<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1997 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: 0-27252
AML COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 77-0130894
- ------------------------------ ------------------
(State or Other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Avenida Acaso
Camarillo, California 93012
--------------------- ------
(Address of principal executive offices) (Zip Code)
(805) 388-1345
--------------------------------
(Issuer's telephone number including area code)
Check whether the issuer (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 latest practicable date.
Number of shares of Common Stock outstanding as of February 9, 1998: 6,291,730
Number of pages in this Form 10-QSB 17
--
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AML COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Statements of Income for the three month and nine month periods ended 3
December 31, 1997 and December 31, 1996
Balance Sheets at December 31, 1997 and March 31, 1997 4
Statements of Cash Flows for the nine month periods ended 5
December 31, 1997 and December 31, 1996
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
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PART I - 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, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 3,605,000 $ 4,073,000 $ 8,925,000 $ 11,631,000
Cost of goods sold 2,069,000 1,890,000 4,933,000 5,396,000
--------------- -------------- -------------- ---------------
Gross profit 1,536,000 2,183,000 3,992,000 6,235,000
--------------- -------------- -------------- ---------------
Operating expenses:
Selling, general and administrative 726,000 657,000 2,008,000 1,977,000
Research and development 497,000 425,000 1,454,000 1,124,000
--------------- -------------- -------------- ---------------
1,223,000 1,082,000 3,462,000 3,101,000
--------------- -------------- -------------- ---------------
Operating income 313,000 1,101,000 530,000 3,134,000
Other income, net (100,000) (57,000) (258,000) (158,000)
--------------- -------------- -------------- ---------------
Income before provision for
income taxes 413,000 1,158,000 788,000 3,292,000
Provision for income taxes 152,000 429,000 291,000 1,218,000
--------------- -------------- -------------- ---------------
Net income $ 261,000 $ 729,000 $ 497,000 $ 2,074,000
=============== ============== ============== ===============
Earnings per common share $ 0.04 $ 0.11 $ 0.08 $ 0.32
=============== ============== ============== ===============
Weighted average number of shares of
common stock outstanding 6,443,000 6,502,000 6,398,000 6,506,000
=============== ============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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AML COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1997
------------ ---------
(UNAUDITED) (AUDITED)
ASSETS
- ------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 72,000 $ 4,766,000
Marketable securities 7,519,000 3,259,000
Accounts receivable, net of allowance for doubtful accounts of
$42,000 at December 31, 1997 and $297,000 at March 31, 1997 2,520,000 1,910,000
Inventories 2,877,000 1,961,000
Other current assets 187,000 203,000
------------ ------------
Total current assets 13,175,000 12,099,000
Property and Equipment:
Machinery and equipment 2,802,000 2,239,000
Furniture and fixtures 122,000 120,000
Leasehold improvements 557,000 516,000
------------ ------------
3,481,000 2,875,000
Less - Accumulated depreciation and amortization (1,382,000) (912,000)
------------ ------------
2,099,000 1,963,000
Deferred Taxes 332,000 332,000
Other Assets 161,000 149,000
------------ ------------
$ 15,767,000 $ 14,543,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 1,422,000 $ 857,000
Accrued expenses 455,000 603,000
Income taxes payable 515,000 244,000
Current portion of capital lease obligations 28,000 40,000
------------ ------------
Total current liabilities 2,420,000 1,744,000
Capital Lease Obligations, net of current portion 44,000 62,000
Commitment and contingencies - -
Stockholders' Equity:
Preferred stock, $.01 par value:
1,000,000 shares authorized; no shares issued or outstanding - -
Common stock, $.01 par value:
15,000,000 shares authorized; 6,247,392 shares issued
and outstanding at December 31, 1997 and 6,082,190 shares issued and
outstanding at March 31, 1997 62,000 61,000
Capital in excess of par value 9,116,000 9,048,000
Retained earnings 4,125,000 3,628,000
------------ ------------
13,303,000 12,737,000
------------ ------------
$ 15,767,000 $ 14,543,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
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AML COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 497,000 $ 2,074,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 470,000 356,000
Provision for losses on accounts receivable - 43,000
Changes in assets and liabilities:
Decrease (increase) in:
Marketable securities (4,260,000) (2,011,000)
Accounts receivable (610,000) (1,894,000)
Inventories (916,000) (420,000)
Deferred tax asset - (164,000)
Other assets 4,000 (100,000)
Increase (decrease) in:
Accounts payable 565,000 37,000
Accrued expenses (148,000) 248,000
Income taxes payable 271,000 301,000
----------- -----------
Net cash used in operating activities (4,127,000) (1,530,000)
----------- -----------
Cash Flows from Investing Activities:
Proceeds from disposition of facility held for resale - 1,300,000
Purchases of property and equipment (606,000) (1,348,000)
----------- -----------
Net cash used in investing activities (606,000) (48,000)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options 69,000 257,000
Principal payments on capital lease obligations (30,000) (367,000)
----------- -----------
Net cash provided by (used in) financing activities 39,000 (110,000)
----------- -----------
Net Decrease in Cash and Cash Equivalents (4,694,000) (1,688,000)
Cash and Cash Equivalents, beginning of period 4,766,000 6,312,000
----------- -----------
Cash and Cash Equivalents, end of period $ 72,000 $ 4,624,000
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,000 $ 20,000
=========== ===========
Income taxes $ - $ 1,074,000
=========== ===========
Tax benefit related to exercise of employee stock options $ - $ 700,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AML COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
AML Communications, Inc. (the "Company") designs and manufactures
multicarrier amplifiers, masthead amplifiers and related products for the
cellular, personal communication services ("PCS"), paging and other
communication markets.
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
month 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, 1997 audited financial
statements and notes thereto included in the Company's Annual Report to
Shareholders on Form 10-KSB.
2. EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of
common shares outstanding plus the dilutive effect of common stock equivalents.
The earnings per share calculations reflect a 3:2 stock split paid June 28, 1996
to holders of record on June 5, 1996. Primary and fully diluted earnings per
share were the same for all periods presented.
3. 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, 1997 March 31, 1997
----------------- --------------
<S> <C> <C>
Raw materials $ 1,993,000 $ 1,502,000
Work-in-process 504,000 409,000
Finished goods 380,000 50,000
----------- -----------
$ 2,877,000 $ 1,961,000
=========== ===========
</TABLE>
6
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4. MARKETABLE SECURITIES
Marketable securities reported during fiscal year 1997 and during the
first quarter of fiscal year 1998 are interest bearing tax free investments with
maturities of less than one year but greater than three months when purchased.
During the second quarter of fiscal year 1998, the Company began investing in a
money market portfolio of taxable and tax advantaged instruments which are
readily convertible into cash.
5. BUSINESS AND CREDIT CONCENTRATION AND RISK
The Company has entered into a relationship to provide cellular
products to a customer in South America. The contracts represent approximately
66% of sales in the quarter ended December 31, 1997, and approximately 40% of
year to date sales. The Company expects that the contracts will be substantially
fulfilled in the fourth quarter. While the Company is actively pursuing
additional contracts, no assurance can be given that the Company will enter into
similar contracts in the future or that the relationship with its South American
customer will continue. At December 31, 1997, the Company reported accounts
receivable, net of reserve, of $2.5 million, of which $1.5 million, or 57% was
due from this customer. The three largest customer receivables totaled $2.2
million, or approximately 88% of total receivables. The Company performs
ongoing credit evaluations of its customers' financial condition but does not
require collateral to support customer receivables. The Company establishes an
allowance for doubtful accounts based upon the credit risk of specific
customers, historical trends and other factors. At December 31, 1997,
management believes that the allowance for doubtful accounts is adequate.
7
<PAGE>
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 results 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 changes in domestic and international
economic conditions, the impact of competitive products and pricing, delays in
product development, capacity and supply constraints or difficulties, business
and credit concentration risk, 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, 1997 AND 1996
Net sales. Net sales for the three months ended December 31, 1997
were $3.6 million compared to $4.1 million in the corresponding period in 1996,
a 12.2% decrease. The decrease in sales is largely attributable to the decrease
in volume of the Company's Wireless Local Loop ("WLL") products which
contributed $75,000, or 2.1% of net sales for the quarter ended December 31,
1997, compared to $758,000, or 18.6% of net sales for the three months ended
December 31, 1996. The Company believes that the decline in sales of WLL
products is primarily the result of slower than expected customer development of
foreign service areas, which in turn has caused postponement of purchases from
the Company. Sales of the Company's cellular amplifier product line totaled
$3.0 million, or 83.7% of net sales for the three months ended December 31, 1997
compared to $2.5 million, or 61.9% for the corresponding period in 1996. The
increase in the sales of cellular amplifiers is the result of the Company's
penetration of the South American marketplace, which contributed sales of $2.5
million, or 66.0% of total cellular product sales for the most recent quarter.
Although the Company believes that its relationship with its South American
customer is good, no assurance can be given that such relationship will result
in similar contracts in the future. Sales of PCS / two way paging products
totaled $356,000 for the three months ended December 31, 1997, or 9.9% of net
sales, compared to $378,000, or 9.3% of net sales for the three months ended
December 31, 1996. Sales of the Company's custom products totaled $156,000, or
4.3% of net sales for the three months ended December 31, 1997 compared to
$417,000, or 10.2% for the corresponding period in 1996. The Company expects the
custom product market to continue to be a minor component of the Company's
revenue stream, and to decline in the future as a percent of net sales.
Gross profit. Gross profit for the three months ended December 31,
1997 was $1.5 million, or 42.6% of net sales, compared to $2.2 million, or 53.7%
of net sales, for the corresponding period in 1996. The Company's average
selling prices and gross margins for its products have declined primarily as a
result of the highly competitive OEM market, intensified competition among
suppliers of equipment to cellular service providers and pressures faced by
cellular service providers from their customers to reduce costs.
8
<PAGE>
Selling, general and administrative costs. Selling, general and
administrative costs for the three months ended December 31, 1997 were $726,000,
or 20.2% of net sales, compared to $657,000, or 16.0% of net sales, for the
corresponding period in 1996. The increase is the result of increasing costs
for labor, trade show and travel expenses between the 1997 and 1996 periods
applied to lower sales in 1997. The Company believes further investment in sales
and marketing will be necessary to promote the Company's products due to the
intensely competitive nature of the industry.
Research and development costs. Research and development costs for
the three months ended December 31, 1997 were $497,000, or 13.8% of net sales,
compared to $425,000, or 10.4% of net sales, for the corresponding period in
1996. The increase is due primarily to the employment of additional technical
staff and increased material costs required to design and develop new products
for cellular, PCS and two way paging communications markets.
During the third quarter 1997, the Company received Federal Communication
Commission approval to market its M30 multicarrier amplifier for the U.S. and
international cellular marketplace. The M30 is a second generation 30-watt, 900
MHz multicarrier cellular amplifier, using laterally diffused metal oxide
semiconductors ("LDMOS"). The LDMOS design offers improved transistor
technology compared to standard silicon bipolar designs. Primary benefits
include improved performance and higher reliability. Additionally, the Company
continues to focus its efforts on the development of products for the PCS and
two way paging infrastructure buildup. Subsequent to the end of the third
quarter, the Company announced that it had received a follow-on order totaling
$2.2 million for newly developed two way paging amplifiers. The contract is the
third production order for the Company's new product line serving the world-wide
paging market.
Other income, net. Other income for the three months ended December
31, 1997 increased to $100,000 compared to $57,000 for the corresponding period
in 1996. The increase is due to interest income on a higher level of
investments and a reduction in interest expense associated with the reduction of
certain lease obligations.
Provision for income taxes. For the three months ended December 31,
1997, the Company's provision for income taxes was $152,000, an effective tax
rate of approximately 37% compared to $429,000, an effective tax rate of
approximately 37% for the corresponding period in 1996. 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, tax
free interest income generated from certain investments and tax benefits
associated with the exercise of employee stock options.
Net income. For the reasons set forth above, the Company generated a
net income for the three months ended December 31, 1997, of $261,000, or 7.2% of
net sales compared to $729,000, or 17.8% of net sales in the corresponding
period in 1996.
9
<PAGE>
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Net sales. Net sales for the nine months ended December 31, 1997 were
$8.9 million compared to $11.6 million in the corresponding period in 1996, a
23.3% decrease. The decrease in sales is largely attributable to lower unit
prices and a change in product mix of the Company's cellular amplifiers which
contributed $6.6 million, or 73.9% of net sales for the nine month period ended
December 31, 1997 compared to $8.6 million, or 73.6% of net sales for the nine
month period ended December 31, 1996. The dollar decline in the cellular
amplifier product line is a result of the following factors: 1) OEM's have
improved the amplifiers within their base stations enabling the operator to
achieve cost effective performance without having to upgrade to the Company's
amplifier, 2) Intensified competition within the marketplace resulting in lower
unit prices, 3) Macrocell base stations are being developed and sold at
substantially lower prices than before, thereby slowing the sales of microcell
base stations. The Company's multicarrier amplifier is designed to perform with
the microcell base station; consequently, sales of the Company's amplifiers have
decreased and 4) The industry focus has shifted to the PCS and two way paging
market, slowing further build-out of the cellular infrastructure. As a result
of these factors, the Company strategically decided to diversify its product and
market base to include satellite network communications, two way paging, PCS and
WLL products in the OEM and international markets. Sales of PCS and two way
paging products totaled $450,000, or 5.1% of net sales for the nine month period
ended December 31, 1997 compared to $386,000, or 3.3% of net sales for the nine
month period ended December 31, 1996. Sales of WLL products totaled $288,000,
or 3.2% of net sales for the nine months ended December 31, 1997, compared to
$1.3 million, or 11.1% of net sales for the nine months ended December 31, 1996.
The Company believes that the decline in sales of WLL products is primarily the
result of slower than expected customer development of foreign service areas,
which in turn has caused postponement of purchases from the Company.
Sales of the Company's custom products totaled $1.1 million, or 12.1% of net
sales for the nine months ended December 31, 1997 compared to $1.4 million, or
12.0% for the corresponding period in 1996. The Company expects the custom
product market to continue to be a minor component of the Company's revenue
stream, and to decline in the future as a percent of net sales.
During the first fiscal quarter of this year the Company reported sales of
amplifiers used in the Low Earth Orbit ("LEO") satellite network of $508,000,
which represents 5.7% of net sales for the nine months ended December 31, 1997.
The LEO satellite network is designed to provide high-speed digital
communication worldwide through earth gateways. This revenue represents
completion of the Company's contract previously announced in January 1997 to
provide amplifiers to a customer in the LEO satellite network during the first
quarter of this year. The Company currently has no other contract for the
production and shipment of LEO amplifiers.
Gross profit. Gross profit for the nine months ended December 31,
1997 was $4.0 million or 44.9% of net sales, compared to $6.2 million, or 53.4%
of net sales, for the corresponding period in 1996. The percentage decrease is
a result of the revenue shortfall that occurred during the year which impeded
the Company's ability to efficiently absorb its labor and overhead expenses. The
Company's average selling prices and gross margins for its products have
declined primarily as a result of the highly competitive OEM market, intensified
competition among suppliers of
10
<PAGE>
equipment to cellular service providers and pressures faced by cellular service
providers from their customers to reduce costs.
Selling, general and administrative costs. Selling, general and
administrative costs for the nine months ended December 31, 1997 were $2.0
million, or 22.5% of net sales, compared to $2.0 million, or 17.2% of net sales,
for the corresponding period in 1996. The percentage increase is the result of
increased costs for labor, trade show and travel expense between the 1997 and
1996 periods applied to lower sales in 1997. The Company believes further
investment in sales and marketing will be necessary to promote the Company's
products due to the intensely competitive nature of the industry.
Research and development costs. Research and development costs for
the nine months ended December 31, 1997 were $1.4 million, or 15.7% of net
sales, compared to $1.1 million, or 9.5% of net sales, for the corresponding
period in 1996. The increase is due primarily to the employment of additional
technical staff and increased material costs required to design and develop new
products for cellular, PCS and paging communications markets.
During the second quarter 1997, the Company received an order to supply two way
paging amplifiers to the domestic PCS market. The contract is the first
significant production order for the Company's new product line serving this
market. Subsequent to the end of the third quarter, the Company announced that
it had received a follow-on order for paging amplifiers.
During the third quarter 1997, the Company received Federal Communication
Commission approval to market its M30 multicarrier amplifier for the U.S. and
international cellular marketplace. The M30 is a second generation 30-watt, 900
MHz multicarrier cellular amplifier, using laterally diffused metal oxide
semiconductors ("LDMOS"). The LDMOS design offers improved transistor
technology compared to standard silicon bipolar designs. Primary benefits
include improved performance and higher reliability. Additionally, the Company
continues to focus its efforts on the development of products for the PCS and
two way paging infrastructure buildup. Subsequent to the end of the third
quarter, the Company announced that it had received a follow-on order totaling
$2.2 million for newly developed two way paging amplifiers. The contract is the
third production order for the Company's new product line serving the world-wide
paging market.
Other income, net. Other income for the nine months ended December
31, 1997 was $258,000 compared to $158,000 for the corresponding period in 1996.
The increase is due to interest income on a higher level of investments and a
reduction in interest expense associated with the reduction of certain lease
obligations.
Provision for income taxes. For the nine months ended December 31,
1997, the Company's provision for income taxes was $291,000, an effective tax
rate of approximately 37% compared to $1.2 million, an effective tax rate of
approximately 37% for the corresponding period in 1996. 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, tax
free interest income generated from certain investments and tax benefits
associated with the exercise of employee stock options.
11
<PAGE>
Net income. For the reasons set forth above, the Company generated a
net income for the nine months ended December 31, 1997, of $497,000, or 5.6% of
net sales compared to $2.1 million, or 18.1% of net sales in the corresponding
period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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), raising net proceeds of approximately $7.7 million. Of
such net proceeds, $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
equipment sufficient 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 increased operating
levels.
In September 1997 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 (8.50 % at December 31, 1997) plus 0.50%. 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 beginning October 1, 1998, with
interest at the bank's reference rate plus .75%. Both facilities are secured by
substantially all of the Company's assets and expire on September 1, 1998. As
of December 31, 1997, there were no borrowings outstanding under either
facility.
At December 31, 1997 the Company had $72,000 in cash, and $7.5 million
in short-term marketable securities. The Company's operating activities used
cash of approximately $4.1 million for the nine months ended December 31, 1997
primarily as a result of increases in marketable securities. The Company's
capital expenditures of $606,000 for the nine months ended December 31, 1997
were primarily for manufacturing test equipment and information system
improvements.
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.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
- ---------------------------------------------------
Future operating results may be impacted by a number of factors that
could cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include industry
specific factors (including the reliance upon continued growth of the wireless
communications market, significant competition in the communications
infrastructure equipment industry characterized by rapid technological change,
new product development, product obsolescence, and significant price erosion
over the life of a
12
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product), the Company's ability to timely develop and produce commercially
viable products at competitive prices, the ability of the Company's products to
operate and be compatible with various OEM base station equipment, the Company's
ability to produce products which meet the quality standards of both existing
and potential new customers, the Company's ability to accurately anticipate
customer demand, the Company's ability to manage expense levels, the
availability and cost of components, the Company's ability to finance its
activities and maintain its financial liquidity and worldwide economic and
political conditions. The Company believes that international sales may account
for an increased percentage of future sales. To the extent that foreign sales
are recognized, the Company may face increased risk associated with political
and economic instability, compliance with foreign regulatory rules governing
export requirements, tariffs and other trade barriers, differences in
intellectual property protections, longer accounts receivable cycles, currency
fluctuations and general trade restrictions. If any of these risks materialize,
they could have a material adverse effect on the Company's business, results of
operations and financial condition. The Company has identified potential new
customers serving new markets in developing countries. The Company's WLL
products offer a viable alternative to the construction of a wireline
infrastructure in such areas. To the extent that the Company's customers delay
development of wireless communications networks and technology continues to
evolve, the Company may face a material adverse effect on business, results of
operations and financial condition.
During the nine months ended December 31, 1997, a substantial portion
of the Company's sales were made to a customer in Brazil. The Company has
evaluated the credit exposure associated with conducting business with this
customer in the South American market and has concluded that such risk is
acceptable. Nevertheless, any significant change in the economy or a
deterioration of United States trade relations or the economic or political
stability of the South American region could have a material adverse effect on
the Company's business, results of operations and financial condition. Sales to
foreign customers are invoiced in U.S. dollars. Accordingly, the Company
currently does not engage in foreign currency hedging transactions. However, as
the Company further expands into foreign markets, greater risk can be
anticipated associated with general business, political and economic conditions
in those markets, and foreign currency transactions may be anticipated. At such
time, the Company may seek to lessen its exposure through currency hedging
transactions. No assurance can be made that a currency hedging strategy would be
successful in avoiding currency exchange related losses. In addition, should the
relative value of the U.S. dollar in comparison to foreign currencies increase,
the resulting effective price increase of the Company's products to such foreign
customers could result in decreased sales which could have a material adverse
impact on the Company's business, results of operations and financial condition.
The Company has begun to experience significant price erosion in the
sales of its products and expects price competition in the sale of amplifiers to
increase. No assurance can be given that the Company's competitors will not
develop new technologies or enhancements to existing products or introduce new
products that will offer superior price or performance features. The Company
expects its competitors to offer new and existing products at prices necessary
to gain or retain market share. Several of the Company's competitors have
substantial financial resources, which may enable them to withstand sustained
price competition or a downturn in the pricing of their products, or otherwise,
in the future. Substantially all of the Company's competitors have, and
potential future competitors could have, substantially greater technical,
marketing, distribution and other resources than the Company and have, or could
have, greater name recognition and market acceptance of their products and
technologies.
The Company has historically sold a majority of its products into the
operator channel to market. As a result, the Company receives periodic order
forecasts from its major customers who have no obligation to purchase the
forecasted amounts. Nonetheless, the Company maintains significant work in
process and raw materials inventory as well as increased levels of technical
production staff to meet order forecasts and/or management's projections. To
the extent its major customers purchase less than the forecasted amounts, the
Company will have higher levels of inventory than otherwise needed, increasing
the risk of obsolescence and the Company will have increased levels of
production staff to support such forecasted orders. Such higher levels of
inventory and increased employee levels could reduce the Company's liquidity and
could have a material adverse effect on the Company's business, results of
operation and financial condition.
The markets in which the Company and its customers compete are
characterized by rapidly changing technology, evolving industry standards and
communications protocols, and continuous improvements in products and services.
The Company's future success depends on its ability to enhance its current
products and to develop and introduce in a timely manner new products that keep
pace with technological developments, industry standards and
13
<PAGE>
communications protocols, compete effectively on the basis of price, performance
and quality, adequately address OEM customer and end-user customer requirements
and achieve market acceptance. The Company believes that to remain competitive
in the future it will need to continue to develop new products, which will
require the investment of significant financial resources in new product
development. There can be no assurance that the Company's newly developed
products will achieve market acceptance, or that the Company will manufacture
such products at competitive prices in sufficient volumes. In the event the
Company's products are not timely developed or do not gain market acceptance,
the Company's business, results of operations and financial condition could be
materially adversely affected.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) There were no current Reports on Form 8-K filed by the Company during
the quarter ended December 31, 1997.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AML Communications, Inc.
Date: February 13, 1998 /s/Kirk A. Waldron
------------------
Kirk A. Waldron
Vice President, Finance and
Chief Financial Officer and Chief Operating
Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
16
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-START> OCT-01-1997 APR-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 72,000 0
<SECURITIES> 7,519,000 0
<RECEIVABLES> 2,520,000 0
<ALLOWANCES> 42,000 0
<INVENTORY> 2,877,000 0
<CURRENT-ASSETS> 13,175,000 0
<PP&E> 3,481,000 0
<DEPRECIATION> 1,382,000 0
<TOTAL-ASSETS> 15,767,000 0
<CURRENT-LIABILITIES> 2,420,000 0
<BONDS> 0 0
0 0
0 0
<COMMON> 62,000 0
<OTHER-SE> 13,241,000 0
<TOTAL-LIABILITY-AND-EQUITY> 15,767,000 0
<SALES> 3,605,000 8,925,000
<TOTAL-REVENUES> 3,605,000 8,925,000
<CGS> 2,069,000 4,933,000
<TOTAL-COSTS> 2,069,000 4,933,000
<OTHER-EXPENSES> 1,223,000 3,462,000
<LOSS-PROVISION> 313,000 530,000
<INTEREST-EXPENSE> (100,000) (258,000)
<INCOME-PRETAX> 413,000 788,000
<INCOME-TAX> 152,000 291,000
<INCOME-CONTINUING> 261,000 497,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 261,000 497,000
<EPS-PRIMARY> .04 .08
<EPS-DILUTED> .04 .08
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