ITEM 1. BUSINESS

          GENERAL



     The Company was incorporated in New York in 1966 as Phase Industries, Inc.,
and changed its name to American Technical Ceramics Corp. in June 1984. The
Company was merged into a Delaware corporation in 1985 in order to change its
jurisdiction of incorporation. Unless the context indicates otherwise,
references to the Company herein include American Technical Ceramics Corp., a
Delaware corporation, and its subsidiaries, all of which are wholly-owned.

     The Company designs, develops, manufactures and markets
RF/Microwave/Millimeter-Wave ceramic capacitors, thin film products and other
passive components. The Company's products are focused primarily in the high
reliability market for ultra-high frequency ("UHF") and microwave applications,
including wireless electronics, medical electronics, semiconductor equipment,
satellite equipment and fiber optics. Capacitors function within electronic
circuits by storing and discharging precise amounts of electrical power. The
Company believes that it is a leading manufacturer of multilayer capacitors
("MLCs") for UHF and microwave applications. Selling prices for the Company's
MLCs typically range from $.10 to $7.50 or higher, whereas selling prices for
commodity-type MLC units typically range from $.005 to $.05. Thin film products
are ceramic substrates on which circuit patterns are printed by means of thin
film processes, and are used by customers as building blocks in electronic
circuits. Management believes the Company operates in only one industry segment
- the electronic components industry.

     The slowdown in the technology and telecommunications sectors that began in
the first half of calendar year 2001, combined with the weakness in the global
economy, continued to impact the Company's industry in fiscal year 2004. As the
year progressed, the markets served by the Company's products began to show
signs of a recovery from the extended downturn. The Company experienced
substantial increases in sales and bookings in the second half of fiscal year
2004. Bookings from customers in all of the Company's largest markets increased
during this period.

          PRODUCTS

     The Company's traditional line of MLCs are available in predominantly four
physical sizes designated "A" (.055 inch cube), "B" (.110 inch cube), "C" (.250
inch cube) and "E" (.380 inch cube); in three types of dielectrics: low-loss
porcelain (the 100 series), zero temperature coefficient (the 700 series) and
high dielectric constant (the 200 series); and in a variety of capacitance
values. The 100 series, the Company's basic product line, is widely used in
microwave equipment. The 700 series, because of its lower temperature
coefficient, is used in tuning circuits in UHF/Microwave and lower frequency
applications. The 200 series has high packaging density and is used in
microcircuits where high capacitance value is needed in a small space. The
Company's traditional line of MLCs is one of two product lines that accounts for
more than 10% of the Company's consolidated revenue, accounting for
approximately 69%, 72% and 70%, of the Company's revenues in fiscal years 2004,
2003 and 2002, respectively.

     The Company's MLCs are generally designed for critical performance
applications, and are characterized by a high degree of reliability, low power
dissipation and ruggedness. The MLCs can be broadly classified as either
commercial or "hi-rel", based primarily upon the amount of testing involved. All
are subject to precise measurement of capacitance, dissipation factor and
insulation resistance. The Company's products are used in commercial and
military applications, including wireless cellular and personal communications
systems (PCS), medical imaging (i.e., magnetic resonance imaging), radio
frequency power sources for semiconductor manufacturing, satellite
communications, numerous aerospace systems, including radar and electronic
warfare, and certain high-speed digital processing equipment.

     Approximately 92%, 89% and 88% of the Company's sales in fiscal years 2004,
2003 and 2002, respectively, were to commercial (i.e., applications other than
hi-rel) customers. For fiscal years 2004, 2003 and 2002, the Company estimates
that approximately 8%, 11% and 12% of the Company's sales, respectively, were
sales of hi-rel products. See

                                       2


"Item 1. BUSINESS -- CUSTOMERS AND MARKETING -- FOREIGN SALES" and Note 9 of
Notes to Consolidated Financial Statements.

     Hi-rel MLCs are principally utilized in applications such as satellites
(including commercial communications satellites), high performance military
aircraft, spacecraft and missiles, and other defense applications such as radar
and electronic countermeasures. The Company produces its hi-rel MLCs to precise
customer specifications and subjects each hi-rel MLC to a battery of performance
and environmental tests. Such performance tests measure capacitance, dissipation
factor, insulation resistance and dielectric withstanding voltage. The
environmental tests are either designated by customers or specified by the
military and include temperature shock tests, humidity tests and tests of life
expectancy at elevated temperature and voltage levels.

     For commercial applications, the Company produces MLCs to precise
performance specifications similar to hi-rel MLCs, individually tests them for
certain electrical performance characteristics and conducts additional tests on
samples from production lots. However, the Company does not subject all
commercial MLCs to environmental tests.

     The Company has historically pursued the high-performance MLC market in
which its products are typically applied in the manufacture of high-value
capital equipment and which has commanded higher unit selling prices. The MLCs
required for many of these applications constitute a small part of the circuit
cost and, because performance and reliability requirements are stringent and the
cost of component failure high, customers have been willing to pay the price
premium associated with higher performance products such as those the Company
makes. In recent years, the Company has further automated its manufacturing
processes to enable it to produce certain of its existing MLCs for the medium -
priced niche market driven by wireless base-station infrastructure applications.

     The Company markets its 600 series products to higher volume markets. These
products are targeted toward the high-performance, lower-priced segment of the
wireless industry. The Company manufactures predominantly three physical sizes
designated "S" (.06" x .03" rectangle), "L" (.04 x .02 rectangle), and "F" (.08
x .05 rectangle). These are lower-priced (approximately two-thirds the price of
the lowest-priced comparable part) than the Company's traditional MLC's, and
uses a newer ceramic proprietary formulation developed by the Company to
optimize performance for cellular and PCS operating frequencies. Sales from this
product line amounted to approximately 9%, 6% and 4% of the Company's revenues
in fiscal years 2004, 2003 and 2002, respectively.

     The Company also offers specialized capacitors designed to perform at
frequencies higher than the useful range of typical microwave MLCs. The
Company's Microcap(R), a single layer ceramic capacitor, was developed to meet
certain applications where small size is critical and which operate at
frequencies extending higher than those for which MLCs are typically chosen.
Manufactured and sold in both hi-rel and commercial versions, these products are
used in wideband wireless data communications, satellite communications,
military systems and other microwave and millimeter-wave applications. Another
product tailored to the same market, the 500S Broadband Microwave Capacitor
(BMC), is based on a patented construction designed to be compatible with
customers' high-volume surface-mount assembly technologies. Sales of these two
product types combined amounted to approximately 3% of the Company's revenues in
fiscal years 2004, 2003 and 2002.

     The Company has diversified its product line through the development of
custom product capability based on thin film technologies. The Company produces
metallized circuits and passive components on high-quality ceramic substrates to
customers' drawings and specifications. Thin film layers deposited on the
ceramic substrate may consist of a variety of materials with specific
conductive, resistive, capacitive, and other properties enabling the build-up of
the desired circuit pattern. As with a typical circuit board, the customer may
then attach discrete components and chips to complete the circuit. Thin film
products are used by the Company's customers in a broad range of applications,
including microwave components, fiber optic repeaters and high-density packaging
of devices, typically where requirements for high reliability, small size and
dimensional precision are paramount. In fiscal years 2004, 2003 and 2002, thin
film sales represented approximately 14%, 13% and 17% of the Company's revenues,
respectively.

                                       3


     In June 2000, the Company introduced a line of high power, passive
resistive products. In fiscal year 2002, the Company added thin film resistor
manufacturing capability to its resistive products line. Typically, thin film
resistors offer a higher degree of reliability and are better able to handle
power than their thick film counterparts. The Company's products, including
standard resistors, terminations, attenuators and other customized products,
consist of resistive and conductive layers deposited on a substrate of aluminum
nitride, a base material chosen for its high thermal conductivity and its
non-toxic properties. High power resistive products are used in many of the same
types of equipment as the Company's capacitor products. Other applications for
these products, which reflect an expansion of the Company's customer base,
include RF and microwave products, including power amplifiers, up and down
converters, and high power combiner/dividers. The markets for these products
include the wireless and telecommunication markets, including base station and
satellite communications, and a broad range of medical, military and other
commercial applications. Resistive product sales represented less than 1% of the
Company's revenues in fiscal years 2004, 2003 and 2002.

     Since fiscal year 2002, the Company has offered on a limited basis certain
products based upon a new high-density electronic packaging technology for radio
frequency (RF) and microwave frequency broadband applications. This technology,
commonly referred to as Low Temperature Co-fired Ceramic ("LTCC"), is based on
high performance dielectric ceramic materials, some manufactured by the Company
and others purchased from leading electronic materials manufacturers. The
Company markets this technology under the name Co-fired Ceramic Packaging
("CCP"). Traditional RF and microwave circuits have been limited in size and
performance by the use of only two dimensions to incorporate all RF elements and
passive components, such as inductors, capacitors and resistors. LTCC technology
enables the user to design circuits in the third dimension with the integration
of the RF elements and passive components in the body of the electronic circuit.
LTCC technology also provides the ability to design circuits with integrated RF
components such as couplers, power dividers/combiners, filters and impedance
transformers, and passive devices. CCP sales accounted for less than 1% of the
Company's revenues in fiscal years 2004, 2003 and 2002. See "Item 1. BUSINESS --
MANUFACTURING and -- RESEARCH AND DEVELOPMENT."

          MANUFACTURING

     The manufacturing process for MLCs involves four primary stages. The first,
or "white room" stage, includes tape casting, multi-layer lamination, dicing and
firing of ceramic chips. In this phase, layers of electrically conducting
material are printed onto ceramic tape in patterns, which eventually form the
electrodes of the capacitor. The screen-printing technology used for the
printing of such layers is referred to as "thick film". In the second, or
"termination" stage, the ceramic chips are coated with silver. In the third, or
"finishing" stage, the parts are then customized to specific order requirements
for commercial applications. This stage includes, but is not limited to, chip
plating, soldering of leads, laser marking and chip packaging. The chips are
tested electrically and inspected throughout the entire process. If the
customer's specifications call for a higher level of performance assurance, the
parts are put through a fourth stage, the hi-rel stage, where additional testing
is performed.

     The Company currently manufactures MLCs at its facilities in Huntington
Station, New York and Jacksonville, Florida. Its primary MLC manufacturing site
is Huntington Station, consisting of three manufacturing facilities which
aggregate approximately 53,000 square feet. Two of these facilities house the
Company's state-of-the-art chip fabrication operations. These facilities are
designed to provide optimum control of the Company's manufacturing processes and
product quality, while substantially increasing its output capability.

     In August 2000, the Company purchased another building next to its existing
facilities in New York. The facility is currently being converted to add 20,000
additional square feet of production and production support space to the New
York facility complex to support capacity expansion. See "Item 2. PROPERTIES."

     The Company manufactures its 500 and 600 series capacitors at its facility
in Jacksonville, Florida. During fiscal years 2003 and 2004, the Company
expanded the offering of the 600 series to include an additional case size each
year to better serve the EIA (Electronic Industry Association) product
standardization use by its customers. The Jacksonville facility is also the site
of manufacture for the Company's thin film, Microcap(R) SLC, resistor and CCP

                                       4


product lines, and serves as the Company's new product technology center. The
Jacksonville facilities aggregate over 99,000 square feet of space with 37,000
square feet committed to custom circuit operations.

     Portions of the Jacksonville facility have been redesigned over the last
few years in order to accommodate what the Company refers to as its "Factory of
the Future". Utilizing recently developed and acquired materials, processes and
equipment, the Company can manufacture MLC products at this facility at higher
degrees of precision and control and at a substantially lower cost with
accompanying high output. Moreover, the manufacturing operations at this
facility are flexible, enabling the Company to produce ceramic structures of a
wide variety of sizes, shapes and internal configurations.

     As differentiated from the "thick film" technology used in MLC
manufacturing, the manufacture of thin film circuits involves a method for the
deposition of layers of conducting and other materials using "sputtering"
technology. Unlike the manufacture of capacitors, where all products flow
through the same manufacturing sequences, manufacturing processes for custom
thin film products vary significantly in accordance with each customer's
specifications.

     Utilizing its core competencies in the manufacture of MLC devices, over the
past two years the Company has developed the capability to manufacture
microelectronic ceramic circuits. During fiscal year 2004, the Company has been
using this technology in connection with its CCP product line. Similar to
commercial printed circuit board manufacturing, the Company can manufacture
multiple layer boards with layer-to-layer interconnects and circuitry on each
layer in a ceramic structure. The CCP product line, much like the Company's thin
film product line, operates in a build-to-order format. The Company typically
receives drawings for custom devices and packages from its customers and builds
products to their specification, utilizing multiple layer circuit technology.

     Microcap(R) SLCs, resistive products and BMCs all utilize various
combinations of the production methods described in the preceding paragraphs.
The manufacture of each of these product lines involves dedicated equipment in
addition to the equipment used in connection with the manufacture of the product
lines previously discussed.

     In order to realize the potential of its expanding and diversifying product
lines and to more fully integrate all facets of its operations, the Company is
in the process of replacing its existing information system with a modern
Enterprise Resource Planning System. Utilizing commercially available
information technology, the new system is intended to provide improved
functionality and efficiency for better planning, control and responsiveness.
During fiscal year 2002, the Company implemented the first phase of this system
and is on schedule to implement the second phase during fiscal year 2005.

     The Company utilizes a wide variety of specialized equipment for the
fabrication, handling and testing of its products, including equipment that it
has designed and constructed. The Company considers its capability to create its
own unique equipment solutions tailored to the particular needs of its product
lines and technologies to be a competitive advantage.

     Before full market introduction of a new product, the Company generally
establishes a production line for the product and manufactures substantial
quantities to evaluate and verify its ability to consistently meet quality and
performance standards. Such efforts involve the dedication of equipment,
materials and labor, and, to the extent that these efforts do not result in
saleable product, all costs are expensed. During fiscal years 2001 and 2002, the
Company's resistive product line was in this phase of development. During fiscal
year 2003, the Company completed development of this product line. Resistive
products are currently being shipped to various customers and are qualified at
major commercial users. During fiscal years 2002 and 2003, the Company's CCP
product line was in the development phase.

     To complement its own manufacturing efforts and to provide a wide variety
of product offerings to its customers, the Company has from time to time entered
into arrangements with other manufacturers to produce certain products to the
Company's specifications. These products accounted for approximately 3% of the
Company's consolidated revenues in fiscal year 2004 and 5% in each of fiscal
years 2003 and 2002.

                                       5


     The historical pattern of industry price declines has largely prevented MLC
producers, including the Company, from increasing prices and has forced the
Company and competitors to rely on advances in productivity and efficiency in
order to improve profit margins. Accordingly, the Company continuously looks to
improve the production yields and efficiency of its manufacturing processes. The
Company conducts continuous improvement programs targeted at streamlining
manufacturing processes and increasing yields, and has established statistical
process control techniques for maintaining key process steps within specified
bounds and providing data to support continuous improvement. For additional
information with respect to yields and efficiencies, see "Item 1. BUSINESS --
RESEARCH AND DEVELOPMENT".

     During fiscal year 2002, the Company's manufacturing facilities were
operated under ISO-9002 registration. In fiscal year 2003, the Company attained
ISO-9001 status, a higher level certification which includes product design
capability. In addition, in fiscal year 2003, the Company's European sales and
distribution office achieved ISO-9001:2000 certification status. During fiscal
year 2004, the Company established an Environmental Management System in
accordance with ISO-14001 requirements and is planning to pursue ISO-14001
registration during fiscal year 2005.

          CUSTOMERS AND MARKETING

     The Company markets its products primarily to customers in the wireless
infrastructure, fiber optic telecommunications, military, medical, semiconductor
equipment manufacturing and aerospace industries. The customers included within
these industries are manufacturers of microwave, high frequency and fiber optic
systems, subsystems and equipment, including original equipment manufacturers
(OEMs) and suppliers thereto, and government contractors and subcontractors.
Most of the Company's products are used in the manufacture of capital equipment.

     The Company promotes its products through specialized trade shows, industry
trade journal advertisements, a site on the Internet's World Wide Web and
catalog direct mail programs. In fiscal year 2000, the Company started taking
orders, on a limited basis, via its web site. In fiscal year 2004, the Company
increased the list of products available for sale via its web site and plans to
further expand that offering in fiscal year 2005.

     The Company shipped to over 2,000 customers in fiscal year 2004 as compared
to approximately 2,100 and 1,800 customers in fiscal years 2003 and 2002,
respectively. The top ten customers combined accounted for approximately 30% of
net sales in fiscal year 2004 and 29% in each of fiscal years 2003 and 2002. No
customer accounted for more than 10% of the Company's net sales in fiscal years
2004 and 2003. Sales to various divisions of General Electric Company, a major
medical electronics OEM, accounted for approximately 10% of the Company's net
sales in fiscal year 2002.

     The Company is a qualified producer of capacitors with the Defense
Logistics Agency of the United States Department of Defense. This qualified
status covers several varieties and types of capacitors. Maintenance of its
qualified producer status is critical in order for the Company to continue to
sell its hi-rel military product line. To date, the Company has not encountered
any difficulty in maintaining its status as a qualified producer, and the
Company believes it is presently the only supplier with such qualification for
some of these product types.

     The Company typically sells its products through a combination of logistics
arrangements and a large number of individual purchase orders. Certain
individual purchase orders are subject to pricing agreements. Neither pricing
agreements nor logistics arrangements are firm purchase orders, but each still
requires that the Company commit to produce semi-finished or finished goods
inventory in anticipation of receiving a purchase order for immediate shipment.
See "Item 1. BUSINESS -- SALES BACKLOG" and "Item 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".

                                       6


     Customers are invoiced simultaneously with merchandise shipments. The
Company sells to a majority of its customers on 30-day terms. A small number of
the Company's larger volume customers have terms ranging from 45 days to 120
days. Customers may also charge their purchases through the use of a
credit/debit card. Sales returns are authorized and accepted by the Company in
the normal course of business. An evaluation of the returned product is
performed and typically results in either a credit or a shipment of replacement
product to customers. The Company believes that it has provided an adequate
reserve for returns in the accompanying consolidated financial statements.

     In the United States, the Company principally sells its products through
independent sales representatives who are compensated on a commission basis. In
foreign countries, the Company historically has utilized both resellers, who
purchase products from the Company for resale, and sales representatives. During
fiscal year 2002, the Company elected to dissolve its subsidiary in the United
Kingdom and expanded the scope of its subsidiary in Stockholm, Sweden to serve
most of the Company's customers in Europe, thereby reducing the Company's
reliance on resellers in this area. The Company continues to rely primarily on
local, independently-owned resellers and independent sales representatives in
all other foreign markets. See "Item 1. BUSINESS -- FOREIGN SALES" and Note 9 of
Notes to Consolidated Financial Statements.

     During fiscal year 2002, the Company established a wholly-owned subsidiary
in the United States which established a representative office in the People's
Republic of China to service the growing market in China.

     At June 30, 2004, the Company utilized approximately sixteen sales
representative organizations in the United States and approximately eleven sales
representative and reseller organizations in foreign countries, principally
Europe, Canada and the Far East. The Company's sales representatives and
resellers generally have substantial engineering expertise, which enables them
to assist the Company in providing a high level of service to assist customers
in generating product specifications and in providing applications assistance
and maintaining contact with key customers. The Company employs regional sales
managers to supervise its sales representatives and resellers and a staff of
sales and applications specialists to provide direct contact with and support to
customers.

          FOREIGN SALES

     In fiscal years 2004, 2003 and 2002, sales to customers located outside the
United States constituted 47%, 41% and 35% of net sales, respectively. The
Company's foreign customers are located primarily in Europe, Canada and the Far
East. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING" and Note 9 of Notes to
Consolidated Financial Statements. Export sales were made through the Company's
foreign sales corporation subsidiary until January 2002, at which time the
subsidiary was liquidated. All foreign sales, except sales by the Company's
wholly-owned subsidiary in Stockholm, Sweden (and, until its dissolution in
fiscal year 2002, its subsidiary in Sussex, England), are denominated in United
States dollars. In certain circumstances, the Company attempts to reduce the
risk of doing business in foreign countries through the use of prepayment or
sight drafts and by working closely with its foreign representatives and
distributors in assessing business environments.

          SALES BACKLOG

     The Company's sales backlog was $13,472,000, $9,129,000 and $9,325,000 at
June 30, 2004, 2003 and 2002, respectively. Backlog generally consists of a
combination of the Company's standard products and custom manufactured parts
that require a longer lead time to produce. Historically, the long-term trend in
customer requirements for the Company's standard products has been toward
shorter lead times. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING".

     The Company offers its Quik-Pick 48 Hour System(R) program pursuant to
which products are shipped within 48 hours from the time the order is placed.
This program has consistently been popular with its customers. In order to offer
this program, the Company has to maintain higher inventory levels of certain
products in proportion to total sales than it would otherwise and higher than
those maintained by some other capacitor manufacturers. The future contribution
of the Quik-Pick(R) program to the financial results of the Company depends
critically on the Company's ability to accurately predict customer demand for
the various products offered through the program.

                                       7


          RESEARCH AND DEVELOPMENT

     The technology upon which the Company's products are based is subject to
continued development of materials and processes to meet the demands of new
applications and increased competition. The Company pursues a process-oriented
strategy in which it conducts efforts aimed at developing integrated sets of
materials and associated processes and equipment to provide the capability to
create new or enhanced classes of products. Once a new set of technologies is
established, the Company then seeks to develop and introduce various products
using such technologies. The Company believes its future successes depend upon
its ability to identify the requirements for future products and product
enhancements, and to define, implement and successfully employ the technologies
needed to meet those requirements. Accordingly, the Company believes that its
research and development efforts are critical to its continued success.

     The Company conducts most of its research and development activities at its
facility in Jacksonville, Florida. Activities are focused on the development of
new products and improvement of existing products. Improvements in materials and
process technology, and the development of specialized production equipment, are
directed toward reducing product cost, as well as enhancing performance
requirements that are identified through frequent customer contacts by the
Company's sales and technical personnel. Products are introduced after extensive
in-house testing and evaluations at selected customer sites. See "Item 1.
BUSINESS -- MANUFACTURING".

     The Company often pursues programs with individual customers whom it
considers to be leaders in their respective industries to develop special
products to meet their specific requirements. The Company typically conducts
such programs when it believes such products have potential applications
reaching well beyond the initial customer's requirements. The Company's
expansion of the 600 Series product line arose from one such program conducted
in past years.

     The Company's research and development efforts remain focused on
enhancements and extensions to its core product lines. For example, during
fiscal year 2004, the Company continued its efforts on developing enhancements
to its line of specialty higher frequency capacitors. The Company also continued
development activities on its new resistive product line by adding thin film
resistor manufacturing capability. Typically thin film resistors offer a higher
degree of reliability and are better able to handle power than their thick film
counterparts. The thin film capability also allows for the development of finer
line width and resolution, which is used in the manufacture of higher frequency
terminations and attenuators. See "Item 1. BUSINESS -- PRODUCTS".

     The Company has also completed the first phase of development of the
technology underlying its CCP initiative. While the Company believes in the
long-term prospects for this technology, CCP is an extremely complicated project
that requires the development and refinement of new processes. The initial
phases of the CCP process were completed during fiscal year 2003, and during
fiscal year 2004, the Company started to sell these products. The Company
intends to continue to enhance its capabilities and expand its offering of these
products during fiscal year 2005.

     Expenditures for research and development were approximately $3,067,000,
$2,766,000 and $3,644,000 in fiscal years 2004, 2003 and 2002, respectively,
representing approximately 5%, 6% and 7% of net sales, respectively. The Company
anticipates that research and development expenditures in fiscal year 2005,
expressed as a percentage of net sales, will be comparable to fiscal year 2004.

          RAW MATERIALS

     The principal raw materials used by the Company include silver, palladium,
gold, platinum, titanate, and other powders that are used in ceramic
manufacture. Precious metals are available from many sources, although palladium
is generally available only from a limited number of metal dealers who obtain
their product requirements from the Republic of South Africa or the Russian
Federation. The major consumers of palladium are the automotive and electronics
industries.

                                       8


     In fiscal year 2002, in an effort to align its inventory of palladium with
current and anticipated demand, the Company sold a substantial portion of its
palladium inventory to one of its vendors in an arms-length transaction for
approximately $3.3 million.

     As of June 30, 2004, the Company is committed to purchase an additional
$4.5 million of precious metals (primarily palladium and silver) through the
third quarter of fiscal year 2005 to protect against shortages and rising
prices. As economic conditions improve, the demand for the precious metals the
Company uses in its manufacturing processes is increasing throughout the
electronics industry and other industries. As a result, the Company has seen a
rise in the market prices of these metals. However, there are no assurances that
the price of the precious metals will not decline and that, as a result of its
current commitments, the Company will be purchasing the precious metals at above
market prices. See "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS".

          COMPETITION

     Competition in the broad MLC industry continues to be intense and, in
general, is based primarily on price. In the UHF/Microwave market segment, where
price has historically been less important, competition has been based primarily
on high performance product specifications, achieving consistent product
reliability, fast deliveries and high levels of customer service. The Company
believes any competitive advantage it may have results from its ability to
achieve consistent quality and reliability, fast deliveries and high levels of
customer service. Potential growth of some commercial market applications may in
the future increase the competitive importance of price in this market. The
Company believes it competes in the UHF/Microwave capacitor market with several
other manufacturers, both domestically and abroad, including AVX Corporation,
Dover Corporation, Tekelec, Spectrum Control, Inc., Murata Manufacturing Co. Ltd
and Taiyo Yuden, most of which are larger and have broader product lines and
greater financial, marketing and technical resources than the Company. There are
other large commodity-type MLC manufacturers who have attempted to develop
products for the UHF/Microwave market segment. While the Company believes these
efforts have not produced significant results to date, there can be no assurance
that such efforts will not be successful in the future. New product developments
may lead the Company into markets where there are existing competitors that may
have significantly greater financial and technical resources and greater
expertise in mass production techniques than the Company. Competition in the
Company's other product areas is similar in nature to that of the capacitor
market. The primary competition for the Company's thin film products are
Aeroflex Incorporated and Reinhardt Microtech AG. The primary competition for
the Company's resistive products are Aeroflex Incorporated - formerly MCE
Technologies, Anaren Inc., and EMC Technologies and Florida RF Labs Inc., both
subsidiaries of Smiths Group PLC.

          ENVIRONMENTAL COMPLIANCE

     The Company produces hazardous waste in limited quantities in the
production of its products. Accordingly, the Company's manufacturing operations
are subject to various federal, state and local laws restricting the discharge
of such waste into the environment. The Company recycles some of its hazardous
wastes and disposes of the remainder through licensed carriers, which are
required to deposit such waste at licensed waste sites.

     The Company is also subject to various federal, state, local and foreign
laws regulating or prohibiting the use of certain materials in the manufacture
of its products. As part of its research and development efforts, the Company
continues to develop and test new materials and products designed to comply with
these laws.

     The Company believes that it is in material compliance with all applicable
federal, state and local environment laws and does not currently anticipate
having to make material capital expenditures to remain in material compliance
therewith. However, more stringent requirements may be enacted in the future and
the Company can not predict whether it will be able to comply with them.
Moreover, there can be no assurance that the Company will be able to develop
replacement materials or products for those which may become prohibited in the
future, or that competitors will not develop superior compliant products. See
"Item 1. BUSINESS -- CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMEN."

                                       9


     Certain products the Company manufactures and sells contain material that
is, or will be in the near future, prohibited in certain geographic areas. The
Company continues to develop environmentally safe products to replace existing
products. There is no guarantee that the Company will successfully develop
replacement products or that competitors will not develop superior
environmentally safe products.

     During fiscal year 2004, the Company established an Environmental
Management System in accordance with ISO-14001 requirements and is planning to
pursue ISO-14001 registration during fiscal year 2005.

          PATENTS AND PROPRIETARY INFORMATION

     Although the Company has manufacturing and design patents and pending
patent applications, and although the Company will continue to seek the
supplemental protection afforded by patents, the Company generally considers
protection of its products, processes and materials to be more dependent upon
proprietary knowledge and on rapid assimilation of innovations than on patent
protection. The Company's porcelain and ceramic formulations are considered
trade secrets which are protected by internal non-disclosure safeguards and
employee confidentiality agreements. There can be no assurance that the steps
taken by the Company to protect its rights will be adequate to deter
misappropriation, or that an independent third party will not develop
functionally equivalent technology.

          EMPLOYEES

     At June 30, 2004, the Company employed 440 persons at its facilities in New
York, of which 17 were employed on a part-time basis; 248 persons at its
facilities in Florida, of which one was employed on a part-time basis; eight
persons in sales offices in Asia and 12 persons in sales offices in Europe. Of
the 708 persons employed by the Company, 581 were involved in manufacturing and
testing activities and as support personnel, 101 were involved in selling,
general and administrative activities, and 26 were involved in research and
development activities. None of the Company's employees are covered by
collective bargaining agreements. The Company considers its relations with its
employees to be satisfactory.

          CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

     Statements in this Annual Report on Form 10-K under the captions "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as statements made in press releases and oral statements
that may be made by the Company or by officers, directors or employees of the
Company acting on the Company's behalf that are not statements of historical
fact, constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that could
cause the actual results of the Company to be materially different from the
historical results or from any future results expressed or implied by such
forward-looking statements. The cautionary statements set forth below identify
certain factors that could cause such differences. In addition to statements
which explicitly describe risks and uncertainties, readers are urged to consider
statements labeled with terms such as "believes", "belief", "expects", "plans",
"anticipates", or "intends" to be uncertain and forward-looking. All cautionary
statements made in this Annual Report on Form 10-K should be read as being
applicable to all related forward-looking statements wherever they appear. Any
forward-looking statement represents the Company's expectations or forecasts
only as of the date it was made and should not be relied upon as representing
its expectations or forecasts as of any subsequent date. The Company undertakes
no obligation to correct or update any forward-looking statements, whether as a
result of new information, future events or otherwise, even if its expectations
or forecasts change.

     The Company's products are used in the production of a variety of highly
complex electronic products manufactured for the military and for commercial
use. Accordingly, demand for the Company's products is highly dependent upon
demand for the products in which they are used. From time to time, including the
first half of fiscal year 2004, the Company's results have been negatively
impacted by a general decrease in demand for technology and electronic products
in the United States and abroad. There can be no assurance that the demand for
such products will increase or that, even if it does increase, the demand for
the Company's products will increase. In addition, there can be no assurance
that the Company will not receive order cancellations after orders are booked
into backlog. Moreover, a

                                       10


majority of the Company's costs are fixed, and the Company may not be able to
reduce costs if sales volumes were to decline.

     The Company produces and ships product based upon orders received from its
customers. If these orders are cancelled prior to shipment it could affect the
Company's profitability. See "Item 1. BUSINESS -- CUSTOMERS AND MARKETING."

     The Company offers a broad variety of products to its customers. Gross
margins can vary significantly from product to product and across product lines.
Accordingly, a change in the mix of products sold by the Company during a
particular period could lead to distinctly different financial results for that
period as compared to other periods.

     The Company expects that international sales will continue to constitute a
substantial portion of its total sales. These sales expose the Company to
certain risks, including, without limitation, barriers to trade, fluctuations in
foreign currency exchange rates (which may make the Company's products less
price competitive), political and economic instability, changes in monetary
policy, tariff regulations and other United States and foreign laws and
regulations that may apply to the export of the Company's products, as well as
the generally greater difficulties of doing business abroad.

     During fiscal year 2004, the Company's ten largest customers accounted for
approximately 30% of net sales. The Company expects that sales to a relatively
small number of customers will continue to account for a significant portion of
its net sales for the foreseeable future. A loss of one or more of such key
customers could affect the Company's profitability. See "Item 1. BUSINESS --
CUSTOMERS AND MARKETING".

     The technology upon which the Company's products are based is subject to
continuous development of materials and processes. The Company's business is in
large part contingent upon the continuous refinement of its technological and
engineering expertise and the development of new or enhanced products and
technologies to meet the rapidly developing demands of new applications and
increased competition. There can be no assurance that the Company will continue
to be successful in its efforts to develop new or refine existing products, that
such new products will meet with anticipated levels of market acceptance or that
the Company will otherwise be able to timely identify and respond to
technological improvements made by its competitors. Significant technological
breakthroughs by others could also have a material adverse effect on the
Company's business.

     The Company's business may be adversely affected by difficulties in
obtaining raw materials and other items needed for the production of its
products, the effects of quality deviations in raw materials and fluctuations in
prices of such materials. Palladium, a precious metal used in the production of
the Company's capacitors, is currently available from a limited number of metal
dealers who obtain product from the Republic of South Africa or the Russian
Federation. A prolonged cessation or reduction of exports of palladium by the
Republic of South Africa or the Russian Federation, or a significant increase in
the price of palladium, could have a material adverse effect on the Company's
business. See "Item 1. BUSINESS -- RAW MATERIALS" and "Item 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".

     Certain raw materials used by the Company may fluctuate in price. To the
extent that the Company is unable to pass on increases in the costs of such
materials to its customers, this may adversely affect the gross profit margins
of those products using such materials. At times, the Company will enter into
contracts to purchase certain raw materials in the future at agreed upon prices
in order to protect against shortages and rising prices. If the Company were to
do so and prices were to decline, the Company would be required to purchase such
raw materials at or above market prices which would also negatively impact gross
profit margins.

     Competition in the MLC industry is intense and, in general, is based
primarily on price. In the UHF/Microwave market segments, where price has
historically been less important, competition has been based primarily on high
performance product specifications, achieving consistent product reliability,
fast deliveries and high levels of customer service. The Company competes with a
number of large MLC manufacturers who have broader product lines and greater
financial, marketing and technical resources than the Company. Growth of some
commercial market applications has increased, and is expected to continue to
increase the competitive importance of price. There can be no

                                       11


assurance that the Company will be able to improve the productivity and
efficiency of its manufacturing processes in order to respond to pricing
pressures, or to successfully design new processes and products; and the failure
to do so could have a material adverse effect on the Company's business.

     The Company produces limited quantities of hazardous wastes in the
production of its capacitors. Accordingly, the inherent risks of environmental
liability and remediation costs associated with the Company's manufacturing
operations may result in substantial unforeseen liabilities.

     The Company is also subject to various federal, state, local and foreign
laws regulating or prohibiting the use of certain materials in the manufacture
of its products. As part of its research and development efforts, the Company
continues to develop and test new materials and products designed to comply with
these laws. However, there can be no assurance that the Company will be able to
develop replacement materials or products for those which may become prohibited
in the future, or that competitors will not develop superior compliant products.
See "Item 1. BUSINESS -- ENVIRONMENTAL COMPLIANCE".

     The Company has not received any claims that its products or the
technologies upon which they are based infringe the intellectual property rights
of others. Any such claims in the future may result in the Company being
required to enter into royalty arrangements, cease manufacturing the infringing
products or utilizing the infringing technologies, pay damages or defend
litigation, any of which could have a material adverse effect on the Company's
business.

     The Company's business may also be adversely affected by matters and events
affecting businesses generally, including, without limitation, political and
economic events, labor unrest, acts of God, war, acts of terrorism and other
events outside of the Company's control.