SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q  x
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended September 30, 2006 OR  o
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from ___________ to __________  Commission File Number  0-27266  Westell Technologies, Inc. (Exact name of registrant as specified in its charter)  DELAWARE
        36-3154957(State or other jurisdiction of
incorporation or organization)
        (I.R.S. Employer
Identification Number)750 N. Commons Drive, Aurora, IL
        60504(Address of principal executive offices)
        (Zip Code)  Registrants telephone number, including area code
        (630) 898-2500  Not applicable (Former name, former address and former fiscal year, if changed since last report)  Indicate by check or mark whether the registrant (1) has filed all reports required to be filed by Sections 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. YesxNo o.  Indicate by check mark whether the registrant is a large filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large filer in Rule 12b-2 of the Exchange Act. Large accelerated filer o  Accelerated filerxNon-accelerated filer o  Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o  Nox  Indicate the number of shares outstanding of each of the issuers classes of common stock as of a October 24, 2006: Class A Common Stock, $0.01 Par Value  55,680,773 shares Class B Common Stock, $0.01 Par Value  14,741,872 shares         WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES FORM 10-Q INDEX   PART I  FINANCIAL INFORMATION:
        Page  Item 1. Financial Statements  Consolidated Balance Sheets
        3-
        As of September 30, 2006 (unaudited) and March 31, 2006  Consolidated Statements of Operations (unaudited)
        4-
        Three and six months ended September 30, 2006 and 2005  Consolidated Statements of Cash Flows (unaudited)
        5-
        Three and six months ended ended September 30, 2006 and 2005  Notes to the Consolidated Financial Statements (unaudited)
        6  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
        14  Item 3. Quantitative and Qualitative Disclosures About Market Risks
        19  Item 4. Controls and Procedures
        19   PART II OTHER INFORMATION  Item 1. Legal Proceedings
        20  Item 4. Submission of Matters to a Vote of Security Holders
        20  Item 6. Exhibits
        20   Safe Harbor Statement Certain statements contained in this Quarterly Report of Form 10-Q regarding matters that are not historical facts or that contain the words believe, expect, intend, anticipate or derivatives thereof and other words of similar meaning, are forward-looking statements. Such forward-looking statements include risks and uncertainties, and actual results may differ materially from those expressed in or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, those discussed under Risk Factors set forth in Westell Technologies, Inc.s Annual Report on Form 10-K for the fiscal year ended March 31, 2006. Our actual results may differ from these forward-looking statements. Westell Technologies, Inc. undertakes no obligation to publicly update these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events or otherwise.   -2-       WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS (in thousands, except share and per share amounts)
        September 30,
2006
        March 31,
2006Current assets:
        (unaudited)Cash and cash equivalents
        $    66,092
        $    40,928Investments
        1,950
        1,287Accounts receivable (net of allowance of $285, and $246 respectively)
        22,594
        30,121Inventories
        24,145
        23,918Prepaid expenses and other current assets
        3,498
        3,607Deferred income tax asset
        7,540
        7,540Total current assets
        125,819
        107,401Property and equipment:Machinery and equipment
        45,720
        45,347Office, computer and research equipment
        26,903
        26,282Leasehold improvements
        8,941
        8,81181,564
        80,440Less accumulated depreciation and amortization
        68,555
        66,157Property and equipment, net
        13,009
        14,283Goodwill
        10,613
        10,613Intangibles, net
        6,780
        7,866Deferred income tax asset and other assets
        47,604
        51,650Total assets
        $ 203,825
        $ 191,813LIABILITIES AND STOCKHOLDERS EQUITYSeptember 30,
2006
        March 31,
2006Current liabilities:
        (unaudited)Accounts payable
        $    18,151
        $    14,880Accrued expenses
        7,549
        6,926Accrued compensation
        8,755
        8,280Deferred revenue
        745
        722Current portion of long-term debt
        33
        51Total current liabilities
        35,233
        30,859Long-term debt
        --
        10Other long-term liabilities
        829
        829Total liabilities
        36,062
        31,698Minority interest
        2,953
        2,839Stockholders equity:Class A common stock, par $0.01
        557
        556Authorized  109,000,000 sharesIssued and outstanding  55,677,173 shares at September 30, 2006 and 55,607,834 shares at March 31, 2006Class B common stock, par $0.01
        147
        147Authorized  25,000,000 sharesIssued and outstanding  14,741,872 shares at September 30, 2006 and March 31, 2006Preferred stock, par $0.01
        --
        --Authorized  1,000,000 sharesIssued and outstanding  noneDeferred compensation
        --
        (1,751)Additional paid-in capital
        392,170
        392,843Treasury stock at cost  93,100 shares
        (247)
        (247)Cumulative translation adjustment
        (70)
        (241)Accumulated deficit
        (227,747)
        (234,031)Total stockholders equity
        164,810
        157,276Total liabilities and stockholders equity
        $ 203,825
        $  191,813  The accompanying notes are an integral part of these Consolidated Financial Statements.  -3-       WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unauditied) Three months ended
September 30,
        Six months ended
September 30,2006
        2005
        2006
        2005Equipment sales
        $ 60,026
        $ 55,127
        $ 113,580
        $ 118,863Services
        11,773
        11,189
        23,595
        23,094Total revenues
        71,799
        66,316
        137,175
        141,957Cost of equipment sales
        42,110
        40,075
        79,851
        87,209Cost of services
        5,950
        5,782
        11,853
        11,646Total cost of goods sold
        48,060
        45,857
        91,704
        98,855Gross margin
        23,739
        20,459
        45,471
        43,102Operating expenses:Sales and marketing
        7,306
        5,987
        14,457
        12,157Research and development
        6,252
        4,975
        11,949
        9,632General and administrative
        4,506
        4,164
        9,158
        8,518Intangible amortization
        415
        324
        830
        648Total operating expenses
        18,479
        15,450
        36,394
        30,955Operating income
        5,260
        5,009
        9,077
        12,147Other income, net
        772
        192
        1,440
        14Interest expense
        (1)
        (5)
        (2)
        (9)Income before minority interest and income taxes
        6,031
        5,196
        10,515
        12,152Income taxes
        2,376
        2,115
        4,121
        4,828Minority interest
        48
        58
        110
        152Net income
        3,607
        3,023
        6,284
        7,172Net income per common share:Basic
        $ 0.05
        $ 0.04
        $ 0.09
        $ 0.10Diluted
        $ 0.05
        $ 0.04
        $ 0.09
        $ 0.10Weighted average number of common shares outstanding:Basic
        70,399
        70,097
        70,388
        69,610Diluted
        70,927
        71,584
        71,133
        71,497  The accompanying notes are an integral part of these Consolidated Financial Statements    -4-       WESTELL TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unauditied)  Six months ended
September 30,2006
        2005Cash flows from operating activities:Net income
        $ 6,284
        $ 7,172Reconciliation of net income to net cash provided by operating activities:Depreciation and amortization
        4,222
        5,079Loss on sale of fixed assets
        (48)
        (130)Restructuring
        (181)
        (153)Deferred Taxes
        4,003
        3,530Minority interest
        110
        152Stock based compensation
        823
        412Excess tax benefit related to stock based compensation
        (39)
        --Tax benefit received on stock option exercises
        --
        1,260Changes in assets and liabilities:Accounts receivable
        7,527
        2,640Inventory
        (227)
        7,633Prepaid expenses and other current assets
        221
        (804)Other assets
        43
        (132)Accounts payable and accrued expenses
        4,175
        (6,139)Accrued compensation
        475
        (1,854)Net cash provided by operating activities
        27,388
        18,666Cash flows from investing activities:Purchases of property and equipment
        (1,862)
        (2,168)Proceeds from the sale of equipment
        48
        130Purchase of investments
        (663)
        (677)Acquisition of  a business
        (112)
        --Net cash used in investing activities
        (2,589)
        (2,715)Cash flows from financing activities:Net repayment of long-term debt and leases payable
        (28)
        (239)Proceeds from stock purchase, option plans and warrants
        256
        1,891Tax benefit received on stock option exercises
        39
        --Net cash provided by financing activities
        267
        1,652Effect of exchange rate changes on cash
        98
        24Net increase in cash
        25,164
        17,627Cash and cash equivalents, beginning of period
        40,928
        26,350Cash and cash equivalents, end of period
        $ 66,092
        $ 43,977  The accompanying notes are an integral part of these Consolidated Financial Statements    -5-       Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.  It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K for the year ended March 31, 2006. In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Companys consolidated financial position and the results of operations and cash flows at September 30, 2006 and for all periods presented.  The results of operations for the three and six month periods ended September 30, 2006 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2007 (fiscal year 2007). Note 2. Computation of Income Per Share The computation of basic earnings per share is computed using the weighted average number of common shares outstanding during the period.  Diluted earnings per share includes the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.  The following table sets forth the computation of basic and diluted earnings per share: Three months ended
September 30,
        Six months ended
September 30,(in thousands, except per share amounts)
        2006
        2005
        2006
        2005Basic Earnings per Share:Net income
        $ 3,607
        $ 3,023
        $ 6,284
        $ 7,172Average basic shares outstanding
        70,399
        70,097
        70,388
        69,610Basic net income per share
        $ 0.05
        $ 0.04
        $ 0.09
        $ 0.10Diluted Earnings per Share:Net income
        $ 3,607
        $ 3,023
        $ 6,284
        $ 7,172Average basic shares outstanding
        70,399
        70,097
        70,388
        69,610Effect of dilutive securities: stock options and warrants
        528
        1,487
        745
        1,887Average diluted shares outstanding
        70,927
        71,584
        71,133
        71,497Diluted net income per share
        $ 0.05
        $ 0.04
        $ 0.09
        $ 0.10  Options to purchase 5,985,350 and 5,025,588 shares of common stock for the three months ended September 30, 2006 and September 30, 2005, respectively and options to purchase 5,960,272 and 4,723,041 shares of common stock for the six months ended September 30, 2006 and September 30, 2005, respectively, were not included in the computation of diluted shares because the options exercise prices were greater than the average market price of the common shares.  Note 3. Revolving Credit Agreements:  The Company entered into a Second Amended and Restated Credit Agreement dated as of June 30, 2006 (the Credit Agreement).  The Credit Agreement is a three-year revolving credit facility in an amount up to $40 million.  The obligations of the Company under the Credit Agreement are secured by a guaranty from certain direct and indirect domestic subsidiaries of the Company, and substantially all of the assets of the Company.  The interest rate spread in the case of LIBOR and Base Rate loans and the payment of the non-use fees is dependent on the Companys leverage ratio.  Currently the revolving loans under the Credit Agreement bear interest, at the Companys option, at the London Interbank Offered Rate (LIBOR) plus 1.5% or an alternative base rate.  The alternative base rate is the greater of the LaSalle Bank National Association prime rate or the Federal Funds rate plus 0.50%.
The Company is also required to pay a non-use fee of 0.2% per annum on the unused portion of the revolving loans.  The Credit Agreement contains financial covenants that include a minimum Fixed Charge  -6-      Coverage Ratio, a minimum tangible net worth test, a total leverage ratio test (consolidated total debt to EBITDA), and a limitation on capital expenditures for any fiscal year as well as other non financial covenants.  The Company was in compliance with these covenants on September 30, 2006 and expects to comply with these covenants for the term of the debt.  There were no borrowings under this facility at September 30, 2006.  Note 4. Restructuring Charge  The Company recognized a restructuring expense of $443,000 in the third quarter of fiscal year 2006.  This charge included personnel costs relating to the termination of 17 employees at Westell Inc.  As of September 30, 2006, all of these costs have been paid.  On December 29, 2005, the Company acquired 100% of the stock of HyperEdge Corporation.  The Company has implemented a restructuring plan to combine and streamline the operations of the companies to achieve synergies related to the manufacture and distribution of common NSA product lines.  The Company estimates the costs of employee terminations, which were recorded as liabilities assumed in the acquisition, to be $400,000.  Approximately 20 employees were impacted by this plan.  Any adjustments to this plan will be accounted for in accordance with SFAS No. 141.  As of September 30, 2006, $182,000 of these costs have been paid leaving an unpaid balance of $218,000.  The restructuring charges and their utilization are summarized as follows:  (in thousands)
        Employee related
        Legal, other and facility costs
        TotalAccrued at March 31, 2006
        $  371
        $  28
        $  399Charged
        --
        --
        --HyperEdge acquisition
        100
        --
        100Utilized
        266
        15
        281Accrued at September 30, 2006
        205
        13
        218  Note 5. Interim Segment Information Westells reportable segments are strategic business units that offer different products and services.  They are managed separately because each business requires different technology and market strategies.  They consist of: 1)
        A telecommunications equipment manufacturer of broadband products, and 2)
        A multi-point telecommunications service bureau specializing in audio teleconferencing, multi-point video conferencing, broadcast fax and multimedia teleconference services.   -7-       Performance of these segments is evaluated utilizing revenue, operating income and total asset measurements.  The accounting policies of the segments are the same as those for Westell Technologies, Inc. Segment information for the three and six month periods ended September 30, 2005 and 2006 are as follows: (in thousands)
        Telcom Equipment
        Telcom Service
        Consolidated TotalThree months ended September 30, 2005Revenues
        $ 55,127
        $ 11,189
        $ 66,316Operating income
        3,679
        1,330
        5,009Depreciation and amortization
        1,992
        736
        2,728Total assets
        164,586
        18,376
        182,962Three months ended September 30, 2006Revenues
        $ 60,026
        $ 11,773
        $ 71,799Operating income
        4,115
        1,145
        5,260Depreciation and amortization
        1,690
        447
        2,137Total assets
        185,797
        18,028
        203,825Six months ended September 30, 2005Revenues
        $ 118,863
        $ 23,094
        $ 141,957Operating income
        9,148
        2,999
        12,147Depreciation and amortization
        3,536
        1,543
        5,079Total assets
        164,586
        18,376
        182,962Six months ended September 30, 2006Revenues
        $ 113,580
        $ 23,595
        $ 137,175Operating income
        6,471
        2,606
        9,077Depreciation and amortization
        3,212
        1,010
        4,222Total assets
        185,797
        18,028
        203,825  Reconciliation of Operating income for the reportable segments to income before income taxes and minority interest:  Three months ended
September 30,
        Six months ended
September 30,(in thousands)
        2006
        2005
        2006
        2005Operating income
        $ 5,260
        $ 5,009
        $ 9,077
        $ 12,147Other income, net
        772
        192
        1,440
        14Interest expense
        (1)
        (5)
        (2)
        (9)Income before income taxes and minority interest
        $ 6,031
        $ 5,196
        $ 10,515
        $ 12,152  Note 6. Comprehensive Income  The disclosure of comprehensive income, which encompasses net income and foreign currency translation adjustments, is as follows:  Three months ended
September 30,
        Six months ended
September 30,(in thousands)
        2006
        2005
        2006
        2005Net income
        $ 3,607
        $ 3,023
        $ 6,284
        $ 7,172Other comprehensive income: Foreign currency translation adjustment
        40
        86
        171
        346Comprehensive Income
        $ 3,647
        $ 3,109
        $ 6,455
        $ 7,518   -8-       Note 7. Inventories  The components of inventories are as follows:  September 30,
        March 31,(in thousands)
        2006
        2006Raw material
        $ 15,243
        $  16,982Work in process
        29
        312Finished goods
        12,360
        10,452Reserve for excess and obsolete inventory and net realizable value
        (3,487)
        (3,828)$ 24,145
        $  23,918  Note 8. Stock-based Compensation  In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123R).  This statement requires that the costs of all employee share-based payments be measured at fair value on the awards grant date and be recognized in the financial statements over the requisite service period. SFAS No. 123R supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, (APB No. 25) and its related interpretations, and eliminates the alternative use of the intrinsic value method of accounting under APB No. 25, which the Company previously used.  On April 1, 2006, the Company adopted SFAS No. 123R using the modified prospective method.  As a result, the Companys income before income taxes for the three and six months ended September 30, 2006 is $277,000 and $572,000 lower than if it had continued to account for share-based compensation under APB No. 25.  The $572,000 of expense is inclusive of a $62,000 reduction of expense resulting from the application of an estimated forfeiture rate to its existing unvested awards which is included in the accompanying Consolidated Statement of Operations for the six months ended September 30, 2006.  The Company previously recognized forfeitures as they were incurred.  Additionally, under SFAS No. 123R, the Company has elected to recognize compensation expense for all share-based awards with service periods beginning subsequent to the adoption of SFAS No. 123R over the service period of the award, unless the
award has a performance condition in which case compensation expense will be recognized using a graded vesting attribution method.  Also, under SFAS No. 123R the benefits of tax deductions in excess of recognized compensation cost are now reported as a financing cash flow instead of as an operating cash flow as required under previous accounting literature.  Prior to the adoption of SFAS No. 123R, the Company applied the intrinsic-value-based method of accounting prescribed by APB No. 25 and related interpretations to account for its fixed-plan stock options.  Under this method, compensation expense was recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price.  Pro forma net earnings as if the fair value based method had been applied to all awards are as follows:  (in thousands, except per-share amounts)
        Three months ended
September 30, 2005
        Six months ended
September 30, 2005Net income, as reported
        $ 3,023
        $ 7,172Stock-based employee compensation expense included in reported net earnings, net of related tax effects
        129
        255Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects
        (828)
        (1,681)Pro forma net income
        2,324
        5,746Earnings per common share:As reported
        $ 0.04
        $ 0.10Pro forma
        $ 0.03
        $ 0.08Earnings per common share, assuming dilution:As reported
        $ 0.04
        $ 0.10Pro forma
        $ 0.03
        $ 0.08   -9-       On February 24, 2006, the Company accelerated the vesting of approximately 1.4 million unvested out of the money stock options  held by current employees and certain executive officers of the Company.  No options were accelerated for board members or the Chief Executive Officer.  The immediate vesting included a restriction on the resale of the underlying shares of common stock.  The acceleration of vesting was made to reduce compensation expense that otherwise would be recorded in future periods.  For pro forma disclosure purposes, these options were treated as if they were expensed in the fourth quarter of fiscal 2006.  Non-qualified stock options  Stock options granted by the Company generally have an exercise price that is equal to the fair value of the Companys stock on the grant date. Options vest over period from two to five years, or upon the earlier of the achievement of Company and individual goals established, or 8 years.  The Company recorded expense of $218,000 and $446,000 in the three and six month periods ended September 30, 2006 related to stock options.  The excess tax benefit of $39,000 was reflected as a cash flow from financing activities in the consolidated statement of cash flows.  Total cash received from options exercised was $137,000 and $1.7 million in the six months ended September 30, 2006 and 2005, respectively.  The option activity for the six months ended September 30, 2006 is as follows:  Shares
        Weighted Average Exercise Price Per Share
        Weighted
Average
Remaining
Contractual
Term (in years)
        Aggregate Intrinsic Value (in thousands)Outstanding on March 31, 2006
        9,201,172
        $  5.78
        5.3Granted
        367,800
        2.39Exercised
        (84,150)
        1.63
        
        110Forfeited / Expired
        (560,461)
        5.00Outstanding on September 30, 2006
        8,924,361
        5.72
        5.0
        1,250Exercisable on September 30, 2006
        7,248,271
        6.27
        4.5
        1,079  As of September 30, 2006, there was $1.4 million pre-tax stock option compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.6 years. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:  Six months ended Sept. 30,2006
        2005Expected volatility
        67%
        89%Risk-free interest rate
        4.8%
        3.8%Expected life
        5 years
        5 yearsExpected dividend yield
        0.0%
        0.0%  Non-qualified subsidiary stock options  The Companys Conference Plus subsidiary has a stock option plan for the purchase of Conference Plus stock. Stock options granted under this plan have an exercise price that is equal to the fair value of Conference Plus stock on the grant date.  Options can not be exercised until the earliest of the following to occur; an initial public offering, a spin off, a change in control of Conference Plus, or the fifth anniversary of the option grant date.  The Company recorded expense of $55,000 and $112,000 in the three and six month periods ended September 30, 2006 related to these stock options.  The option activity for the three months ended September 30, 2006 is as follows:   -10-        Shares
        Weighted Average Exercise Price Per Share
        Weighted
Average
Remaining
Contractual
Term (in years)
        Aggregate Intrinsic Value (in thousands)Outstanding on March 31, 2006
        2,015,304
        $  1.65
        6.2Granted
        154,750
        1.81Exercised
        --
        --
        
        --Forfeited / Expired
        (88,377)
        1.78Outstanding on September 30, 2006
        2,081,677
        1.66
        6.0
        325Exercisable on September 30, 2006
        377,358
        1.14
        2.1
        253  As of September 30, 2006, there was $352,000 pre-tax stock option compensation expense related to non-vested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.5 years. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:  Six months ended Sept. 30,2006
        2005Expected volatility
        50%
        50%Risk-free interest rate
        4.8%
        3.7%Expected life
        7 years
        7 yearsExpected dividend yield
        0.0%
        0.0%  Restricted Stock  Vesting of restricted stock is subject to continued employment with the Company.  Restricted stock awards granted in fiscal year 2006 will vest in full on March 31, 2007.  The restricted stock awards granted in fiscal year 2005 will vest in full on June 1, 2008 with the exception of 20,000 awards that will vest on March 31, 2007.  Each restricted stock award is subject to partial vesting in the event of death, disability or involuntary termination other than for cause, as defined in the restricted stock award, based upon the number of months worked prior to the vesting date of the stock award.  The Company recognizes compensation expense on a straight-line basis over the vesting period based on the market value of Westell Technologies stock on the date of grant.  The Company recorded $200,000 and $206,000 of expense in the three months ended September 30, 2006 and 2005, respectively, and $250,000 and $412,000
of expense in the six months ended September 30, 2006 and 2005, respectively, related to these grants.  The following table sets forth restricted stock activity for the six months ended September 30, 2006: Shares
        Weighted Average Grant Date Fair ValueOutstanding as of March 31, 2006
        426,100
        6.58Granted
        --
        --Vested
        --
        --Forfeited
        (60,000)
        6.71Outstanding as of September 30, 2006
        366,100
        6.56  As of September 30, 2006, there was $1.1 million of unrecognized compensation expense related to restricted stock expected to be recognized over a weighted-average period of 1.4 years.  Employee Stock Purchase Plan  There were 45,189 and 34,219 shares of common stock purchased under the employee stock purchase plan (ESPP) during the six months ended September 30, 2006 and 2005, respectively.  The ESPP allows employees to purchase  -11-      stock through payroll deductions each quarter end at a 15% discount from the market price on that day.  The Company recorded $4,000 and $14,000 of expense in the three and six months ended September 30, 2006 related to stock purchased under this plan.  Stock-Based Compensation Expense  The following table sets forth the total stock-based compensation expense resulting from stock options, restricted stock and the employee stock purchase plan:  (in thousands)
        Three months ended
Sept. 30, 2006
        Six months ended
Sept. 30, 2006Cost of equipment sales
        96
        197Cost of services
        16
        33Sales and marketing
        119
        105Research and development
        130
        220General and administrative
        117
        268Stock-based compensation expense
        478
        823Income tax benefit
        189
        325Total stock-based compensation expense after taxes
        289
        498  Note 9. Warranty Reserve  Most of the Companys products carry a limited warranty ranging from one to seven years.  The specific terms and conditions of those warranties vary depending upon the product sold.  Factors that enter into the estimate of the Companys warranty reserve include the number of units shipped historical and anticipated rates of warranty claims, and cost per claim.  The Company periodically assesses the adequacy of its recorded warranty liability and adjusts the reserve as necessary.  The Company reports warranty reserve as both current and long term liabilities. The following table presents the changes in the Companys product warranty reserve:  Three months ended
September 30,
        Six months ended
September 30,(in thousands)
        2006
        2005
        2006
        2005Total product warranty reserve at the beginning of the period
        $ 1,804
        $ 1,845
        $ 1,776
        $ 1,806Warranty expense
        297
        346
        643
        894Adjustments
        --
        --
        --
        --Deductions
        (404)
        (259)
        (722)
        (768)Total product warranty reserve at the end of the period
        $ 1,697
        $ 1,932
        $ 1,697
        $ 1,932  Note 10. Deferred Compensation  The Company has a deferred compensation program with its Chief Executive Officer that is funded through a rabbi trust.  The rabbi trust qualifies as a Variable Interest Entity under FASB Interpretation No. 46, Consolidation of Variable Interest Entities and as such is consolidated in the Companys financial statements. Approximately $1.9 million of cash has been funded into the rabbi trust as September 30, 2006.  The Company has recorded a $2.4 million short-term liability to accrue for the deferred compensation liability as of September 30, 2006.  The rabbi trust is subject to the creditors of the Company.  All amounts deferred under this compensation program vested on March 31, 2006.  Note 11. Sale of Product Line  On July 1, 2004, the Company sold its Data Station Termination product lines and specified fixed assets for $2.2 million to Enginuity Communications Corporation (Enginuity).  The Company received $2.0 million in cash, $200,000 in the form of a note receivable and provided an unconditional guarantee in the amount of $1.6 million relating to a 10 year term Enginuity note payable to a third party lender that financed the transaction.  The balance of  -12-      the term loan is $1.4 million as of September 30, 2006.  Certain owners of Enginuity pledged assets with a fair market value of $1.5 million and personally guaranteed the note payable.  These guarantees will stay in place until the note is paid in full.  The Company must pay all amounts due under the note payable upon demand from the lender.  The Company evaluated FIN 46R Consolidation of Variable Interest Entities and concluded that Enginuity was a variable interest entity as a result of the debt guarantee.  The Company is not considered the primary beneficiary of the variable interest entity therefore consolidation is not required.  The Company assessed its obligation under this guarantee pursuant to the provisions of FIN 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others and recorded a $300,000 liability for the value of the guarantee.  The Company evaluates the liability each quarter and reduced the liability to $200,000 in the quarter ended June 30, 2006 based on Enginuity operating performance and current status of the guaranteed debt obligation.  Note 12. Acquisition  On December 29, 2005, the Company acquired 100% of the common stock of HyperEdge Corporation, a manufacturer of network service access products, for $14.0 million in cash.  The Company has accrued $649,000 in estimated transaction costs, including costs for employee severance.  The Company paid $112,000 of transaction costs consisting of legal fees and accounting fees for intangible valuation in the six months ended September 30 2006.  The acquisition was accounted for using the purchase method of accounting in accordance with SFAS No. 141 Business Combinations (SFAS No. 141) and accordingly the operating results of HyperEdge have been included in the consolidated financial statements from the acquisition date.  In accordance with SFAS No. 141, the total purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with excess purchase price allocated to goodwill.  The purchase price allocation for HyperEdge has not been finalized pending completion of final adjustments to liabilities assumed in the acquisition and the completion of integration plans.  Note 13. New Accounting Pronouncements  In June 2006, the FASB issued FASB Interpretation (FIN) No 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109.  FIN No. 48 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return.  This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for the Company beginning on April 1, 2007.  The Company is currently evaluating the impact that the adoption of FIN No. 48 will have on its financial condition and results of operations, which will be required to be adopted in the June 30, 2007 quarter.  In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement addresses how to calculate fair value measurements required or permitted under other accounting pronouncements. Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this statement will change current practice. SFAS No. 157 is effective for the Company beginning April 1, 2008. The Company is currently evaluating the impact of this standard.  In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108),Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, to address diversity in practice in quantifying financial statement misstatements. SAB 108 provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB 108 is effective for the Company in its year ended March 31, 2007, and allows a one-time transitional cumulative effect adjustment to retained earnings for errors that were not previously deemed material, but are material under the guidance in SAB 108. The Company is in the process of determining the effects, if any, that SAB 108 will have on its financial statements.   -13-       ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Overview The Company is comprised of two segments: telecommunications equipment manufacturer and teleconference services bureau.  The equipment manufacturing segment consists of two product lines: Customer Networking Equipment (CNE) products and Network Service Access (NSA) products.  The CNE product line includes broadband and digital subscriber line (DSL) technology products that allow the transport of high-speed data over the local loop and enable telecommunications companies to provide broadband services over existing copper infrastructure.  The Companys NSA product line consists of manageable and non-manageable T1 transmission equipment, associated mountings and special service plugs for the legacy copper telephone network.  Westell realizes the majority of its revenues from the North American market. The Companys teleconference service segment is comprised of a 91.5% owned subsidiary, Conference Plus, Inc. Conference Plus provides audio, video, and web conferencing services.  Businesses and individuals use these services to hold voice, video or web conferences with many people at the same time.  Conference Plus sells its services directly to large customers, including  Fortune 1000 companies, and serves other customers indirectly through its private label reseller program. The equipment manufacturing segment of the Companys business consists of two product lines, offering a broad range of products that facilitate the broadband transmission of high-speed digital and analog data between a telephone companys central office and end user customers.  These two product lines are: 
        Customer Networking Equipment (CNE):  Westells family of broadband products enable the delivery of VoIP voice, video / IPTV and high-speed data over local telephone lines. The CNE broadband products allow telecommunications companies to provide media-rich broadband services regardless of whether the telephone company is using their existing copper infrastructure or newly installed fiber to the curb (FTTC) or fiber to the home (FTTH) infrastructure.  The Companys broadband products using both wired Ethernet and wireless 802.11b/g networking technologies enable residential, small business and Small Office Home Office (SOHO) users to establish networks which provide for multiple computers, telephones and other devices to access the Internet simultaneously.  Digital Subscriber Lines (ADSL2+),
VDSL2 and fiber enabled products make up the majority of the revenue in this product group.
        Network Service Access (NSA):  Westells NSA product family consists of manageable and non-manageable T1 transmission equipment for telephone services, and an array of mounting products used for connecting telephone wires and cables, and special service plugs.  The T1 transmission equipment termed Network Interface Units (NIU) and the associated NIU mounting products make up the majority of revenue from this product group. The prices for the products within each market group vary based upon volume, customer specifications and other criteria and are subject to change due to competition among telecommunications manufacturers and service providers.  Increasing competition, in terms of the number of entrants and their size, and increasing size of the Companys customers because of past mergers, continues to exert downward pressure on prices for the Companys products.  The Company expects average selling prices on its VersaLinkTMand modem products to decline 20% or less in fiscal year 2007. On November 18, 2005, SBC (now AT&T Inc.) acquired AT&T Corp.  In the fiscal year ended March 31, 2006, sales to AT&T Inc. generated approximately 7.9% of the Companys total revenues.  The largest customer of Conference Plus is AT&T Inc. which offers services similar to Conference Plus.  AT&T accounted for 46.2% of the service segment revenue in the fiscal year ended March 31, 2006.  The Company is unable to predict at this time how the merger will impact the Companys results of operations in the future. On July 21, 2006 AT&T Inc. and BellSouth stockholders approved the acquisition of BellSouth by AT&T.  Subject to approval of regulatory authorities and other customary closing conditions, the merger is expected to close in 2006.  -14-      BellSouth is the Companys second largest customer.  The Company is unable to predict at this time how the merger will impact the Companys results from operations in the future. In September 2006 the Company announced an end to joint development of the Verizon One product with Verizon Communications Inc.  The Company will complete its orders for Verizon One, and the companies will each pursue independent development and marketing strategies for their respective multimedia terminal product programs.  Westell continues as Verizons primary supplier of DSL modems and gateway productsand continues to be engaged on video and convergence product opportunities at Verizon. The Companys customer base is highly concentrated and comprised primarily of the Regional Bell Operating Companies (RBOCs), independent domestic local exchange carriers and public telephone administrations located outside the U.S.  Due to the stringent quality specifications of its customers and the regulated environment in which its customers operate, the Company must undergo lengthy approval and procurement processes prior to selling its products.  Accordingly, the Company must make significant up front investments in product and market development prior to actual commencement of sales of new products. To remain competitive, the Company must continue to invest in new product development and invest in targeted sales and marketing efforts to cover new product lines.  Failure to increase revenues from new products, whether due to lack of market acceptance, competition, technological change or otherwise, would have a material adverse effect on the Companys business and results of operations.  The Company expects to continue to evaluate new product opportunities and engage in extensive research and development activities. The Company is focusing on expanding its product offerings in the equipment segment from basic high speed broadband to more sophisticated applications such as VoIP, in-premise networking; wireless/wireline convergence, IMS (IP Multimedia Subsystem) and FMC (Fixed Mobile Convergence); video / IPTV and multifunctional broadband appliances.  This will require the Company to continue to invest in research and development and sales and marketing, which could adversely affect short-term results of operations.  The Company expects to increase spending in research and development and sales and marketing and technical support by approximately 25% in fiscal year 2007 compared to fiscal year 2006 to take advantage of these market opportunities.  In view of the Companys reliance on the broadband CPE for revenues and the unpredictability of orders and pricing pressures, the Company believes that period-to-period
comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. In the CNE equipment manufacturing segment, the Company is focusing on the evolving broadband demand, which includes increased bandwidth, richer application sets, converged capabilities and higher complexity.  The Company has introduced products including the UltraLineTM, ProLineTMVersaLinkTMand TriLinkTM, which are targeted at the broadband access, home networking, small office/home office (SOHO) and small business markets.  The Company has multiple evaluations and its entering trials for TriLinkTM,TriLinkTMIMS and UltraLineIITMThe Company continues to
focus on expanding existing and new products into the international market consisting primarily of Europe and Canada. The Company expects the overall NSA market to decline annually by approximately 10% as the transition to high-speed digital service continues. This decline could impact the Companys future revenue.  The Company acquired 100% of the common stock of HyperEdge Corporation, on December 29, 2005 with the goal of strengthening the NSA business by improving margin through economies of scale.  With the addition of HyperEdge the Company hopes to increase its market share in mountings and NIUs. The Company also plans to invest in new product areas to complement wireless and fiber applications.   -15-       Results of Operations The Company adopted SFAS No. 123R on April 1, 2006 using the modified prospective method.  As a result, the Companys income before income taxes for the three and six months ended September 30, 2006 is $277,000 and $572,000 lower due to the adoption of this statement. See Note 8 to the consolidated financial statements for further discussion on stock based compensation.  Revenue
        Three months ended
September 30,
        Six months ended
September 30,(in thousands)
        2006
        2005
        Change
        2006
        2005
        ChangeConsolidated revenue
        $ 71,799
        $ 66,316
        $ 5,483
        $ 137,175
        $ 141,957
        $ (4,782)Equipment revenue:CNE
        44,779
        44,035
        744
        84,281
        97,079
        (12,798)NSA
        15,247
        11,092
        4,155
        29,299
        21,784
        7,515Total equipment revenue
        60,026
        55,127
        4,899
        113,580
        118,863
        (5,283)Services revenue
        11,773
        11,189
        584
        23,595
        23,094
        501  CNE revenue for the three months ended September 30, 2006 increased due to a 21% increase in unit volume compared to the three month period ended September 30, 2005 offset in part by an 8% decrease in average selling price per unit.  CNE revenue decreased 13% in the six months ended September 30, 2006 compared to September 30, 2005 due to a 16% decrease in average selling price per unit offset in part by a 9% increase in units sold.  NSA revenue increased in the three and six months ended September 30, 2006 by 37% and 35%, respectively, compared to same periods ended September 30, 2005 due to the acquisition of HyperEdge, which occurred in December of 2005. Revenue in the services segment was increased 5% and 2% in the three and six month periods ended September 30, 2006 compared to the same periods ended September 30, 2005.  Gross Margin
        Three months ended
September 30,
        Six months ended
September 30,2006
        2005
        Change
        2006
        2005
        ChangeConsolidated Margin
        33.1%
        30.9%
        2.2%
        33.1%
        30.4%
        2.7%Equipment Margin
        29.8%
        27.3%
        2.5%
        29.7%
        26.6%
        3.1%Service Margin
        49.5%
        48.3%
        1.2%
        49.8%
        49.6%
        0.2%  Gross margin increased as a percent of revenue in the equipment segment in both the three and six month periods ended September 30, 2006 compared to the same periods ended September 30, 2005 primarily due to a higher mix of NSA revenue resulting from the acquisition of HyperEdge as well as benefit received from product cost reductions on ProlineTMand VersalinkTMproducts offset in part by a $646,000 excess and obsolete inventory charge in the second quarter.  Margins in the services segment increased slightly in the three and six months ended September 30, 2006 when compared to the same periods ended September 30, 2005.  Sales and Marketing
        Three months ended
September 30,
        Six months ended
September 30,(in thousands)
        2006
        2005
        Change
        2006
        2005
        ChangeConsolidated sales and marketing expense
        $7,306
        $5,987
        $ 1,319
        $14,457
        $12,157
        $2,300Equipment sales and marketing expense
        4,889
        3,891
        998
        9,668
        7,908
        1,760Services sales and marketing expense
        2,417
        2,096
        321
        4,789
        4,249
        540  The sales and marketing expense increase in the equipment segment in the three months ended September 30, 2006 compared to the three months ended September 30, 2005 was due primarily to $192,000 of less billable warranty repair work, $140,000 of  increased health insurance expense, $129,000 of bonus expense and $129,000 of media gateway test and evaluation units.  The sales and marketing expense increase in the equipment segment in the six months ended September 30, 2006 compared to the six months ended September 30, 2005 was due primarily to $737,000 of less billable warranty repair work, $176,000 of increased bonus expense and $143,000 of higher product certification expense.  Sales and marketing expense increased in the Companys services segment in the  -16-      three and six month period ended September 30, 2006 compared to the same period last year due primarily to a 10% increase in the number of employees at Conference Plus.  The Company believes that sales and marketing expense in the future will continue to be a significant percent of revenue and will be required to expand its product lines, bring new products to market and service customers.  Research and Development
        Three months ended
September 30,
        Six months ended
September 30,(in thousands)
        2006
        2005
        Change
        2006
        2005
        ChangeConsolidated research and development expense
        $6,252
        $4,975
        $1,277
        $11,949
        $9,632
        $2,317Equipment research and development expense
        5,776
        4,536
        1,240
        11,002
        8,737
        2,265Services research and development expense
        476
        439
        37
        947
        895
        52  Engineering expenses have increased in the three and six months ended September 30, 2006 compared to the same periods in fiscal year 2006.  A portion of this increase was due to an increase in external consulting expense of $901,000 and $1.4 million in the three and six month ended September 30, 2006 compared to the same periods ended September 30, 2005.  In addition, there was a 15% increase in the number of employees in the fiscal year 2007 periods resulting in $350,000 and $706,000 more compensation and employee related expenses.  The increase in engineering consulting and employees was primarily to support the development of the media gateway and video transport products and to a lesser extent the acquisition of HyperEdge.  The Company believes that research and development expenses will increase in fiscal year 2007 as the Company continues to focus on VoIP, in-premise networking, wireless/wireline
convergence including IMS (IP Multimedia Subsystem) and FMC (Fixed Mobile Convergence), video / IPTV and multifunctional broadband appliances, user interfaces and other broadband applications.  General and Administrative
        Three months ended
September 30,
        Six months ended
September 30,(in thousands)
        2006
        2005
        Change
        2006
        2005
        ChangeConsolidated general and administrative expense
        $4,506
        $4,164
        $342
        $9,158
        $8,518
        $640Equipment general and administrative expense
        2,705
        2,609
        96
        5,724
        5,187
        537Services general and administrative expense
        1,801
        1,555
        246
        3,434
        3,331
        103  The increase in general and administrative expense in the equipment segment in the six months ended September 30, 2006 compared to the same period ended September 30, 2005 is due primarily to a $256,000 fee paid to an executive search firm for the purpose of conducting a search for the successor CEO.  The increase in general and administrative expense in the services segment in the quarter ended September 30, 2006 compared to the same period ended September 30, 2005  is due primarily to increased information technology costs. Intangible amortizationIntangible amortization was $415,000 and $324,000 for the three months and $830,000 and $648,000 for the six months ended September 30, 2006 and 2005, respectively.  The intangibles consist of product technology related to the March 17, 2000 acquisition of Teltrend Inc. and product technology and customer relationships related to the December 29, 2005 HyperEdge Inc. acquisition. Other income netOther income, net was $772,000 and $192,000 in the three months and $1.4 million and $14,000 in the six months ended September 30, 2006 and 2005, respectively.  Interest income was $722,000 and  $1.3 million in the three and six months ended September 30, 2006 compared to $301,000 and $472,000 in the three and six months ended September 30, 2005.  The increase in the current year interest income is due to higher cash balances on hand in addition to higher interest rates.  The September 30, 2005 quarter and six months contained $121,000 and $496,000 of expense for unrealized losses on intercompany balances denominated in foreign currency. Interest expenseInterest expense decreased to $1,000 and $2,000 in the three and six months ended September 30, 2006 from $5,000 and $9,000 in the three and six months ended September 30, 2005.  The decrease in interest expense during the current period is a result of lower net obligations outstanding during the period.  -17-       Income taxesThe Company recorded $2.4 million and $4.1 million of income tax expense based on an estimated tax rate of 39% in the three and six months ended September 30, 2006 and $2.1 million and $4.8 million in the three and six months ended September 30, 2005, respectively.  Liquidity and Capital Resources  The Company entered into a Second Amended and Restated Credit Agreement dated as of June 30, 2006 (the Credit Agreement).  The Credit Agreement, which has improved terms over the prior agreement, is a three-year revolving credit facility in an amount up to $40 million. The obligations of the Company under the Credit Agreement are secured by a guaranty from certain direct and indirect domestic subsidiaries of the Company, and substantially all of the assets of the Company.  Any proceeds from the revolving loans would be used for working capital purposes and for other general corporate purposes.  The interest rate spread in the case of LIBOR and Base Rate loans and the payment of the non-use fees is dependent on the Companys leverage ratio.  Currently the revolving loans under the Credit Agreement bear interest, at the Companys option, at the London Interbank Offered Rate
(LIBOR) plus 1.5% or an alternative base rate.  The alternative base rate is the greater of the LaSalle Bank National Association prime rate or the Federal Funds rate plus 0.50%.  The Company is also required to pay a non-use fee of 0.2% per annum on the unused portion of the revolving loans.  The Credit Agreement contains financial covenants that include a minimum Fixed Charge Coverage Ratio, a minimum tangible net worth test, a total leverage ratio test (consolidated total debt to EBITDA), and a limitation on capital expenditures for any fiscal year.  Other covenants include limitations on lines of business, additional indebtedness, liens and negative pledge agreements, incorporation of other debt covenants, guarantees, investments and advances, cancellation of indebtedness, restricted payments, modification of certain agreements and instruments, inconsistent agreements, leases, consolidations, mergers and acquisitions, sale of assets, subsidiary dividends, and transactions with affiliates.  The Company was in compliance with these covenants on September 30, 2006 and expects to comply with these covenants for the term of the debt. At September 30, 2006, the Company had $66.1 million in cash and cash equivalents consisting primarily of the highest rated grade corporate commercial paper.  At September 30, 2006, the Company had no amounts outstanding and $40.0 million available under its secured revolving credit facility. The Companys operating activities generated cash of $27.5 million in the six month period ended September 30, 2006.  Cash generated by operations resulted primarily from net income, non-cash depreciation and amortization and reductions in accounts receivable and deferred taxes and an increase in accounts payable and accrued expenses in both segments. The Companys investing activities used $2.7 million for the six month period ended September 30, 2006.  Capital expenditures for the six month period ended September 30, 2006 were $1.9 million.  The capital expenditures in the equipment segment were $1.4 million and were primarily for machinery and research and development equipment purchases.  The services segment capital expenditures were $477,000.  These expenditures were primarily for computer and telecom bridge equipment. At September 30, 2006 the Companys principle sources of liquidity were $66.1 million of cash and the secured revolving credit facility under which the Company was eligible to borrow up to an additional $40 million.  Cash in excess of operating requirements, if any, will be invested on a short-term basis in the highest rated grade commercial paper.  The Company believes cash on hand and generated from operations will satisfy its future cash requirements for the foreseeable future. The Company had deferred tax assets of approximately $64.1 million at September 30, 2006. The Company has recorded a valuation allowance reserve of $9.5 million to reduce the recorded net deferred tax asset to $54.6 million.  The net operating loss carryforwards begin to expire in 2012. Realization of deferred tax assets associated with the Companys future deductible temporary differences, net operating loss carryforwards and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration.  The Company uses estimates of future taxable income and tax planning strategies by specific jurisdiction to access the valuation allowance required against deferred tax assets. Management periodically evaluates the recoverability of the deferred tax assets and will adjust the valuation allowance against deferred tax assets accordingly.  -18-       Critical Accounting Policies  The Company accounts for stock-based compensation in accordance with SFAS No. 123R using the fair value of awards at grant date and recognizing compensation expense over the vesting period of the award.  The determination of fair value of share-based awards at the grant date requires several assumptions including expected stock volatility, risk-free interest rate, expected option term and expected forfeitures of awards. See footnote 8 for more detailed information on these assumptions.  For a description of our other critical accounting policies, see our Annual Report on Form 10-K for the fiscal year ended March 31, 2006.  ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Westell is subject to certain market risks, including foreign currency and interest rates.  The Company has foreign subsidiaries in the United Kingdom and Ireland that develop and sell products and services in those respective countries.  The Company is exposed to potential gains and losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies.  Market risk is estimated as the potential decrease in pretax earnings resulting from a hypothetical decrease in the ending exchange rate of 10%.  If such a decrease occurred, the Company would incur approximately $31,000 in additional other expense based on the ending intercompany balance outstanding at September 30, 2006 that is expected to repaid in the foreseeable future.  The Companys future primary exposure is to changes in exchange rates for the U.S. dollar versus the British Pound Sterling and the
Euro.  The Company does not currently use any derivative financial instruments relating to the risk associated with changes in foreign currency rates. As of September 30, 2006, the balance in the cumulative foreign currency translation adjustment account, which is a component of stockholders equity, was an unrealized loss of $70,000.  The Company does not have significant exposure to interest rate risk related to its debt obligations, which are primarily U.S. Dollar denominated.  The Company does not currently use any derivative financial instruments relating to the risk associated with changes in interest rates.  ITEM 4.CONTROLS AND PROCEDURES  Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as 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 quarterly report (the Evaluation Date).  Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and (ii) is accumulated and communicated to the Companys management, including our chief executive officer and chief financial officer, 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 that occurred during the quarter ended September 30, 2006 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.  -19-       Part II.OTHER INFORMATION Item 1.LEGAL PROCEEDINGS The Company is involved in various legal proceedings incidental to the Companys business.  In the ordinary course of our business, we are routinely audited and subject to inquiries by governmental and regulatory agencies.  Management believes that the outcome of such proceedings will not have a material adverse effect on our consolidated operations or financial condition. ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On September 21, 2006, the Company held its annual meeting of stockholders. The following directors were re-elected to serve until the annual meeting of stockholders in 2007: Nominee
        For
        WithheldJohn W. Seazholtz
        110,190,375
        577,935E. Van Cullens
        110,230,864
        537,446Paul A. Dwyer
        110,153,003
        615,307Eileen A. Kamerick
        110,231,355
        536,955Robert C. Penny III
        110,206,144
        562,166Roger L. Plummer
        110,232,675
        535,635Bernard F. Sergesketter
        110,222,964
        545,346Melvin J. Simon
        110,205,600
        562,710  The stockholders voted to approve the proposal to ratify the appointment of Ernst &Young LLP, independent auditors as auditors for fiscal year ending March 31, 2007: For
        Against
        AbstainAppointment of independent auditors
        110,621,102
        147,212
        69,776  ITEM 6.EXHIBITS Exhibit 31.1
        Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2
        Certification by the Chief Financial Officer Pursuant to Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002Exhibit 32.1
        Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  Items 1A, 2, 3 and 5 are not applicable and have been omitted.   -20-       SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.  WESTELL TECHNOLOGIES, INC.(Registrant)DATE: November 9, 2006
        By:
        /s/ E. VAN CULLENSE. VAN CULLENSChief Executive OfficerBy:
        /s/ NICHOLAS C. HINDMAN, Sr.NICHOLAS C. HINDMAN, Sr.Chief Financial Officer    -21-