SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2010

~~For the quarterly period ended~~Commission File	~~December 31, 2009~~Registrant; State of Incorporation;	IRS Employer
~~Commission File~~ Number	Address and Telephone Number	Identification No.

001-34974	Aeroflex Holding Corp.	01-0899019
	Delaware
	35 South Service Road
	P.O. Box 6022
	Plainview, NY 11803-0622
	(516) 694-6700

033-88878	Aeroflex Incorporated	11-1974412
	Delaware
	35 South Service Road
	P.O. Box 6022
	Plainview, NY 11803-0622
	(516) 694-6700

~~AEROFLEX INCORPORATED~~

Aeroflex Holding Corp.	Yes ¨	No ¨
Aeroflex Incorporated	Yes ¨	No ¨

Aeroflex Holding Corp.	Yes ¨	~~Yes~~ oNo x
Aeroflex Incorporated	Yes ¨	No x

Repurchased an aggregate of $186.6 million of its senior unsecured notes and senior subordinated unsecured term loans and paid the related expenses;

Paid a $16.9 million termination fee to affiliates of the Sponsors to terminate the advisory agreement with them, which, including the related write-off of prepaid advisory fees, resulted in an $18.1 million expense (“Termination Fee”); and

AEROFLEX ~~INCORPORATED~~HOLDING CORP.

		PAGE

	PART 1:I: FINANCIAL INFORMATION

Item 1	~~UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS~~FINANCIAL STATEMENTS OF AEROFLEX HOLDING CORP. AND SUBSIDIARIES	2
	Unaudited Condensed Consolidated Balance Sheets
	December 31, ~~2009~~2010 and June 30, ~~2009~~2010	2

	~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~Unaudited Condensed Consolidated Statements Of Operations	~~3 – 4~~
	Three Months Ended December 31, ~~2009~~2010 and ~~2008~~2009	3
	Six Months Ended December 31, ~~2009~~2010 and ~~2008~~2009	4

	~~UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~Unaudited Condensed Consolidated Statements Of Stockholders’ Equity and Comprehensive	5
	Income (Loss)
	Six Months Ended December 31, ~~2009 and 2008~~2010	5

	Unaudited Condensed Consolidated Statements Of Cash Flows
	Six Months Ended December 31, 2010 and 2009	6

	FINANCIAL STATEMENTS OF AEROFLEX INCORPORATED AND SUBSIDIARIES
	Unaudited Condensed Consolidated Balance Sheets
	December 31, 2010 and June 30, 2010	7

	Unaudited Condensed Consolidated Statements Of Operations
	Three Months Ended December 31, 2010 and 2009	8
	Six Months Ended December 31, 2010 and 2009	9

	Unaudited Condensed Consolidated Statements Of Stockholder’s Equity and Comprehensive
	Income (Loss)
	Six Months Ended December 31, 2010	10

	Unaudited Condensed Consolidated Statements Of Cash Flows
	Six Months Ended December 31, 2010 and 2009	11

	COMBINED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	612 – 2934

Item 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
	RESULTS OF OPERATIONS	~~29 – 40~~
	Three and Six Months Ended December 31, ~~2009~~2010 and ~~2008~~2009	35 – 50

Item 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	~~40 – 41~~50

Item 4T4	CONTROLS AND PROCEDURES	4150

	PART II: OTHER INFORMATION

Item 1	LEGAL PROCEEDINGS	4151

Item 1A	RISK FACTORS	4251

Item 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4251

Item 3	DEFAULTS UPON SENIOR SECURITIES	4251

Item 4	~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~[REMOVED AND RESERVED]	4251

Item 5	OTHER INFORMATION	4251

Item 6	EXHIBITS	4252

~~SIGNATURES~~SIGNATURE		4353

EXHIBIT INDEX		4454

CERTIFICATIONS		~~45 – 49~~

Aeroflex ~~Incorporated~~

Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data )

	December 31,			June 30,			December 31,			June 30,
	2009			2009			2010			2010
Assets
Current assets:
Cash and cash equivalents	$	68,799		$	57,748		$	70,643		$	100,663
Accounts receivable, less allowance for doubtful accounts of $3,027 and $2,250		117,281			130,429
Marketable securities								8,357			-
Accounts receivable, less allowance for doubtful
accounts of $2,101 and $1,821								131,222			141,595
Inventories		134,901			135,603			153,880			126,568
Deferred income taxes		37,022			35,164			26,030			28,018
Prepaid expenses and other current assets		11,563			9,938			11,252			10,983
Total current assets		369,566			368,882			401,384			407,827

Property, plant and equipment, net		98,203			100,907			99,889			101,662
Non-current marketable securities, net		16,899			17,677			-			9,769
Deferred financing costs, net		23,369			25,754			17,435			20,983
Other assets		18,011			15,425			23,204			21,818
Intangible assets with definite lives, net		261,701			292,553			214,085			238,313
Intangible assets with indefinite lives		111,894			112,266			113,844			109,894
Goodwill		428,886			428,133			458,034			445,874

Total assets	$	1,328,529		$	1,361,597		$	1,327,875		$	1,356,140

Liabilities and Stockholder's Equity
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt	$	4,203		$	5,590		$	360		$	21,817
Accounts payable		27,138			36,574			36,967			28,803
Advance payments by customers and deferred revenue		32,490			33,418			23,185			30,741
Income taxes payable		4,135			5,080			1,654			4,615
Accrued payroll expenses		16,016			18,876			19,098			23,082
Accrued expenses and other current liabilities		50,005			47,938			52,944			58,817
Total current liabilities		133,987			147,476			134,208			167,875

Long-term debt		889,990			883,758			695,908			880,030
Deferred income taxes		149,133			143,048			88,066			138,849
Defined benefit plan obligations		5,988			6,079			5,605			5,763
Other long-term liabilities		11,582			21,476			12,983			12,639
Total liabilities		1,190,680			1,201,837			936,770			1,205,156

Stockholder's equity:
Common stock, par value $.10 per share; authorized 1,000 shares; issued and outstanding 1,000 shares		-			-
Stockholders' equity:
Preferred stock $.01 par value; 50,000,000 shares authorized,
no shares issued and outstanding								-			-
Common stock, par value $.01 per share; 300,000,000 shares
authorized; 84,789,180 and 65,000,000 shares issued and outstanding								848			650
Additional paid-in capital		397,759			396,573			642,961			398,291
Accumulated other comprehensive income (loss)		(46,640	)		(54,700	)		(41,102	)		(53,575	)
Accumulated deficit		(213,270	)		(182,113	)		(211,602	)		(194,382	)
Total stockholder's equity		137,849			159,760
Total stockholders' equity								391,105			150,984

Total liabilities and stockholder's equity	$	1,328,529		$	1,361,597
Total liabilities and stockholders' equity							$	1,327,875		$	1,356,140

See combined notes to unaudited condensed consolidated financial statements.

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share data)

See combined notes to unaudited condensed consolidated financial statements.

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share data)

See combined notes to unaudited condensed consolidated financial statements.

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statement of Stockholders' Equity

and Comprehensive Income (Loss)

See combined notes to unaudited condensed consolidated financial statements.

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

See combined notes to unaudited condensed consolidated financial statements.

Aeroflex Incorporated and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data )

See combined notes to unaudited condensed consolidated financial statements.

Aeroflex Incorporated and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

See combined notes to unaudited condensed consolidated financial statements.

Aeroflex Incorporated and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

Six Months Ended December 31,

See notes to unaudited condensed consolidated financial statements.

Aeroflex Incorporated and Subsidiaries

Unaudited Condensed Consolidated Statement of Stockholder's Equity

and Comprehensive Income (Loss)

See combined notes to unaudited condensed consolidated financial statements.

Aeroflex Incorporated and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

See combined notes to unaudited condensed consolidated financial statements.

~~AEROFLEX INCORPORATED AND SUBSIDIARIES~~

COMBINED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation

~~We design, engineer~~Stock Split, Initial Public Offering and ~~manufacture microelectronics~~Use of Proceeds

This quarterly report for the period ended December 31, 2010 is a combined quarterly report being separately filed by two registrants: Aeroflex Holding Corp. (“Aeroflex Holding”) and ~~test solution~~Aeroflex Incorporated (“Aeroflex”), a direct wholly-owned subsidiary of Aeroflex Holding. Unless the context provides otherwise, references to “we,” “our,” “the Company,” or “us” refer collectively to Aeroflex Holding and ~~measurement equipment that~~its subsidiary, Aeroflex, including Aeroflex’s consolidated subsidiaries.

Filing a combined report which contains full financial information of both Aeroflex Holding and its wholly owned subsidiary Aeroflex is both economical and efficient, as Aeroflex Holding is a holding company which does not conduct business operations on its own - all business operations are ~~sold primarily~~conducted by Aeroflex and its consolidated subsidiaries. All assets, liabilities, income, expenses and cash flows presented for all periods represent those of Aeroflex and its subsidiaries, except for activity related to Aeroflex Holding’s equity and earnings per share. Aeroflex Holding’s only asset is its investment in Aeroflex. As such, other than any discussions of liquidity and capital resources (including indebtedness and cash flows), equity and earnings per share, controls and procedures, unregistered sales of equity securities, use of proceeds and any material differences between Aeroflex Holding and Aeroflex which would require separate disclosures, all information presented in this quarterly report will be combined and pertain to both Aeroflex Holding and Aeroflex.

Unless the context requires otherwise, references to (i) the term “Sponsors” refers collectively to affiliates of or funds managed by The Veritas Capital Fund III, L.P., Golden Gate Private Equity, Inc., and GS Direct, LLC, which indirectly control Aeroflex Holding, and (ii) “fiscal year” refers to the ~~broadband communications, aerospace~~twelve months ended June 30 of the applicable year. For example, “fiscal 2010” refers to the twelve months ended June 30, 2010.

Aeroflex Holding’s board of directors authorized an increase of Aeroflex Holding’s authorized shares of common stock to 300,000,000 and ~~defense markets. Our fiscal year ends~~a 65,000,000 for 1 common stock split, both of which became effective on ~~June 30.~~November 18, 2010. Aeroflex Holding’s stockholders’ equity has been retroactively adjusted to give effect to the stock split for all periods presented by reclassifying the par value of the additional shares issued in connection with the split from additional paid-in capital to common stock. In addition, all share numbers and per share amounts in Aeroflex Holding’s consolidated financial statements have been retroactively adjusted to give effect to the stock split.

On November 19, 2010, Aeroflex Holding consummated an initial public offering (“IPO”) of common stock in which it sold 19,789,180 shares of common stock, par value of $.01 per share, at a price of $13.50 per share. Aeroflex Holding received net proceeds of $244.1 million from the IPO, after deducting underwriting discounts and offering expenses, including a $2.5 million transaction fee which was paid to affiliates of the Sponsors under the advisory agreement with them for services directly attributable to the equity offering (“Transaction Fee”). Aeroflex Holding used the net proceeds of the IPO to make a capital contribution to Aeroflex. In connection with the IPO, Aeroflex:

Repurchased an aggregate of $186.6 million of its senior unsecured notes and senior subordinated unsecured term loans and paid the related expenses;

Entered into an amendment of the credit agreement with the lenders of its senior secured credit facility, for which a $3.3 million fee was paid to the lenders.

The accompanying unaudited condensed consolidated financial information of Aeroflex ~~Incorporated~~Holding and ~~subsidiaries (the “Company”, “we”, or “our”) has~~Aeroflex have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”), and reflects all adjustments, consisting only of normal recurring adjustments, which in management’s opinion are necessary to state fairly the Company’s financial position as of December 31, ~~2009,~~2010, the results of operations for the three and six month periods ended December 31, 2010 and 2009 and ~~2008 and~~the cash flows for the six month periods ended December 31, ~~2009~~2010 and ~~2008.~~2009. The June 30, ~~2009~~2010 balance sheet information has been derived from audited financial statements, but does not include all information or disclosures required by U.S. GAAP.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of sales and expenses during the reporting period. Actual results may differ from those estimates, and such differences may be material to the financial statements.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in Aeroflex Holding’s amended registration statement on Form S-1 filed with the ~~Company’s Annual Report~~SEC on November 9, 2010 (“Aeroflex Holding’s Registration Statement”) and in Aeroflex’s annual report on Form 10-K for the fiscal year ended June 30, ~~2009 (the “Fiscal 2009~~2010 (”Aeroflex’s Fiscal 2010 Form 10-K”).

The accompanying condensed consolidated financial statements of Aeroflex Holding are essentially identical to the accompanying condensed consolidated financial statements of Aeroflex, with the following significant exceptions: Aeroflex Holding has 84,789,180 shares of common stock outstanding at a par value of $.01 per share, of which 65,000,000 shares are held by one shareholder (as a result of the 65,000,000 for 1 stock split on November 18, 2010) and 19,789,180 shares are held by public shareholders by virtue of the IPO on November 19, 2010, which resulted in net proceeds of $244.1 million after deducting underwriting discounts and offering expenses. Aeroflex has 1,000 shares of common stock outstanding at a par value of $.10 per share, all of which are held by Aeroflex Holding, and Aeroflex received a capital contribution of $244.1 million from Aeroflex Holding from the net proceeds of the IPO. The combined notes to the condensed consolidated financial statements are essentially identical for Aeroflex Holding and Aeroflex, except as noted.

Results of operations for interim periods are not necessarily indicative of results to be expected for the full fiscal year or any future periods.

~~Revenue Recognition~~

We recognize revenue, net of trade discounts and allowances, when (1) persuasive evidence of an arrangement exists, (2) delivery of the product has occurred or the services have been performed, (3) the selling price is fixed or determinable, and (4) collectability of the resulting receivable is reasonably assured.

Our product revenue is generated predominantly from the sales of various types of microelectronic products and test and measurement equipment. For arrangements other than certain long-term contracts, revenue (including shipping and handling fees) is recognized when products are shipped and title has passed to the customer. If title does not pass until the product reaches the customer’s delivery site, recognition of the revenue is deferred until that time. Certain of our sales are to distributors, which have a right to return some portion of product within eighteen months of sale. We recognize revenue on these sales at the time of shipment to the distributor, as the returns under these arrangements have historically been insignificant and can be reasonably estimated. A provision for such estimated returns is recorded at the time revenues are recognized. For transactions that include customer-specified acceptance criteria, including those where acceptance is required upon achievement of performance milestones, revenue is recognized after the acceptance criteria have been met.

Long-term contracts are accounted for by determining estimated contract profit rates and use of the percentage-of-completion method to recognize revenues and associated costs as work progresses. We measure the extent of progress toward completion generally based upon one of the following methods (based upon an assessment of which method most closely alignsCertain reclassifications have been made to the ~~underlying earnings process): (i)~~fiscal 2010 consolidated financial statements to conform to the units-of-delivery method, (ii) the cost-to-cost method (using the ratio of contract costs incurred as a percentage of total estimated costs at contract completion based upon engineering and production estimates), or (iii) the achievement of contractual milestones. Provisions for anticipated losses or revisions in estimated profits on contracts-in-process are recorded in the period in which such anticipated losses or revisions become evident.fiscal 2011 presentation.

Where an arrangement includes only a software license, revenue is recognized when the software is delivered and title has been transferred to the customer or, in the case of electronic delivery of software, when the customer is given access to the licensed software programs. We also evaluate whether persuasive evidence of an arrangement exists, collection of the receivable is probable, the fee is fixed or determinable and whether any other undelivered elements of the arrangement exist for which a portion of the total fee would be allocated based on vendor-specific objective evidence of the fair value of the undelivered element. When a customer purchases software together with post contract support, we allocate a portion of the fee to the post contract support for its fair value based on the contractual renewal rate. Post contract support fees are deferred in Advance Payments by Customers and Deferred Revenue in the consolidated balance sheets, and recognized as revenue ratably over the term of the related contract.

Service revenue is derived from extended warranty, customer support and training. Service revenue is deferred and recognized over the contractual term or as services are rendered and accepted by the customer. For example, customer support contracts are recognized ratably over the contractual term, while training revenue is recognized as the training is provided to the customer. In addition, the four revenue recognition criteria described above must be met before service revenue is recognized.

We use vendor-specific objective evidence of selling price, verifiable objective evidence of selling price, such as third party selling prices, or estimated selling price, in that order, to allocate revenue to elements in multiple element arrangements. Revenue is recognized on only those elements that meet the four criteria described above.

~~Effective July 1, 2009, we no longer use the residual method to determine the portion of the arrangement consideration to allocate to undelivered elements of a multiple element arrangement.~~

At December 31, 2009, we have $32.5 million in Advance Payments by Customers and Deferred Revenue, which is comprised of $15.3 million of customer advance payments primarily for the purchase of materials, $7.4 million of deferred service and software support revenue, $3.6 million of deferred warranty revenue and $6.2 million of revenue deferred due to software arrangements for which there is no vendor specific objective evidence of fair value of the undelivered elements of the arrangements, contingent revenue, billings for which the related product has not been delivered or product delivered to a customer that has not been accepted or is incomplete. We generally sell non-software service and extended warranty contracts on a standalone basis. The amount of deferred revenue at December 31, 2009 and revenue for the three and six months ended December 31, 2009 derived from non-software multiple element arrangements was insignificant.

The adoption on July 1, 2009 of the guidance issued by the Financial Accounting Standards Board (“FASB”) in Accounting Standard Updates 2009-13 and 2009-14 did not have a material impact on our pattern or timing of revenue recognition and is not expected to have a material impact on revenues in future periods. We have one test equipment product line, which includes software that is more than incidental to the hardware component that, prior to July 1, 2009, was accounted for as a software product for revenue recognition purposes. Effective July 1, 2009, the new revenue recognition guidance provides that products such as these that contain software which is essential to overall product functionality are outside the scope of software revenue recognition guidance and are now accounted for under new rules pertaining to revenue arrangements with multiple deliverables. Although this change had no impact on revenue recognized for the three and six months ended December 31, 2009, if this product were delivered in a multiple element arrangement in the future, certain revenue recognition could be accelerated. We do not believe that this will result in a material impact on our revenues.

Recently Adopted Accounting Pronouncements

On July 1, 2009, we adopted the authoritative implementation guidance issued by the FASB for fair value measurement for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Adoption of the new guidance did not have a material impact on our financial statements.

~~On July 1, 2009,~~2010, we adopted the authoritative guidance issued by the FASB on business combinations. The guidance retains the fundamental requirements that the acquisition method of accounting (previously referred to as the purchase method of accounting) be used for all business combinations, but requires a number of changes, including changes in the way assets and liabilities are recognized and measured as a result of business combinations. It also requires the fair value of contingent consideration to be recordedFinancial Accounting Standards Board (“FASB”) on the ~~acquisition date, the capitalization~~consolidation of ~~in-process research and development at fair value and the expensing of acquisition-related costs as incurred. Adoption of the~~variable interest entities. The new guidance ~~which is effective~~requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for ~~acquisitions consummated by us after June 30, 2009, did not have an impact on our consolidated financial statements.~~

On July 1, 2009, we adopted the authoritative guidance issued by the FASB for the determination of the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This guidance also adds certain disclosures to those already prescribed. The guidance for determining useful lives must be applied prospectively to intangible assets acquired after the effective date. The disclosure requirements must also be applied prospectively to all intangible assets recognized as of the effective date.variable interests. The adoption of this new guidance ~~did not have a material impact on our consolidated financial statements.~~

In September 2009, we adopted the authoritative guidance issued by the FASB which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with U.S. GAAP. This guidance explicitly recognizes the rules and interpretive releases of the SEC under federal securities laws as authoritative GAAP for SEC registrants. The Company has updated references to U.S. GAAP in its financial statements issued for the period ended December 31, 2009. The adoption did not have an impact on our consolidated financial statements.

In October 2009, the FASB issued authoritative guidance on revenue recognition that becomes effective for us commencing July 1, 2010. However, earlier adoption was permitted. Under the new guidance on sales arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration and the use of the relative selling price method is required. The new guidance eliminated the residual method of allocating arrangement consideration to deliverables and includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We chose to early adopt such authoritative guidance on a prospective basis effective July 1, 2009 and, therefore, it has been applied to multiple deliverable revenue arrangements and arrangements for the sale of tangible products with software components entered into or materially modified on or after July 1, 2009. The adoption of this new guidance did not have a material impact on our financial statements.

In December 2007, the FASB issued guidance which requires that the non-controlling interests in consolidated subsidiaries be presented as a separate component of stockholders’ equity in the balance sheet, that the amount of consolidated net earnings attributable to the parent and the non-controlling interest be separately presented in the statement of earnings, and that the amount of consolidated other comprehensive income attributable to the non-controlling interest be separately disclosed. The standard also requires gains or losses from the sale of stock of subsidiaries where control is maintained to be recognized as an equity transaction. The guidance was effective beginning with the first quarter of the fiscal year 2010 financial reporting. In connection with the adoption of this guidance, we did not apply the presentation or disclosure provisions to our one non-controlling interest as the effect on our financial statements was insignificant.

Recently Issued Accounting Pronouncements Not Yet Adopted

In January 2010, the FASB issued authoritative guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements on a gross basis of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). ~~The guidance will become effective for us beginning with~~We believe the ~~third quarter~~adoption on July 1, 2011 of the ~~fiscal year 2010 financial reporting, except for~~gross presentation of the ~~disclosure on the roll forward activities for~~ Level 3 ~~fair value measurements, which will become effective for us beginning with the third quarter of the fiscal year 2011 financial reporting. The adoption of this new guidance~~roll forward will not have ~~a material~~an impact on our consolidated financial statements.

~~In June 2009,~~

3.	Acquisition of Businesses and Intangible Assets

Test Evolution Corporation

On October 1, 2007, we purchased 40% of the ~~FASB issued authoritative guidance on the consolidation~~outstanding stock of ~~variable interest entities, which is effective~~Test Evolution Corporation, or TEC, for ~~us beginning July 1, 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of~~$4.0 million. TEC, located in Massachusetts, develops and manufactures digital, analog and RF semiconductor automated test equipment. We determined that we have control ~~over such entities, and additional disclosures for variable interests. We believe adoption~~ of this ~~new guidance will not~~company and have ~~a material impact on~~consolidated TEC’s assets and liabilities and results of operations, all of which were insignificant, into our financial ~~statements.~~statements commencing October 1, 2007. On August 5, 2010, we invested another $2.0 million in TEC. At December 31, 2010, as a result of this and other capital transactions, our ownership interest is approximately 51%. The amounts attributable to the non-controlling interest in TEC’s equity and results of operations are not material to our consolidated financial statements and have been included in other long-term liabilities and other income (expense), respectively. TEC is included in our Test Solutions segment.

Radiation Assured Devices

On June 30, 2010, we acquired 100% of the stock of Radiation Assured Devices, Inc., or RAD, for $14.0 million in cash, plus contingent payments equal to 50% of the acquired company’s EBITDA (as defined in the agreement) for the five year period of fiscal 2011 to fiscal 2015, provided certain thresholds are met. The fair value of the contingent consideration as of December 31, 2010 was $7.9 million, of which $1.4 million was reflected in accrued expenses and other current liabilities and $6.5 million was reflected in other long-term liabilities. The fair value of the contingent consideration as of June 30, 2010 was $7.1 million and was reflected in other long-term liabilities and considered in the allocation of the purchase price. The $784,000 increase in the fair value of the contingent consideration was recorded in selling, general and administrative costs for the three and six months ended December 31, 2010. RAD, located in Colorado Springs, Colorado, uses commercial and specialty technologies to provide state of the art radiation engineering and qualification services, as well as to produce radiation hardened products for commercial and military spaceborne electronics. RAD is included in our Microelectronic Solutions segment.

Advanced Control Components

On August 31, 2010, we acquired 100% of the stock of Advanced Control Components, Inc., or ACC, for $19.2 million in cash, which was net of a preliminary working capital adjustment made at closing. The purchase price is subject to a further working capital adjustment, based on the amount by which the final adjusted net working capital at the date of closing is lower than the target set forth in the purchase agreement. We currently estimate an additional $764,000 deficiency in adjusted net working capital, reducing the purchase price to $18.4 million. ACC, located in Eatontown, New Jersey, designs, manufacturers and markets a wide range of radio frequency, or RF, and microwave products for the military, civilian radar, scientific and communications markets. ACC is included in our Microelectronic Solutions segment.

3.	~~Intangible Assets~~

We allocated the purchase price based on the estimated fair value of the assets acquired and liabilities assumed as follows:

The customer related intangibles and non-compete arrangements are being amortized on a straight-line basis over a range of 1 to 9 years. The tradenames have an indefinite life. The goodwill is not deductible for tax purposes.

On a pro forma basis, had the ACC acquisition taken place as of the beginning of the periods presented, our results of operations for those periods would not have been materially affected.

Cash Paid for the Purchase of Businesses

For the six months ended December 31, 2010, we had net cash outlays of $23.6 million for the purchase of businesses, net of cash acquired. This was primarily comprised of $18.4 million for the purchase of ACC and $5.6 million of contingent consideration payments related to fiscal 2010 ($4.6 million for Gaisler Research AB, acquired on June 30, 2008 and $1.0 million for Airflyte Electronics Company, acquired on June 26, 2009), partially offset by refunds for working capital adjustments for prior year acquisitions.

Intangible Assets with Definite Lives

The components of amortizable intangible assets ~~are~~were as follows:

	December 31, 2010				June 30, 2010
	(In thousands)
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization

Developed technology	$	199,309	$	112,592	$	197,422	$	94,672
Customer related intangibles		228,551		108,386		222,026		94,656
Non-compete arrangements		10,318		5,421		10,087		4,420
Tradenames		3,315		1,009		3,184		658
Total	$	441,493	$	227,408	$	432,719	$	194,406

December 31, 2009 June 30, 2009
(In thousands)

Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization

Developed technology $ 197,803 $ 78,950 $ 197,684 $ 62,021
Customer related intangibles 216,784 82,251 216,956 69,339
Non-compete arrangements 10,212 3,621 10,090 2,692
Tradenames 2,185 461 2,105 230
Total $ 426,984 $ 165,283 $ 426,835 $ 134,282

The aggregate amortization expense for amortizable intangible assets was $15.5 million and $14.6 million for the three months ended December 31, 2009 and 2008, respectively, and $31.1 million and $32.6 million for the six months ended December 31, 2009 and 2008, respectively.

~~The estimated aggregate amortization expense for each of the twelve month periods ending December 31, is as follows:~~

(In thousands)

2010 $ 61,277
2011 60,720
2012 57,938
2013 43,348
2014 20,300

~~Goodwill~~

~~The carrying amount of goodwill, by segment, is as follows:~~

Microelectronic Test
Solutions Solutions Total
(In thousands)

Balance at June 30, 2009 $ 266,813 $ 161,320 $ 428,133
Adjustment to goodwill for acquisitions 313 455 768
Impact of foreign currency translation 437 (452 ) (15 )
Balance at December 31, 2009 $ 267,563 $ 161,323 $ 428,886

~~- 10 - -~~

4.	Restructuring Charges

The following table sets forth the charges and payments related to the restructuring liability for the ~~periods~~period indicated:

	Balance										Balance		Balance									Balance
	June 30,										December 31,		June 30,									December 31,
	2009		Six Months Ended December 31, 2009								2009		2010		Six Months Ended December 31, 2010							2010
								Effect of												Effect of
	Restructuring							foreign			Restructuring		Restructuring							foreign		Restructuring
	Liability		Net Additions		Cash Payments			currency			Liability		Liability		Net Additions		Cash Payments			currency		Liability
			(In thousands)												(In thousands)
Work force reduction	$	756	$	225	$	(970	)	$	2		$	13	$	172	$	2,651	$	(1,212	)	$	16	$	1,627

Closure of facilities		1,722		26		(302	)		(24	)		1,422		632		581		(684	)		28		557

Total	$	2,478	$	251	$	(1,272	)	$	(22	)	$	1,435	$	804	$	3,232	$	(1,896	)	$	44	$	2,184

For the six months ended December 31, 2010, we recorded an $8.1 million charge in connection with continued restructuring activities of certain manufacturing operations related to consolidation and reorganization efforts in our United Kingdom (“U.K.”) operations and in connection with one of our domestic components facilities located in Whippany, New Jersey. We are consolidating part of our components operations by relocating a portion of our Whippany, New Jersey facility’s production to our Ann Arbor, Michigan facility and a portion to our Eatontown, New Jersey facility. In connection with this consolidation, we recorded a $4.9 million impairment charge based on the fair value of the Whippany, New Jersey facility we intend to sell.

5.	~~Inventories~~Net Income (Loss) Per Common Share

~~Inventories consist~~The consolidated statements of operations for Aeroflex Holding present only basic net income (loss) per common share, as it does not have any potentially dilutive securities. Basic net income (loss) per common share is computed by dividing net income (loss) by the ~~following:~~

6.	~~Product Warranty~~

Earning per share information is not presented for Aeroflex because, as a wholly-owned subsidiary of Aeroflex Holding, such information is not relevant.

We warrant our products against defects in design, materials and workmanship, generally for one year from their date of shipment. A provision for estimated future costs relating to these warranties is recorded in cost of sales when the related revenue is recognized. Quarterly we analyze our warranty liability for reasonableness based on a 15-month history of warranty costs incurred, the nature of the products shipped subject to warranty and anticipated warranty trends.

~~Activity related to our product warranty liability, which is reflected in Accrued Expenses and Other Current Liabilities in the accompanying consolidated balance sheets, was as follows:~~

Inventories consisted of the following:

7.	Derivative Financial Instruments

We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. We enter into interest rate swap derivatives to manage the effects of interest rate movements on portions of our debt. We also enter into foreign currency forward contracts, not designated as hedging instruments, to protect us from fluctuations in exchange rates.

The fair values of our derivative financial instruments included in the consolidated balance sheets as of December 31, ~~2009~~2010 and June 30, ~~2009~~2010 are presented as follows:

   Asset (Liability) Derivatives
   December 31, 2009 June 30, 2009
   Balance Sheet Balance Sheet
(In thousands) Location
Fair Value(1)
Location
Fair Value(1)

Derivatives designated as hedging
   instruments:
   Interest rate swap contracts Accrued expenses and Accrued expenses and
   other current liabilities $ (4,925 )    other current liabilities $ (615 )
   Interest rate swap contracts Other long-term Other long-term
   liabilities (7,785 )    liabilities (15,006 )

     Total derivatives designated as
        hedging instruments (12,710 ) (15,621 )

Derivatives not designated as
   hedging instruments:
   Foreign currency forward contracts Prepaid expenses and Accrued expenses and
   other current assets 36    other current liabilities (195 )

          Total derivatives, net $ (12,674 ) $ (15,816 )

Asset (Liability) Derivatives

The ~~amounts of the~~ gains and losses related to our derivative financial instruments designated as hedging instruments for the three and six months ended December 31, 2010 and 2009 ~~and 2008 are~~were as follows:

(Effective Portion) (1)

into Income (Effective Portion) (1)

~~(1)~~

~~See Note 11 for additional information on changes to accumulated other comprehensive income (loss).~~

(1) See Note 11 for additional information on changes to accumulated other comprehensive income (loss).

The amounts of the gains and losses related to our derivative financial instruments not designated as hedging instruments for the three and six months ended December 31, 2010 and 2009 ~~and 2008 are~~were as follows:

Interest Rate Swap Cash-Flow Hedges

We enter into interest rate swap contracts with counterparties that are rated investment grade to manage the effects of interest rate movements on portions of our debt. Such contracts effectively fix the borrowing rates on floating rate debt to limit the exposure against the risk of rising rates. We do not enter into interest rate swap contracts for speculative ~~purposes and we have entered into transactions with counterparties that are rated investment grade.~~purposes. Our interest rate swap contracts outstanding as of December 31, 2010, all of which were entered into in fiscal 2008 for an aggregate notional amount of ~~$475~~$300.0 million, ~~have varying maturities through~~mature in February 2011.

Foreign Currency Contract Derivatives

Foreign currency contracts are used to protect us from fluctuations in exchange rates. We enter into foreign currency contracts, which are not designated as hedges. The change in fair value is included in other income (expense) as it ~~occurs, within other income (expense).~~occurs. As of December 31, ~~2009,~~2010, we had ~~$26.7~~$31.7 million of notional value foreign currency forward contracts maturing through January ~~29, 2010.~~31, 2011. Notional amounts do not quantify risk or represent assets or liabilities of the Company, but are used in the calculation of cash settlements under the contracts.

8.	Fair Value Measurements

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring the fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

The following table presents for each hierarchy level, financial assets and liabilities measured at fair value on a recurring basis:

	Quoted Prices in
	Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable
	Assets		Inputs		Inputs
As of December 31, 2010	(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)
Assets:
Current marketable securities	$	-	$	8,357	$	-	$	8,357
Foreign currency forward contracts		-		18		-		18
Total Assets	$	-	$	8,375	$	-	$	8,375

Liabilities:
Interest rate swap contracts	$	-	$	1,033	$	-	$	1,033

	Quoted Prices in								Quoted Prices in
	Active Markets		Significant Other		Significant				Active Markets		Significant Other		Significant
	for Identical		Observable		Unobservable				for Identical		Observable		Unobservable
	Assets		Inputs		Inputs				Assets		Inputs		Inputs
As of December 31, 2009	(Level 1)		(Level 2)		(Level 3)		Total
As of June 30, 2010									(Level 1)		(Level 2)		(Level 3)		Total
	(In thousands)								(In thousands)
Assets:
Non-current marketable securities	$	-	$	-	$	16,899	$	16,899	$	-	$	-	$	9,769	$	9,769
Liabilities:
Foreign currency forward contracts		-		36		-		36	$	-	$	293	$	-	$	293
Total Assets	$	-	$	36	$	16,899	$	16,935

Liabilities:
Interest rate swap contracts	$	-	$	12,710	$	-	$	12,710		-		6,613		-		6,613
Total Liabilities									$	-	$	6,906	$	-	$	6,906

Quoted Prices in
   Active Markets Significant Other Significant
   for Identical Observable Unobservable
   Assets Inputs Inputs
As of June 30, 2009 (Level 1) (Level 2) (Level 3) Total
(In thousands)
Assets:
Non-current marketable securities $ - $ - $ 17,677 $ 17,677
Liabilities:
Foreign currency forward contracts $ - $ 195 $ - $ 195
Interest rate swap contracts - 15,621 - 15,621
   Total Liabilities $ - $ 15,816 $ - $ 15,816

- 1419 - -

The following table presents the changes in the carrying value of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended December 31, ~~2009:~~2010:

Fair Value Measurements
   Using Significant
   Unobservable Inputs
   (Level 3)
   Auction
   Rate
   Securities
   (In thousands)

Balance at June 30, 2009 $ 17,677
Redeemed by the issuer at par (1,000 )
Total unrealized gain (loss) in accumulated
   other comprehensive income (loss) 222
Balance at December 31, 2009 $ 16,899

	Fair Value Measurements
	Using Significant
	Unobservable Inputs
	(Level 3)
	Auction
	Rate
	Securities
	(In thousands)

Balance at June 30, 2010	$	9,769
Sold at par		(2,000	)
Transfer to Level 2		(9,045	)
Transfer of unrealized loss from accumulated other comprehensive income (loss) to realized loss recorded in other expense		688
Unrealized gain (loss) in accumulated other comprehensive income (loss)		588
Balance at December 31, 2010	$	-

~~Non-Current~~ Marketable Securities – ~~Non-current marketable securities consist~~In December 2010, $2.0 million of our auction rate securities ~~that currently have no active market from~~were sold at par. In January 2011, the remaining $9.0 million of our auction rate securities were sold at an average of 92.4% of par. The resulting $688,000 realized loss, which approximated the other than temporary impairment at December 31, 2010, was recorded in the statement of operations for the three and six months ended December 31, 2010. As of December 31, 2010, our auction rate securities are classified as current marketable securities, since, as of the balance sheet date, we ~~could obtain pricing.~~had firm offers for their sale and we had the intent to sell them. We have classified auction rate securities as Level 32, as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the securities. To date, we have collected all interest payments on all of our auction rate securities when due. Furthermore, we have the intent and are able to hold these securities until the credit markets recover, or until their maturities, which range from 2029 through 2042, if necessary. However,is based on ~~a discounted cash flow analysis, which considered, among other items,~~ the collateral underlying the securities, the credit worthiness of the issuer, the timing of future cash flows and liquidity risks, at December 31, 2009 we have a $2.0 million valuation allowance against the auction rate securities.actual selling price.

As fair values have continued to be below cost, we have considered various factors in determining that at December 31, 2009 a credit loss did not exist and there was no requirement to recognize an other than temporary impairment charge, including the length of time and the extent to which the fair value has been below the cost basis, the timely receipt of all interest payments, the rating of the security, the relatively low volatility of the security’s fair value, the current financial condition of the issuer and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

In July 2009, $1.0 million of our auction rate securities were redeemed by the issuer at par. In January 2010, an additional $4.0 million of our auction rate securities were redeemed by the issuer at 92% of par. The resulting $320,000 realized loss will be recorded in the statement of operations in the third quarter of fiscal 2010. The $4.0 million of auction rate securities redeemed in January 2010 are classified as non-current marketable securities as of December 31, 2009, as we were not aware at the balance sheet date that these auction rate securities would be redeemed.

Foreign Currency Forward Contracts – The fair value of our foreign currency forward contracts were ~~valued~~determined using a pricing model with all significant inputs based on observable market data such as measurement date spot and forward rates.

Interest Rate Swap Contracts – The fair value of our outstanding interest rate swap contracts were based on valuations received from the counterparties and corroborated by measurement date equivalent swap rates.

~~- 15 - -~~

9.	Long Term Debt and Credit Agreements

All indebtedness has been incurred by Aeroflex; such indebtedness is reflected on the balance sheets of Aeroflex Holding by virtue of the principles of consolidation.

All of the net proceeds of Aeroflex Holding’s IPO were used to make a capital contribution to Aeroflex to enable it to, among other things, tender for a portion of its senior unsecured notes and offer to repurchase a portion of its senior subordinated unsecured term loans. In December 2010, Aeroflex repurchased approximately $32.2 million of its senior unsecured notes and $154.4 million of its senior subordinated unsecured term loans. This resulted in a $25.2 million loss on extinguishment of debt, which is comprised of the following:

an 11% premium paid on the debt repurchased, which amounted to $20.5 million;

the write-off of the related deferred financing costs of $4.0 million; and

- 20 - -

professional fees of $614,000.

On November 4, 2010, Aeroflex entered into an amendment of the credit agreement with the lenders of its senior secured credit facility, for which it paid a $3.3 million fee to the lenders which was recorded as deferred financing costs and $579,000 of other costs that were expensed as incurred, which allowed Aeroflex to, among other things:

increase the amount of cash it can spend for acquisitions of businesses from $20 million per year and a $100 million aggregate amount, to $200 million in the aggregate (with no annual limit), from the effective date of the amendment to the credit facility maturity date, August 15, 2014;

pay certain fees to affiliates of our Sponsors upon the completion of the Aeroflex Holding IPO. These fees were paid on November 24, 2010, and consisted of the $2.5 million Transaction Fee for services directly attributable to the equity offering, which was recorded as a reduction of additional paid-in capital, and the $16.9 million Termination Fee. The Termination Fee, when combined with the related write-off of prepaid advisory fees, amounted to an $18.1 million expense which was recorded in a separate line on the statement of operations entitled Termination of Sponsor Advisory Agreement; and

base its interest rate margin above LIBOR on a grid, with reference to its current credit rating. This increased the interest rate margin by 75 basis points for all tranches of debt within the secured credit facility.

The fair ~~value~~values of ~~our~~Aeroflex’s debt instruments are summarized as follows:

	December 31, 2009				December 31, 2010
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
	(In thousands)				(In thousands)

Senior secured B-1 term loan	$	389,943	$	352,899
Senior secured credit facility B-1 term loan					$	372,651	$	370,788
Senior secured B-2 term loan		121,857		105,407		116,454		114,707
Senior unsecured notes		225,000		228,375		192,845		209,237
Senior subordinated unsecured term loan		156,308		133,643		13,573		15,270
Other		1,085		1,085		745		745
Total debt	$	894,193	$	821,409	$	696,268	$	710,747

~~The~~As of June 30, 2010, Aeroflex’s total debt had a carrying value of ~~debt of $889.3~~$901.8 million ~~as of June 30, 2009 had~~and a fair value of ~~$661.9~~$877.7 million.

The estimated fair values of each of ~~our~~Aeroflex’s debt instruments are based on quoted market prices for the same or similar issues. Fair value estimates related to ~~our~~Aeroflex’s debt instruments are made at a specific point in time based on relevant market information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect ~~the~~these estimates.

As of December 31, ~~2009, we are~~2010, Aeroflex is in compliance with all of the covenants contained in ~~our~~the loan agreements.

Interest paid was ~~$30.6~~$36.9 million and ~~$21.1~~$30.6 million for the six months ended December 31, ~~2009~~2010 and ~~2008,~~2009, respectively. Accrued interest of ~~$14.2~~$12.9 million and ~~$14.0~~$13.9 million was included in accrued expenses and other current liabilities at December 31, ~~2009~~2010 and June 30, ~~2009,~~2010, respectively.

- 21 - -

10.	Loss on Liquidation of Foreign Subsidiary

In connection with the 2003 acquisition of one of our ~~Wireless~~wireless businesses in the U.K. ~~in 2003,~~, we set up a foreign partnership to finance the acquisition. We invested $19.5 million in the partnership and the partnership advanced those funds to our foreign holding company in the form of a loan, the proceeds of which was used for the acquisition.

During the ~~quarter~~six months ended ~~September 30,~~December 31, 2009, the loan was fully repaid to the partnership, with interest, and we received a return of capital and dividends. The partnership ishas been substantially liquidated.

As a result of changes in foreign currency rates, there was a cumulative translation adjustment of $7.7 million remaining after substantially all of the assets have been returned to us and substantially all of the liabilities have been satisfied. In accordance with U.S. GAAP, this remaining cumulative translation adjustment has been expensed in the period during which the substantial liquidation of the partnership occurred and presented as a non-cash loss on liquidation of foreign subsidiary in our Condensed Consolidated Statement of Operations for the six months ended December 31, 2009. This loss iswas not deductible for income tax purposes.

~~- 16 - -~~

The components of comprehensive income (loss) ~~are~~were as follows:

Accumulated other comprehensive income (loss) iswas as follows:

The valuation allowance for non-current marketable securities is not adjusted for income taxes as it would create a capital loss carryforward upon realization for which we would record a valuation allowance against the related deferred tax asset.

~~Prior to fiscal 2009, the foreign currency translation adjustments were not adjusted for income taxes~~Although as ~~they related to indefinite investments in non-U.S. subsidiaries. Deferred~~of December 31, 2010 deferred U.S. income taxes have been provided on certain undistributed foreign earnings ~~for years subsequent to fiscal 2008 since~~of a U.K. limited partnership subsidiary, we ~~expect that substantially all of these earnings will be distributed to the U.S. As of December 31, 2009, we~~ have not recorded a deferred U.S. income tax on the foreign currency translation adjustment ~~created by the post-fiscal 2008 undistributed foreign earnings.~~

In March 2005, we sold the net assets of our shock and vibration control device manufacturing business, ~~(“VMC”).~~which we refer to as VMC. Under the terms of the sale agreements, we retained certain liabilities relating to adverse environmental conditions that existed at the premises occupied by VMC as of the date of ~~sale and~~sale. We recorded a liability for the estimated remediation ~~costs.~~costs related to adverse environmental conditions that existed at the VMC premises when it was sold. The accrued environmental liability at December 31, ~~2009 is $1.1~~2010 was $1.5 million, of which $322,000 iswas expected to be paid within one year.

~~During~~We have identified instances of noncompliance with the ~~quarter ended March 31,~~International Traffic in Arms Regulations (“ITAR”) in certain of our past business activities as well as in the pre-acquisition business activities of certain recently acquired companies. These include the inadvertent misclassification and/or export of products without the required license and the disclosure of controlled technology to certain foreign national employees. These matters were formally disclosed to the U.S. Department of State from time to time during the period from 2007 through 2010.

For example, in fiscal 2007, when we became aware that certain RadHard bidirectional multipurpose transceivers sold by us since 1999 may have been subject to the licensing jurisdiction of the U.S. Department of State in accordance with ~~the International Traffic in Arms Regulations (“ITAR”). Accordingly,~~ITAR, we filed a Voluntary Disclosure with the ~~Directorate of Defense Trade Controls,~~ Department of State describing the details of the possible inadvertent ~~misclassification. Simultaneously, we filed~~misclassification and identifying certain unauthorized exports from the United States to end-users in a ~~Commodity Jurisdiction~~number of countries, including China and Russia. Once our request ~~providing detailed information~~for reclassification was denied and ~~data supporting our contention~~a determination was made that the product is not subject to ITAR and requesting a determination that such product is not ITAR controlled. On November 15, 2007, we were informed that the U.S. Department of State had determined in response to our Commodity Jurisdiction request, that the product is subject to the licensing jurisdiction of the U.S. Department of State in accordance with ITAR. We requested reconsideration of this determination. On February 7, 2008, we filed an addendum to the above referenced Voluntary Disclosure advising the Directorate of Defense Trade Controls that other products sold by us, similar in nature to the transceiver described above, may also be subject to the ITAR. The Directorate of Defense Trade Controls agreed to extend our time to file such addendum to the Voluntary Disclosure until a decision was rendered with respect to our request for reconsideration of the determination in connection with the above-referenced Commodity Jurisdiction request. On August 5, 2008, we received a letter from the Office of Defense Trade Controls Compliance (“DTCC”) requesting that we provide documentation and/or information relating to our compliance initiatives after November 15, 2007 as well as the results of any product reviews conducted by us, and indicating that a civil penalty against us could be warranted in connection with this matter following the review of such materials. We have provided all of the materials and documentation requested by the DTCC. Our request for reconsideration was denied by the Directorate of Defense Trade Controls on August 19, 2008 which determined that the product is subject to the licensing jurisdiction of the Department of State in accordance with ~~ITAR. Accordingly,~~ITAR, on September 18, 2008, we filed an addendum to our Voluntary Disclosure identifying other products that may have been subject to the licensing jurisdiction of the U.S. Department of State in accordance with ~~the~~ ITAR but were inadvertently ~~misclassified.~~ misclassified and exported without a license.

At this time it is not possible to determine whether any fines or other penalties will be asserted against us or the materiality of ~~any outcome.~~

~~We are involved in various other ITAR related matters, including some recently identified with~~ the prior practices of a newly acquired business, which have been disclosed to the U.S. Department of State. Although we are in the process of addressing these matters, we cannot provide assurance that we will be able to adequately correct all possible ITAR violations. At this time it is not possible to determine whether any fines or other penalties will be asserted against us related to these other ITAR matters, or the materialityoutcome of any ~~outcome.~~of these matters.

On October 14, 2009, BAE Systems Information and Electronic Systems (“BAE”) commenced an action against both us and one of our subsidiaries in the United States District Court for the District of Delaware. BAE essentially is alleging that under a subcontract it entered into with us in 2002, BAE provided to us certain proprietary information and know how relating to a high performance direct infrared countermeasure system for use in military aircraft and certain other platforms (“DIRCM System”), which enabled us to fabricate for BAE an assembly component of the third generation of the DIRCM System. BAE is alleging that, in violation of the provisions of the subcontract and a Proprietary Information Agreement, we fabricated or facilitated the fabrication of one or more items that were identical or substantially identical to items that we exclusively fabricated for BAE under the subcontract. BAE further claims that our actions ostensibly enabled a prime competitor of BAE to build and market, in competition with BAE, an infrared countermeasure system that included an unlawful copy of the component. Based on these allegations, BAE has asserted claims against us for patent infringement, trade secret misappropriation, breach of contract, conversion and unjust enrichment and has requested, by way of relief, unspecified damages, injunctive relief and an accounting. We have evaluated BAE’s claims and believe that there is no basis for the allegations or claims made by BAE. Nevertheless, there can be no assurance that we will prevail in the matter. We do not believe that the ultimate resolution of this matter will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.

We are also involved in various other claims and legal actions that arise in the ordinary course of business. We do not believe that the ultimate resolution of any of these actions will have a material adverse effect on our ~~financial position,~~business, results of operations, financial position, liquidity or capital resources.

~~Our business segments and major products included in each segment, are as follows:~~

~~Microelectronic Solutions~~

~~Microelectronic Components, Sub-assemblies and Modules~~

~~Integrated Circuits~~

~~Motion Control Systems~~

~~Instrument Products and Test Systems~~

We are a ~~manufacturer~~global provider of ~~advanced technology~~radio frequency, or RF, and microwave integrated circuits, components and systems used in the design, development and maintenance of technically demanding, high-performance wireless communication systems. Our solutions include highly specialized microelectronic components ~~for~~and test and measurement equipment used by companies in the space, avionics, defense, commercial ~~industry, government~~wireless communications, medical and ~~defense contractors.~~other markets. Approximately ~~32%~~30% and ~~39%~~32% of our sales for the three months ended December 31, 2010 and 2009 and ~~2008,~~31% and 34% ~~and 36% of our sales~~ for the six months ended December 31, ~~2009~~2010 and ~~2008, respectively,~~2009 were to agencies of the United States government or to prime defense contractors or subcontractors of the United States government. No customer constituted more than 10% of sales during any of the periods presented. Inter-segment sales were not material and have been eliminated from the tables below.

The majority of our operations are located in the United ~~States; however, we~~States. We also have operations in Europe and Asia, with our most significant ~~foreign~~ operations in the ~~United Kingdom (��~~U.K.~~”).~~ Net sales from facilities located in the U.K. were approximately ~~$29.6~~$42.8 million and ~~$33.4~~$42.0 million for the three months ended December 31, 2010 and 2009 and ~~2008 and $55.9~~$80.5 million and ~~$67.8~~$71.1 million for the six months ended December 31, ~~2009~~2010 and ~~2008, respectively.~~2009. Total assets of the U.K. operations were ~~$167.9~~$169.1 million as of December 31, ~~2009~~2010 and ~~$188.2~~$159.9 million as of June 30, ~~2009.~~2010.

Net sales, based on the customers’ locations, attributed to the United States and other regions ~~are~~were as follows:

Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
(In thousands)

United States of America $ 92,204 $ 97,042 $ 172,389 $ 172,057
Europe and Middle East 34,242 22,777 62,709 59,898
Asia and Australia 36,590 34,176 56,105 61,062
Other regions 3,703 2,820 5,652 4,643
$ 166,739 $ 156,815 $ 296,855 $ 297,660

Selected financial data by segment is as follows:

Management evaluates the operating results of ~~the~~our two segments based upon adjusted operating income, which is pre-tax operating income before costs related to ~~restructuring,~~ amortization of acquired intangibles, share-based compensation, restructuring expenses, business acquisition and merger related expenses, Termination of Sponsor Advisory Agreement, loss on liquidation of foreign subsidiary ~~costs, merger related expenses~~ and the impact of any acquisition related adjustments. We have set out above our adjusted operating income by segment and in the aggregate, and have provided a reconciliation of adjusted operating income to operating income (loss) on a GAAP basis and income (loss) before income taxes for the periods presented.

The income tax benefit was $52.3 million for the six months ended December 31, 2010 on a pre-tax loss of $69.5 million. We had an income tax provision for the six months ended December 31, 2009 of $5.7 million on a pre-tax loss of $25.5 million. The effective income tax rate for both periods differed from the amount computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to foreign, state and local income taxes, including U.S. income tax on certain foreign net income, since we anticipate that we will be repatriating these earnings to the U.S. The provisions are a combination of U.S. tax benefits on domestic losses and foreign tax expense on foreign earnings. The resulting projected net consolidated income tax benefit was then applied to the projected consolidated pre-tax amount for the year to calculate the annual effective tax rate, which contributed to the high income tax benefit as a percentage of pre-tax loss.

During the three months ended September 30, 2010, we identified an overstatement of deferred income tax liabilities established in the fourth quarter of fiscal 2009 and throughout fiscal 2010 related to U.S. income taxes provided on unremitted foreign earnings. After consideration of both quantitative and qualitative factors, we determined the amounts were not material to any of those prior period financial statements or the fiscal 2011 estimated results and thus corrected the balance in the three months ended September 30, 2010. The adjustment resulted in a reduction of deferred income tax liabilities of $3.7 million, with a corresponding increase in income tax benefit in the statement of operations for the three months ended September 30, 2010. The adjustment did not impact the statement of cash flows.

The income tax benefit for the three and six months ended December 31, 2010 reflects various discrete items, including a $1.2 million income tax benefit for the retroactive reinstatement of the U.S. R&D credit and a reduction of $5.7 million of deferred tax liabilities related to U.S. income taxes previously provided on unremitted foreign earnings. As a direct result of Aeroflex Holding’s IPO, and related repurchase of a portion of Aeroflex’s debt, interest payments will decrease in the future. Consequently, we have changed our intent as to the amount and method of repatriations of foreign earnings, which resulted in the reduction of deferred tax liabilities.

The tax provision for the six months ended December 31, 2009 was affected by the unfavorable impact of a $7.7 million nondeductible loss on the liquidation of a foreign subsidiary, and the favorable impact of a $10.3 million loss for tax purposes on the write off of our investment in a foreign subsidiary in fiscal 2009. For financial statement purposes, the loss had been recognized in the prior periods, however, for tax purposes the loss was recognized at the time of divestiture, effective September 2009.

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the balance sheets at December 31, ~~2009~~2010 and June 30, ~~2009,~~2010, the statements of operations for the three and six months ended December 31, ~~2009~~2010 and ~~2008~~2009 and the statements of cash flows for the six months ended December 31, ~~2009~~2010 and ~~2008~~2009 for Aeroflex ~~Incorporated (the “Parent Company”~~(”Parent”), the ~~guarantor subsidiaries~~Guarantor Subsidiaries and ~~on a combined basis,~~ the ~~non-guarantor subsidiaries.~~Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects for all ~~fiscal~~ periods presented, the investments of ~~the~~ Parent ~~Company~~ in the ~~guarantor subsidiaries~~Guarantor Subsidiaries as well as ~~the~~ investments of ~~the~~ Parent ~~Company~~ and the ~~guarantor subsidiaries~~Guarantor Subsidiaries in the ~~non-guarantor subsidiaries,~~Non-Guarantor Subsidiaries, in all cases using the equity method. For purposes of this ~~footnote, guarantor subsidiaries~~note, Guarantor Subsidiaries refer to the subsidiaries of ~~the~~ Parent ~~Company~~ that have guaranteed principal debt obligations of ~~the Parent Company.~~Parent. The ~~Parent Company’s~~ purchase price allocation adjustments, including applicable intangible assets, arising from business acquisitions have been pushed down to the applicable subsidiary columns (see Note 3).

Each of the Guarantor Subsidiaries is 100% owned directly or indirectly by the Parent and guarantees the debt on an unconditional and joint and several basis.

Aeroflex Incorporated

Condensed Consolidating Statement of Operations

For the Three Months Ended December 31, 2010

Aeroflex Incorporated

Condensed Consolidating Statement of Operations

For the Three Months Ended December 31, 2009

Aeroflex Incorporated

Condensed Consolidating Statement of Operations

For the ~~Three~~Six Months Ended December 31, ~~2008~~2010

Aeroflex Incorporated

Condensed Consolidating Statement of Operations

For the Six Months Ended December 31, 2009

Aeroflex Incorporated

Condensed Consolidating Balance Sheet

As of December 31, 2010

Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated

Net sales $ - $ 218,015 $ 81,359 $ (2,519 ) $ 296,855
Cost of sales - 111,714 35,967 (2,414 ) 145,267
Gross profit - 106,301 45,392 (105 ) 151,588
Selling, general and administrative costs 7,808 37,156 16,847 - 61,811
Research and development costs - 22,146 12,296 - 34,442
Amortization of acquired intangibles - 26,659 4,460 - 31,119
Loss on liquidation of foreign subsidiary - 7,696 - - 7,696
Operating income (loss) (7,808 ) 12,644 11,789 (105 ) 16,520

Other income (expense):
Interest expense (42,421 ) (34 ) (2 ) - (42,457 )
Other income (expense), net 341 374 (236 ) - 479
Intercompany charges 39,591 (38,636 ) (955 ) - -
Income (loss) before income taxes (10,297 ) (25,652 ) 10,596 (105 ) (25,458 )
Provision (benefit) for income taxes (4,799 ) (492 ) 2,265 8,725 5,699
Equity income (loss) of subsidiaries (25,659 ) 7,634 - 18,025 -
Net income (loss) $ (31,157 ) $ (17,526 ) $ 8,331 $ 9,195 $ (31,157 )

~~Condensed Consolidating Statement of Operations~~

~~For the Six Months Ended December 31, 2008~~

Aeroflex Incorporated

Condensed Consolidating Balance Sheet

As of ~~December 31, 2009~~June 30, 2010

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	75,187		$	(3,821	)	$	29,297		$	-		$	100,663
Accounts receivable, net		-			88,051			53,544			-			141,595
Inventories		-			94,669			33,209			(1,310	)		126,568
Deferred income taxes		4,939			23,224			(145	)		-			28,018
Prepaid expenses and other current assets		3,046			2,840			5,097			-			10,983
Total current assets		83,172			204,963			121,002			(1,310	)		407,827

Property, plant and equipment, net		12,491			69,150			20,021			-			101,662
Non-current marketable securities, net		9,769			-			-			-			9,769
Deferred financing costs, net		20,983			-			-			-			20,983
Other assets		13,634			6,385			1,799			-			21,818
Intangible assets with definite lives, net		-			207,849			30,464			-			238,313
Intangible assets with indefinite lives		-			85,404			24,490			-			109,894
Goodwill		(10	)		404,632			41,252			-			445,874
Total assets	$	140,039		$	978,383		$	239,028		$	(1,310	)	$	1,356,140

Liabilities and Stockholder's Equity
Current liabilities:
Current portion of long-term debt	$	21,457		$	360		$	-		$	-		$	21,817
Accounts payable		4			14,376			14,423			-			28,803
Advanced payments by customers and deferred revenue		-			19,091			11,650			-			30,741
Income taxes payable		969			43			3,603			-			4,615
Accrued payroll expenses		2,198			18,834			2,050			-			23,082
Accrued expenses and other current liabilities		33,904			12,598			12,315			-			58,817
Total current liabilities		58,532			65,302			44,041			-			167,875

Long-term debt		879,645			385			-			-			880,030
Deferred income taxes		15,835			109,570			13,444			-			138,849
Defined benefit plan obligations		5,763			-			-			-			5,763
Other long-term liabilities		1,595			8,303			2,741			-			12,639
Intercompany investment		(287,515	)		60,154			227,361			-			-
Intercompany receivable/payable		(842,950	)		878,174			(34,740	)		(484	)		-
Total liabilities		(169,095	)		1,121,888			252,847			(484	)		1,205,156

Stockholder's equity:		309,134			(143,505	)		(13,819	)		(826	)		150,984
Total liabilities and stockholder's equity	$	140,039		$	978,383		$	239,028		$	(1,310	)	$	1,356,140

Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Assets

Current assets:
Cash and cash equivalents $ 53,071 $ (640 ) $ 16,368 $ - $ 68,799
Accounts receivable, net - 74,068 43,213 - 117,281
Inventories - 101,847 34,057 (1,003 ) 134,901
Deferred income taxes 5,365 25,706 5,951 - 37,022
Prepaid expenses and other current assets 2,742 5,285 3,536 - 11,563
Total current assets 61,178 206,266 103,125 (1,003 ) 369,566

Property, plant and equipment, net 12,561 66,118 19,524 - 98,203
Non-current marketable securities, net 16,899 - - - 16,899
Deferred financing costs, net 23,369 - - - 23,369
Other assets 13,256 4,417 338 - 18,011
Intangible assets with definite lives, net - 226,566 35,135 - 261,701
Intangible assets with indefinite lives - 85,404 26,490 - 111,894
Goodwill (10 ) 389,422 39,474 - 428,886
Total assets $ 127,253 $ 978,193 $ 224,086 $ (1,003 ) $ 1,328,529

Liabilities and Stockholder's Equity

Current liabilities:
Current portion of long-term debt $ 3,863 $ 340 $ - $ - $ 4,203
Accounts payable 32 13,877 13,229 - 27,138
Advance payments by customers and deferred revenue
- 17,110 15,380 - 32,490
Income taxes payable (591 ) (98 ) 4,824 - 4,135
Accrued payroll expenses 958 13,716 1,342 - 16,016
Accrued expenses and other current liabilities 25,885 11,176 12,944 - 50,005
Total current liabilities 30,147 56,121 47,719 - 133,987

Long-term debt 889,245 745 - - 889,990
Deferred income taxes (13,219 ) 138,492 15,135 8,725 149,133
Defined benefit plan obligations 5,988 - - - 5,988
Other long-term liabilities 8,776 1,300 1,506 - 11,582
Intercompany investment (268,858 ) 46,154 222,704 - -
Intercompany receivable/payable (847,317 ) 882,523 (34,723 ) (483 ) -
Total liabilities (195,238 ) 1,125,335 252,341 8,242 1,190,680

Stockholder's equity 322,491 (147,142 ) (28,255 ) (9,245 ) 137,849
Total liabilities and stockholder's equity $ 127,253 $ 978,193 $ 224,086 $ (1,003 ) $ 1,328,529

- 2532 - -

Aeroflex Incorporated

Condensed Consolidating ~~Balance Sheet~~Statement of Cash Flows

~~As of June 30, 2009~~For the Six Months Ended December 31, 2010

(In thousands)

				Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Cash flows from operating activities:
Net income (loss)	$	(17,220	)	$	(8,646	)	$	8,864		$	(218	)	$	(17,220	)
Changes in operating assets and liabilities andnon-cash items included in net income (loss)		(33,876	)		38,809			1,012			218			6,163
Net cash provided by (used in) operating activities		(51,096	)		30,163			9,876			-			(11,057	)
Cash flows from investing activities:
Payments for purchase of businesses, net of cash acquired		(5,621	)		(17,970	)		-			-			(23,591	)
Capital expenditures		(360	)		(7,389	)		(3,464	)		-			(11,213	)
Proceeds from sale of marketable securities		2,000			-			-			-			2,000
Proceeds from sale of property, plant and equipment		-			466			275			-			741
Net cash provided by (used in) investing activities		(3,981	)		(24,893	)		(3,189	)		-			(32,063	)

Cash flows from financing activities:
Capital contribution from Aeroflex Holding		244,097			-			-			-			244,097
Repurchase of senior unsecured notes and senior subordinated unsecured term loans, including premiums and fees		(207,690	)		-			-			-			(207,690	)
Debt repayments		(21,458	)		-			-			-			(21,458	)
Debt financing costs		(3,332	)		-			-			-			(3,332	)
Net cash provided by (used in) financing activities of continuing operations		11,617			-			-			-			11,617
Effect of exchange rate changes on cash and cash equivalents		-			-			1,483			-			1,483
Net increase (decrease) in cash and cash equivalents		(43,460	)		5,270			8,170			-			(30,020	)
Cash and cash equivalents at beginning of period		75,187			(3,821	)		29,297			-			100,663
Cash and cash equivalents at end of period	$	31,727		$	1,449		$	37,467		$	-		$	70,643

Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
Assets

Current assets:
Cash and cash equivalents $ 31,221 $ (15 ) $ 26,542 $ - $ 57,748
Accounts receivable, net - 86,530 43,899 - 130,429
Inventories - 103,674 32,827 (898 ) 135,603
Deferred income taxes 3,452 25,681 6,031 - 35,164
Prepaid expenses and other current assets 2,623 2,542 4,773 - 9,938
Total current assets 37,296 218,412 114,072 (898 ) 368,882

Property, plant and equipment, net 12,720 67,624 20,563 - 100,907
Non-current marketable securities, net 17,677 - - - 17,677
Deferred financing costs, net 25,754 - - - 25,754
Other assets 12,551 2,243 631 - 15,425
Intangible assets with definite lives, net - 253,225 39,328 - 292,553
Intangible assets with indefinite lives - 85,404 26,862 - 112,266
Goodwill (10 ) 388,913 39,230 - 428,133
Total assets $ 105,988 $ 1,015,821 $ 240,686 $ (898 ) $ 1,361,597

Liabilities and Stockholder's Equity

Current liabilities:
Current portion of long-term debt $ 5,250 $ 340 $ - $ - $ 5,590
Accounts payable 285 20,553 15,736 - 36,574
Advance payments by customers and deferred revenue
- 17,433 15,985 - 33,418
Income taxes payable 587 - 4,493 - 5,080
Accrued payroll expenses 1,600 15,148 2,128 - 18,876
Accrued expenses and other current liabilities 25,418 11,079 11,441 - 47,938
Total current liabilities 33,140 64,553 49,783 - 147,476

Long-term debt 883,013 745 - - 883,758
Deferred income taxes (11,453 ) 138,725 15,776 - 143,048
Defined benefit plan obligations 6,079 - - - 6,079
Other long-term liabilities 16,825 1,271 3,380 - 21,476
Intercompany investment (268,635 ) 41,022 227,613 - -
Intercompany receivable/payable (880,752 ) 902,126 (20,891 ) (483 ) -
Total liabilities (221,783 ) 1,148,442 275,661 (483 ) 1,201,837

Stockholder's equity 327,771 (132,621 ) (34,975 ) (415 ) 159,760
Total liabilities and stockholder's equity $ 105,988 $ 1,015,821 $ 240,686 $ (898 ) $ 1,361,597

- 2633 - -

Aeroflex Incorporated

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended December 31, 2009

(In thousands)

				Guarantor			Non-Guarantor												Guarantor			Non-Guarantor
	Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Cash flows from operating activities:
Net income (loss)	$	(31,157	)	$	(17,526	)	$	8,331		$	9,195		$	(31,157	)	$	(31,157	)	$	(17,526	)	$	8,331		$	9,195		$	(31,157	)
Changes in operating assets and liabilities and
non-cash items included in net income (loss)		56,201			22,336			(16,072	)		(9,195	)		53,270
Changes in operating assets and liabilities and non-cash items included in net income (loss)																	56,201			22,336			(16,072	)		(9,195	)		53,270
Net cash provided by (used in) operating activities		25,044			4,810			(7,741	)		-			22,113			25,044			4,810			(7,741	)		-			22,113
Cash flows from investing activities:
Capital expenditures		(171	)		(6,172	)		(2,058	)		-			(8,401	)		(171	)		(6,172	)		(2,058	)		-			(8,401	)
Proceeds from sale of marketable securities		1,000			-			-			-			1,000			1,000			-			-			-			1,000
Proceeds from the sale of property, plant and equipment		-			737			108			-			845			-			737			108			-			845
Other, net		(11	)		-			-			-			(11	)		(11	)		-			-			-			(11	)
Net cash provided by (used in) investing activities		818			(5,435	)		(1,950	)		-			(6,567	)		818			(5,435	)		(1,950	)		-			(6,567	)
Cash flows from financing activities:
Debt repayments		(4,012	)		-			-			-			(4,012	)		(4,012	)		-			-			-			(4,012	)
Net cash provided by (used in) financing activities		(4,012	)		-			-			-			(4,012	)		(4,012	)		-			-			-			(4,012	)
Effect of exchange rate changes on cash and cash
equivalents		-			-			(483	)		-			(483	)
Effect of exchange rate changes on cash and cash equivalents																	-			-			(483	)		-			(483	)
Net increase (decrease) in cash and cash equivalents		21,850			(625	)		(10,174	)		-			11,051			21,850			(625	)		(10,174	)		-			11,051
Cash and cash equivalents at beginning of period		31,221			(15	)		26,542			-			57,748			31,221			(15	)		26,542			-			57,748
Cash and cash equivalents at end of period	$	53,071		$	(640	)	$	16,368		$	-		$	68,799		$	53,071		$	(640	)	$	16,368		$	-		$	68,799

- 2734 - -

~~Condensed Consolidating Statement of Cash Flows~~

~~For the Six Months Ended December 31, 2008~~

~~(In thousands)~~ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated

Cash flows from operating activities:
Net income (loss) $ (11,004 ) $ 444 $ 15,485 $ (15,929 ) $ (11,004 )
Changes in operating assets and liabilities and
non-cash items included in net income (loss) 23,477 5,928 7,330 15,929 52,664
Net cash provided by (used in) operating activities 12,473 6,372 22,815 - 41,660
Cash flows from investing activities:
Capital expenditures (11 ) (5,041 ) (3,301 ) - (8,353 )
Proceeds from the sale of property, plant and
equipment - 687 179 - 866
Other, net (12 ) - - - (12 )
Net cash provided by (used in) investing activities (23 ) (4,354 ) (3,122 ) - (7,499 )
Cash flows from financing activities:
Debt repayments (4,125 ) (4 ) - - (4,129 )
Debt financing costs (340 ) - - - (340 )
Net cash provided by (used in) financing activities (4,465 ) (4 ) - - (4,469 )
Effect of exchange rate changes on cash and
cash equivalents - - (10,177 ) - (10,177 )
Net increase in cash and cash equivalents 7,985 2,014 9,516 - 19,515
Cash and cash equivalents at beginning of period 39,285 (2,379 ) 17,243 - 54,149
Cash and cash equivalents at end of period $ 47,270 $ (365 ) $ 26,759 $ - $ 73,664

~~- 28 - -~~

~~15.~~

~~Subsequent Events~~

~~The Company evaluated all events or transactions that occurred after~~This quarterly report on Form 10-Q for the period ended December 31, ~~2009 up through February 11,~~ 2010 is a combined quarterly report being separately filed by two registrants: Aeroflex Holding Corp. (“Aeroflex Holding”) and Aeroflex Incorporated (“Aeroflex”), a direct wholly-owned subsidiary of Aeroflex Holding. Unless the ~~date the~~context provides otherwise, references to “we,” “our,” “the Company, ~~issued these~~” or “us” refer collectively to Aeroflex Holding and its subsidiary, Aeroflex, including Aeroflex’s consolidated financial statements. Based on that evaluation, we have determined no material events or transactions occurred after December 31, 2009 up through February 11, 2010 that would affect the December 31, 2009 consolidated financial statements.

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~ ~~RESULTS OF OPERATIONS~~

subsidiaries.

Forward-Looking Statements

This ~~Report~~report contains ~~"forward-looking~~forward-looking statements." All statements other than statements of historical fact are forward-looking statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "should" or "will" or the negative thereof or other variations thereon or comparable terminology.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such ~~forward looking~~forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. ~~Some~~A listing of some of the key factors that could cause actual results to differ from our expectations ~~include:~~

~~adverse developments in general business, economic and political conditions domestically or internationally;~~

~~our ability to make payments on our significant indebtedness;~~

~~our ability to remain competitive in the markets we serve;~~

~~our failure to comply with regulations such as ITAR and any changes in regulations;~~

~~our inability to continue to develop, manufacture and market innovative products and services that meet customer requirements for performance and reliability;~~

~~our exposure to foreign currency exchange rate risks;~~

~~our exposure to auction rate securities and the impact this exposure has on our liquidity;~~

our failure to realize anticipated benefits from completed acquisitions, divestitures or restructurings, or the possibility that such acquisitions, divestitures or restructurings could adversely affect us;

~~the loss of key employees;~~

•

~~terrorist acts or acts of war; and~~

~~other risks and uncertainties, including those listed~~is included under the caption "Risk Factors" disclosed in ~~our~~Aeroflex Holding’s Registration Statement and Aeroflex’s Fiscal ~~2009~~2010 Form 10-K.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Form 10-Q are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements, either to reflect new developments, or for any other reason, except as required by law.

Overview

Company Background

We are a leading global provider of RF and microwave integrated circuits, components and systems used in the design, development and maintenance of technically demanding, high-performance wireless communication systems. Our solutions include highly specialized microelectronic components and test and measurement equipment used by companies in the space, avionics, defense, commercial wireless communications, medical and other markets. We have targeted customers in these end markets because we believe our solutions address their technically demanding requirements. We were founded in 1937 and have proprietary technology that is based on extensive know-how and a long history of research and development focused on specialized technologies, often in collaboration with our customers.

Business Segments

Our business segments and major products included in each segment are as follows:

Microelectronic Solutions (“AMS”)

HiRel microelectronics/semiconductors

RF and microwave components

Mixed-signal/digital ASICs

- 2935 - -

Motion control products

~~Overview~~Test Solutions (“ATS”)

~~We are~~

Wireless test equipment

Military radio and Private Mobile Radio, or PMR, test equipment

Avionics test equipment

Synthetic test equipment

General purpose test equipment and other

Stock Split

Aeroflex Holding’s board of directors authorized an increase in Aeroflex Holding’s authorized shares of common stock to 300,000,000 and a ~~leading provider~~65,000,000 for 1 common stock split, both of ~~highly specialized microelectronics and test and measurement equipment, primarily~~which became effective on November 18, 2010. Aeroflex Holding’s stockholders’ equity has been retroactively adjusted to give effect to the ~~global aerospace~~stock split for all periods presented by reclassifying the par value of the additional shares issued in connection with the split from additional paid-in capital to common stock. In addition, all share numbers and ~~defense and broadband communications markets. We also design application specific integrated circuits (“ASICs”) for CT scan equipment for~~per share amounts in Aeroflex Holding’s consolidated financial statements have been retroactively adjusted to give effect to the medical industry. Founded in 1937, we have developed a substantial intellectual property portfolio that includes more than 150 patents, extensive know-how, years of collaborative research and development with our customers and a demonstrated history in space, validating the high quality performance of our products. We believe that the combination of our leading market positions, complementary portfolio of products, years of experience and engineering capabilities provides us with a competitive advantage and enables us to deliver high performance, high value products to our customers.stock split.

Initial Public Offering

Repurchased $186.6 million of its senior unsecured notes and senior subordinated unsecured term loans and paid related expenses;

Entered into an amendment of the credit agreement with the lenders of its senior secured credit facility, for which a $3.3 million fee was paid to the lenders

Debt Repurchase

In December 2010, Aeroflex repurchased approximately $32.2 million of its senior unsecured notes and $154.4 million of its senior subordinated unsecured term loans. This resulted in a $25.2 million loss on extinguishment of debt, which is comprised of the following:

an 11% premium paid on the debt repurchased, which amounted to $20.5 million;

the write-off of the related deferred financing costs of $4.0 million; and

professional fees of $614,000.

- 36 - -

Amendment to Senior Secured Debt Agreement

pay certain fees to affiliates of the Sponsors upon the completion of the Aeroflex Holding IPO. These fees were paid on November 24, 2010, and consisted of the $2.5 million Transaction Fee for services directly attributable to the equity offering, which was recorded as a reduction of additional paid-in capital, and the $16.9 million Termination Fee. The Termination Fee, when combined with the related write-off of prepaid advisory fees, amounted to an $18.1 million expense which was recorded in a separate line on the statement of operations entitled Termination of Sponsor Advisory Agreement; and

- 37 - -

Results of Operations

The following table sets forth our historical results of operations as a percentage of net sales for the periods indicated below:

Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, 2009 December 31, 2008 December 31, 2009 December 31, 2008

Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Costs of sales 48.1 53.3 48.9 52.8
Gross profit 51.9 46.7 51.1 47.2

Operating expenses:
Selling, general and administrative costs 18.9 21.8 20.8 22.0
Research and development costs 10.4 10.9 11.6 11.5
Amortization of acquired intangibles 9.3 9.3 10.5 11.0
Loss on liquidation of foreign subsidiary - - 2.6 -
Total operating expenses 38.6 42.0 45.5 44.5

Operating income (loss) 13.3 4.7 5.6 2.7

Interest expense (12.9 ) (13.6 ) (14.3 ) (14.3 )
Other income (expense), net 0.3 6.0 0.1 4.2
Income (loss) before income taxes 0.7 (2.9 ) (8.6 ) (7.4 )
Provision (benefit) for income taxes 7.1 (0.3 ) 1.9 (3.7 )

Net income (loss) (6.4 )% (2.6 )% (10.5 )% (3.7 )%

~~- 30 - -~~

~~Statements of Operations~~

Management evaluates the operating results of the Company’s two segments based upon pre-tax operating income, before costs related to restructuring, amortization of acquired intangibles, share-based compensation, loss on liquidation of foreign subsidiary, merger related expenses and the impact of any acquisition related adjustments.

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2010			2009			2010			2009

Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Costs of sales		47.8			48.1			48.2			48.9
Gross profit		52.2			51.9			51.8			51.1

Operating expenses:
Selling, general and administrative costs		21.0			18.9			22.3			20.8
Research and development costs		11.9			10.4			13.0			11.6
Amortization of acquired intangibles		8.7			9.3			9.4			10.5
Termination of Sponsor Advisory Agreement		10.0			-			5.4			-
Restructuring charges		3.5			-			2.4			0.1
Loss on liquidation of foreign subsidiary		-			-			-			2.6
Total operating expenses		55.1			38.6			52.5			45.6

Operating income (loss)		(2.9	)		13.3			(0.7	)		5.5

Other income (expense):
Interest expense		(11.4	)		(12.9	)		(12.5	)		(14.3	)
Loss on extinguishment of debt		(13.9	)		-			(7.5	)		-
Gain from a bargain purchase of a business		0.1			-			0.1			-
Other income (expense), net		(0.2	)		0.3			(0.1	)		0.1

Income (loss) before income taxes		(28.3	)		0.7			(20.7	)		(8.7	)
Provision (benefit) for income taxes		(22.0	)		7.1			(15.6	)		1.9

Net income (loss)		(6.3	)%		(6.4	)%		(5.1	)%		(10.6	)%

- 38 - -

Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
2009 2008 2009 2008
(In thousands)

Net sales:
Microelectronic solutions ("AMS") $ 79,160 $ 70,752 $ 146,521 $ 138,332
Test solutions ("ATS") 87,579 86,063 150,334 159,328
Net sales $ 166,739 $ 156,815 $ 296,855 $ 297,660

Segment adjusted operating income:
- AMS $ 21,887 $ 15,371 $ 36,911 $ 29,984
- ATS 20,186 15,974 28,151 25,604
- General corporate expense (2,258 ) (3,870 ) (5,189 ) (6,567 )
Adjusted operating income 39,815 27,475 59,873 49,021

Amortization of acquired intangibles
- AMS (8,743 ) (8,462 ) (17,579 ) (19,139 )
- ATS (6,771 ) (6,160 ) (13,540 ) (13,451 )
Share based compensation
- Corporate (556 ) (489 ) (1,045 ) (977 )
Restructuring charges
- ATS (64 ) (1,808 ) (251 ) (2,210 )
Merger related expenses - Corporate (771 ) (2,172 ) (1,464 ) (2,806 )
Loss on liquidation of foreign
subsidiary - ATS - - (7,696 ) -
Current period impact of acquisition
related adjustments:
Inventory - AMS - - (246 ) -
Depreciation - AMS (265 ) (286 ) (540 ) (572 )
Depreciation - ATS (311 ) (676 ) (817 ) (1,414 )
Depreciation - Corporate (55 ) (55 ) (110 ) (110 )
Deferred revenue - ATS (33 ) (79 ) (65 ) (176 )
Operating income (GAAP) 22,246 7,288 16,520 8,166

Interest expense (21,418 ) (21,250 ) (42,457 ) (42,465 )
Other income (expense), net 422 9,327 479 12,413
Income (loss) before income taxes $ 1,250 $ (4,635 ) $ (25,458 ) $ (21,886 )

Three Months Ended December 31, ~~2009~~2010 Compared to Three Months Ended December 31, ~~2008~~2009

Net Sales. Net sales increased 6%$14.8 million, or 9%, to $181.6 million for the three months ended December 31, 2010 from $166.7 million for the three months ended December 31, 2009. Businesses acquired since December 31, 2009 ~~from $156.8~~contributed $12.1 million to sales, or 7%, in the current quarter.

			Net Sales
Three Months			% of					% of
Ended			Consolidated					Consolidated
December 31,	AMS		Net Sales			ATS		Net Sales			Total
			(In thousands, except percentages)

2009	$	79,160		47.5	%	$	87,579		52.5	%	$	166,739
2010	$	89,225		49.1	%	$	92,354		50.9	%	$	181,579

Net sales in the AMS segment increased $10.1 million, or 13%, to $89.2 million for the three months ended December 31, ~~2008.~~

~~Net sales in the microelectronic solutions (“AMS”) segment increased 12% to~~2010 from $79.2 million for the three months ended December 31, ~~2009~~2009. Specific variances include a volume driven $5.5 million increase in sales of components, including $4.2 million from ~~$70.8~~Advanced Control Components, Inc., or ACC, acquired in August 2010, a volume driven $5.2 million increase in sales of integrated circuits; and additional sales of $1.5 million from Radiation Assured Devices, Inc., or RAD, acquired in June 2010. The increases in sales were partially offset by volume driven reductions of $1.5 million in sales of microelectronics modules and $699,000 in sales of motion control products.

Net sales in the ATS segment increased $4.8 million, or 5%, to $92.4 million for the three months ended December 31, ~~2008. Increases in sales volumes of integrated circuits ($4.0 million) and microelectronic modules ($3.8 million), combined with sales of $2.7 million~~2010 from ~~Airflyte Electronics, acquired in June 2009, were offset by the reduction of $2.0 million in sales of components due to decreased sales volumes and price concessions created by industry competition.~~

~~Net sales in the test solutions (“ATS”) segment increased 2% to~~ $87.6 million for the three months ended December 31, ~~2009~~2009. Specific variances include a volume driven $2.7 million increase in sales from ~~$86.1~~avionic products; a volume driven $1.7 million ~~for the three months ended December 31, 2008. The~~ increase ~~was primarily due to additional~~in sales of wireless test products; and additional wireless test products ~~of $7.4 million combined with~~ sales of ~~$3.8~~$6.4 million from ~~VI Technology,~~Willtek Communications, or Willtek, acquired in ~~March 2009, and was largely~~May 2010. The increases in net sales were partially offset by a volume driven reduction of $5.5 million in sales of ~~PXI~~general purpose test products and ~~other~~a volume driven reduction of $549,000 in sales of radio test ~~equipment~~ products.

~~- 31 - -~~

Gross Profit. Gross profit equals net sales less cost of sales. Cost of sales includes materials, direct labor, amortization of capitalized software development costs and overhead expenses such as engineering labor, fringe benefits, depreciation, allocable occupancy costs and manufacturing supplies.

On a consolidated basis, gross ~~margin~~profit was ~~51.9%~~$94.8 million, or 52.2% of net sales, for the three months ended December 31, ~~2009~~2010 and ~~46.7%~~$86.7 million, or 51.9% of net sales, for the three months ended December 31, ~~2008. Gross margin was adversely affected by purchase accounting adjustments aggregating $402,000 in 2009 and $572,000 in 2008.~~2009.

Three Months			Gross Profit
Ended			% of					% of					% of
December 31,	AMS		Net Sales			ATS		Net Sales			Total		Net Sales
			(In thousands, except percentages)

2009	$	39,202		49.5	%	$	47,456		54.2	%	$	86,658		51.9	%
2010	$	44,696		50.1	%	$	50,144		54.3	%	$	94,840		52.2	%

Gross Profit
Three Months
Ended % of % of % of
December 31, AMS Net Sales ATS Net Sales Total Net Sales
(In thousands, except percentages)

2009 $ 39,202 49.5 % $ 47,392 54.1 % $ 86,594 51.9 %
2008 $ 33,076 46.7 % $ 40,083 46.6 % $ 73,159 46.7 %

Gross margins in the AMS segment were 50.1% for the three months ended December 31, 2010 and 49.5% ~~in 2009 and 46.7% in 2008. The increase in gross margins is principally attributable to (i) increased sales of integrated circuits and microelectronics modules (which have margins higher than~~for the ~~segment average) and decreased sales of components and motion control products (which have margins lower than the segment average).~~

~~Gross margins in the ATS segment were 54.1% in 2009 and 46.6% in 2008.~~three months ended December 31, 2009. The increase in gross margins is principally attributable to increased sales of ~~wireless test products, which~~integrated circuits, combined with the additional sales of RAD services, acquired in June 2010, (which have margins higher than the segment ~~average.~~average). Gross profit increased $5.5 million for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009 due to increased sales and the aforementioned increase in gross margins.

- 39 - -

Gross margins in the ATS segment were 54.3% for the three months ended December 31, 2010 and 54.2% for the three months ended December 31, 2009. Gross profit increased $2.7 million for the three months ended December 31, 2010 as compared to the three months ended December 31, 2009 due to increased sales.

Selling, General and Administrative Costs. Selling, general and administrative costs include office and management salaries, fringe benefits, commissions, insurance and professional fees.

On a consolidated basis SG&A costs ~~decreased $2.6 million.~~ increased $6.7 million, or 21%, to $38.3 million for the three months ended December 31, 2010. This increase was primarily attributable to the additional SG&A costs of the acquired businesses, which were not fully integrated during the quarter, and the expansion of our sales and marketing team in the Asia-Pacific region. As a percentage of sales, SG&A costs ~~decreased 290 basis points~~increased from 18.9% to 21.0% from the three months ended December 31, ~~2008~~2009 to the three months ended December 31, ~~2009.~~2010. SG&A of the acquired businesses increased SG&A by $2.5 million, or 8% of 2009 total SG&A.

	Selling, General and Administrative Costs
Three Months																				Selling, General and Administrative Costs
Ended			% of					% of							% of					% of					% of							% of
December 31,	AMS		Net Sales			ATS		Net Sales			Corporate		Total		Net Sales			AMS		Net Sales			ATS		Net Sales			Corporate		Total		Net Sales
	(In thousands, except percentages)																			(In thousands, except percentages)

2009	$	10,595		13.4	%	$	17,338		19.8	%	$	3,640	$	31,573		18.9	%	$	10,595		13.4	%	$	17,338		19.8	%	$	3,640	$	31,573		18.9	%
2008	$	10,723		15.2	%	$	16,865		19.6	%	$	6,586	$	34,174		21.8	%
2010																		$	13,596		15.2	%	$	19,870		21.5	%	$	4,800	$	38,266		21.0	%

In the AMS segment, SG&A costs ~~decreased $128,000~~increased $3.0 million, or ~~1%. As~~28%, to $13.6 million for the three months ended December 31, 2010. This increase is primarily due to additional SG&A costs of $1.4 million related to RAD, acquired in June 2010, and ACC, acquired in August 2010 and general increases in our existing businesses, primarily due to increased employee related expenses of $644,000; external commissions of $262,000 and professional fees of $252,000. SG&A costs in the AMS segment increased from 13.4% to 15.2%, as a percentage of sales, ~~SG&A costs decreased 180 basis points for AMS. The components product group reduced SG&A costs by $799,000, as compared~~from the three months ended December 31, 2009 to the prior year, primarily due to cost savings initiatives. These savings, in the AMS segment, are partially offset by additional costs of $408,000 related to Airflyte Electronics, acquired in June 2009.three months ended December 31, 2010.

In the ATS segment, SG&A costs increased ~~$473,000~~$2.5 million, or ~~3%.~~15%, to $19.9 million for the three months ended December 31, 2010, primarily due to increased employee related expenses of $1.5 million and additional costs of $1.0 million related to Willtek, acquired in May 2010. As a percentage of sales, SG&A costs in the ATS segment increased ~~20 basis points for ATS. The increase primarily relates~~from 19.8% to ~~additional costs of $684,000 related~~21.5% from the three months ended December 31, 2009 to ~~VI Technology, acquired in March 2009.~~the three months ended December 31, 2010.

~~- 32 - -~~

Corporate general and administrative ~~expenses decreased $2.9~~costs increased $1.2 million, for the three months ended December 31, 2010 compared to the three months ended December 31, 2009, primarily ~~due~~related to ~~reductions in merger related expenses ($1.4 million) and various other expenses including professional fees and employee related expenses.~~business acquisition costs of $876,000.

Research and Development Costs. Research and development costs include materials, engineering labor and allocated overhead.

On a consolidated basis, research and development costs ~~decreased 50 basis points as~~increased by $4.4 million, or 25%, to $21.7 million for the three months ended December 31, 2010. This increase was primarily attributable to the additional costs of the acquired businesses and the acceleration of research and development projects in our ATS segment to meet customer requirements for new products. As a percentage of ~~sales.~~sales, research and development costs increased from 10.4% to 11.9% from the three months ended December 31, 2009 to the three months ended December 31, 2010. Research and development costs of acquired businesses increased research and development by $1.4 million, or 8% of 2009 total research and development costs.

- 40 - -

	Research and Development Costs
Three Months																		Research and Development Costs
Ended			% of					% of					% of					% of					% of					% of
December 31,	AMS		Net Sales			ATS		Net Sales			Total		Net Sales			AMS		Net Sales			ATS		Net Sales			Total		Net Sales
	(In thousands, except percentages)																	(In thousands, except percentages)

2009	$	6,986		8.8	%	$	10,275		11.7	%	$	17,261		10.4	%	$	6,986		8.8	%	$	10,275		11.7	%	$	17,261		10.4	%
2008	$	7,268		10.3	%	$	9,807		11.4	%	$	17,075		10.9	%
2010																$	8,552		9.6	%	$	13,104		14.2	%	$	21,656		11.9	%

AMS segment self-funded research and development costs ~~decreased $282,000,~~increased $1.6 million, or 4%22%, to $8.6 million for the three months ended December 31, 2010 primarily due to ~~lower~~the increased efforts in the development of next generation component products and additional spending on ~~components.~~projects within integrated circuits. As a percentage of sales, AMS segment research and development costs ~~decreased 150 basis points.~~increased from 8.8% for the three months ended December 31, 2009 to 9.6% for the three months ended December 31, 2010.

ATS segment self-funded research and development costs increased ~~$468,000,~~$2.8 million, or 5%28%, to $13.1 million for the three months ended December 31, 2010 primarily due to ~~efforts aimed at enhancing existing next generation~~increases in our radio test ~~products.~~and avionics divisions, for the development of a common platform technology, and additional costs of $1.1 related to Willtek, acquired in May 2010. As a percentage of sales, ATS segment research and development costs increased ~~30 basis points.~~from 11.7% for the three months ended December 31, 2009 to 14.2% for the three months ended December 31, 2010.

Amortization of Acquired Intangibles. Amortization of acquired intangibles increased ~~$892,000~~$329,000 for the three months ended December 31, 2010 primarily due to additional amortization related to the acquisitions of Willtek, in May 2010; RAD, in June 2010; and ACC, in August 2010. The increases in amortization were partially offset by certain intangibles becoming fully amortized during fiscal 2010. By segment, the amortization increased $453,000 in the AMS segment and decreased $124,000 in the ATS segment.

Termination of Sponsor Advisory Agreement. In connection with the Aeroflex Holding IPO, we paid a $16.9 million Termination Fee to affiliates of the Sponsors on November 24, 2010 to terminate the Sponsor Advisory Agreement with them and eliminate all future payments to the Sponsors under that agreement, which, including the related write-off of prepaid advisory fees, resulted in an $18.1 million expense. There was no similar charge recorded for the three months ended December 31, 2009.

Restructuring Charges. The AMS segment incurred total restructuring costs of $5.6 million for the three months ended December 31, 2010 which primarily relate to consolidation of our components operations by relocating a portion of our Whippany, New Jersey facility’s production to our Ann Arbor, Michigan facility and a portion to our Eatontown, New Jersey facility. In connection with this consolidation, we recorded a $4.9 million impairment charge based on the fair value of the Whippany, New Jersey facility we intend to sell. There were no comparable charges for the three months ended December 31, 2009.

The ATS segment incurred restructuring costs of $738,000 for the three months ended December 31, 2010. In comparison, for the three months ended December 31, 2009, primarily due to increases for recently acquired businesses. By segment, amortization increased $281,000 in the AMS segment primarily due to additional amortization of $290,000 for Airflyte Electronics, acquired in June 2009. Amortization increased $611,000 in the ATS segment ~~primarily due~~incurred restructuring costs of $64,000. In both periods, the costs related to ~~additional amortization of $594,000 for VI Technology, acquired~~consolidation and reorganization efforts in ~~March 2009.~~our U.K. operations.

Other Income (Expense). Interest expense was $20.7 million for the three months ended December 31, 2010 and $21.4 million for the three months ended December 31, 2009. The interest expense decreased, and will further decrease next quarter, as a result of the repurchase, in ~~2009~~December 2010, of $186.6 million of Aeroflex’s senior unsecured notes and ~~$21.3~~senior subordinated unsecured term loans with the proceeds from the IPO. During the three months ended December 31, 2010 we incurred a $25.2 million loss on extinguishment of debt, which was comprised primarily of $20.5 million in ~~2008.~~premiums paid on the debt repurchased and $4.0 million for the write-off of the related deferred financing costs. In addition, we recognized a $173,000 gain on bargain purchase related to the final working capital adjustment to the purchase price of Willtek, acquired in June 2010. There were no comparable charges for the three months ended December 31, 2009. Other income (expense) of ($378,000) for the three months ended December 31, 2010 consisted primarily of ($688,000) of other than temporary impairments related to the fair value of our auction rate securities, offset by $310,000 of interest and miscellaneous income. Other income (expense) of $422,000 for the three months ended December 31, 2009 consisted primarily of $768,000 of interest and miscellaneous income, offset by ~~$346,000~~($346,000) of foreign currency transaction losses. Other income (expense) of $9.3 million for the three months ended December 31, 2008 consisted primarily of $8.8 million of foreign currency transaction gains and $506,000 of interest and miscellaneous income.

- 41 - -

Provision for Income Taxes. The income tax ~~provision~~benefit was ~~$11.9~~$40.0 million for the three months ended December 31, ~~2009~~2010 on a pre-tax ~~income~~loss of ~~$1.3~~$51.4 million. We had an income tax ~~benefit~~provision for the three months ended December 31, ~~2008~~2009 of ~~$528,000, an effective~~$11.9 million on pre-tax income ~~tax rate~~ of ~~11.4%.~~$1.3 million. The effective income tax rate for both periods differed from the amount computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to foreign, state and local income ~~taxes.~~taxes, including U.S. income tax on certain foreign net income, since we anticipate that we will be repatriating these earnings to the U.S. The provisions are a combination of U.S. tax benefits on domestic losses and foreign ~~and domestic taxes~~tax expense on foreign ~~earnings (as we expect that substantially all these earnings will be distributed~~earnings. The resulting projected net consolidated income tax benefit was then applied to the ~~U.S.) distorts~~projected net consolidated pre-tax amount for the year to calculate the annual effective tax ~~rate.~~rate, which contributed to the high income tax benefit as a percentage of pre-tax loss. The income tax benefit for the three months ended December 31, 2010 reflects various discrete items in the quarter, including a $1.2 million tax benefit for the retroactive reinstatement of the U.S. R&D credit and a reduction of $5.7 million of deferred tax liabilities related to U.S. income taxes previously provided on unremitted foreign earnings. As a direct result of Aeroflex Holding’s IPO, and related repurchase of a portion of Aeroflex’s debt, interest payments will decrease in the future. Consequently, we have changed our intent as to the amount and method of repatriations of foreign earnings, which resulted in the reduction of deferred tax liabilities.

In the three months ended December 31, 2010, we paid income taxes of $6.5 million and received tax refunds of $3.1 million related to federal, state and foreign income taxes. In the three months ended December 31, 2009, we paid income taxes of $1.5 million and received ~~tax~~ refunds of ~~$29,000 related to federal, state and foreign income taxes. In~~$29,000.

Net Loss. The net loss was $11.4 million for the three months ended December 31, ~~2008, we paid income taxes of $372,000.~~

~~Net income (loss). The net loss was~~2010 and $10.6 million for the three months ended December 31, ~~2009 and $4.1 million for the three months ended December 31, 2008.~~2009.

~~- 33 - -~~

Six Months Ended December 31, ~~2009~~2010 Compared to Six Months Ended December 31, ~~2008~~2009

Net Sales. Net sales ~~were~~increased $40.7 million, or 14%, to $337.5 million for the six months ended December 31, 2010 from $296.9 million for the six months ended December 31, 2009. Businesses acquired since December 31, 2009 ~~and $297.7~~contributed $19.0 million to sales, or 6%, in the current fiscal year.

			Net Sales
Six Months			% of					% of
Ended			Consolidated					Consolidated
December 31,	AMS		Net Sales			ATS		Net Sales			Total
			(In thousands, except percentages)

2009	$	146,521		49.4	%	$	150,334		50.6	%	$	296,855
2010	$	166,530		49.3	%	$	170,980		50.7	%	$	337,510

Net sales in the AMS segment increased $20.0 million, or 14%, to $166.5 million for the six months ended December 31, ~~2008.~~

~~Net sales in the AMS segment increased 6% to~~2010 from $146.5 million for the six months ended December 31, ~~2009~~2009. Specific variances include a volume driven $11.4 million increase in sales of components, including $5.7 million from ~~$138.3~~ACC, acquired in August 2010, a volume driven $9.3 million increase in sales of integrated circuits; and additional sales of $2.8 million from RAD, acquired in June 2010. The increases in sales were partially offset by volume driven reductions of $1.9 million in sales of microelectronics modules and $1.6 million in sales of motion control products.

Net sales in the ATS segment increased $20.6 million, or 14%, to $171.0 million for the six months ended December 31, ~~2008. Increases in sales volumes of $6.4 million of integrated circuits and $6.0 million of microelectronic modules, combined with sales of $5.3 million~~2010 from Airflyte Electronics, acquired in June 2009, were partially offset by a reduction of $7.1 million in sales of components, due to decreased sales volumes and price concessions created by industry competition, and a $2.6 million reduction in motion control products.

~~Net sales in the ATS segment decreased 6% to~~ $150.3 million for the six months ended December 31, ~~2009~~2009. Specific variances include a volume driven $9.6 million increase in sales of wireless test products; a volume driven $5.9 million increase in sales from ~~$159.3~~avionic products; and a volume driven $2.4 million ~~for the six months ended December 31, 2008. Increases~~increase in sales of radio test sets. In addition, there were additional wireless test products ~~synthetic test products and additional~~ sales of ~~$7.3~~$10.4 million from ~~VI Technology,~~Willtek, acquired in ~~March 2009,~~May 2010. The increases in net sales were ~~more than~~partially offset by ~~the decrease~~a volume driven reduction of $7.7 million in sales ~~volumes~~ of ~~PXI and other~~general purpose test ~~equipment~~ products.

- 42 - -

Gross Profit. On a consolidated basis, gross ~~margin~~profit was ~~51.1%~~$174.7 million, or 51.8% of net sales, for the six months ended December 31, ~~2009~~2010 and ~~47.2%~~$151.7 million, or 51.1% of net sales, for the six months ended December 31, ~~2008.~~2009.

	Gross Profit
Six Months																		Gross Profit
Ended			% of					% of					% of					% of					% of					% of
December 31,	AMS		Net Sales			ATS		Net Sales			Total		Net Sales			AMS		Net Sales			ATS		Net Sales			Total		Net Sales
	(In thousands, except percentages)																	(In thousands, except percentages)

2009	$	70,201		47.9	%	$	81,387		54.1	%	$	151,588		51.1	%	$	70,201		47.9	%	$	81,530		54.2	%	$	151,731		51.1	%
2008	$	65,096		47.1	%	$	75,422		47.3	%	$	140,518		47.2	%
2010																$	83,415		50.1	%	$	91,251		53.4	%	$	174,666		51.8	%

Gross margins in the AMS segment were 50.1% for the six months ended December 31, 2010 and 47.9% for the six months ended December 31, 2009. The increase in ~~2009~~gross margins is principally attributable to a favorable product mix and ~~47.1% in 2008. Margins were favorably impacted by~~ increased sales of ~~microelectronic modules and~~ integrated circuits, combined with the additional sales of RAD services, acquired in June 2010, (which have margins higher than the segment average)~~, offset by unfavorable product mix~~. Gross profit increased $13.2 million for the six months ended December 31, 2010 as compared to the six months ended December 31, 2009 principally due to increased sales and ~~sale price reductions for certain products~~the aforementioned increase in ~~components.~~gross margins.

Gross margins in the ATS segment were ~~54.1% in 2009~~53.4% for the six months ended December 31, 2010 and ~~47.3% in 2008.~~54.2% for the six months ended December 31, 2009. The ~~increase~~decrease in gross margins iswas principally attributable to ~~increased~~wireless product sales, ofwhich included more hardware products than software products as compared to the prior year (while wireless hardware products ~~which~~ have higher gross margins ~~higher~~ than the segment ~~average.~~average, they are not as high as the gross margins of wireless software products). Despite the reduction in margins, gross profit increased $9.7 million for the six months ended December 31, 2010 as compared to the six months ended December 31, 2009 due to increased sales.

Selling, General and Administrative Costs. On a consolidated basis SG&A costs ~~decreased $3.8 million.~~ increased $13.3 million, or 21%, to $75.0 million for the six months ended December 31, 2010. This increase was primarily attributable to the additional SG&A costs of the acquired businesses, which were not fully integrated during the period, and the expansion of our sales and marketing team in the Asia-Pacific region. As a percentage of sales, SG&A costs ~~decreased 120 basis points~~increased from 20.8% to 22.3% from the six months ended December 31, ~~2008~~2009 to the six months ended December 31, ~~2009.~~2010. The SG&A of the acquired businesses increased SG&A by $4.4 million, or 7% of total 2009 SG&A.

	Selling, General and Administrative Costs
Six Months																				Selling, General and Administrative Costs
Ended			% of					% of							% of					% of					% of							% of
December 31,	AMS		Net Sales			ATS		Net Sales			Corporate		Total		Net Sales			AMS		Net Sales			ATS		Net Sales			Corporate		Total		Net Sales
	(In thousands, except percentages)																			(In thousands, except percentages)

2009	$	20,583		14.0	%	$	33,420		22.2	%	$	7,808	$	61,811		20.8	%	$	20,583		14.0	%	$	33,312		22.2	%	$	7,808	$	61,703		20.8	%
2008	$	21,085		15.2	%	$	34,114		21.4	%	$	10,459	$	65,658		22.0	%
2010																		$	25,980		15.6	%	$	40,302		23.6	%	$	8,687	$	74,969		22.3	%

In the AMS segment, SG&A costs ~~decreased $502,000,~~increased $5.4 million, or ~~2%.~~26%, to $26.0 million for the six months ended December 31, 2010. This increase is primarily due to additional costs of $2.3 million related to RAD, acquired in June 2010, and ACC, acquired in August 2010; general increases in our existing businesses, primarily due to increased employee related expenses of $1.4 million and external commissions of $578,000; and increased professional fees of $504,000. SG&A costs in the AMS segment increased from 14.0% to 15.6%, as a percentage of sales, from the six months ended December 31, 2009 to the six months ended December 31, 2010.

- 43 - -

In the ATS segment, SG&A costs increased $7.0 million, or 21%, to $40.3 million for the six months ended December 31, 2010, primarily due to increased employee related expenses of $2.7 million; increased commissions of $2.4 million, due to the increase in sales volume and a change in product mix; and additional costs of $2.1 million related to Willtek, acquired in May 2010. As a percentage of sales, SG&A costs ~~decreased 120 basis points for AMS. The components group reduced SG&A costs by $1.6 million, primarily due to cost savings initiatives. These savings,~~ in ~~the AMS segment, are partially offset by additional costs of $779,000 related to Airflyte Electronics, acquired in June 2009.~~

~~- 34 - -~~

In the ATS segment ~~SG&A costs decreased $694,000, or 2%. This was primarily~~increased from 22.2% to 23.6% from the ~~result of a decrease of $1.7 million due~~six months ended December 31, 2009 to cost savings initiatives and efforts to consolidate and reorganize our various European locations, partially offset by additional costs of $1.4 million related to VI Technology, acquired in March 2009. As a percentage of sales, SG&A costs increased 80 basis points for ATS.the six months ended December 31, 2010.

Corporate general and administrative ~~expenses decreased $2.7~~costs increased $879,000, for the six months ended December 31, 2010 compared to the six months ended December 31, 2009 primarily related to business acquisition costs of $1.1 million, ~~primarily due to~~offset by reductions in ~~merger related expenses and other professional fees.~~general expense of $187,000.

Research and Development Costs. On a consolidated basis, research and development costs increased ~~10 basis points as~~by $9.4 million, or 27%, to $43.8 million for the six months ended December 31, 2010. This increase was primarily attributable to the additional costs of the acquired businesses and the acceleration of research and development projects in our ATS segment to meet customer requirements for new products. As a percentage of ~~sales.~~sales, research and development costs increased from 11.6% to 13.0% from the six months ended December 31, 2009 to the six months ended December 31, 2010. Research and development costs of acquired businesses increased research and development by $2.4 million, or 7% of 2009 total research and development costs.


	Research and Development Costs
Six Months																		Research and Development Costs
Ended			% of					% of					% of					% of					% of					% of
December 31,	AMS		Net Sales			ATS		Net Sales			Total		Net Sales			AMS		Net Sales			ATS		Net Sales			Total		Net Sales
	(In thousands, except percentages)																	(In thousands, except percentages)

2009	$	13,493		9.2	%	$	20,949		13.9	%	$	34,442		11.6	%	$	13,493		9.2	%	$	20,949		13.9	%	$	34,442		11.6	%
2008	$	14,599		10.6	%	$	19,505		12.2	%	$	34,104		11.5	%
2010																$	16,299		9.8	%	$	27,515		16.1	%	$	43,814		13.0	%

Liquidity and Capital Resources

~~continuing illiquidity;~~

~~lack of action by the issuers to establish different forms of financing to replace or redeem these securities; and~~

~~the credit quality of the underlying securities.~~

Twelve Months Ended December 31,	(In thousands)
2011	$	360
2012		385
2013		-
2014		489,105
2015		206,418
Thereafter		-
Total	$	696,268

Twelve Months Ended
December 31,
(In thousands)
2010 $ 4,203
2011 5,610
2012 5,635
2013 5,250
2014 492,187
Thereafter 381,308
Total $ 894,193

- 46 - -

As of December 31, ~~2009, we are~~2010, Aeroflex and its subsidiaries were in compliance with all of the covenants contained in ~~our~~the loan agreements. Certain loan covenants are based on Adjusted EBITDA. Adjusted EBITDA is defined as EBITDA (net income (loss), before interest expense, income taxes, depreciation and amortization), adjusted to add back certain non-cash, non-recurring and other items, as required by various covenants in ~~our~~the debt agreements. ~~Our use~~Use of the term Adjusted EBITDA may vary from others in our industry. EBITDA and Adjusted EBITDA are not measures of operating income (loss), performance or liquidity under U.S. GAAP and are subject to important limitations. A reconciliation of net income (loss), which is a U.S. GAAP measure of our operating results, to Adjusted EBITDA, as defined in ~~our debt~~the loan agreements, is as follows:

													Three Months Ended						Six Months Ended
	Three Months ended December 31,						Six Months Ended December 31,						December 31,						December 31,
	2009			2008			2009			2008			2010			2009			2010			2009
	(In thousands)												(In thousands)

Net income (loss)	$	(10,614	)	$	(4,107	)	$	(31,157	)	$	(11,004	)	$	(11,403	)	$	(10,614	)	$	(17,220	)	$	(31,157	)
Interest expense		21,418			21,250			42,457			42,465			20,713			21,418			41,951			42,457
Provision (benefit) for income taxes		11,864			(528	)		5,699			(10,882	)		(40,044	)		11,864			(52,291	)		5,699
Depreciation and amortization		20,528			20,154			41,774			43,651			20,648			20,528			41,534			41,774
EBITDA		43,196			36,769			58,773			64,230			(10,086	)		43,196			13,974			58,773

Non-cash purchase accounting adjustments		33			79			311			176			391			33			1,046			311
Merger related expenses		771			2,172			1,464			2,806			507			771			1,222			1,464
Restructuring costs (a)		64			1,808			251			2,210			6,293			64			8,092			251
Share based compensation (b)		556			489			1,045			977
Share-based compensation (b)														513			556			1,026			1,045
Termination of Sponsor Advisory Agreement														18,133			-			18,133			-
Loss on extinguishment of debt														25,178			-			25,178			-
Non-cash loss on liquidation of foreign subsidiary		-			-			7,696			-			-			-			-			7,696
Other defined items (c)		32			5,278			(342	)		6,975			1,392			32			2,061			(342	)
Adjusted EBITDA	$	44,652		$	46,595		$	69,198		$	77,374		$	42,321		$	44,652		$	70,732		$	69,198

(a)

Primarily reflects costs associated with the reorganization of our U.K. ~~operations.~~operations and consolidation of certain of our U.S. components facilities and the pro forma savings related thereto. Pro forma savings reflects the amount of costs that we estimate would have been eliminated during the period in which a restructuring occurred had the restructuring occurred as of the first day of that period.

(b)

Reflects non-cash share-based compensation expense.

(c)

Reflects other adjustments required in calculating ~~our~~ debt covenant ~~compliance such as~~compliance. These other defined items include pro forma ~~Adjusted~~ EBITDA for periods prior to the acquisition ~~date,~~dates for companies acquired during the ~~year and other non-cash charges.~~periods presented.

Financial covenants in ~~the~~Aeroflex’s senior secured credit facility include (i) a maximum leverage ratio of total debt (less up to ~~$15~~$15.0 million of unrestricted cash) to Adjusted EBITDA, as defined in the ~~agreement,~~senior secured credit facility, and (ii) maximum consolidated capital expenditures. The maximum leverage ratio permitted for the twelve months ended December 31, ~~2009 and 2008~~2010 was ~~7.30 and 8.20, respectively,~~5.90, whereas ~~our~~the actual leverage ratio was ~~6.41 and 5.75, respectively. For fiscal 2010 and 2011 the~~4.12. The maximum leverage ratio ~~permitted~~remains at 5.90 until September 30, 2011, when it decreases to ~~6.80 and 5.90, respectively.~~5.20.

- 3747 - -

Aeroflex’s senior secured credit facility, senior subordinated unsecured credit facility and the indenture governing its senior unsecured notes contain restrictions on its activities, including but not limited to covenants that restrict Aeroflex and its restricted subsidiaries, as defined in the senior subordinated unsecured credit facility, from:

incurring additional indebtedness and issuing disqualified stock or preferred stock;

making certain investments or other restricted payments;

paying dividends and making other distributions with respect to capital stock, or repurchasing, redeeming or retiring capital stock or subordinated debt;

selling or otherwise disposing of assets;

under certain circumstances, issuing or selling equity interests;

creating liens on assets;

consolidating or merging with, or acquiring in excess of specified annual limitations, another business, or selling or disposing of all or substantially all of their assets; and

entering into certain transactions with affiliates.

If for any reason Aeroflex fails to comply with the covenants in the senior secured credit facility, it would be in default under the terms of the agreements governing its outstanding debt. If such a default were to occur, the lenders under our senior secured credit facility could elect to declare all amounts outstanding there under immediately due and payable, and the lenders would not be obligated to continue to advance funds to Aeroflex. In addition, if such a default were to occur, any amounts then outstanding under the senior subordinated unsecured term loan or senior unsecured notes could become immediately due and payable. If the amounts outstanding under these debt agreements are accelerated, Aeroflex’s assets may not be sufficient to repay in full the amounts owed to debt holders.

We expect that cash generated from operating activities and availability under the revolving portion of ~~the~~Aeroflex’s senior secured credit facility will be ~~our~~Aeroflex’s principal sources of liquidity. ~~Our~~Aeroflex’s ability to make payments on and to refinance ~~our~~its indebtedness and to fund working capital needs and planned capital expenditures will depend on ~~our~~its ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive and other factors that are beyond our control. In addition, to the extent Aeroflex has consolidated excess cash flows, as defined in the credit agreement governing the senior secured credit facility, Aeroflex must use specified portions of the excess cash flows to prepay senior secured credit facilities. Based on ~~our~~its current level of operations, we believe ~~our~~Aeroflex’s cash flow from operations and available borrowings under ~~our~~its senior secured credit facility will be adequate to meet ~~our~~Aeroflex’s liquidity needs for at least the next twelve months. We cannot assure you, however, that ~~our~~its business will generate sufficient cash flow from operations, or ~~that~~those future borrowings will be available ~~to us~~ under ~~our~~the senior secured credit facility in an amount sufficient to enable usAeroflex to repay ~~our~~its indebtedness or to fund other liquidity needs. WeAeroflex may need to refinance all or a portion of ~~our~~its indebtedness on or before the maturity thereof. We cannot assure you that weAeroflex will be able to refinance any of ~~our~~its indebtedness on commercially reasonable terms or at all.

Cash Flows

For the six months ended December 31, 2010, Aeroflex’s cash flow used by operations was $11.1 million primarily due to increased inventory of $24.2 million in anticipation of higher sales. Its investing activities used cash of $32.1 million, primarily for payments for the purchase of businesses of $23.6 million and for capital expenditures of $11.2 million. Aeroflex’s financing activities provided cash of $11.6 million - $244.1 million was received by Aeroflex as a capital contribution from Aeroflex Holding and was partially offset by the repurchase of senior unsecured notes and senior subordinated unsecured term loans, including premiums and fees, of $207.7 million plus debt repayments of $21.5 million.

- 48 - -

For the six months ended December 31, 2009, ~~our~~Aeroflex’s cash flow provided by operations was $22.1 million. ~~Our~~Its investing activities used cash of $6.6 million, primarily for capital expenditures of $8.4 million, partially offset by proceeds from the sale of marketable securities ~~($1.0 million)~~of $1.0 million combined with the sale of property, plant and equipment ~~($845,000). Our~~of $845,000. Aeroflex’s financing activities used cash of $4.0 million to repay indebtedness.

~~For~~Aeroflex Holding’s cash flows are identical to those of Aeroflex with the following exception: Aeroflex Holding’s cash flows from financing activities for the six months ended December 31, ~~2008, our cash flow provided by operations was $41.7 million. Our investing activities used cash~~2010 reflect the fact that Aeroflex Holding received the $244.1 million proceeds from its IPO of ~~$7.5 million, primarily for capital expenditures. Our financing activities used cash of $4.5 million, primarily to repay indebtedness ($4.1 million).~~common stock.

Capital Expenditures

Capital expenditures were $11.2 million and $8.4 million for ~~both~~ the six months ended December 31, 2010 and 2009, ~~and 2008.~~respectively. Our capital expenditures primarily consist of equipment replacements.

Contractual Obligations

~~The following table summarizes our obligations~~Debt Repurchase

As of June 30, 2010 Aeroflex had $225.0 million due under its senior unsecured notes and ~~commitments~~$165.5 million due under its senior subordinated unsecured term loans. In connection with Aeroflex Holding’s IPO, the net proceeds were used to make ~~future payments under debt~~a capital contribution to Aeroflex to enable it to, among other things, tender for a portion of its senior unsecured notes and ~~other obligations as~~offer to repurchase a portion of its senior subordinated unsecured term loans. In December ~~31, 2009:~~2010 Aeroflex repurchased approximately $32.2 million of senior unsecured notes and $154.4 million of senior subordinated unsecured term loans.

Payments Due By Period (1)

(In millions)
Beyond
Total Year 1 Years 2 - 3 Years 4 - 5 5 Years
Senior secured credit facility $ 511.8 $ 3.9 $ 10.5 $ 497.4 $ -
Senior unsecured notes 225.0 - - - 225.0
Subordinated unsecured credit facility 156.3 - - - 156.3
Other long-term debt 1.1 0.3 0.8 - -
Operating leases (2)
20.6 6.8 8.5 3.2 2.1
Employment agreements 8.1 4.3 3.5 0.3 -
Advisory fee (3)
7.4 2.2 4.4 0.8 -
Total $ 930.3 $ 17.5 $ 27.7 $ 501.7 $ 383.4
Termination of Sponsor Advisory Agreement

~~(1)~~

~~Amounts do not include interest payments.~~

Also in connection with the Aeroflex Holding IPO, we paid a $16.9 million Termination Fee to affiliates of the Sponsors on November 24, 2010 to terminate the Sponsor Advisory Agreement with them and eliminate all future payments to the Sponsors under that agreement, which including the related write-off of prepaid advisory fees, resulted in an $18.1 million expense.

~~(2)~~

~~The Company does not expect any future minimum sub-lease rentals associated with operating lease commitments shown in the above table.~~

~~(3)~~

The annual advisory fee is payable to our Sponsors throughout the term of an advisory agreement, which has an initial term expiring on December 31, 2013 and is automatically renewable for additional one year terms thereafter unless terminated. For purposes of this table we have assumed that such agreement terminates December 31, 2013. The annual fee will be the greater of $2.2 million or 1.8% of Adjusted EBITDA for the prior fiscal year, as defined in the agreement.

~~- 38 - -~~

In the normal course of business, we routinely enter into binding and non-binding purchase obligations primarily covering anticipated purchases of inventory and equipment. None of these obligations are individually significant. We do not expect that these commitments, as of December 31, 2009, will have a material adverse affect on our liquidity.

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have material current or future effect upon our ~~financial condition or~~ results of ~~operations.~~operations or financial condition.

Seasonality

Historically our net sales and earnings increase sequentially from quarter to quarter within a fiscal year, but the first quarter is typically less than the previous year’s fourth quarter.

Critical Accounting Policies and Estimates

~~This discussion and analysis of~~Information regarding the Company’s financial condition and results of operations is based upon the unaudited condensed consolidated financial statements included in this Quarterly Report, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable SEC regulations for preparation of interim financial statements.

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires that management of the Company make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in our consolidated financial statements are revenue and cost recognition under long-term contracts; the valuation of accounts receivable, inventories, investments and deferred tax assets; the depreciable lives of fixed assets and useful lives of amortizable intangible assets; the valuation of assets acquired and liabilities assumed in business combinations; the recoverability of long-lived amortizable intangible assets, tradenames and goodwill; share-based compensation; restructuring charges; asset retirement obligations; fair value measurement of financial assets and liabilities and certain accrued expenses and contingencies.

We are subject to uncertainties such as the impact of future events, economic, environmental and political factors and changes in the business climate; therefore, actual results may differ from those estimates. When no estimate in a given range is deemed to be better than any other when estimating contingent liabilities, the low end of the range is accrued. Accordingly, the accounting estimates in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are made when circumstances warrant them. Such changes and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the condensed consolidated financial statements.

~~- 39 - -~~

~~We believe that the~~ critical accounting policies ~~involving significant estimates listed below are important to the portrayal of our financial condition, results of operations and cash flows, and require critical management judgments~~ and estimates ~~about matters that are inherently uncertain.~~


	·	~~Cash and Cash Equivalents~~

	·	~~Marketable Securities~~

	·	~~Inventories~~

	·	~~Financial Instruments and Derivatives~~

	·	~~Revenue Recognition~~

	·	~~Acquisition Accounting~~

	·	~~Long-Lived Assets~~

	·	~~Research and Development Costs~~

	·	~~Income Taxes~~

	·	~~Share Based Compensation~~

~~Foreign Currency Translations~~

~~Further information regarding these policies~~ appears within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in ~~the Company’s Annual Report on~~Aeroflex Holding’s Registration Statement and in Aeroflex’s Fiscal 2010 Form ~~10-K for the fiscal year ended June 30, 2009.~~10-K. During the six month period ended December 31, ~~2009,~~2010, there were no significant changes to any critical accounting policies or to the related estimates and judgments involved in applying those policies, except that effective July 1, 2009 we adopted new authoritative revenue recognition principles, the effect of which was immaterial. This is further discussed in Note 1 to the unaudited financial statements contained elsewhere in this Form 10-Q.policies.

- 49 - -

Recently Adopted Accounting Pronouncements

See Note 2 of the combined notes to the unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

See Note 2 of the combined notes to the unaudited condensed consolidated financial ~~statements~~statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. We are subject to interest rate risk in connection with borrowings under ~~our~~Aeroflex’s senior secured credit facility. Although we currently have interest rate swap agreements hedging portions of this debt, ~~these will~~they expire in February 2011 before the borrowings are fully ~~repaid.~~repaid and we currently do not anticipate renewing them. As of December 31, ~~2009, we have $511.8~~2010, there is $489.1 million outstanding under the term-loan portion of ~~our~~the senior secured credit facility, the un-hedged portion of which is subject to variable interest rates. Each change of 1% in interest rates would result in a ~~$806,000~~$4.6 million change in our ~~annual~~ interest expense over the next year on the un-hedged portion of the term-loan borrowings and a $507,000 change in our annual interest expense on the revolving loan borrowings, assuming the entire $50.0 million was outstanding. Any debt we incur in the future may also bear interest at floating rates.

Foreign Currency Risk. Foreign currency contracts are used to protect us from exchange rate fluctuation from the time customers are invoiced in local currency until such currency is exchanged for U.S. dollars. WeAeroflex periodically ~~enter~~enters into foreign currency contracts, which are not designated as hedges, and the change in the fair value is included in income currently within other income (expense). As of December 31, ~~2009, we~~2010, Aeroflex had ~~$26.7~~$31.7 million of notional value foreign currency forward contracts maturing through January ~~29, 2010. As of December~~ 31, ~~2008, we had $8.1 million of notional value foreign currency forward contracts maturing through March 12, 2009.~~2011. Notional amounts do not quantify risk or represent assets or liabilities of ~~the Company,~~Aeroflex, but are used in the calculation of cash settlements under the contracts. The fair value of these contracts at December 31, ~~2009 and 2008~~2010 was ~~immaterial.~~an asset of $18,000. If foreign currency exchange rates (primarily the British pound and the Euro) change by 10% from the levels at December 31, ~~2009,~~2010, the effect on our comprehensive income would be approximately ~~$19.5~~$23.4 million.

~~- 40 - -~~

Inflation Risk. Inflation has not had a material impact on our results of operations or financial condition during the preceding three years.

ITEM ~~4T.~~4. CONTROLS AND PROCEDURES – AEROFLEX HOLDING

~~Our~~Aeroflex Holding’s disclosure controls and procedures under the Securities Exchange Act of 1934, as amended, are designed to ensure that information required to be disclosed in the reports that ~~we file~~it files or ~~submit~~submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Aeroflex Holding’s disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to its management, including its chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. The Principal Executive Officer and the Principal Financial Officer, with the assistance from other members of management, have reviewed the effectiveness of ~~our~~its disclosure controls and procedures as of December 31, ~~2009~~2010 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

There have been no changes in ~~our~~Aeroflex Holding’s internal controls over financial reporting that occurred during the quarter ended December 31, ~~2009~~2010 that has materially affected, or is reasonably likely to materially affect, ~~our~~its internal control over financial reporting.

- 50 - -

ITEM 4. CONTROLS AND PROCEDURES - AEROFLEX

Aeroflex’s disclosure controls and procedures under the Securities Exchange Act of 1934, as amended, are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Aeroflex’s disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to its management, including its chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. The Principal Executive Officer and the Principal Financial Officer, with the assistance from other members of management, have reviewed the effectiveness of its disclosure controls and procedures as of December 31, 2010 and, based on their evaluation, have concluded that the disclosure controls and procedures were effective as of such date.

There have been no changes in Aeroflex’s internal controls over financial reporting that occurred during the quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

~~On October 14, 2009, BAE Systems Information~~There have been no material changes in our legal proceedings disclosed in Aeroflex Holding’s Registration Statement and Electronic Systems (“BAE”) commenced an action against both us and one of our subsidiaries in the United States District Court for the District of Delaware. BAE essentially is alleging that under a subcontract it entered into with us in 2002, BAE provided to us certain proprietary information and know how relating to a high performance direct infrared countermeasure system for use in military aircraft and certain other platforms (“DIRCM System”), which enabled us to fabricate for BAE an assembly component of the third generation of the DIRCM System. BAE is alleging that, in violation of the provisions of the subcontract and a Proprietary Information Agreement, we fabricated or facilitated the fabrication of one or more items that were identical or substantially identical to items that we exclusively fabricated for BAE under the subcontract. BAE further claims that our actions ostensibly enabled a prime competitor of BAE to build and market, in competition with BAE, an infrared countermeasure system that included an unlawful copy of the component. Based on these allegations, BAE has asserted claims against us for patent infringement, trade secret misappropriation, breach of contract, conversion and unjust enrichment and has requested, by way of relief, unspecified damages, injunctive relief and an accounting. We have evaluated BAE’s claims and believe that there is no basis for the allegations or claims made by BAE. Nevertheless, there can be no assurance that we will prevail in the matter. We do not believe that the ultimate resolution of this matter will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.

~~Reference is made to Item 3 of our~~Aeroflex’s Fiscal ~~2009~~2010 Form ~~10-K for information as to other legal matters and proceedings.~~

~~- 41 - -~~

10-K.

Item 1A. Risk Factors

There have been no material changes in our risk factors disclosed in ~~the fiscal 2009~~Aeroflex Holding’s Registration Statement and Aeroflex’s Fiscal 2010 Form 10-K.

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

None

Item 3. Defaults upon Senior Securities

None

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

~~None~~[Removed and Reserved]

Item 5. Other Information

None

- 51 - -

Item 6. Exhibits

Exhibit No.		Exhibit Description

10.1		Form of Aeroflex Incorporated Indemnification Agreement

31.1		Certification of Aeroflex Holding Corp. pursuant to Rules 13a-14(a)/~~15d-14(a)~~15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Chief Executive Officer)

31.2		Certification of Aeroflex Incorporated pursuant to Rules 13a-14(a)/~~15d-14(a)~~15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Chief Executive Officer)

31.3		Certification of Aeroflex Holding Corp. pursuant to Rules 13a-14(a)/~~15d-14(a)~~15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Chief Financial Officer)

31.4		Certification of Aeroflex Incorporated pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Chief Financial Officer)

31.5		Certification of Aeroflex Holding Corp. pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Principal Accounting Officer)

31.6		Certification of Aeroflex Incorporated pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Principal Accounting Officer)

32.1		Certification of Aeroflex Holding Corp. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Executive Officer)

32.2		Certification of Aeroflex Incorporated pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Executive Officer)

32.3		Certification of Aeroflex Holding Corp. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Financial Officer)

32.4		Certification of Aeroflex Incorporated pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Financial Officer)

- 4252 - -

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, ~~the Registrant has~~Aeroflex Holding Corp. and Aeroflex Incorporated have duly caused this report to be signed on ~~its~~their behalf by the undersigned thereunto duly authorized.

	AEROFLEX ~~INCORPORATED~~	HOLDING CORP.
	~~(REGISTRANT)~~

February ~~11, 2010~~9, 2011	/s/ John Adamovich, Jr.
	John Adamovich, Jr.
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

		AEROFLEX INCORPORATED

February 9, 2011		/s/ John Adamovich, Jr.
		John Adamovich, Jr.
		Senior Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

- 4353 - -

EXHIBIT INDEX

Exhibit No.		Exhibit Description

10.1		Form of Aeroflex Incorporated Indemnification Agreement

31.1		Certification of Aeroflex Holding Corp. pursuant to Rules 13a-14(a)/~~15d-14(a)~~15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Chief Executive Officer)

31.2		Certification of Aeroflex Incorporated pursuant to Rules 13a-14(a)/~~15d-14(a)~~15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Chief Executive Officer)

31.3		Certification of Aeroflex Holding Corp. pursuant to Rules 13a-14(a)/~~15d-14(a)~~15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Chief Financial Officer)

31.4		Certification of Aeroflex Incorporated pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Chief Financial Officer)

31.5		Certification of Aeroflex Holding Corp. pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Principal Accounting Officer)

31.6		Certification of Aeroflex Incorporated pursuant to Rules 13a-14(a)/15d-14a as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Principal Accounting Officer)

32.1		Certification of Aeroflex Holding Corp. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Executive Officer)

32.2		Certification of Aeroflex Incorporated pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Executive Officer)

32.3		Certification of Aeroflex Holding Corp. pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Financial Officer)

32.4		Certification of Aeroflex Incorporated pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Chief Financial Officer)

- 4454 - -

~~DELAWARE~~	~~11-1974412~~
~~(State or other jurisdiction~~	~~(I.R.S. Employer~~
~~of incorporation or organization)~~	~~Identification No.)~~

~~35 South Service Road~~
~~P.O. Box 6022~~
~~Plainview, N.Y.~~	~~11803-0622~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~

	Large accelerated ~~filer~~ o	Accelerated ~~filer~~ o	Non-accelerated	Smaller reporting
~~Non-accelerated filer~~ x	~~Smaller reporting~~ filer	filer	filer	companyo
~~(Do not check if a smaller reporting company)~~Aeroflex Holding Corp.	¨	¨	x	¨
Aeroflex Incorporated	¨	¨	x	¨

	~~February 11, 2010~~ ·		~~1,000~~
~~(Date)~~		~~(Number~~Entered into an amendment of ~~Shares)~~the credit agreement with the lenders of its senior secured credit facility, for which a $3.3 million fee was paid to the lenders.

(In thousands)

Current assets (excluding cash of $15)	$	4,844
Property, plant and equipment		1,156
Other assets		60
Customer related intangibles		5,680
Non-compete arrangements		30
Tradenames		3,010
Goodwill		10,072
Total assets acquired		24,852
Current liabilities		(2,855	)
Deferred taxes		(3,576	)
Total liabilities assumed		(6,431	)
Net assets acquired	$	18,421

Aeroflex Holding Corp. -	84,789,180 shares
Aeroflex Incorporated -	1,000 shares

								Additional			Other
				Common Stock				Paid-in			Comprehensive			Accumulated			Comprehensive
	Total			Shares		Par Value		Capital			Income(Loss)			Deficit			Income (Loss)

Balance, June 30, 2010	$	150,984			65,000	$	650	$	398,291		$	(53,575	)	$	(194,382	)
Proceeds from issuance of common stock		244,097			19,789		198		243,899			-			-
Share-based compensation		1,026			-		-		1,026			-			-
Other changes		(255	)		-		-		(255	)		-			-
Other comprehensive income (loss)		12,473			-		-		-			12,473			-		$	12,473
Net income (loss)		(17,220	)		-		-		-			-			(17,220	)		(17,220	)
Balance, December 31, 2010	$	391,105			84,789	$	848	$	642,961		$	(41,102	)	$	(211,602	)	$	(4,747	)

	December 31, 2009				June 30, 2009
	(In thousands)

	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization

Developed technology	$	197,803	$	78,950	$	197,684	$	62,021
Customer related intangibles		216,784		82,251		216,956		69,339
Non-compete arrangements		10,212		3,621		10,090		2,692
Tradenames		2,185		461		2,105		230
Total	$	426,984	$	165,283	$	426,835	$	134,282


	(In thousands)

2010	$	61,277
2011		60,720
2012		57,938
2013		43,348
2014		20,300

	Microelectronic		Test
	Solutions		Solutions			Total
			(In thousands)

Balance at June 30, 2009	$	266,813	$	161,320		$	428,133
Adjustment to goodwill for acquisitions		313		455			768
Impact of foreign currency translation		437		(452	)		(15	)
Balance at December 31, 2009	$	267,563	$	161,323		$	428,886

		Amount of Gain or (Loss)
		Recognized on Derivatives in
Derivatives in Cash Flow		Other Comprehensive Income
Hedging Relationships		(Effective Portion) (1)
		Three Months			Three Months			Six Months			Six Months
		Ended			Ended			Ended			Ended
		December 31,			December 31,			December 31,			December 31,
		2009			2008			2009			2008
		(In thousands)

Interest rate swap contracts	$	(1,191	)	$	(18,724	)	$	(4,271	)	$	(22,519	)

Location of Gain or (Loss)		Amount of Gain or (Loss)											Amount of Gain or (Loss)
Reclassified from Accumulated		Reclassified from											Reclassified from
Other Comprehensive Income		Accumulated Other Comprehensive Income											Accumulated Other Comprehensive Income
into Income (Effective Portion)		into Income (Effective Portion) (1)											into Income (Effective Portion) (1)
		Three Months			Three Months			Six Months			Six Months		Three Months Ended						Six Months Ended
		Ended			Ended			Ended			Ended		December 31,						December 31,
		December 31,			December 31,			December 31,			December 31,		2010			2009			2010			2009
		2009			2008			2009			2008		(In thousands)
		(In thousands)

Interest expense	$	(3,781	)	$	(1,192	)	$	(7,182	)	$	(2,082	)	$	(2,751	)	$	(3,781	)	$	(6,192	)	$	(7,182	)

Derivatives Not	Location of Gain or (Loss)		Amount of Gain or (Loss)										Location of Gain or (Loss)	Amount of Gain or (Loss)
Designated as	Recognized in Earnings on		Recognized in Earnings on										Recognized in Earnings on	Recognized in Earnings on
Hedging Instruments	Derivative		Derivative										Derivative	Derivative
			Three Months			Three Months			Six Months		Six Months			Three Months Ended					Six Months Ended
			Ended			Ended			Ended		Ended			December 31,					December 31,
			December 31,			December 31,			December 31,		December 31,			2010		2009			2010		2009
			2009			2008			2009		2008			(In thousands)
			(In thousands)
Foreign currency forward contracts	Other income (expense)	$	(87	)	$	(639	)	$	231	$	(804	)	Other income (expense)	$	351	$	(87	)	$	311	$	231

	Unrealized
	Gain (Loss)			Valuation			Minimum			Foreign
	on Interest			Allowance Against			Pension			Currency
	Rate Swap			Non-Current			Liability			Translation
	Contracts			Marketable			Adjustment			Adjustment			Total
	(net of tax)			Securities			(net of tax)			(net of tax)			(net of tax)
	(In thousands)

Balance, June 30, 2009	$	(9,602	)	$	(2,268	)	$	(499	)	$	(42,331	)	$	(54,700	)
Six months' activity		1,825			222			-			6,013			8,060
Balance, December 31, 2009	$	(7,777	)	$	(2,046	)	$	(499	)	$	(36,318	)	$	(46,640	)

Payments Due By Period (1)
	(In millions)
									Beyond
	Total		Year 1		Years 2 - 3		Years 4 - 5		5 Years
Senior secured credit facility	$	511.8	$	3.9	$	10.5	$	497.4	$	-
Senior unsecured notes		225.0		-		-		-		225.0
Subordinated unsecured credit facility		156.3		-		-		-		156.3
Other long-term debt		1.1		0.3		0.8		-		-
Operating leases (2)		20.6		6.8		8.5		3.2		2.1
Employment agreements		8.1		4.3		3.5		0.3		-
Advisory fee (3)		7.4		2.2		4.4		0.8		-
Total	$	930.3	$	17.5	$	27.7	$	501.7	$	383.4