**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-QSB**

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

|**For the quarter ended July 31, 2006** | **Commission File Number: 0-5105**
|--------------------------------------- | ----------------------------------

**MILASTAR CORPORATION**

**(Exact name of registrant as specified in its charter)**

|**DELAWARE**

**(State or other jurisdiction of** **incorporation or organization)**              | **13-2636669**

**(I.R.S. Employer** **Identification No.)**
|------------------------------------------------------------------------------------------------- | ------------------------------------------------------------
|                                                                                                  |                                                             
|**7317 West Lake Street, Minneapolis, MN****55426**

**(Address of principal executive offices)** | **(952) 929-4774**

**(Telephone number)**                  

**Not Applicable**

**Former name, former address and former fiscal year, if changed since last report.**

**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. YesX No**

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

**At September 8, 2006,** **2,723,264 shares of common stock of the Registrant were issued and outstanding.**

MILASTAR CORPORATION AND SUBSIDIARIES

PART I

**Item 1. Financial Statements**

The condensed consolidated financial statements included herein have been prepared by Milastar Corporation (the "Company") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not
misleading. Operating results for the three months ended July 31, 2006 are not necessarily indicative of the results that may be expected for the year
ending April 30, 2007. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's annual report on Form 10-KSB for the fiscal year ended April 30, 2006.

The condensed consolidated financial statements included herein, which are unaudited, include, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position and results of operations of the Company for
the periods presented.

|MILASTAR CORPORATION AND SUBSIDIARIES
|-------------------------------------
|**CONSOLIDATED BALANCE SHEETS**      
|                                     
|**ASSETS**                           

|                                                                      | **July 31,**    |  | ******April 30,**
|--------------------------------------------------------------------- | --------------- |  | -----------------
|                                                                      | **2006**        |  | ******2006**     
|                                                                      | **(Unaudited)** |  | ******(Audited)**
|Current assets:                                                       |                 |  |                  
|Cash                                                                  | $ 2,533,000     |  | $ 1,979,000      
|Accounts and other receivables, net                                   | 1,685,000       |  | 1,845,000        
|Inventory                                                             | 122,000         |  | 164,000          
|Deferred income taxes                                                 | 239,000         |  | 239,000          
|Prepaid fixtures and other                                            | 145,000         |  | 241,000          
|Total current assets                                                  | 4,724,000       |  | 4,468,000        
|                                                                      |                 |  |                  
|Property, plant and equipment:                                        |                 |  |                  
|Land                                                                  | 420,000         |  | 420,000          
|Buildings and improvements                                            | 3,127,000       |  | 3,127,000        
|Equipment                                                             | 8,777,000       |  | 8,777,000        
|                                                                      | 12,324,000      |  | 12,324,000       
|Less accumulated depreciation                                         | (5,998,000)     |  | (5,777,000)      
|                                                                      | 6,326,000       |  | 6,547,000        
|                                                                      |                 |  |                  
|Total assets                                                          | $ 11,050,000    |  | $ 11,015,000     
|                                                                      |                 |  |                  
|**LIABILITIES AND
STOCKHOLDERS' EQUITY**                              |                 |  |                  
|Current liabilities:                                                  |                 |  |                  
|Current maturities of long-term debt                                  | $ 600,000       |  | $ 650,000        
|Accounts payable                                                      | 564,000         |  | 358,000          
|Accrued payroll and benefits                                          | 1,220,000       |  | 1,146,000        
|Accrued income taxes                                                  | 153,000         |  | 446,000          
|Accrued real estate taxes                                             | 78,000          |  | 105,000          
|Other accrued liabilities                                             | 80,000          |  | 95,000           
|Total current liabilities                                             | 2,695,000       |  | 2,800,000        
|                                                                      |                 |  |                  
|Long-term debt, less current
maturities                               | 900,000         |  | 1,050,000        
|Deferred income taxes                                                 | 454,000         |  | 454,000          
|                                                                      |                 |  |                  
|Total liabilities                                                     | 4,049,000       |  | 4,304,000        
|                                                                      |                 |  |                  
|Stockholders' equity:                                                 |                 |  |                  
|Common stock, $.05 par value;
authorized 7,500,000 shares, issued
and |                 |  |                  
|outstanding 2,723,264 shares at July
31, 2006 and April 30, 2006      | 136,000         |  | 136,000          
|Additional paid-in capital                                            | 1,647,000       |  | 1,647,000        
|Retained earnings                                                     | 5,218,000       |  | 4,928,000        
|Total stockholders' equity                                            | 7,001,000       |  | 6,711,000        
|                                                                      |                 |  |                  
|Total liabilities and stockholders'
equity                            | $ 11,050,000    |  | $ 11,015,000     

See accompanying notes to condensed consolidated financial statements

|MILASTAR CORPORATION AND SUBSIDIARIES    
|-----------------------------------------
|**CONSOLIDATED STATEMENTS OF OPERATIONS**
|**Three Months Ended July 31,**          
|(Unaudited)                              

|                                              | **2006**    |  | ******2005**
|--------------------------------------------- | ----------- |  | ------------
|                                              |             |  |             
|Net sales                                     | $ 3,800,000 |  | $ 3,479,000 
|Cost of sales                                 | 2,726,000   |  | 2,351,000   
|                                              |             |  |             
|Gross profit                                  | 1,074,000   |  | 1,128,000   
|Selling, general and administrative
expenses  | 581,000     |  | 627,000     
|Disposal loss on property and
equipment       | --          |  | 104,000     
|                                              |             |  |             
|Operating income                              | 493,000     |  | 397,000     
|                                              |             |  |             
|Other expense:                                |             |  |             
|Interest income                               | 24,000      |  | --          
|Interest expense                              | (30,000)    |  | (29,000)    
|Total other expense                           | (6,000)     |  | (29,000)    
|                                              |             |  |             
|Income before income taxes                    | 487,000     |  | 368,000     
|Income tax expense                            | 197,000     |  | 149,000     
|                                              |             |  |             
|Net income                                    | $ 290,000   |  | $ 219,000   
|                                              |             |  |             
|Net income per common share - basic           | $ 0.11      |  | $ 0.08      
|Weighted average shares outstanding
- basic   | 2,723,264   |  | 2,723,264   
|                                              |             |  |             
|Net income per common share -
diluted         | $ 0.09      |  | $ 0.07      
|Weighted average shares outstanding
- diluted | 3,075,886   |  | 3,280,486   

See accompanying notes to condensed consolidated financial statements

|MILASTAR CORPORATION AND SUBSIDIARIES    
|-----------------------------------------
|**CONSOLIDATED STATEMENTS OF CASH FLOWS**
|**Three Months Ended July 31,**          
|(Unaudited)                              

|                                                   | **2006**    |  | ******2005**
|-------------------------------------------------- | ----------- |  | ------------
|CASH FLOWS FROM
OPERATING ACTIVITIES:              |             |  |             
|Net income                                         | $ 290,000   |  | $ 219,000   
|Adjustments to reconcile net income
to net cash    |             |  |             
|flows from operating activities:                   |             |  |             
|Depreciation and amortization                      | 221,000     |  | 252,000     
|Net loss on disposal of property and
equipment     | --          |  | 104,000     
|Deferred income taxes                              | --          |  | (35,000)    
|                                                   |             |  |             
|Changes in operating assets and
liabilities:       |             |  |             
|Accounts and other receivables                     | 160,000     |  | (22,000)    
|Inventory                                          | 42,000      |  | 100,000     
|Prepaid fixtures and other                         | 96,000      |  | 16,000      
|Accounts payable and accrued
expenses              | (55,000)    |  | (103,000)   
|Net cash flows from operating
activities           | 754,000     |  | 531,000     
|                                                   |             |  |             
|CASH FLOWS FROM INVESTING
ACTIVITIES:              |             |  |             
|Purchases of property, plant and
equipment         | --          |  | (124,000)   
|Net cash flows from investing
activities           | --          |  | (124,000)   
|                                                   |             |  |             
|CASH FLOWS FROM FINANCING
ACTIVITIES:              |             |  |             
|Principal payments of long-term debt               | (200,000)   |  | (147,000)   
|Net cash flows from financing
activities           | (200,000)   |  | (147,000)   
|                                                   |             |  |             
|NET INCREASE IN CASH                               | 554,000     |  | 260,000     
|CASH, BEGINNING OF YEAR                            | 1,979,000   |  | 205,000     
|CASH, END OF FIRST QUARTER                         | $ 2,533,000 |  | $ 465,000   
|                                                   |             |  |             
|                                                   |             |  |             
|Supplemental disclosures of cash
flow information: |             |  |             
|Cash paid during the first quarter
for:            |             |  |             
|Interest                                           | $ 30,000    |  | $ 29,000    
|                                                   |             |  |             
|Income taxes                                       | $ 490,000   |  | $ 260,000   
|                                                   |             |  |             

See accompanying notes to condensed consolidated financial statements

**1 CONSOLIDATED FINANCIAL STATEMENTS**

The consolidated financial statements of Milastar Corporation (the "Company") reflect the financial position and results of operations of the Company
and its wholly owned subsidiaries, after elimination of all material intercompany transactions and balances.

The consolidated financial statements as of July 31, 2006 and for the three month periods ended July 31, 2006 and July 31, 2005, included herein are
unaudited and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. The interim financial statements reflect all adjustments (consisting of normal recurring
accruals) that are, in the opinion of management, necessary for a fair statement of the results for the interim periods. These consolidated financial
statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Form 10-KSB for the
year ended April 30, 2006, filed with the Securities and Exchange Commission. The result of operations for the interim period should not be considered
indicative of the results to be expected for the entire year.

**2 SIGNIFICANT ACCOUNTING POLICIES**

*Stock-Based Compensation**-***Effective May 1, 2006, the Company adopted Statement No. 123R, *Share-Based Payment* (SFAS 123R), which requires
companies to measure and recognize compensation expense for all stock-based payments at fair value.  SFAS 123R is being applied on the modified
prospective basis. Prior to the adoption of SFAS 123R, the Company accounted for its stock-based compensation plans under the recognition and
measurement principles of Accounting Principles Board (APB) Opinion No. 25, *Accounting for Stock Issued to Employees,* and related interpretations,
and accordingly, recognized no compensation expense related to the stock-based plans in the statements of operations. The fair value of the grant is
generally expensed over the applicable vesting period. Pro forma disclosure of the income statement effects of share-based payments is no longer an
alternative. SFAS 123 (R) is effective for all share-based awards granted on or after May 1, 2006. In addition, companies must also recognize
compensation expense related to any awards that are not fully vested as of the effective date. The Company's options as of April 30, 2006 were fully
vested and no stock-based agreements were issued during the three months ended July 31, 2006. Therefore, there was no SFAS No. 123(R) compensation
expense for the three months ended July 31, 2006. The Company did not have any pro forma compensation costs associated with the options outstanding
for the three months ended July 31, 2005. Future awards will be measured based on the fair value of the awards previously calculated in developing the
pro forma.

The Company expects that the impact on earnings for the remainder of the year ending April 30, 2007 for stock based compensation will be $0 and
estimates the impact on future earnings to be approximately $0 based on the options outstanding as of July 31, 2006.

**3** **NET INCOME PER COMMON SHARE**

The following table presents a reconciliation of the denominators used in the computation of net income per common share - basic and net income per
common share - diluted for the quarters ended July 31, 2006 and 2005:

|                                                                                                                                      |  |  |  |  |           |  | Three Months
Ended
|------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  | --------- |  | ------------------
|                                                                                                                                      |  |  |  |  |           |  | July 31,          
|                                                                                                                                      |  |  |  |  | 2006      |  | 2005              
|Weighted shares
outstanding -
basic                                                                                                   |  |  |  |  | 2,723,264 |  | 2,723,264         
|Weighted shares
assumed upon
exercise of stock
options                                                                                |  |  |  |  | 352,622   |  | 557,222           
|Weighted shares
outstanding -
diluted                                                                                                 |  |  |  |  | 3,075,886 |  | 3,280,486         
|                                                                                                                                      |  |  |  |  |           |  |                   
|Options excluded
from the net
income per share
calculations
because their
exercise prices
were greater than
the average
market price. |  |  |  |  | 0         |  | 0                 

**4 BANK CREDIT LINE**

The Company has a revolving line of credit with its bank, which permits borrowings of up to $2,000,000 and bears interest at 2.5% above the LIBOR
rate which was 7.8% at July 31, 2006. The revolving line of credit expires September 30, 2006 and is expected to be extended for an additional year. At
July 31, 2006 and April 30, 2006, borrowings under this agreement were $0.

**5 SIGNIFICANT CUSTOMER**

The Company's largest customer accounted for 20% and 23% of total sales for the quarter ended July 31, 2006 and 2005, respectively. The Company's
largest customer accounted for 24% and 29% of total accounts receivable at July 31, 2006 and April 30, 2006, respectively.

**6 REVERSE/FORWARD STOCK SPLIT**

On May 31, 2006, the Company filed forms 8-K, 13e-3 and Preliminary 14C with the Securities and Exchange Commission (SEC), as amended on July
24, 2006, stating the Company's intent to execute a 250 to 1 reverse/forward stock split and the subsequent deregistration from pubicly trading the
Company's stock.As disclosed in the filings, the completion of the reverse/forward stock split will require the Company to spend approximately $745,000,
which includes legal, financial, accounting and other fees and costs related to the transaction.The SEC is in the process of reviewing the Company's
amended filings. There is no assurance that the deregistration of the Company's common stock will be approved or occur.

**Item 2. Management's Discussion and Analysis or Plan of Operation**

Results of Operations

Three Months Ended July 31, 2006 as Compared with the Three Months Ended July 31, 2005. The Company recorded sales of $3,800,000 during the first
quarter of fiscal year 2007 as compared with $3,479,000 for the same period last year, a $321,000 (9%) increase. The increase was primarily attributable
to additional work performed for existing customers at our Rogers facility. The current level of sales growth is not necessarily indicative of future sales in
that the Company operates with a backlog that is generally less than 10 days.

Cost of sales of $2,726,000 (72% of net sales) during the first quarter of fiscal year 2007 increased $375,000 (16%) from $2,351,000 (68% of net sales)
for the same period a year earlier. The increase was primarily attributable to increased factory supplies which consisted mainly of fixtures, repair parts,
quench oil and salt. Gross margin decreased to $1,074,000 as compared with $1,128,000 for the prior year first quarter.

Selling, general and administrative (SG&A) expenses of $581,000 (15% of net sales) decreased $46,000 from $627,000 (18% of net sales) for the same
period a year earlier. The change in SG&A expenses is primarily due to decreased administrative payroll that was the result of combining the positions of
CEO, President and CFO.  SG&A expenses are relatively fixed and as such are expected to be about 15-17% of sales going forward.

The Company recorded operating income of $493,000 in the first quarter of fiscal 2007 as compared with operating income of $397,000 recorded in the
prior year first quarter. The increase in operating income in the first quarter of fiscal year 2007 is primarily attributable to a decrease in disposal loss on
property and equipment.

Total other expense amounted to $6,000 in the first quarter of fiscal 2007 as compared with other expense of $29,000 in the first quarter of last year. The
decrease in other expense was primarily attributable to interest expense being offset by $24,000 in interest income earned on cash.

The Company recorded a tax provision of $197,000 in the first quarter of fiscal 2007 as compared with a provision of $149,000 in the first quarter of
fiscal 2006. The Company recorded net income of $290,000 in the first quarter of fiscal 2007 as compared with net income of $219,000 in the prior year
first quarter.

*Liquidity and Capital Resources*

At July 31, 2006, the Company had working capital of $2,029,000 compared with $1,668,000 of working capital at April 30, 2006. Cash and accounts
receivables represented 89% (86% at April 30, 2006) and 38% (35% at April 30, 2006) of total current assets and total assets, respectively. During the
first quarter of fiscal 2007, net cash flows from operating activities amounted to $754,000 compared to $531,000 in the first quarter of fiscal 2006.
Working capital requirements for the first quarter of fiscal 2007 was funded primarily from available cash and cash generated from operations.

****Capital expenditures for fiscal 2007 are expected to be between $0.5 and $1.0 million, which will consist primarily of equipment for the Rogers facility.
The Company believes anticipated cash flows from operations, issuance of long-term debt and its line of credit will be adequate to satisfy projected
operating and capital expenditures through at least the next twelve months.

*Critical Accounting Policies*

The Company's estimates related to certain assets and liabilities are an integral part of the consolidated financial statements. These estimates are
considered critical to the consolidated financial statements because they require subjective and complex judgements.

*(a) Revenue Recognition***-** The Company's revenues are recognized when products are shipped to unaffiliated customers. The Securities and Exchange
Commission's Staff Accounting Bulletin (SAB) No. 101 as amended by SAB 104, "Revenue Recognition" provides guidance on the application of
accounting principles generally accepted in the United States of America to selected revenue recognition issues. The Company has concluded that its
revenue recognition policy is appropriate and in accordance with accounting principles generally accepted in the United States of America and SAB No.
104.

*(b) Allowance for Uncollectible Accounts Receivable***-**The Company records an allowance for accounts receivable which are potentially uncollectible.
The allowance is established by estimating the amounts that are potentially uncollectible based on a review of customer accounts, age of the receivable,
the customer's financial condition and industry, and general economic conditions. Results could be materially different if economic conditions deteriorated
for the Company's customers.

*(c) Long-Lived Assets***-**Property and equipment are depreciated over their useful lives. Useful lives are based on management's estimates of the period
that the assets will generate revenue. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company believes no impairment charges need to be recorded as of July 31, 2006.

*Forward-Looking Statements*

Certain statements contained in Management's Discussion and Analysis and elsewhere in the 10-QSB are forward-looking statements. These statements
may discuss, among other things, expected growth, future revenues and future performance. The forward-looking statements are subject to risks and
uncertainties, including, but not limited to, competitive pressures, inflation, consumer debt levels, currency exchange fluctuations, trade restrictions,
changes in tariff and freight rates, capital market conditions and other risks indicated in the Company's filings with the Securities and Exchange
Commission. Actual results may materially differ from anticipated results described in these statements.

**Item 3. Controls and Procedures.**

****Our Chief Executive Officer and Chief Financial Officer, have 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. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of
such period, the Company's disclosure controls and procedures are effective.During the course of their audit of our consolidated financial statements for
Fiscal 2006, our independent registered public accounting firm, Virchow, Krause & Company, LLP, advised management and the Board of Directors that
they had identified a deficiency in internal control. The deficiency is considered to be a material weakness as defined under standards established by the
American Institute of Certified Public Accountants. The material weakness relates to the lack of segregation of duties within the financial processes in the
Company. The Company periodically assesses the cost versus benefit of adding the resources that would remedy or mitigate this situation, and currently
does not consider the benefits to outweigh the costs of adding additional staff in light of the limited number of transactions related to the Company's
operations.

There have not been any changes in the Company's internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's
internal controls over financial reporting.

**PART II**

Items 1 thru 5

None.

Item 6. Exhibits

(a) Exhibits:

31.1 Certification of the Chief Executive Officer pursuant to 13a-14 and 15d-14

31.2 Certification of the Chief Financial Officer pursuant to 13a-14 and 15d-14

32 Certification pursuant to 18 U.S.C. section 1350

**S I G N A T U R E**

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

MILASTAR CORPORATION

|/s/ DENNIS J. STEVERMER    | 
|-------------------------- | 
|Dennis J. Stevermer        | 
|Chief ExecutiveOfficer and | 
|Chief Financial Officer    | 

Dated: September 13, 2006