
development program and attaining profitable operations are dependent upon our
maintaining a level of sales adequate to support our cost
structure.  In addition, realization of a major portion of the assets
in the accompanying balance sheet is dependent upon our ability to meet our
financing requirements and the success of our plans to sell our
products.  The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
amounts and classifications of liabilities that might be necessary should we be
unable to continue in existence.





Critical Accounting
Policies




Our
discussion and analysis of our financial conditions and results of operations
are based upon our financial statements, which have been prepared in accordance
with generally accepted accounting principles in the United States. The
preparation of financial statements requires managers to make estimates and
disclosures on the date of the financial statements.  On an on-going
basis, we evaluate our estimates, including, but not limited to, those related
to revenue recognition.  We use authoritative pronouncements,
historical experience, and other assumptions as the basis for making
judgments.  Actual results could differ from those
estimates.  We believe that the following critical accounting policies
affect our more significant judgments and estimates in the preparation of our
financial statements.





17


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





·
              Persuasive
      evidence of an arrangement
exists;


·
              Delivery
      has occurred or services have been
rendered;


·
              Price is fixed or
      determinable; and


·
              Collectibility
      is reasonably assured.





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





Recording
revenue from the sale of products involves the use of estimates and management
judgment.  We must make a determination at the time of sale whether
the customer has the ability 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 in making our
assessment, the determination of whether collectibility is reasonably assured is
ultimately a judgment decision that must be made by management.





Allowance for Doubtful
Accounts.  We maintain an allowance for doubtful accounts
receivable based on customer-specific allowances, as well as a general
allowance.  Specific allowances are maintained for customers that are
determined to have a high degree of collectibility risk based on such factors,
among others, as: (i) the aging of the accounts receivable balance; (ii) the
customer’s past payment experience; and (iii) a deterioration in the customer’s
financial condition, evidenced by weak financial condition and/or continued poor
operating results, reduced credit ratings, and/or a bankruptcy
filing.  In addition to the specific allowance, we maintain a general
allowance for all our accounts receivables which are not covered by a specific
allowance.  The general allowance is established based on such
factors, among others, as: (i) the total balance of the outstanding accounts
receivable, including considerations of the aging categories of those accounts
receivable; (ii) past history of uncollectible accounts receivable write-offs;
and (iii) the overall creditworthiness of the customer base.  A
considerable amount of judgment is required in assessing the realizability of
accounts receivables.  Should any of the factors considered in
determining the adequacy of the overall allowance change, an adjustment to the
provision for doubtful accounts receivable may be necessary.




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





Intangible
Assets.  We test intangible assets with indefinite lives for
impairment on an annual basis or more frequently if certain events
occur.  If the assets are considered to be impaired, the impairment to
be recognized will be measured by the amount in which 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 the costs of the assets over their useful lives and assess impairment
at least annually or whenever events and circumstances suggest the carrying
value of an asset may not be recoverable.  Determining the life of the
assets with finite lives is judgmental in nature and involves the use of
estimates and assumptions.  These estimates and assumptions involve a
variety of factors, including future market growth and conditions, forecasted
revenues and costs and a strategic review of our business and
operations.  We base our fair value estimates on assumptions we
believe to be reasonable but that are unpredictable and inherently
uncertain.  Actual future results may differ from those
estimates.  In the event we determine that an intangible asset is
impaired in the future, an adjustment to the value of the asset would be charged
to earnings in the period such determination is made.


18





Existing
Technology.Our existing technology is based on a patent
issued in 1990, which continues to be the main technology of MPI.  It
is a substrate deposition technology that is mature and with no replacement
technology forecasted.





Additional Factors That May
Affect Future Results





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




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




·
            our
      ability to timely develop and produce commercially viable products at
      competitive prices;




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




·
            our
      ability to accurately anticipate customer
  demand;




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




·
            the
      availability and cost of
components;




·
            the
      impact of worldwide economic and political conditions on our business;
      and




·
            the
      ability to integrate potential future acquisitions into our existing
      operations.




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




We have
evaluated the credit exposure associated with conducting business with foreign
customers and have concluded that such risk is acceptable. Nevertheless, any
significant change in the economy or deterioration in United States trade
relations or the economic or political stability of foreign markets could have a
material adverse effect on our business, results of operations, and financial
condition.




Sales to
foreign customers are invoiced in U.S. dollars. Accordingly, we currently
do not engage in foreign currency hedging transactions. However, as we expand
further into foreign markets, we may experience greater risk associated with
general business, political and economic conditions in those markets. At such
time, we may seek to lessen our exposure through currency hedging transactions.
We cannot assure you that a currency hedging strategy would be successful in
avoiding currency exchange related losses. In addition, should the relative
value of the U.S. dollar in comparison to foreign currencies increase, the
resulting increase in the price of our products to foreign customers could
result in decreased sales which could have a material adverse impact on our
business, results of operations, and financial condition.




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




19


The
markets in which we compete are characterized by rapidly changing technology and
continuous improvements in products and services. Our future success depends on
our ability to enhance our current products and to develop and introduce, in a
timely manner, new products that keep pace with technological developments that
meet or exceed industry standards, which compete effectively on the basis of
price, performance and quality, that adequately address OEM customer and
end-user customer requirements, and that achieve market acceptance. We believe
that to remain competitive in the future we will need to continue to develop new
products, which will require the investment of significant financial resources
in new product development. In the event our newly developed products are not
timely developed or do not gain market acceptance, our business, results of
operations and financial condition could be materially adversely
affected.




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




Item
3.   Quantitative and Qualitative Disclosures About Market
Risk





Not Applicable.





Item
4.   Controls and Procedures





Disclosure
Controls and Procedures




Our
management, with the participation of our Chief Executive Officer and Director
of Finance, has evaluated the effectiveness of the Company’s disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as
of the end of the period covered by this Report (June 30, 2008). Based on such
evaluation, our Chief Executive Officer and Director of Finance have concluded
that, as of the end of such period, the Company’s disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act and are effective in
ensuring that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the Company’s management, including the Company’s Chief Executive Officer and
Director of Finance, as appropriate to allow timely decisions regarding required
disclosure.




Changes
in Internal Control Over Financial Reporting




There
have been no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the first quarter of fiscal year 2009 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.







20


PART
II – OTHER INFORMATION




Item
      1.
            Legal
      Proceedings




Not
Applicable.




Item
      1A.
            Risk
      Factors




Not
Applicable.




Item
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds





Not
Applicable.




Item
      3.
            Defaults
      Upon Senior Securities




Not
Applicable.




Item
      4.
            Submission
      of Matters to a Vote of Security
Holders




Not
Applicable.




Item
      5.
            Other
      Information




Not
Applicable.




Item
      6.
            Exhibits





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




















21


SIGNATURES





Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.





AML
      Communications Inc./s/:
      Jacob InbarBy:
      Jacob Inbar, President and
              Chief
      Executive Officer
              (Principal
      Executive Officer)
            Dated:  August
      13, 2008








/s/:
      Heera LeeBy:
      Heera Lee, Director of Finance
              (Principal
      Financial Officer)
            Dated:  August
      13, 2008





















22






EXHIBIT
INDEX
 
 Exhibit
                Number
              
              Description2.1
              
              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)10.4
              
              Loan
      and Security Agreement dated November 10, 2000 between the Company
      and Silicon Valley Bank(4)10.5
              
              Intellectual
      Property Security Agreement dated November 10, 2000 between the
      Company and Silicon Valley Bank(4)10.6
              
              Warrant
      to purchase stock dated November 9, 2000 between the Company and
      Silicon Valley Bank(4)10.7
              
              Accounts
      Receivable Purchase Agreement dated November 20, 2001 between AML
      Communications, Inc. and Silicon Valley Bank(5)10.8
              
              Promissory
      Note dated December 30, 2001 between Tiberiu, Mazilu, and AML
      Communications Inc.(5)10.9
              
              Accounts
      Receivable Purchase Modifications Agreement dated September 24, 2003
      between Silicon Valley Bank and AML Communications(6)10.10
              
              Form of
      Promissory Note date July 16, 2003 between the Company and the
      following: Jacob Inbar, Tiberiu Mazilu, Edwin McAvoy, Gerald Starek, Bob
      M. Hawkins, and The Oliver Family
Trust(6)
 10.11
              
              Form of
      Warrant dated July 16, 2003 between the Company and the following:
      Jacob Inbar, Tiberiu Mazilu, Edwin McAvoy, Gerald Starek, Bob M. Hawkins,
      and The Oliver Family Trust(6)10.12
              
              Fourth
      Amended and Restated 1995 Stock Option Agreement at June 10,
      2002(7)10.13
              
              Parr-Bohn
      Properties First Amendment to lease of 1000 Avenida Acaso, Camarillo,
      CA.(7)10.14
              
              Employment
      Agreement with Dr. Marina Bujatti, of MPI, dated June 18,
      2004(7)10.15
              
              Employment
      Agreement with Dr. Franco Sechi, of MPI, dated June 18,
      2004(7)10.16
              
              Interim
      Lease and Proposed Lease Terms(8)10.17
              
              Financing
      Agreement dated July 8, 2004 with Bridge Bank(9)10.18
              
              Enterprise
      Agreement Number 4627 dated August 26, 2004(10)10.19
              
              Business
      Financing Modification with Bridge Bank, dated December 23,
      2005(11)10.20
              
              Business
      Financing Modification with Bridge Bank dated
      January 19,2006(11)10.21
              
              Fifth
      Amended and Restated 1995 Stock Option Agreement at July 12,
      2005(12)10.22
              
              Loan
      Agreement with Bank of America for purchase of MPI
      building(11)10.23
              
              2005
      Equity Incentive Plan(13)10.24
              
              Business
      Financing Agreement with Bridge Bank dated July 17,
      2006(14)10.25
              
              Stock
      Purchase Agreement with Mica-Tech, dated April 11,
      2007(15)10.26
              
              Option
      Agreement with shareholders and optionholders of Mica-Tech, dated
      April 11, 2007(15)10.27
              
              Agreement
      and Plan of Merger by and among AML Communications, Inc.,
      Mica-Tech, Inc., Mica-Tech Acquisition, Inc. and the
      shareholders of Mica-Tech, Inc. dated as of February 19,
      2008(16)10.28
              
              Option
      Agreement—Steven Ow, dated February 19, 2008(16)10.29
              
              Parr-Bohn
      Properties Second Amendment to lease of 1000 Avenida Acaso, Camarillo, CA,
      dated February 20, 2008(17).10.30
              
              Business
      Financing Modification with Bridge Bank, dated April 5,
      2007(17)31.1
              
              Certification
      by the Chief Executive Officer(18)31.2
              
              Certification
      by the Director of Finance(18)32.1
              
              Certification
      pursuant to Section 906 of the Sarbanes Oxley
  Act(18)32.2
              
              Certification
      pursuant to Section 906 of the Sarbanes Oxley
  Act(18)
   (1)
                Previously
      filed with the Securities and Exchange Commission as Exhibit 10.13 to
      the Company’s Form 10-KSB for the fiscal year ended March 31,
      2004.
  (2)
                Previously
      filed with the Securities and Exchange Commission 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 Commission as an exhibit to the
      Company’s Form 10-KSB for fiscal year ended March 31, 1996 and
      incorporated herein by reference
  (4)
              Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-QSB for the quarter ended September 30, 2000
      and incorporated herein by
reference.
  (5)
              Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-QSB for the quarter ended December 31, 2001
      and incorporated herein by
reference.
  (6)
              Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-QSB for the quarter ended September 30, 2003 and
      incorporated herein by reference.
  (7)
              Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-KSB for the fiscal year ended March 31, 2004
      and incorporated herein by
reference.
  (8)
              Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 8-K dated July 6, 2004 and incorporated herein by
      reference.
  (9)
              Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-QSB for the quarter ended June 30, 2004 and
      incorporated herein by reference.
  (10)
                Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 8-K/A dated May 4, 2007 (unredacted version) and
      incorporated herein by
reference.
  (11)
              Previously
      filed with Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-QSB for the quarter ended December 31, 2005
      and incorporated herein by
reference.
  (12)
                Previously
      filed with the Securities and Exchange Commission as an attachment to the
      Company’s Proxy Statement dated July 29,
  2005.
  (13)
                Previously
      filed with Securities and Exchange Commission as an exhibit to the
      Company’s Form S-8 Registration Statement (no. 333-131588) dated
      February 6, 2006 and incorporated herein by
  reference.
  (14)
                Previously
      filed with Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-QSB for the quarter ended June 30, 2006 and
      incorporated herein by
reference.
  (15)
                Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 8-K dated April 20, 2007 and incorporated herein
      by reference.
  (16)
                Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 8-K dated March 3, 2008 and incorporated herein
      by reference.
  (17)
                Previously
      filed with the Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-KSB for the fiscal year ended March 31, 2008
      and incorporated herein by
reference.
  (18)
                Filed
      herewith.