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:            September 30,
2009





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:               000-27250





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 þNo o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period than the
registrant was required to submit and post such files).  Yes 
o 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 November 9, 2009: 10,671,415 shares








AML
      Communications, Inc.Index
      to Form 10-Q
              September
      30, 2009Item
      1.
            Financial
      Statements (Unaudited)
            3Unaudited
      Consolidated Balance Sheet as of September 30, 2009 and Consolidated
      Balance Sheet as of March 31, 2009
            3Unaudited
      Consolidated Income Statements for the six month periods ended September
      30, 2009 and September 30, 2008
            4Unaudited
      Consolidated Statements of Cash flows for the six month periods ended
      September 30, 2009 and September 30, 2008
            5Notes
      to Unaudited Consolidated Financial Statements
            6Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            17Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            24Item
      4.
            Controls
      and Procedures
            24Part
      II
            Other
      InformationItem
      1.
            Legal
      Proceedings
            25Item
      1A.
            Risk
      Factors
            25Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            25Item
      3.
            Defaults
      Upon Senior Securities
            25Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            25Item
      5.
            Other
      Information
            26Item
      6.
            Exhibits
            26SIGNATURES
            27


2





PART
I - FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements


AML
COMMUNICATIONS, INC.


CONSOLIDATED
BALANCE SHEET


UNAUDITED




September
      30,
                      2009
                    
                    
                    March
      31, 2009ASSETSCurrent
      Assets:Cash
      and cash equivalents
                    
                    $
                    2,079,000
                    
                    
                    $
                    1,581,000Accounts
      receivable, net
                    
                    
                    2,888,000
                    
                    
                    
                    2,367,000Inventories,
      net
                    
                    
                    3,640,000
                    
                    
                    
                    3,290,000Note
      receivable
                    
                    
                    -
                    
                    
                    
                    7,000Prepaid
      expenses
                    
                    
                    208,000
                    
                    
                    
                    189,000Deferred
      tax asset - current
                    
                    
                    482,000
                    
                    
                    
                    867,000Total
      current assets
                    
                    
                    9,297,000
                    
                    
                    
                    8,301,000Property
      and equipment, at cost
                    
                    
                    7,347,000
                    
                    
                    
                    7,313,000Less:
      Accumulated depreciation
                    
                    
                    (5,233,000
                    )
                    
                    
                    (5,229,000
                    )Property
      and equipment, net
                    
                    
                    2,114,000
                    
                    
                    
                    2,084,000Deferred
      tax asset
                    
                    
                    3,916,000
                    
                    
                    
                    3,916,000Intangible
      Assets:Technologies,
      net
                    
                    
                    1,680,000
                    
                    
                    
                    1,778,000Patents,
      net
                    
                    
                    63,000
                    
                    
                    
                    75,000Customer
      relationship, net
                    
                    
                    37,000
                    
                    
                    
                    41,000Trademarks
      and brand names
                    
                    
                    203,000
                    
                    
                    
                    203,0001,983,000
                    
                    
                    
                    2,097,000Deposits
                    
                    
                    38,000
                    
                    
                    
                    33,000Total
      Assets
                    
                    $
                    17,348,000
                    
                    
                    $
                    16,431,000LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      Liabilities:Line
      of credit
                    
                    $
                    329,000
                    
                    
                    $
                    496,000Accounts
      payable
                    
                    
                    1,060,000
                    
                    
                    
                    854,000Current
      portion of long term debt
                    
                    
                    75,000
                    
                    
                    
                    58,000Short
      term note payable
                    
                    
                    47,000
                    
                    
                    
                    -Accrued
      expenses:Accrued
      payroll and payroll related expenses
                    
                    
                    716,000
                    
                    
                    
                    659,000Other
      accrued liabilities
                    
                    
                    235,000
                    
                    
                    
                    242,000Total
      current liabilities
                    
                    
                    2,462,000
                    
                    
                    
                    2,309,000Long
      term notes payable, net of current portion
                    
                    
                    587,000
                    
                    
                    
                    594,000Capital
      lease obligations, net of current portion
                    
                    
                    140,000
                    
                    
                    
                    -Commitments
                    
                    
                    -
                    
                    
                    
                    -Stockholders’
      Equity:Common
      stock, $0.01 par value: 15,000,000 shares authorized; 10,654,665 and
      10,654,665 shares issued and outstanding at September 30, 2009 and March
      31, 2009, respectively. 38,600 shares held in treasury as of September 30,
      2009
                    
                    
                    106,000
                    
                    
                    
                    106,000Capital
      in excess of par value
                    
                    
                    14,113,000
                    
                    
                    
                    14,034,000Accumulated
    deficit
                    
                    
                    (33,000
                    )
                    
                    
                    (612,000
                    )Less: Treasury stock at
      cost
                    
                    
                    (27,000
                    )
                    
                    
                    -Total
      stockholders’ equity
                    
                    
                    14,159,000
                    
                    
                    
                    13,528,000Total
      Liabilities and stockholders’ equity
                    
                    $
                    17,348,000
                    
                    
                    $
                    16,431,000


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


3


AML
COMMUNICATIONS, INC.


CONSOLIDATED
STATEMENTS OF INCOME


(Unaudited)





Three
      Month Periods Ended
                  
                  
                  Six
      Month Periods EndedSeptember
      30,
                  
                  
                  September
      30,
                  
                  
                  September
      30,
                  
                  
                  September
      30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      sales
                  
                  $
                  4,457,000
                  
                  
                  $
                  3,437,000
                  
                  
                  $
                  7,808,000
                  
                  
                  $
                  6,697,000Cost
      of goods sold
                  
                  
                  2,204,000
                  
                  
                  
                  1,936,000
                  
                  
                  
                  4,175,000
                  
                  
                  
                  3,718,000Gross
      profit
                  
                  
                  2,253,000
                  
                  
                  
                  1,501,000
                  
                  
                  
                  3,633,000
                  
                  
                  
                  2,979,000Operating
      expenses:Selling,
      general & administrative
                  
                  
                  854,000
                  
                  
                  
                  730,000
                  
                  
                  
                  1,547,000
                  
                  
                  
                  1,465,000Research
      and development
                  
                  
                  567,000
                  
                  
                  
                  500,000
                  
                  
                  
                  1,102,000
                  
                  
                  
                  981,000Total
      operating expenses
                  
                  
                  1,421,000
                  
                  
                  
                  1,230,000
                  
                  
                  
                  2,649,000
                  
                  
                  
                  2,446,000Income
      from operations
                  
                  
                  832,000
                  
                  
                  
                  271,000
                  
                  
                  
                  984,000
                  
                  
                  
                  533,000Gain
      on settlement of debt
                  
                  
                  -
                  
                  
                  
                  45,000
                  
                  
                  
                  -
                  
                  
                  
                  567,000Other
      income/(Interest & other expense), net
                  
                  
                  (22,000
                  )
                  
                  
                  (26,000
                  )
                  
                  
                  (20,000
                  )
                  
                  
                  (60,000
                  )Total
      other income (expense)
                  
                  
                  (22,000
                  )
                  
                  
                  19,000
                  
                  
                  
                  (20,000
                  )
                  
                  
                  507,000Income
      before provision for income taxes
                  
                  
                  810,000
                  
                  
                  
                  290,000
                  
                  
                  
                  964,000
                  
                  
                  
                  1,040,000Provision
      for income taxes
                  
                  
                  324,000
                  
                  
                  
                  117,000
                  
                  
                  
                  385,000
                  
                  
                  
                  416,000Net
      income
                  
                  $
                  486,000
                  
                  
                  $
                  173,000
                  
                  
                  $
                  579,000
                  
                  
                  $
                  624,000Basic
      earnings per common share
                  
                  $
                  0.05
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.06Basic
      weighted average number of shares of common stock
    outstanding
                  
                  
                  10,616,000
                  
                  
                  
                  10,583,000
                  
                  
                  
                  10,627,000
                  
                  
                  
                  10,503,000Diluted
      earnings per common share
                  
                  $
                  0.05
                  
                  
                  $
                  0.02
                  
                  
                  $
                  0.05
                  
                  
                  $
                  0.06Diluted
      weighted average number of shares of common stock
    outstanding
                  
                  
                  10,719,000
                  
                  
                  
                  10,770,000
                  
                  
                  
                  10,702,000
                  
                  
                  
                  10,902,000





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


4


AML COMMUNICATIONS,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Six
      Month Periods EndedSeptember
      30,
                                2009
                              
                              
                              September
      30,
                                2008Cash
      Flows from Operating Activities:Net
      income
                              
                              $
                              579,000
                              
                              
                              $
                              624,000Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
                              
                              
                              326,000
                              
                              
                              
                              347,000Bad
      debt expense
                              
                              
                              (3,000
                              )
                              
                              
                              4,000Inventory
      reserves
                              
                              
                              39,000
                              
                              
                              
                              (67,000
                              )Stock
      options compensation
                              
                              
                              79,000
                              
                              
                              
                              65,000Amortization
                              
                              
                              114,000
                              
                              
                              
                              136,000Gain
      on settlement of debt
                              
                              
                              —
                              
                              
                              
                              (567,000
                              )Gain
      on sale of fixed assets
                              
                              
                              (20,000
                              )
                              
                              
                              —Changes
      in assets and liabilities:Decrease
      (increase) in:Accounts
      receivable
                              
                              
                              (516,000
                              )
                              
                              
                              60,000Inventories
                              
                              
                              (390,000
                              )
                              
                              
                              (409,000
                              )Other current
      assets
                              
                              
                              (19,000
                              )
                              
                              
                              (18,000
                              )Deferred
      Tax Assets
                              
                              
                              385,000
                              
                              
                              
                              416,000Increase
      (decrease) in:Accounts
      payable
                              
                              
                              205,000
                              
                              
                              
                              (185,000
                              )Accrued
      income taxes
                              
                              
                              —
                              
                              
                              
                              (27,000
                              )Accrued
      expenses
                              
                              
                              51,000
                              
                              
                              
                              (317,000
                              )Net
      cash provided by operating activities
                              
                              
                              830,000
                              
                              
                              
                              62,000Cash
      Flows from Investing Activities:Acquisition
      of property and equipment
                              
                              
                              (115,000
                              )
                              
                              
                              (64,000
                              )Net
      cash used in investing activities
                              
                              
                              (115,000
                              )
                              
                              
                              (64,000
                              )Cash
      Flows from Financing Activities:Cost
      of treasury stock
                              
                              
                              (27,000
                              )
                              
                              
                              —Proceeds from
      (payments on) line of credit
                              
                              
                              (168,000
                              )
                              
                              
                              (197,000
                              )Payments on notes
      payable
                              
                              
                              (4,000
                              )
                              
                              
                              (14,000
                              )Proceeds
      from exercise of stock options
                              
                              
                              —
                              
                              
                              
                              45,000Principle
      payments capital lease obligations
                              
                              
                              (18,000
                              )
                              
                              
                              —Net
      cash used in financing activities
                              
                              
                              (217,000
                              )
                              
                              
                              (166,000
                              )Net
      increase (decrease) in Cash and Cash Equivalents
                              
                              
                              498,000
                              
                              
                              
                              (168,000
                              )Cash
      and Cash Equivalents, beginning of period
                              
                              
                              1,581,000
                              
                              
                              
                              1,205,000Cash
      and Cash Equivalents, end of period
                              
                              $
                              2,079,000
                              
                              
                              $
                              1,037,000Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Interest
                              
                              $
                              42,000
                              
                              
                              $
                              62,000Income
      Taxes
                              
                              $
                              40,000
                              
                              
                              $
                              25,000Supplemental
      disclosure of non-cash flow investing and financing
    activity:Debt
      incurred to acquire property and equipment
                              
                              $
                              219,000
                              
                              
                              $
                              —





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


5




AML
COMMUNICATIONS, INC.


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009





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 six month periods ended September 30, 2009 and September 30,
2008.




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
six-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-K for the fiscal year ended
March 31, 2009.





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.




2.           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.
 
 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.
 
 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.


6




3.           Earnings
Per Share


Statement
of Financial Accounting Standards No. 128, “Earnings per share” (ASC 260)
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 1,904,000 of granted stock options that were
exercisable as of September 30, 2009and approximately 1,809,000 of granted stock options and warrants
exercisable at September 30,
2008.


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





Six months ended September 30, 2009
      (unaudited)
                              
                              Net Income
                              
                              
                              Shares
                              
                              
                              Per ShareBasic
      earnings per shares:Net
      income available to common stockholders
                              
                              $
                              579,000
                              
                              
                              
                              10,627,000
                              
                              
                              $
                              0.05Effect
      of dilutive securities:Stock
      options
                              
                              
                              
                              
                              
                              
                              75,000Diluted
      earnings per share:
                              
                              $
                              579,000
                              
                              
                              
                              10,702,000
                              
                              
                              $
                              0.05Six months ended September 30, 2008
      (unaudited)
                              
                              Net Income
                              
                              
                              Shares
                              
                              
                              Per ShareBasic
      earnings per shares:Net
      income available to common stockholders
                              
                              $
                              624,000
                              
                              
                              
                              10,503,000
                              
                              
                              $
                              0.06Effect
      of dilutive securities:Stock
      options & warrants
                              
                              
                              
                              
                              
                              
                              399,000Diluted
      earnings per share:
                              
                              $
                              624,000
                              
                              
                              
                              10,902,000
                              
                              
                              $
                              0.06




4.          Accounts
Receivable





Accounts
receivable as of September 30, 2009
and March 31, 2009 are as follows:




September
      30, 2009
                        
                        
                        March
      31, 2009(Unaudited)Accounts
      receivable
                        
                        $
                        2,984,000
                        
                        
                        $
                        2,466,000Allowance
      for bad debts
                        
                        
                        (96,000
                        )
                        
                        
                        (99,000
                        )$
                        2,888,000
                        
                        
                        $
                        2,367,000





5.           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:





September
      30, 2009
                        
                        
                        March
      31, 2009(Unaudited)Raw
      material
                        
                        $
                        3,005,000
                        
                        
                        $
                        2,604,000Work-in-process
                        
                        
                        772,000
                        
                        
                        
                        873,000Finished
      goods
                        
                        
                        226,000
                        
                        
                        
                        137,000Allowance
      for slow moving inventory
                        
                        
                        (363,000
                        )
                        
                        
                        (324,000
                        )$
                        3,640,000
                        
                        
                        $
                        3,290,000





6.           Property
& equipment





Property and equipment are 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
              Shorter
      of life of lease or life of improvementBuilding
              30
      years





Depreciation expense was $326,000 and
$347,000 for the six months ended September 30, 2009 and September 30, 2008,
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.


7





Property and equipment as of September
30, 2009 and March 31, 2009 consist of the following:





September
      30, 2009
                      
                      
                      March
      31, 2009(Unaudited)Building
                      
                      $
                      800,000
                      
                      
                      $
                      800,000Machinery
      and equipment
                      
                      
                      5,643,000
                      
                      
                      
                      5,631,000Furniture
      and fixtures
                      
                      
                      208,000
                      
                      
                      
                      192,000Leasehold
      improvements
                      
                      
                      696,000
                      
                      
                      
                      690,000Accumulated
      depreciation
                      
                      
                      (5,233,000
                      )
                      
                      
                      (5,229,000
                      )$
                      2,114,000
                      
                      
                      $
                      2,084,000





7.      Intangible
Assets





The
Company accounts for its intangible assets under the applicable guidelines of
SFAS 142 (ASC 350) “goodwill and other intangible assets” and
SFAS 144 (ASC 360) “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
asset’s value
has diminished. Under SFAS 144 (ASC 360), when deemed necessary, the
Company completes the evaluation of the recoverability of its long-lived assets
by comparing the carrying amount of the assets against the estimated
undiscounted future cash flows associated with them. If such evaluations
indicate that the future undiscounted cash flows of long-lived assets are not
sufficient to recover the carrying value of such assets, the assets are adjusted
to their estimated fair values. Under SFAS 142 (ASC 350) 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. If the assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount exceeds the fair value of the assets. During the six months ended
September 30, 2009, the Company recognized no impairment.





At
September 30, 2009, intangibles consisted of the following:





Intangibles
      (unaudited)
                
                Gross
      Carrying
                  Amount
                
                
                Accumulated
                  Amortization
                
                
                NetAmortized
      intangibles:Patents
                
                $
                189,000
                
                
                $
                (126,000
                )
                
                $
                63,000Existing
      Technology
                
                
                2,504,000
                
                
                
                (824,000
                )
                
                
                1,680,000Customer
      Lists
                
                
                339,000
                
                
                
                (339,000
                )
                
                
                —Customer
      Relationship
                
                
                50,000
                
                
                
                (13,000
                )
                
                
                37,000Trademarks
      and Brand Names
                
                
                24,000
                
                
                
                (2,000
                )
                
                
                22,000Unamortized
      intangibles:Trademarks
                
                
                181,000
                
                
                
                —
                
                
                
                181,000$
                3,287,000
                
                
                $
                (1,304,000
                )
                
                $
                1,983,000




At
March 31, 2009, intangibles consisted of the following:





Intangibles
                  
                  Gross
      Carrying
                    Amount
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  NetAmortized
      intangibles:Patents
                  
                  $
                  189,000
                  
                  
                  $
                  (114,000
                  )
                  
                  $
                  75,000Existing
      Technology
                  
                  
                  2,504,000
                  
                  
                  
                  (726,000
                  )
                  
                  
                  1,778,000Customer
      Lists
                  
                  
                  339,000
                  
                  
                  
                  (339,000
                  )
                  
                  
                  —Customer
      Relationship
                  
                  
                  50,000
                  
                  
                  
                  (9,000
                  )
                  
                  
                  41,000Trademarks
      and Brand Names
                  
                  
                  24,000
                  
                  
                  
                  (2,000
                  )
                  
                  
                  22,000Unamortized
      intangibles:Trademarks
                  
                  
                  181,000
                  
                  
                  
                  —
                  
                  
                  
                  181,000$
                  3,287,000
                  
                  
                  $
                  (1,190,000
                  )
                  
                  $
                  2,097,000


8





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 the 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 and is
subject to an annual impairment testing. Since AML acquired the stock of MPI,
the amortization of separately identified intangibles is not deductible for tax
purposes.  FAS 109 ASC(740) requires the Company to set up a
deferred tax liability for its separately identified intangibles and book the
offset to goodwill.  When the Company was reviewing the purchase price
allocation related to the Mica Tech acquisition during our 2008 fiscal year, it
realized that it should have recorded a goodwill adjustment related to the
separately identified intangibles that were established at the MPI acquisition.
As a result, we recorded a proper adjustment to increase the value of subject
intangible asset by $697,000 and associated amortization expense of $58,000 for
the twelve months ended March 31, 2008 during our 2008 fiscal year. Furthermore,
as per the comments the Company received from the Securities and Exchange
Commission in March 2009, MPI recorded a one time catch-up entry of $162,000 to
book amortization expense associated with the subject intangible assets for the
period of June 19, 2004 through March 31, 2007. This entry was recorded in March
2009.





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 to find out the fair
value of minority interest on the date of 100% acquisition of Mica Tech. The new
fair market values of Mica-Tech’s intangible assets, after any associated tax
adjustments, are reflected on the financial statement. As per the comments the
Company received from the Securities and Exchange Commission in March 2009, the
balance of Mica-Tech’s intangibles and  associated accumulated
amortizations as of March 31, 2008 was reduced by $440,000 to reflect the true
acquisition cost of Mica-Tech’s assets on February 19, 2008. There is no change
in the net book value of the subject intangibles.





During
the preparation of a Federal Income Tax return for the year ended March 31,
2008, the Company determined that Mica Tech had more attributes to be carried
over into the Company’s tax return than were estimated in the FAS 109 ASC(740)
calculation for the year ended March 31, 2008.  As such, this change in
estimation increased the Company’s deferred taxes for the additional attributes,
such as R&D credits and NOL credits, reflected on the Company’s Federal
Income Tax return filed for the year ended March 31, 2008. This tax adjustment
resulted in a reduction in Mica-Tech’s intangibles by $615,000.





Amortization
expense from continuing operation for the six months ended September 30, 2009
was $114,000.  We expect amortization expense for the next five years
to be as follows:





Twelve
      month period ending September 30:2010
                          
                          $
                          228,0002011
                          
                          $
                          228,0002012
                          
                          $
                          220,0002013
                          
                          $
                          205,0002014
                          
                          $
                          199,000


9


8.           Debt
and lease commitments





Line of
credit





At
September 30, 2009, AML had a line of credit agreement with Bridge Bank. On
September 16, 2008, we signed a Business Financing Modification Agreement (the
“Modification Agreement”) with Bridge Bank to renew our line of credit, with a
credit facility of $1.3 million. Of this $1.3 million, $1.0 million
may be used for cash advances against accounts receivables and $0.3 million
may be used for equipment advances. Our ability to borrow under this agreement
varies based upon eligible accounts receivable and eligible equipment purchases.
We are obligated to pay the bank a finance charge at a rate per year equal to
the prime rate, which in no event shall be less than 5.00%, plus 0.25% with
respect to cash advances, and a rate of such prime rate plus 1.0% with respect
to equipment advances. We were obligated to pay a facility fee of $2,500 upon
execution of the Modification Agreement and annually thereafter. We were also
obligated to pay a one-time equipment loan facility fee of $2,500 upon execution
of the Modification Agreement.  We must maintain certain financial
requirements, including a minimum Asset Coverage Ratio of 1.50 to 1.00. We are
also required to stay within 80% of our planned quarterly revenue. We were in
compliance with these requirements at September 30, 2009; 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, 2010
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. At September 30, 2009, we had an outstanding balance of $0 under the
accounts receivable agreement and $280,000 under the equipment financing
agreement, which includes amounts owed under prior lines of credit with Bridge
Bank. 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 loan expired on December 31,
2008.




As of
September 30, 2009, Mica-Tech had a line of credit with Santa Barbara Bank and
Trust and Wells Fargo Bank. At September 30, 2009, the outstanding balance was
$39,000 for the Santa Barbara Bank and Trust line and $10,000 for the Wells
Fargo line. Our remaining borrowing capacity was $0 under the Santa Barbara Bank
and Trust line and $0 under the Wells Fargo line as of September 30,
2009.





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 September 30,
2009 and March 31, 2009, the outstanding note amounted to $600,000 with $13,000
in current portion and $606,000 with $13,000 in current portion,
respectively.





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 is required to make equal monthly payments of $25,000,
which includes a principal and an accrued interest on the remaining principal
balance.  Mica-Tech defaulted on its payments for the last six months
ended September 30, 2009 due to a cash deficiency.  The default was
waived by the lender at no cost. The total amount remaining on the note at
September 30, 2009 was $40,000.  Mica-Tech defaulted on the October
2009 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,
Steven Ow, over a period of time which totaled $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 with 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 was $150,000 in cash, which would be paid by three equal
payments of $40,000 and one last payment of $30,000. As part of settlement, the
Company recorded gain on settlement of debt amounting to $521,000 during the
period ended June 30, 2008. As of September 30, 2009, Mica-Tech paid $130,000
toward the settlement amount and the remaining amount due to Steven Ow was
$20,000 which was part of the last payment.


10




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 expired in October 2008. Total rent
expense under these operating leases was approximately $104,000 and $131,000
during the six months ended September 30, 2009 and 2008,
respectively.





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




Operating
                    LeasesTwelve
      month period ending September 30,2010
                
                $
                209,0002011
                
                
                213,0002012
                
                
                217,0002013
                
                
                222,0002014
                
                
                226,000Thereafter
                
                
                133,000$
                1,220,000





Capital
Lease Obligations




In June 2009, the Company had entered
into a non-cancelable capital lease agreement to acquire test equipment valued
in the aggregate at approximately $245,000. The lease began in June 2009 and
requires thirty-six equal monthly payments of $6,445, plus applicable sales
tax.




Future
      minimum lease payments under the lease for the period ended September 30,
      2009
                          
                          $
                          228,000Less:
      approximate amount representing interest
                          
                          
                          (26,000
                          )Present
      value of minimum lease payments
                          
                          
                          202,000Less:
      current portion
                          
                          
                          (62,000
                          )Non
      current portion
                          
                          $
                          140,000





9.           Equity
Transactions





Stock
Options





The
Company adopted SFAS No. 123 (Revised 2004), Share Based Payment(“SFAS
No. 123R”) (ASC 718), 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 $79,000 or
$0.01 per basic and diluted earnings per share in share-based compensation
expense for the six months ended September 30, 2009 and $65,000 or $0.01 per
basic and diluted earnings per share in share-based compensation expense for the
six months ended September 30, 2008. The fair value of our stock options was
estimated using the Black-Scholes option pricing model.


11





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 1,627,900 shares as of
September 30, 2009. 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 the 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.





Pursuant
to the 2005 Plan, during the six months ended September 30, 2009, the Company
granted 168,500 stock options to the Company’s employees and two external
directors of AML, as follows:





On
September 10, 2009, the Company granted a total of 168,500 stock options to
nineteen employees and two external directors as follows: 85,000 stock options
to three AML’s officers as employee compensation, 53,500 stock options to
sixteen employees as employee compensation and 30,000 non qualified stock
options to two external directors.





Of the
first 85,000 stock options granted, 35,000 stock options have a term of five (5)
years and 50,000 stock options have a term of ten (10) years, measured from the
grant date and shall accordingly expire at the close of business on the
expiration date, unless sooner terminated in accordance with the 2005
Plan.  All of the 85,000 stock options are vested at the rate of
thirty three (33) percent per year over a three year period.





The
second 53,500 stock options have a term of ten (10) years measured from the
grant date and shall accordingly expire at the close of business on the
expiration date, unless sooner terminated in accordance with the 2005
Plan.  These options are vested at the rate of twenty (20) percent per
year over a five year period.





The last
30,000 non qualified stock options granted have a term of ten (10) years
measured from the grant date and shall accordingly expire at the close of
business on the expiration date, unless sooner terminated in accordance with the
2005 Plan.  The options are vested at the rate of twenty-five (25)
percent per year over a four year period.





The
option exercise price is $0.90 for all of the 168,500 stock options granted on
September 10, 2009, which was the fair market value of our common stock at the
time these options were granted.





The
following is a summary of the stock option activity:





Options
                        outstanding
                      
                      
                      Weighted
                        Average
                        Exercise
                        Price
                      
                      
                      Aggregate
                        Intrinsic
      ValueOutstanding,
      March 31, 2009
                      
                      
                      2,924,450
                      
                      
                      $
                      1.07Granted
                      
                      
                      168,500
                      
                      
                      
                      0.90Forfeited
                      
                      
                      71,500
                      
                      
                      
                      1.80Exercised
                      
                      
                      -Outstanding,
      September 30, 2009
                      
                      
                      3,021,450
                      
                      
                      $
                      1.04
                      
                      $
                      -





The
following is a summary of the status of options outstanding at September 30,
2009:


12





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
                      
                      
                      
                      3.44
                      
                      
                      $
                      0.16
                      
                      
                      
                      86,200
                      
                      
                      $
                      0.16$0.51
      - $1.00
                      
                      
                      1,788,750
                      
                      
                      
                      5.98
                      
                      
                      $
                      0.91
                      
                      
                      
                      1,408,500
                      
                      
                      $
                      0.92$1.01
      - $2.00
                      
                      
                      1,130,500
                      
                      
                      
                      7.25
                      
                      
                      $
                      1.29
                      
                      
                      
                      393,416
                      
                      
                      $
                      1.19$2.01
      - $5.00
                      
                      
                      16,000
                      
                      
                      
                      0.69
                      
                      
                      $
                      3.13
                      
                      
                      
                      16,000
                      
                      
                      $
                      3.13$0.11
      - $5.00
                      
                      
                      3,021,450
                      
                      
                      
                      6.30
                      
                      
                      $
                      1.04
                      
                      
                      
                      1,904,116
                      
                      
                      $
                      0.96





For
options granted during the six months ended September 30, 2009, the
weighted-average fair value of such options was $0.56.





The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option- pricing model are as follows:





Stock Options Granted on September 10,
2009:





35,000 stock options with a term of 5
years and three year vesting periods:





Risk-free
      interest rate
                        
                        
                        2.28
                        %Expected
      life of the options
                        
                        3.50
      yearsExpected
      volatility
                        
                        
                        73.41
                        %Expected
      dividend yield
                        
                        
                        0





50,000
stock options with a term of 10 years and three year vesting
periods:





Risk-free
      interest rate
                    
                    
                    3.35
                    %Expected
      life of the options
                    
                    6.00
      yearsExpected
      volatility
                    
                    
                    63.49
                    %Expected
      dividend yield
                    
                    
                    0





53,500
stock options with a term of 10 years and five year vesting
periods:





Risk-free
      interest rate
                    
                    
                    3.35
                    %Expected
      life of the options
                    
                    6.50
      yearsExpected
      volatility
                    
                    
                    72.59
                    %Expected
      dividend yield
                    
                    
                    0





30,000
stock options with a term of 10 years and four year vesting
periods:





Risk-free
      interest rate
                    
                    
                    3.35
                    %Expected
      life of the options
                    
                    6.25
      yearsExpected
      volatility
                    
                    
                    72.74
                    %Expected
      dividend yield
                    
                    
                    0





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, 2009
                  
                  
                  1,143,019
                  
                  
                  
                  1.20
                  
                  1.84
      YearsGranted
                  
                  
                  168,500
                  
                  
                  
                  0.90Forfeited
                  
                  
                  -Vested
                  
                  
                  (194,185
                  )
                  
                  
                  1.01Exercised
                  
                  
                  -
                  
                  
                  
                  -Non-vested
      – September 30,
      2009
                  
                  
                  1,117,334
                  
                  
                  
                  1.19
                  
                  1.57
      Years


13





The total
compensation cost relating to non-vested stock options that is not yet
recognized is $342,000, which is expected to be recognized over a period of 2.54
years.





Warrants





In
connection with the Mica-Tech merger, the Company granted a warrant for the
purchase of 816 shares of the Company’s common stock to a Mica-Tech shareholder
on February 19, 2008 and a warrant for the purchase of 25,000 shares of the
Company’s common stock to an outside consultant on February 26, 2008. All
these Warrants expired on December 1, 2008 when the conditions for
exercisability did not meet the deadline.





No
warrants were outstanding as of September 30, 2009.





10.           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 six
month periods ended September 30, 2009 and September 30, 2008.





Six
      Month Periods EndedSeptember
      30, 2009
                                                
                                                
                                                September
      30, 2008(In
      thousands)
                                                
                                                (Unaudited)
                                                
                                                
                                                (Unaudited)Revenue
      from unrelated entitiesAML
                                                
                                                $
                                                6,167
                                                
                                                
                                                $
                                                5,405MPI
                                                
                                                
                                                1,379
                                                
                                                
                                                
                                                970Mica-tech
                                                
                                                
                                                262
                                                
                                                
                                                
                                                322$
                                                7,808
                                                
                                                
                                                $
                                                6,697Income
      (loss) from operationsAML
                                                
                                                $
                                                540
                                                
                                                
                                                $
                                                563MPI
                                                
                                                
                                                429
                                                
                                                
                                                
                                                110Mica-tech
                                                
                                                
                                                15
                                                
                                                
                                                
                                                (140
                                                )$
                                                984
                                                
                                                
                                                $
                                                533Income
      tax benefit (expense)AML
                                                
                                                $
                                                (209
                                                )
                                                
                                                $
                                                (205
                                                )MPI
                                                
                                                
                                                (172
                                                )
                                                
                                                
                                                (45
                                                )Mica-tech
                                                
                                                
                                                (4
                                                )
                                                
                                                
                                                (166
                                                )$
                                                (385
                                                )
                                                
                                                $
                                                (416
                                                )Net
      incomeAML
                                                
                                                $
                                                314
                                                
                                                
                                                $
                                                306MPI
                                                
                                                
                                                258
                                                
                                                
                                                
                                                68Mica-tech
                                                
                                                
                                                7
                                                
                                                
                                                
                                                250$
                                                579
                                                
                                                
                                                $
                                                624Provision
      for depreciation and amortizationAML
                                                
                                                $
                                                275
                                                
                                                
                                                $
                                                301MPI
                                                
                                                
                                                118
                                                
                                                
                                                
                                                113Mica-tech
                                                
                                                
                                                47
                                                
                                                
                                                
                                                69$
                                                440
                                                
                                                
                                                $
                                                483Capital
      expendituresAML
                                                
                                                $
                                                68
                                                
                                                
                                                $
                                                34MPI
                                                
                                                
                                                47
                                                
                                                
                                                
                                                30Mica-tech
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -$
                                                115
                                                
                                                
                                                $
                                                64


14




September
      30, 2009(Unaudited)
                  
                  
                  March
      31,
      2009Total
      AssetsAML
                  
                  $
                  10,543
                  
                  
                  $
                  9,979MPI
                  
                  
                  5,440
                  
                  
                  
                  5,029Mica-tech
                  
                  
                  1,365
                  
                  
                  
                  1,423$
                  17,348
                  
                  
                  $
                  16,431




11.          Long
Term Note Payable





Mica-Tech
was advanced working capital from its former president and a major shareholder,
Steven Ow, over a period of time which totaled $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 with the merger on February 19, 2008,
Mica-Tech and Mr. 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 Mr. 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 was $150,000 in cash, which would be paid by three equal payments of
$40,000 and one last payment of $30,000. As part of settlement, the Company
recorded gain on settlement of debt amounting to $521,000 during the period
ended June 30, 2008. As of September 30, 2009, Mica-Tech paid $130,000 toward
the settlement amount and the remaining amount due to Mr. Ow was $20,000 which
was part of the last payment. The amount was included under accounts payable as
Mr. Ow was not associated with the Company at September 30, 2009.




12.           Major
customers and vendors





Three
customers provided an aggregate 33.7% and 41.6% of the Company’s total net
revenue for the six months ended September 30, 2009 and 2008,
respectively.  Total accounts receivable due from these customers was
approximately $649,000 as of September 30, 2009.





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 an aggregate 22.6% and 35.6% of the Company’s total net
purchases for the six months ended September 30, 2009 and 2008,
respectively.  Total accounts payable due to these vendors was
$132,000 as of September 30, 2009.


15


13.          Repurchase
of the Company Shares





On May 13, 2009, the Company announced
that its Board of Directors authorized the repurchase of up to one million
shares of the Company’s common stock.  Purchases are being made in the
open market as determined by AML management and in accordance with Securities
and Exchange Commission requirements.  As of the close of business on
September 30, 2009, the Company repurchased 38,600 shares of common stock at the
weighted average price of $0.71 per share.




14.          Reclassifications





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


16





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 this section. 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 82.2% and 13.4% of our 2009
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 4.4% of
our 2009 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 $12.7 million in fiscal 2009.





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.





Our
Mica-Tech segment designs and manufactures the UltraSatNet, an Intelligent
Satellite Utility Communication Solution for the monitoring and control of power
grid distribution. The operating software and hardware are designed in-house
with support from outside consultants. Since completion of the acquisition of
the remaining interest in Mica-Tech in February 2008, steps are being taken to
bolster Mica-Tech’s financial structure while the company pursues the utility
SCADA market.


17




Results of
Operations




Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008




Net sales.  Net
sales for the three months ended September 30, 2009 were approximately
$4.5 million, compared to approximately $3.4 million for the three
months ended September 30, 2008, representing an increase of $1.1 million. Our
revenue growth was driven by $1.0 million of products delivered to the Unmanned
Aerial Vehicles (UAV) market during this period. Revenues from our MPI division
increased by $371,000 due to a commencement of high level production for the
$1.5 million order they have previously received from an Italy company.
Mica-Tech’s revenues decreased by $148,000 as a result of a reduction in
hardware sales.




Gross
profit.  Gross profit for the three months ended September 30,
2009 was approximately $2.3 million, or 50.5% of net sales, compared to a
gross profit for the three months ended September 30, 2008, of approximately
$1.5 million, or 43.7% of net sales. Gross profit, as a percentage of net sales,
increased by $751,000 or 6.8% between the two periods mainly due to investments
made in automation and consequently a reduction of direct labor
costs.





Selling, general, and administrative
costs.  Selling, general and administrative costs for the three
months ended September 30, 2009 were $854,000, or 19.2% of net sales, compared
to $730,000, or 21.2% of net sales, for the three months ended September 30,
2008, representing an increase of $124,000. Selling, general and administrative
costs for AML and MPI increased by $188,000, compared to the same period of the
prior year, due to increased spending in investor relations, commission
expenses, and payroll related expenses. Mica-Tech’s administrative cost has been
reduced by $64,000 mainly due to a reduction in payroll related expenses and
building lease expenses as a result of cost management and reduced headcounts at
Mica-Tech. To reduce operating costs, we relocated the Mica-Tech operation to
the AML facility in May 2008.




Research and development
costs.  Research and development costs for the three months
ended September 30, 2009 were $567,000, or 12.7% of net sales, compared to
$500,000, or 14.6% of net sales, for the three months ended September 30, 2008,
representing an increase of $67,000. AML’s R&D expenses increased by $74,000
as a result of increased payroll related expenses due to additional headcount
and other benefits. R&D costs for Mica-Tech decreased by $7,000 mainly due
to a reduction in payroll related expenses. We are committed to continue our
investment in R&D projects to address customer needs for short and long term
program orders.




Other net
income.  We recorded a net other expense of $22,000 for the
three months ended September 30, 2009 and a net other income of $19,000 for the
three months ended September 30, 2008. During the three months ended September
30, 2009, we incurred $22,000 in interest expenses that were associated with
notes payable and lines of credit. During the three months ended September 30,
2008, Mica-Tech realized a gain of $45,000 from the settlement of debt. The
interest expense during the three months ended September 30, 2008 was
$26,000.




Income before income
tax.  Income before income tax was $810,000 for the three
months ended September 30, 2009, compared to income before income tax of
$290,000 for the three months ended September 30, 2008. The significant increase
in income before income tax, as compared to the same period of prior year, is
mainly due to increased revenues and increased gross margins due to investments
in automation.




Income
before income tax in the AML segment was $522,000 for the three months ended
September 30, 2009, compared to $216,000 for the three months ended September
30, 2008. This increase is mainly attributable to increased revenues and
increased gross margins.




Income
before income tax in the MPI segment was $298,000 for the three months ended
September 30, 2009, compared to $38,000 for the three months ended September 30,
2008. This increase is mainly attributable to a commencement of high level
production for the $1.5 million order they have previously received from an
Italy company.




Loss
before income tax in the Mica-Tech segment was $10,000 for the three months
ended September 30, 2009, compared to income before income tax of $36,000 for
the three months ended September 30, 2008. The significant reduction in income
before income tax, as compared to the same period of prior year, is mainly due
to the gain of $45,000 recognized during the three months ended September 30,
2008.


18




Provision for income taxes.
During the three months ended September 30, 2009, the company utilized its
deferred tax assets reserve to record income tax expenses of $324,000. The
company has no tax liability as of September 30, 2009 due to the deferred tax
benefits accounted for in the prior years. The company utilized its deferred tax
assets reserve to record income tax expenses of $117,000 during the three months
ended September 30, 2008.




Net income.Net
income was $486,000 or $0.05 per share for the three months ended September 30,
2009, compared to net income of $173,000, or $0.02 per share for the three
months ended September 30, 2008.




Net income from the AML segment was
$313,000 for the three months ended September 30, 2009 and $129,000 for the
three months ended September 30, 2008.




Net income from the MPI segment was
$179,000 for the three months ended September 30, 2009 and $23,000 for the three
months ended September 30, 2008.




Net loss from the Mica-Tech segment was
$6,000 for the three months ended September 30, 2009, compared to net income of
$21,000 for the three months ended September 30, 2008.




Six
Months Ended September 30, 2009 Compared to Six Months Ended September 30,
2008




Net
sales.Net sales for the six months ended September 30, 2009
were approximately $7.8 million, as compared to net sales of $6.7 million for
the six months ended September 30, 2008, an increase of $1.1 million or 16.6%.
AML’s revenues increased by $764,000 or 14.1% mainly due to products delivered
to the Unmanned Aerial Vehicles (UAV) market during this period. Revenues from
our MPI division increased by $437,000 or 45.1% due to a commencement of high
level production for the $1.5 million order they have previously received from
an Italy company. Mica-Tech’s revenues decreased by $61,000 or 18.8% as a result
of a reduction in hardware sales.




Gross
profit.  Gross profit for the six months ended September 30, 2009 was
approximately $3.6 million, or 46.5% of net sales, as compared to a gross profit
of $3.0 million, or 44.5% of net sales for the six months ended September 30,
2008. Utilization 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 $1.5 million, or 19.8% of net sales, for the six
months ended September 30, 2009, as compared to $1.5 million, or 21.9% of net
sales, for the six months ended September 30, 2008.  Selling, general
and administrative costs for AML and MPI increased by $225,000, compared to the
same period of the prior year, mainly due to increased spending in investor
relations, salary and related benefits and commission expenses. Mica-Tech’s
administrative cost has been reduced by $142,000, as compared to the same period
of the last year, due to decrease in payroll related expenses, amortization
expense on its intangible assets, and other operating expenses. 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
$1.1 million or 14.1% of net sales, for the six months ended September 30, 2009,
as compared to $981,000 or 14.7% of net sales, for the six months ended
September 30, 2008.  AML’s R&D expenses increased by $147,000 due
to increased payroll related expenses and R&D supplies. Mica-Tech’s R&D
expenses are reduced by $21,000, mainly due to a reduction in payroll related
expenses and outside consulting expenses.




Other net
income.We recorded a net other expense of $20,000 for the six
months ended September 30, 2009 and a net other income of $507,000 for the six
months ended September 30, 2008. During the six months ended September 30, 2009,
we incurred $42,000 in interest expenses that were associated with notes payable
and lines of credit and realized a gain on sale of fixed assets of $20,000.
During the six months ending September 30, 2008, Mica-Tech realized a gain of
$521,000 from the settlement of a promissory note and a gain of $45,000 from the
settlement of royalties due to Southern California Edison. These are considered
a one-time event.




Income before income
tax.  Income before income tax was $964,000 for the six months
ended September 30, 2009, compared to income before income tax of $1.0 million
for the six months ended September 30, 2008. The decrease in income before
income tax, as compared to the same period of prior year, is mainly due to the
gains Mica-Tech realized during the six months ended September 30,
2008.


19




Income
before income tax in the AML segment was $523,000 for the six months ended
September 30, 2009, compared to $511,000 for the six months ended September 30,
2008. This increase is mainly attributable to increased revenues.




Income
before income tax in the MPI segment was $430,000 for the six months ended
September 30, 2009, compared to $113,000 for the six months ended September 30,
2008. This increase is mainly attributable to increased revenues.




Income
before income tax in the Mica-Tech segment was $11,000 for the six months ended
September 30, 2009, compared to income before income tax of $416,000 for the six
months ended September 30, 2008. The significant reduction in income before
income tax, as compared to the same period of prior year, is mainly due to the
gains of $566,000 recognized during the six months ended September 30,
2008.




Provision
for income taxes. During the six months ended September 30, 2009, the
company utilized its deferred tax assets reserve to record income tax expenses
of $385,000. The company has no tax liability at the end of the period due to
the deferred tax benefits accounted for in the prior years. The company utilized
its deferred tax assets reserve to record income tax expenses of $416,000 for
the six months ended September 30, 2008.




Net income.Net
income was $579,000 or $0.05 per share, for the six months ended September 30,
2009, compared to net income of $624,000 or $0.06 per share, for the six months
ended September 30, 2008.




Net income from the AML segment was
$314,000 for the six months ended September 30, 2009 and $306,000 for the six
months ended September 30, 2008.




Net income from the MPI segment was
$258,000 for the six months ended September 30, 2009 and $68,000 for the six
months ended September 30, 2008.




Net income from the Mica-Tech segment
was $7,000 for the six months ended September 30, 2009 and $250,000 for the six
months ended September 30, 2008.




In 2010,
we expect total operating expenses to increase as we continue to invest in
infrastructure and new product development. We expect operating expenses
generally will increase more slowly than increases in revenue.




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.





At
September 30, 2009, AML had a line of credit agreement with Bridge Bank. On
September 16, 2008, we signed a Business Financing Modification Agreement (the
“Modification Agreement”) with Bridge Bank to renew our line of credit, with a
credit facility of $1.3 million. Of this $1.3 million, $1.0 million
may be used for cash advances against accounts receivables and $0.3 million
may be used for equipment advances. Our ability to borrow under this agreement
varies based upon eligible accounts receivable and eligible equipment purchases.
We are obligated to pay the bank a finance charge at a rate per year equal to
the prime rate, which in no event shall be less than 5.00%, plus 0.25% with
respect to cash advances, and a rate of such prime rate plus 1.0% with respect
to equipment advances. We were obligated to pay a facility fee of $2,500 upon
execution of the Modification Agreement and annually thereafter. We were also
obligated to pay a one-time equipment loan facility fee of $2,500 upon execution
of the Modification Agreement.  We must maintain certain financial
requirements, including a minimum Asset Coverage Ratio of 1.50 to 1.00. We are
also required to stay within 80% of our planned quarterly revenue. We were in
compliance with these requirements at September 30, 2009; 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, 2010
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. At September 30, 2009, we had an outstanding balance of $0 under the
accounts receivable agreement and $279,000 under the equipment financing
agreement, which includes amounts owed under prior lines of credit with Bridge
Bank. 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 loan expired on December 31,
2008.


20


At
September 30, 2009, we had $2.1 million in cash and cash
equivalents.  For the six months ended September 30, 2009, our
operating activities provided cash of approximately $830,000 as compared to
$62,000 cash provided by our operating activities for the six months ended
September 30, 2008.  Net cash used in investing activities, primarily
for the acquisition of production equipment, amounted to $115,000 for the six
months ended September 30, 2009 and $64,000 for the six months ended September
30, 2008.  Net cash used in financing activities was $217,000 for the
six months ended September 30, 2009 and $166,000 for the six months ended
September 30, 2008 due to paying off $190,000 toward outstanding notes payable,
capital lease obligation, and existing line of credit and paying $27,000 to
repurchase 38,600 shares of common stock at the weighted average price of $0.71
per share during the six months ended September 30, 2009.





We anticipate capital expenditures of
approximately $500,000 in fiscal year 2010.  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
September 30, 2009, our remaining borrowing capacity under this agreement was
$1,000,000.





We may attempt to procure additional
sources of financing in the event that the capital available as of September 30,
2009 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.





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.


21





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.





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;


22




•
            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.




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.




23




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 (Principal
Executive Officer) and Director of Finance (Principal Financial Officer), 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 (September 30, 2009). 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 quarter ended September 30, 2009 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.


24


PART
II – OTHER INFORMATION




Item
1.                 Legal
Proceedings





There
have been no material developments during the quarter ended September 30, 2009
in any material pending legal proceedings to which the Company is a party or of
which any of our property is the subject.




Item
1A.              Risk
Factors




Not Applicable.




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





None.





Item
3.                 Defaults
Upon Senior Securities




None.




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





Our 2009 Annual Meeting of Stockholders
(the “2009 Annual Meeting”) was held on September 10, 2009, in Camarillo,
California.  Of the 10,616,065 shares eligible to vote, 8,943,354
shares, or 84%, appeared in person or by proxy and established a quorum for the
meeting.  Two proposals, as described in our Proxy Statement, dated
July 24, 2009, were approved at the meeting.  The following is a brief
description of the matters voted upon and the results of the
voting:





1.
            Election
      of Directors:





Nominees
                                  
                                  Number of SharesJacob
      Inbar
                                  
                                  For:
                                  
                                  
                                  8,748,175Withheld:
                                  
                                  
                                  195,179Richard
      Flatow
                                  
                                  For:
                                  
                                  
                                  8,882,505Withheld:
                                  
                                  
                                  60,849Tiberiu
      Mazilu
                                  
                                  For:
                                  
                                  
                                  8,532,051Withheld:
                                  
                                  
                                  411,303Edwin
      J. McAvoy
                                  
                                  For:
                                  
                                  
                                  8,729,175Withheld:
                                  
                                  
                                  214,179Gerald
      M. Starek
                                  
                                  For:
                                  
                                  
                                  8,697,154Withheld:
                                  
                                  
                                  246,200


2.
            Ratification
      of the Appointment of Kabani & Company, Inc as our Independent
      Registered Public Accounting Firm:





Nominees
                          
                          Number of SharesKabani
      & Company, Inc.
                          
                          For:
                          
                          
                          8,727,321Against:
                          
                          
                          22,788Abstain:
                          
                          
                          193,245


25




Item
5.                 Other
Information




None.




Item
6.                 Exhibits





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


26


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:
      November 12, 2009




/s/:
      Heera LeeBy:
      Heera Lee, Director of Finance
                    (Principal
      Financial Officer)
                  Dated:
      November
12, 2009


27


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)10.3
                
                Fourth
      Amended and Restated 1995 Stock Option Agreement at June 10,
      2002(4)10.4
                
                Parr-Bohn
      Properties First Amendment to lease of 1000 Avenida Acaso, Camarillo,
      CA.(4)10.5
                
                Employment
      Agreement with Dr. Marina Bujatti, of MPI, dated June 18,
      2004(4)10.6
                
                Employment
      Agreement with Dr. Franco Sechi, of MPI, dated June 18,
      2004(4)10.7
                
                Interim
      Lease and Proposed Lease Terms(5)10.8
                
                Financing
      Agreement dated July 8, 2004 with Bridge Bank(6)10.9
                
                Enterprise
      Agreement Number 4627 dated August 26,
2004(7)10.10
                
                Business
      Financing Modification with Bridge Bank, dated December 23,
      2005(8)10.11
                
                Business
      Financing Modification with Bridge Bank dated
      January 19,2006(8)10.12
                
                Fifth
      Amended and Restated 1995 Stock Option Agreement at July 12,
      2005(9)10.13
                
                Loan
      Agreement with Bank of America for purchase of MPI
    building(8)10.14
                
                2005
      Equity Incentive Plan(10)10.15
                
                Business
      Financing Agreement with Bridge Bank dated July 17,
      2006(11)10.16
                
                Stock
      Purchase Agreement with Mica-Tech, dated April 11,
      2007(12)10.17
                
                Option
      Agreement with shareholders and optionholders of Mica-Tech, dated
      April 11, 2007(12)10.18
                
                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(13)10.19
                
                Option
      Agreement—Steven Ow, dated February 19, 2008(13)10.20
                
                Parr-Bohn
      Properties Second Amendment to lease of 1000 Avenida Acaso, Camarillo, CA,
      dated February 20, 2008(14)10.21
                
                Business
      Financing Modification with Bridge Bank, dated April 5,
      2007(14)10.22
                
                Business
      Financing Modification with Bridge Bank, dated September 16,
      2008(15)31.1
                
                Certification
      by the Chief Executive Officer(16)31.2
                
                Certification
      by the Principal Financial Officer(16)32.1
                
                Certification
      pursuant to Section 906 of the Sarbanes Oxley
  Act(16)32.2
                
                Certification
      pursuant to Section 906 of the Sarbanes Oxley
  Act(16)




(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-KSB for the fiscal year ended March 31, 2004
      and incorporated herein by
reference.




(5)
            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.




(6)
            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.




(7)
            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.









(8)
            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.




(9)
            Previously
      filed with the Securities and Exchange Commission as an attachment to the
      Company’s Proxy Statement dated July 29,
  2005.




(10)
            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.




(11)
            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.




(12)
            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.




(13)
            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.




(14)
            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.




(15)
            Previously
      filed with Securities and Exchange Commission as an exhibit to the
      Company’s Form 10-Q for the quarter ended September 30, 2008 and
      incorporated herein by reference.




(16)
            Filed
      herewith




2