<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 0-27250
AML COMMUNICATIONS, INC.
(Exact name of registrant's specified in its charter)
Delaware 77-0130894
------------------------------ ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1000 Avenida Acaso
Camarillo, California 93012
-------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(805) 388-1345
-------------------------------------------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Common Stock Outstanding as of January 31, 1997: 6,036,453
Number of pages in this Form 10-Q 13
--
<PAGE> 1
AML COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> P
PART I FINANCIAL INFORMATION <
Item 1. Financial Statements (Unaudited)
Statements of Income for the three and nine month periods
ended December 31, 1996 and December 31, 1995
Balance Sheets at December 31 and March 31, 1996
Statements of Cash Flows for the nine month periods ended
December 31, 1996 and December 31, 1995
Notes to the Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
</TABLE>
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AML COMMUNICATIONS, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales $4,073,000 $1,803,000 $11,631,000 $4,380,000
Cost of goods sold 1,890,000 842,000 5,396,000 1,963,000
---------- ---------- ----------- ----------
Gross profit 2,183,000 961,000 6,235,000 2,417,000
---------- ---------- ----------- ----------
Operating expenses:
Selling, general and
administrative 657,000 219,000 1,977,000 585,000
Research and development 425,000 236,000 1,124,000 563,000
---------- ---------- ----------- ----------
1,082,000 455,000 3,101,000 1,148,000
---------- ---------- ----------- ----------
Operating income 1,101,000 506,000 3,134,000 1,269,000
Interest expense
(income), net (57,000) 11,000 (158,000) 43,000
Income before provision
for income taxes 1,158,000 495,000 3,292,000 1,226,000
Provision for income taxes 429,000 195,000 1,218,000 487,000
---------- ---------- ----------- ----------
Net income $ 729,000 $ 300,000 $ 2,074,000 $ 739,000
========== ========== =========== ==========
Earnings per common share $.11 $.06 $.32 $.16
=== === === ===
Weighted average number of
shares of common stock
outstanding 6,502,000 4,881,000 6,506,000 4,738,000
========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
AML COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------- ----------
<S> <C> <C>
(UNAUDITED)
ASSETS
- -------------
Current Assets:
Cash $ 4,624,000 $ 6,312,000
Marketable securities 2,011,000 ---
Accounts receivable, net of allowance
for doubtful accounts of $145,000
and $102,000, as of December 31 and
March 31, 1996, respectively 3,400,000 1,549,000
Inventories 1,724,000 1,304,000
Facilities held for resale --- 1,300,000
Other current assets 44,000 41,000
----------- -----------
Total Current Assets 11,803,000 10,506,000
----------- -----------
Property and Equipment, at cost:
Machinery and equipment 2,064,000 1,141,000
Furniture & fixtures 133,000 1,000
Leasehold improvements 513,000 220,000
----------- -----------
2,710,000 1,362,000
Less-Accumulated depreciation and
amortization (769,000) (413,000)
----------- -----------
1,941,000 949,000
----------- -----------
Deferred Taxes 271,000 107,000
----------- -----------
Other Assets 180,000 83,000
----------- -----------
$14,195,000 $11,645,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------
Current Liabilities:
Current portion of capital lease
obligations $ 39,000 $ 118,000
Accounts payable 637,000 600,000
Accrued compensation and benefits 584,000 275,000
Other accrued expenses 112,000 173,000
Income taxes payable 311,000 710,000
----------- -----------
Total Current Liabilities 1,683,000 1,876,000
----------- -----------
Capital Lease Obligations,
net of current portion 72,000 360,000
----------- -----------
Stockholders' Equity:
Preferred stock, $.01 par value:
Authorized--1,000,000 shares, no
shares issued or outstanding -- --
Common stock, $.01 par value:
Authorized--15,000,000 shares
authorized--5,940,874 and
5,641,450 shares issued and
outstanding as of December 31
and March 31, 1996, respectively 59,000 57,000
Capital in excess of par value 8,805,000 7,850,000
Retained earnings 3,576,000 1,502,000
----------- -----------
12,440,000 9,409,000
----------- -----------
$14,195,000 $11,645,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
AML COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,074,000 $ 739,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 356,000 79,000
Provision for losses on accounts
receivable 43,000 48,000
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (1,894,000) (730,000)
Inventories (420,000) (462,000)
Prepaid expenses (3,000) (31,000)
Deferred tax asset (164,000) 15,000
Other assets (97,000) --
Increase (decrease) in:
Accounts payable 37,000 455,000
Accrued expenses 248,000 12,000
Income taxes payable 301,000 418,000
--------- -------
Net cash provided by
operating activities 481,000 543,000
--------- -------
Cash Flows from Investing Activities:
Purchase of marketable securities (2,011,000) --
Proceeds from disposition of facilities
held for resale 1,300,000 --
Purchases of property and equipment (1,348,000) (40,000)
--------- ------
Net cash used in
investing activities (2,059,000) (40,000)
--------- ------
Cash Flows from Financing Activities:
Sale of common stock -- 6,671,000
Exercise of stock options 257,000 --
Principal payments on capital
lease obligations (367,000) (478,000)
--------- --------
Net cash provided by (used in)
financing activities (110,000) 6,193,000
--------- ---------
Net increase (decrease) in cash (1,688,000) 6,696,000
Cash, beginning of period 6,312,000 257,000
------------ ----------
Cash, end of period $ 4,624,000 $ 6,953,000
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 20,000 $ 114,000
============ ===========
Income taxes $ 1,074,000 $ 256,000
============ ===========
Tax benefit related to employee $ 700,000 $ --
stock options ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
AML COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION -
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles. However, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted or condensed pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC"). In the opinion of management all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
have been included. The results of operations and cash flows for the three and
nine month periods presented are not necessarily indicative of the results of
operations for a full year. These financial statements should be read in
conjunction with the Company's March 31, 1996 audited financial statements and
notes thereto included in the Company's Form 10-KSB.
The Company declared a three-for-two stock split, effected by means of
a 50% share dividend, paid to owners of record as of the close of trading
June 5, 1996, payable on June 28, 1996. All share and per share information
in the accompanying financial statements have been adjusted to give retroactive
effect to the stock split.
EARNINGS PER SHARE -
Earnings per share is based upon the weighted average number of common
shares outstanding plus the dilutive effect of common stock equivalents. For
the periods ended December 31, 1996 and 1995, per share information was
computed pursuant to the rules of the SEC, which require that common stock
issued by the Company during the twelve months immediately preceding the
Company's initial public offering plus the number of common shares issuable
pursuant to the grant of options issued during the same period, be included in
the calculation of shares outstanding using the treasury stock method from the
beginning of the period presented.
Primary and fully diluted earnings (loss) per share were the same for all
periods presented.
<PAGE> 6
INVENTORIES -
Inventories include costs of material, labor and manufacturing overhead
and are stated at the lower of cost (first-in, first-out) or market and consist
of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ----------
<S> <C> <C>
Raw materials $1,355,000 $ 792,000
Work - in - process 316,000 512,000
Finished goods 53,000 --
------------ ----------
$1,724,000 $1,304,000
============ ==========
</TABLE>
MARKETABLE SECURITIES -
Marketable securities are interest bearing investments with maturities
of less than one year but greater than three months when purchased. These
securities are readily convertible to cash and are stated at cost, which
approximates market value.
2. FACILITY HELD FOR RESALE -
The $1.3 million facility held for resale relates to the purchase of
the Company's new manufacturing and administrative facility on
February 25, 1996. The second phase of the transaction, which was consummated
on May 1, 1996, after the Company completed the renovations required to
accommodate the intended use of the facility, involved the sale and leaseback
of the building. The terms of sale included payment by the purchaser of the
full $1.3 million original purchase price and the Company agreeing to a seven
year lease with a five year option to extend.
3. LINE OF CREDIT -
In August 1996, the Company renegotiated its revolving bank line of
credit. The new agreement is comprised of two separate credit facilities.
The initial facility is a $1,250,000 revolving line of credit, which bears
interest at the bank's reference rate plus .75%. The second facility is a
$500,000 non-revolving line of credit with term repayment options which may
be used to finance up to 80% of the purchase price of equipment used in the
Company's business. Repayment of borrowings under this facility are in 47
equal monthly installments starting on October 1, 1997, with interest at
the bank's reference rate plus 1.00%. Both facilities are secured by
substantially all of the Company's assets and expire on September 1, 1997.
As of December 31, 1996, there were no borrowings outstanding under either
facility.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
This filing contains forward-looking statements which involve risks and
uncertainties. The Company's actual future may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
a difference include, but are not limited to, product demand and the rate of
market acceptance, the effect of economic conditions, the impact of competitive
products and pricing, delays in product development, capacity and supply
constraints or difficulties, general business and economic conditions, and
other risks detailed in the Company's Securities and Exchange Commission
filings.
RESULTS OF OPERATIONS
- ------------------------
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales for the three months ended December 31, 1996 were
$4.1 million, compared to net sales of $1.8 million for the corresponding
period in 1995, an increase of approximately $2.3 million, or 125.9%. The
increase was due primarily to Microcell product line and wireless telephony
sales of approximately $3.3 million, or 79.8% of net sales for the quarter
ended December 31, 1996 compared to approximately $1.0 million, or 56.0%
of net sales for the quarter ended December 31, 1995. The Microcell 140,
approved for sale by the Federal Communications Commission in November, 1996,
contributed approximately $256,000, or 6.3% to net sales for the quarter ended
December 31, 1996. Additionally, the Company realized new PCS product line
sales of approximately $378,000, or 9.3% of net sales for the quarter ended
December 31, 1996. Sales of the Company's PCS products and products being
developed for the paging markets will represent an increasing percentage of
net sales in the future if the Company's marketing strategy is successful.
GROSS PROFIT. Gross profit for the three months ended December 31, 1996 was
$2.2 million, or 53.6% of net sales, compared to $1.0 million, or 53.3% for the
corresponding period in 1995. Unanticipated overtime labor and other costs
attributable to new product production and expedited orders contributed to lower
than expected gross profit for the quarter ended December 31, 1996. The Company
believes that average selling prices and gross margins for its products are
likely to decline as cellular operators face pressure to reduce costs and as
competition intensifies among suppliers of equipment to the cellular operators.
If competition or other market factors dictate a shift in the Company's pricing
or product mix, gross profit as a percentage of net sales may not be as
favorable in the future.
SELLING, GENERAL AND ADMINISTRATIVE COSTS. Selling, general and
administrative costs for the three months ended December 31, 1996 were $657,000,
or 16.1% of net sales, compared to $219,000, or 12.1% for the corresponding
period in 1995. Both the absolute dollar and percentage increases related
principally to additional marketing and administrative headcount, its related
expenses, and expanded information systems necessary to support a higher
sales volume.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs for the three
months ended December 31, 1996 were $425,000, or 10.4% of net sales, compared
to $236,000, or 13.1% of net sales for the corresponding period in 1995. The
absolute dollar increase was due primarily to the employment of additional
technical staff required to design and develop new products for the cellular,
PCS and paging communications markets.
PROVISION FOR INCOME TAXES. For the three months ended December 31, 1996, the
Company's provision for income taxes was $429,000, an effective tax rate of
approximately 37%, compared to $195,000, an effective tax rate of approximately
39% for the corresponding period in 1995. The difference between the rate used
and the statutory rate of approximately 40% is due to research and development
tax credits available to the Company which reduce taxes payable, and tax free
income generated from certain investments.
NET INCOME. For the reasons set forth above, the Company generated a net income
for the three months ended December 31, 1996 of $729,000, or 17.9% of net
sales, compared to a net income of $300,000, or 16.6% of net sales for the
comparable period in 1995.
<PAGE> 8
NINE MONTHS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales for the nine months ended December 31, 1996 were $11.6
million, compared to net sales of $4.4 million for the corresponding period in
1995, an increase of approximately $7.2 million, or 165.5%. The increase
was due primarily to Microcell product line and wireless telephony sales of
approximately $9.9 million, or 84.7% of net sales for the nine months ended
December 31, 1996, compared to approximately $2.1 million, or 48.1% of sales
for the nine months December 31, 1995. Additionally, although sales of PCS
products represented only 3.3% of net sales for the nine months ended
December 31, 1996, the Company anticipates net sales of these and other new
products to represent an increasing percentage of net sales in the future.
GROSS PROFIT. Gross profit for the nine months ended December 31, 1996 was
$6.2 million, or 53.6% of net sales, compared to $2.4 million, or 55.2% for
the corresponding period in 1995. The higher gross margin for the nine
months ended December 31, 1995 was due primarily to lower than anticipated
costs incurred with a contract which generated approximately 21.6% of the
nine months' net sales. The Company believes that average selling prices and
gross margins for its products are likely to decline as cellular operators
face pressure to reduce costs and as competition intensifies among suppliers
of equipment to the cellular operators. If competition or other market
factors dictate a shift in the Company's pricing or product mix, gross profit
as a percentage of net sales may not be as favorable in the future.
SELLING, GENERAL AND ADMINISTRATIVE COSTS. Selling, general and
administrative costs for the nine months ended December 31, 1996 were $2.0
million, or 17.0% of net sales, compared to $585,000, or 13.4% for the
corresponding period in 1995. Both the absolute dollar and percentage
variances related principally to additional sales commissions, marketing and
administrative headcount and its related expenses, and expanded information
systems necessary to support a higher sales volume. The Company believes
further investment in marketing and administration will be necessary to
accommodate continued growth.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs for the nine
months ended December 31, 1996 were $1.1 million, or 9.7% of net sales,
compared to $563,000, or 12.9% of net sales for the corresponding period in
1995. The absolute dollar increase was due basically to the employment of
additional technical staff required to design and develop new products for
the cellular, PCS and paging communications markets. The Company's research
and development expenditures for the nine months ended December 31, 1996
resulted in the introduction of new cellular, wireless, and PCS products.
PROVISION FOR INCOME TAXES. For the nine months ended December 31, 1996, the
Company's provision for income taxes was $1,218,000, an effective tax rate of
approximately 37%, compared to a provision for income taxes of $487,000, or
40% for the corresponding period in 1995. The difference between the rate
used and the statutory rate of approximately 40% is due to research and
development tax credits available to the Company which reduced taxes payable,
and tax free income generated from certain investments.
NET INCOME. For the reasons set forth above, the Company generated a net
income for the nine months ended December 31, 1996 of $2,074,000, or 17.8% of
net sales, compared to a net income of $739,000, or 16.9% of net sales for the
comparable period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
- ---------------------------------
Historically, the Company financed its operations primarily from internally
generated funds and, to a lesser extent, loans from stockholders and capital
lease obligations. In December 1995, the Company completed its initial public
offering of 1,725,000 shares of common stock (including the exercise of the
underwriters' over allotment option). Of the net proceeds of approximately
$7.7 million at December 31, 1995, $425,000 was used to repay loans from
certain stockholders and the remainder has been used to expand manufacturing
capability through the leasing and outfitting of substantially larger
facilities, the acquisition of sufficient equipment to produce higher product
quantities, and the employment and training of additional employees capable
of expanding production and sales. The net proceeds of the initial public
offering are also being used to maintain increased inventory and working
capital balances to support higher operating levels.
In August, 1996 the Company renegotiated its revolving bank line of credit.
The new agreement is comprised of two separate credit facilities. The initial
facility is a $1,250,000 revolving line of credit, which bears interest at the
bank's reference rate plus 0.75%. The second facility is a $500,000
non-revolving line of credit with term repayment options which may be used
to finance up to 80% of the purchase price of equipment used in the Company's
business. Repayment of borrowings under this facility are in 47 equal monthly
installments starting on October 1, 1997, with interest at the bank's reference
rate plus 1.00%. Both facilities are secured by substantially all of the
Company's assets and expire on September 1, 1997. As of December 31, 1996,
there were no borrowings outstanding under either facility.
At December 31, 1996 the Company had $4.6 million in cash, and $2.0 million in
short-term tax exempt marketable securities. The Company's operating activities
provided cash of approximately $482,000 in the nine month period ended
December 31, 1996 mainly as a result of income from operations offset by
increases in accounts receivable and inventory. The Company's capital
expenditures of $1.3 million for the nine months ended December 31, 1996 were
mainly for manufacturing test equipment, leasehold improvements for new
facilities, and information system improvements. Also, in June, 1996 the Company
paid off capital lease obligations totaling $266,000 in addition to the
scheduled payments.
The Company believes that the net proceeds from the initial public offering,
together with cash provided by operations and available under the bank line of
credit, will be sufficient to finance the Company for at least the next 12
months. Inflation has not had a significant effect to date on the Company's
results of operations.
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) There were no Reports on Form 8-K filed by the Company during the
quarter ended December 31, 1996.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AML COMMUNICATIONS, INC.
Date: February 12, 1997 /s/ Kirk A. Waldron
-------------------
Kirk A. Waldron
Vice President of Finance and Chief
Financial Officer (Principal Financial
and Accounting Officer)
<PAGE> 12
<TABLE> <S> <C>
<S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE>3-MOS
<FISCAL-YEAR-END>MAR-31-1997
<PERIOD-START>OCT-01-1996
<PERIOD-END>DEC-31-1996
<CASH>4,624,000
<SECURITIES>2,011,000
<RECEIVABLES>3,400,000
<ALLOWANCES>145,000
<INVENTORY>1,724,000
<CURRENT-ASSETS>11,803,000
<PP&E>2,710,000
<DEPRECIATION>769,000
<TOTAL-ASSETS>14,195,000
<CURRENT-LIABILITIES>1,683,000
<BONDS>72,000
0
0
<COMMON>8,864,000
<OTHER-SE>3,576,000
<TOTAL-LIABILITY-AND-EQUITY>14,195,000
<SALES>4,073,000
<TOTAL-REVENUES>4,073,000
<CGS>1,890,000
<TOTAL-COSTS>1,890,000
<OTHER-EXPENSES>0
<LOSS-PROVISION>43,000
<INTEREST-EXPENSE>0
<INCOME-PRETAX>1,158,000
<INCOME-TAX>429,000
<INCOME-CONTINUING>729,000
<DISCONTINUED>0
<EXTRAORDINARY>0
<CHANGES>0
<NET-INCOME>729,000
<EPS-PRIMARY>.11
<EPS-DILUTED>.11
</TABLE>
