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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- - -
OF 1934
For the quarterly period ended: September 30, 1998
- - - TRANSITION REPORT UNDER SECTION 13 0R 15(d) OF THE EXCHANGE ACT
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 Exchange Act during the past 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 ___
-
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock Outstanding as of October 31, 1998: 6,358,180
Transitional Small Business Disclosure Format: Yes __ No X
-
Number of pages in this Form 10-QSB 14
--
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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 Operations for the three months and six months ended 3
September 30, 1998 and September 30, 1997
Balance Sheets at September 30, 1998 and March 31, 1998 4
Statements of Cash Flows for the six months ended 5
September 30, 1998 and September 30, 1997
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AML COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------- --------------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
----------------- -------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 1,590,000 $ 2,805,000 $ 4,648,000 $ 5,320,000
Cost of goods sold 1,098,000 1,594,000 2,877,000 2,864,000
----------------- -------------------- ---------------- -----------------
Gross profit 492,000 1,211,000 1,771,000 2,456,000
Operating expenses:
Selling, general & administrative 681,000 619,000 1,376,000 1,282,000
Research and development 777,000 474,000 1,289,000 957,000
----------------- -------------------- ---------------- -----------------
Operating income (loss) (966,000) 118,000 (894,000) 217,000
Other (income), net (112,000) (78,000) (220,000) (158,000)
----------------- -------------------- ---------------- -----------------
Income (loss) before provision for (854,000) 196,000 (674,000) 375,000
income taxes
Benefit / provision for income taxes (304,000) 73,000 (239,000) 139,000
----------------- -------------------- ---------------- -----------------
Net income (loss) $ (550,000) $ 123,000 $ (435,000) $ 236,000
================= ==================== ================ =================
Basic earnings (loss) per share $ (0.09) $ 0.02 $ (0.07) $ 0.04
================= ==================== ================ =================
Basic weighted average number of shares of
common stock outstanding 6,270,000 6,199,000 6,284,000 6,156,000
================= ==================== ================ =================
Diluted earnings (loss) per share $(0.09) $ 0.02 $ (0.07) $ 0.04
================= ==================== ================ =================
Diluted weighted average number of shares of
common stock outstanding 6,270,000 6,330,000 6,284,000 6,302,000
================= ==================== ================ =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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AML COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
------------------- -------------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
- - ------
Current Assets:
Cash and cash equivalents $ 7,532,000 $ 8,608,000
Accounts receivable, net of allowance for doubtful accounts of
$61,000 at September 30, 1998 and March 31, 1998 1,430,000 1,628,000
Inventories 2,561,000 2,511,000
Other current assets 462,000 367,000
Income taxes receivable 114,000 -
------------------- -------------------
Total current assets 12,099,000 13,114,000
Property and Equipment:
Machinery and equipment 3,400,000 2,967,000
Furniture and fixtures 127,000 127,000
Leasehold improvements 565,000 564,000
------------------- -------------------
4,092,000 3,658,000
Less - Accumulated depreciation and amortization (1,933,000) (1,562,000)
------------------- -------------------
2,159,000 2,096,000
Deferred Taxes 349,000 349,000
Other Assets 121,000 120,000
------------------- -------------------
$14,728,000 $15,679,000
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current Liabilities:
Accounts payable $ 762,000 $ 766,000
Accrued expenses 762,000 953,000
Income taxes payable - 195,000
Current portion of capital lease obligations 20,000 19,000
------------------- -------------------
Total current liabilities 1,544,000 1,933,000
Capital Lease Obligations, net of current portion 27,000 38,000
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; 6,297,114 shares issued
and outstanding at September 30, 1998 and 6,291,930 shares issued and
outstanding at March 31, 1998 63,000 63,000
Capital in excess of par value 9,334,000 9,331,000
Less treasury stock: 51,700 shares, at cost (119,000) -
Retained earnings 3,879,000 4,314,000
------------------- -------------------
13,157,000 13,708,000
------------------- -------------------
$14,728,000 $15,679,000
=================== ===================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
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AML COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------------ ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (435,000) $ 236,000
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 370,000 300,000
Changes in assets and liabilities:
Decrease (increase) in:
Marketable securities - (4,456,000)
Accounts receivable 198,000 (290,000)
Inventories (50,000) (188,000)
Income tax receivable (114,000) -
Other assets (95,000) 61,000
Increase (decrease) in:
Accounts payable (4,000) 227,000
Accrued expenses (191,000) (237,000)
Income taxes payable (195,000) 139,000
------------------ ----------------
Net cash used in operating activities (516,000) (4,208,000)
------------------ ----------------
Cash Flows from Investing Activities:
Purchases of property and equipment (434,000) (294,000)
------------------ ----------------
Net cash used in investing activities (434,000) (294,000)
------------------ ----------------
Cash Flows from Financing Activities:
Treasury stock repurchase (119,000) -
Proceeds from exercise of stock options 3,000 56,000
Principal payments on capital lease obligations (10,000) (20,000)
------------------ ----------------
Net cash provided by (used in) financing activities (126,000) 36,000
------------------ ----------------
Net decrease in Cash and Cash Equivalents (1,076,000) (4,466,000)
Cash and Cash Equivalents, beginning of period 8,608,000 4,766,000
------------------ ----------------
Cash and Cash Equivalents, end of period $ 7,532,000 $ 300,000
================== ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,000 $ 4,000
================== ================
Income taxes $ 230,000 $ -
================== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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AML COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
AML Communications, Inc. (the "Company") designs and manufactures multi-
carrier 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 and
six 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, 1998 audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB.
2. EARNINGS (LOSS) PER SHARE
Earnings per share calculations are in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128").
Accordingly, "basic" earnings or loss per share is computed by dividing net
income or loss by the weighted average number of shares outstanding for the
year. "Diluted" earnings per share is computed by dividing net income by the
total of the weighted average number of shares outstanding plus the dilutive
effect of outstanding stock options (applying the treasury stock method).
Earnings (loss) per share for the three and six months ended September 30, 1997
have been restated to reflect the adoption of SFAS No. 128.
3. NEW AUTHORITATIVE PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes new standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. These new standards require that all items
recognized as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 is effective for fiscal years beginning after December 15,
1997. For the six months ended September 30, 1998 the Company has no reportable
differences between net income and comprehensive income. Therefore, no
statement of comprehensive income has been presented.
6
<PAGE>
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 changes the way public companies report segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports. SFAS 131 will
be effective in the fourth quarter of fiscal 1999. The adoption of SFAS 131
will not have a material impact on the presentation of the Company's financial
statements.
4. 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>
September 30, 1998 March 31, 1998
------------------ ------------------
(Unaudited) (Audited)
<S> <C> <C>
Raw materials $1,648,000 $1,719,000
Work-in-process 618,000 592,000
Finished goods 295,000 200,000
---------- ----------
$2,561,000 $2,511,000
========== ==========
</TABLE>
5. LEGAL PROCEEDINGS
As described in the Company's Form 10-KSB dated March 31, 1998, two
essentially identical, purported securities class action lawsuits have been
filed against the Company and certain of its current and former officers and
directors. The complaints allege that during the purported class period of
April 10, 1996 to March 25, 1997, defendants made overly optimistic estimates
regarding the Company's anticipated financial performance for fiscal 1997 and
1998, and overly optimistic statements regarding the Company's ability to
develop and to sell new products for the PCS market, all allegedly in order to
profit from insider trading at artificially inflated prices.
In the action pending in federal court, entitled Sussman v. AML
--------------
Communications, Inc., et al., U.S.D.C. Case No. 98-2010 CAS (Ex) (C.D. Cal.),
- - ----------------------------
four lead plaintiffs and co-lead counsel were appointed on June 29, 1998
pursuant to The Private Securities Litigation Reform Act of 1995. On September
3, 1998, plaintiffs filed an amended complaint in that action. On October 14,
1998, the Company responded to the amended complaint by filing a motion to
dismiss the case. Plaintiffs' opposition to the motion is due on December 3,
1998. The motion is scheduled to be heard by the court on January 25, 1999.
All discovery is stayed in the federal action unless and until it is determined
that plaintiffs have stated an actionable claim.
With respect to the action pending in state court, entitled Sussman v. AML
--------------
Communications, Inc. et al., Case No. CIV 179776 (Ventura County), all
- - ---------------------------
proceedings have been stayed until the stay of discovery is lifted in the
federal action. Plaintiffs also intend to file an amended complaint in the
state action once the case proceeds. The Company's response will be due forty-
five (45) days after the filing of the amended complaint. The Company intends
to respond by filing a demurrer, which is the California equivalent of a motion
to dismiss for failure
7
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to state a claim. It is management's opinion that the lawsuit and subsequent
claims are without merit. Management intends to vigorously defend its position.
The Company currently is not party to any other legal proceedings, the
adverse outcome of which, individually or in the aggregate, management believes
would have a material adverse effect on the business, financial condition or
results of operations of the Company.
6. STOCKHOLDERS' EQUITY
In August, 1998 the Company's board of directors authorized the purchase of
up to 400,000 shares of the Company's common stock. Shares repurchased pursuant
to the buyback will be purchased from time to time in the open market or in
negotiated transactions and will be held for issuance in connection with the
future exercise of employee stock options. As of September 30, 1998, 51,700
shares have been repurchased at an aggregate cost of $119,000.
8
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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 economic conditions, the impact of
competitive products and pricing, delays in product development, capacity and
supply constraints or difficulties, general business and economic conditions,
factors set forth in "Additional Factors That May Affect Future Results" and
other risks detailed in the Company's Securities and Exchange Commission
filings.
RESULTS OF OPERATIONS
- - ---------------------
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Net sales. Net sales for the second quarter of fiscal 1999 were $1.6
million compared to net sales of $2.8 million in the second quarter of fiscal
1998, a 42.9% decrease. The decrease in net sales is largely attributable to a
decrease in sales of the Company's cellular products, which contributed
$453,000, or 28.5% of net sales, for the second quarter of fiscal 1999, compared
to $2.1 million, or 76.4% of net sales, for the second quarter of fiscal 1998.
The decrease in sales of cellular products was largely due to a decrease in
demand from cellular system operators. Sales of Personal Communication Services
(PCS) and Wireless Local Loop (WLL) products increased to $802,000, or 50.4% of
net sales, for the second quarter of fiscal 1999, compared to $61,000, or 2.2%
of net sales, for the second quarter of fiscal 1998. Sales of Custom products
for the second quarter of fiscal 1999 was $335,000, or 21.1% of net sales,
compared to $601,000, or 21.4% of net sales, in the second quarter of fiscal
1998. Sales of Custom products are expected to continue to decline as a result
of management's ongoing effort to focus its attention and resources on other
wireless application opportunities and reduce its sales and marketing efforts in
the Custom sales segment of the Company's business.
Gross profit. Gross profit for the second quarter of fiscal 1999 was
$492,000, or 30.9% of net sales, compared to $1.2 million, or 43.2% of net
sales, for the second quarter of fiscal 1998. Production costs increased to
69.1% of net sales for the second quarter of fiscal 1999 compared to 56.8% of
net sales for the second quarter of fiscal 1998. Gross profit declined as a
result of insufficient absorption of overhead infrastructure fixed costs at the
lower shipment volume levels as well as declining average sales prices.
Selling, general and administrative costs. Selling, general and
administrative costs for the second quarter of fiscal 1999 were $681,000, or
42.8% of net sales, compared to $619,000, or 22.1% of net sales, for the second
quarter of fiscal 1998. The increase can be attributable to higher commission
rates for outside sales representatives and an increase in trade show costs.
The Company believes its current sales and marketing infrastructure is adequate
to support the promotion of the Company's current and new products.
9
<PAGE>
Research and development costs. Research and development costs for the
second quarter of fiscal 1999 were $777,000, or 48.9% of net sales, compared to
$474,000, or 16.9% of net sales, for the second quarter of fiscal 1998. The
increase is primarily due to employment of additional technical staff,
additional increase in material costs, and depreciation on purchases of test
equipment required to design and develop new products for the cellular and WLL
markets. A number of these products are in the prototype/pre-production phase
and the Company expects to continue to incur a high level of expenses compared
to the prior year.
Other income, net. Other income for the second quarter of fiscal 1999 was
$112,000 compared to $78,000 for the second quarter of fiscal 1998.
Benefit/provision for income taxes. For the second quarter of fiscal 1999,
the Company's benefit for income taxes was $304,000, an effective tax rate of
approximately 36%, compared to a provision of $73,000, an effective tax rate of
approximately 37%, for the second quarter of fiscal 1998. 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 benefits associated with the exercise of employee stock options.
The Company believes the tax benefit, incurred as a result of the operating
loss, will be realized within the next twelve months.
Net income (loss). For the reasons set forth above, the Company generated
net loss in the second quarter of fiscal 1999 of $550,000, or 34.6% of net
sales, compared to net income of $123,000, or 4.4% of net sales, in the second
quarter of fiscal 1998.
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997
Net sales. Net sales for the six months ended September 30, 1998 were $4.6
million compared to net sales of $5.3 million for the six months ended September
30, 1997, a 12.6% decrease. The decrease in net sales is largely attributable
to a decrease in sales of the Company's cellular products, which contributed
$2.1 million, or 46.7% of net sales, for the six months ended September 30,
1998, compared to $3.6 million, or 67.3% of net sales, for the six months ended
September 30, 1997. The decrease in sales of cellular products was largely due
to a decrease in demand from primarily cellular system operators. Sales of PCS
and WLL products increased to $1.9 million, or 40.6% of net sales, for the six
months ended September 30, 1998, compared to $308,000, or 5.8% of net sales, for
the six months ended September 30, 1997. Sales of Custom products for the six
months ended September 30, 1998 was $593,000, or 12.8% of net sales, compared to
$1.4 million, or 26.9% of net sales, for the six months ended September 30,
1997. Sales of Custom products are expected to continue to decline as a result
of management's ongoing effort to focus its attention and resources on other
wireless application opportunities and reduce its sales and marketing efforts in
the Custom sales segment of the Company's business.
During the first quarter of fiscal 1998, the Company reported revenue of
$508,000, or 20.3% of net sales, from sales of amplifiers used in the Low Earth
Orbit ("LEO") satellite network. The LEO satellite network is designed to
provide high-speed digital communication worldwide through earth gateways. The
Company has not reported revenue from this market since the first quarter of
fiscal 1998, although the Company recently announced that it has received an
order for approximately $600,000 of satellite gateway amplifiers expected to be
shipped during the latter half of fiscal 1999.
10
<PAGE>
Gross profit. Gross profit for the six months ended September 30, 1998 was
$1.8 million, or 38.1% of net sales, compared to $2.5 million, or 46.2% of net
sales, for the six months ended September 30, 1997. Production costs were
comparable between the periods at $2.9 million, however increased to 61.9% of
net sales, for the six months ended September 30, 1998 compared to $2.9 million,
or 53.8% of net sales, for the six months ended September 30, 1997. Gross
profit has declined as a result of insufficient absorption of overhead
infrastructure fixed costs at the lower shipment volume levels as well as
declining average sales prices.
Selling, general and administrative costs. Selling, general and
administrative costs for the six months ended September 30, 1998 were $1.4
million, or 29.6% of net sales, compared to $1.3 million, or 24.1% of net sales,
for the six months ended September 30, 1997. The increase is attributable to
higher commission rates for outside sales representatives and the costs
associated with the employment of additional personnel in sales and marketing.
Research and development costs. Research and development costs for the six
months ended September 30, 1998 were $1.3 million, or 27.7% of net sales,
compared to $957,000, or 18.0% of net sales, for the six months ended September
30, 1997. The increase is primarily due to employment of additional technical
staff, and additional increase in material costs required to design and develop
new products for the cellular and WLL markets. A number of these products are
in the prototype/pre-production phase and the Company expects to incur a high
level of expenses compared to the prior year.
Other income, net. Other income for the six months ended September 30,
1998 was $220,000 compared to $158,000 for the six months ended September 30,
1997.
Benefit/provision for income taxes. For the six months ended September 30,
1998, the Company's benefit for income taxes was $239,000, an effective tax rate
of approximately 36%, compared to a provision of $139,000, an effective tax rate
of approximately 37%, for the six months ended September 30, 1997. 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 benefits associated with the exercise of employee
stock options. The Company believes the benefit, incurred as a result of the
operating loss, will be realized within the next twelve months.
Net income (loss). For the reasons set forth above, the Company generated
a net loss for the six months ended September 30, 1998 of $435,000, or 9.4% of
net sales, compared to net income of $236,000, or 4.4% of net sales, for the six
months ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Historically, the Company has 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), 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
11
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sufficient to produce higher product quantities and the employment and training
of additional employees to facilitate the initial expansion of production and
sales. The net proceeds of the initial public offering also continue to be used
to maintain inventory and working capital balances, and support increased
research and development expenses.
In August 1998, the Company announced that its board of directors
authorized a stock buyback program of up to 400,000 shares of the Company's
outstanding common stock. Shares repurchased pursuant to the buyback will be
purchased from time to time in the open market or in negotiated transactions and
will be held for issuance in connection with the future exercise of employee
stock options. Approximately 52,000 shares have been repurchased through
September 30, 1998 at an aggregate purchase price of $119,000.
In September 1998, the Company renegotiated its existing revolving bank
line of credit (the "Line of Credit".) The Line of Credit 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 (prime rate) plus
0.25%. 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 made in 47 equal monthly installments beginning October 1, 1998,
with interest at the bank's reference rate plus 0.75%. Both facilities are
secured by substantially all of the Company's assets and expire on September 1,
1999. As of September 30, 1998, there were no borrowings outstanding under
either facility. The Company was in compliance with the terms and covenants of
the Line of Credit as of September 30, 1998.
At September 30, 1998 the Company had approximately $7.5 million in cash
and cash equivalents. The Company's operating activities consumed cash of
approximately $516,000 for the six months ended September 30, 1998 primarily as
a result of losses from operations, increases in inventories, increases in
income tax receivable, decreases in accrued expenses and decreases in income tax
payable. The Company's capital expenditures of $434,000 for the six months
ended September 30, 1998 were primarily for manufacturing test equipment and
information system improvements.
The Company believes that the remaining net proceeds from the initial
public offering and cash available under the 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.
YEAR 2000 COMPLIANCE ISSUE
- - --------------------------
The Company uses computer software programs purchased from various
independent vendors who may have written their programs using a two digit date
field rather than a four digit date field to define the applicable year. Such
computer programs which utilize a two digit date field may recognize a date
using "00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue").
The Year 2000 Issue could potentially result in a system failure or in
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in other
similar normal business activities.
12
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The Company has identified the Year 2000 Issue in certain of its computer
software applications and is in the process of upgrading or replacing such
applications with software which, according to representations from the software
providers, recognize two digit date fields "00" as the year 2000. The Company
plans to test all such applications that has been represented by software
providers to be year 2000 compliant. The Company is continuing to assess
whether other internal information technology systems will be affected by the
Year 2000 Issue, which assessment is expected to be complete by 12/31/98. The
cost of upgrading or replacing such applications, together with the cost of the
continuing assessment, is not expected to have a material effect on the
operations of the Company and has been and will continue to be funded through
operating cash flows.
The Company is also in the process of contacting its key customers and
suppliers and other third parties with whom the Company exchanges electronic
information to determine the impact, if any, the Year 2000 Issue may have on
their information technology systems which in turn would have an impact on the
Company. The Company expects to complete this effort by June 1999. There can
be no assurance that such customers, suppliers or third parties will not suffer
business disruptions due to the Year 2000 Issue. Such failures could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Because the Company is in the process of upgrading or replacing the
computer software applications which run most of its information technology
systems (which software has been represented by the software providers not to be
affected by the Year 2000 Issue), and because the Company has not completed its
assessment of the risks from the Year 2000 Issue, the Company has not developed
Year 2000 specific contingency plans. The Company intends to develop such plans
if it identifies a business function at risk. The Company does not currently
anticipate that the Year 2000 Issue will have a material effect on its business,
results of operations or financial condition.
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 which is characterized by rapid technological
change, new product development, product obsolescence, and significant price
erosion over the life of a 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, and 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 could potentially account for
a significant 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
13
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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 or deployment of WLL communications
networks and / or technology continues to evolve, the Company may experience a
material adverse effect on its business, results of operations and financial
condition.
The Company has evaluated the credit exposure associated with conducting
business with foreign customers and has concluded that such risk is acceptable.
Nevertheless, any significant change in the economy or a deterioration in United
States trade relations or the economic or political stability of foreign markets
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 expands further into foreign markets, greater risk
associated with general business, political and economic conditions in those
markets, may be experienced. 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 increase in price of
the Company's products to 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 experiences significant price competition and expects price
competition in the sale of its products to remain intense. 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 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 receives periodic order forecasts from its major customers who
have no obligation to purchase the forecasted amounts. Nevertheless, 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
14
<PAGE>
increased employee levels could reduce the Company's liquidity and could have a
material adverse effect on the Company's business, results of operations 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 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. In
the event the Company's newly developed 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.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As described in the Company's Form 10-KSB for the year ended March 31,
1998, two essentially identical, purported securities class action lawsuits have
been filed against the Company and certain of its current and former officers
and directors. The complaints allege that during the purported class period of
April 10, 1996 to March 25, 1997, defendants made overly optimistic estimates
regarding the Company's anticipated financial performance for fiscal 1997 and
1998, and overly optimistic statements regarding the Company's ability to
develop and to sell new products for the PCS market, all allegedly in order to
profit from insider trading at artificially inflated prices.
In the action pending in federal court, entitled Sussman v. AML
--------------
Communications, Inc., et al., U.S.D.C. Case No. 98-2010 CAS (Ex) (C.D. Cal.),
- - ----------------------------
four lead plaintiffs and co-lead counsel were appointed on June 29, 1998
pursuant to The Private Securities Litigation Reform Act of 1995. On September
3, 1998, plaintiffs filed an amended complaint in that action. On October 14,
1998, the company responded to the amended complaint by filing a motion to
dismiss the case. Plaintiffs' opposition to the motion is due on December 3,
1998. The motion is scheduled to be heard by the court on January 25, 1999.
All discovery is stayed in the federal action unless and until it is determined
that plaintiffs have stated an actionable claim.
With respect to the action pending in state court, entitled Sussman v. AML
--------------
Communications, Inc. et al., Case No. CIV 179776 (Ventura County), all
- - ---------------------------
proceedings have been stayed until the stay of discovery is lifted in the
federal action. Plaintiffs also intend to file an amended complaint in the
state action once the case proceeds. The Company's response will be due forty-
five (45) days after the filing of the amended complaint. The Company intends
to respond by filing a demurrer, which is the California equivalent of a motion
to dismiss for failure to state a claim.
The Company currently is not party to any other legal proceedings, the
adverse outcome of which, individually or in the aggregate, management believes
would have a material adverse effect on the business, financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on September 10, 1998. The
following matters were submitted to a vote of the Company's stockholders:
Proposal No. 1 -- Election of Director
To elect Jacob Inbar as a director for the ensuing term. Mr. Inbar was a
Company director immediately prior to the vote and was elected as a result of
the following vote:
Votes For 5,436,825
Votes Against 0
Votes Withheld 45,906
16
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Tiberiu Mazilu, Edwin McAvoy, David Derby, and Richard Flatow continue to serve
as directors of the Company.
Proposal No. 2 -- Adoption of an amendment to the Company's Stock Incentive Plan
To adopt an amendment to the Company's Stock Incentive Plan to increase the
number of shares of common stock authorized for issuance under the plan from
1,096,586 to 1,500,000. The amendment to the Company's Stock Incentive Plan was
adopted, as set forth in the Company's proxy statement dated July 20, 1998, as a
result of the following vote:
Votes For 3,468,093
Votes Against 150,345
Abstentions 23,340
Unvoted 1,840,953
There were no other matters submitted to a vote of the Company's
stockholders at the Annual Meeting of Stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.17 Stock Incentive Plan of AML Communications, Inc., as Amended and
Restated on June 24, 1998 (incorporated by reference to the Company's
Proxy Statement dated July 20, 1998 (Appendix A)).
10.18 Form of amended Nonemployee Director Stock Option Agreement.
10.19 Amendment No. 2 dated September 1, 1998 to Business Loan Agreement
dated August 2, 1996 between the Company and Bank of America National
Trust and Savings Association.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed one current Report on Form 8-K during the quarter ended
September 30, 1998. The Company reported on August 13, 1998 under Item 5 that
its board of directors authorized a stock buyback program of up to 400,000
shares of the Company's outstanding common stock.
17
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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: November 13, 1998 /s/ Kirk A. Waldron
-------------------
Kirk A. Waldron
Vice President, Finance,
Chief Financial Officer and
Chief Operating Officer
(Principal Accounting Officer)
18
<PAGE>
STOCK INCENTIVE PLAN
OF
AML COMMUNICATIONS, INC.
AS AMENDED AND RESTATED JUNE 24, 1998
SECTION 1. PURPOSE OF PLAN
This Amended and Restated Stock Incentive Plan (this "Plan") is
intended to serve as an incentive to, and to encourage stock ownership by,
certain directors, officers and other persons employed by AML Communications,
Inc., a Delaware corporation (the "Company"), so that they may acquire or
increase their proprietary interests in the success of the Company and to
encourage them to remain in the Company's service.
SECTION 2. PERSONS ELIGIBLE UNDER PLAN
Any person, including any director of the Company, who is an employee
of or consultant to the Company or any of its subsidiaries (an "Employee") and
any director of the Company who is not an Employee (a "Nonemployee Director")
shall be eligible to be considered for the grant of options hereunder (each an
"Option"); provided that only persons who are employees of the Company shall be
eligible to be considered for the grant of "Incentive Stock Options" (as defined
herein).
SECTION 3. OPTIONS
(a) The Committee (as hereinafter defined), on behalf of the Company,
is authorized under this Plan to enter into any type of arrangement with an
Employee or a Nonemployee Director that is not inconsistent with the provisions
of this Plan and that, by its terms, involves or might involve the issuance of
(i) shares of Common Stock, par value $.01 per share, of the Company ("Common
Shares") or (ii) a Derivative Security (as such term is defined in Rule 16a-1
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as such Rule may be amended from time to time) with an exercise or
conversion privilege at a price related to the Common Shares or with a value
derived from the value of the Common Shares. The entering into of any such
arrangement is referred to herein as the "grant" of an Option.
(b) Common Shares may be issued pursuant to an Option for any lawful
consideration as determined by the Committee, including, without limitation,
services rendered by the recipient of such Option.
(c) Subject to the provisions of this Plan, the Committee, in its sole
and absolute discretion, shall determine all of the terms and conditions of each
Option granted under this Plan, which terms and conditions may include, among
other things:
<PAGE>
(i) a provision permitting the recipient of such Option,
including any recipient who is a director or officer of the Company, to pay
the purchase price of the Common Shares or other property issuable pursuant
to such Option, and/or such recipient's tax withholding obligation with
respect to such issuance, in whole or in part, by any one or more of the
following:
(A) the delivery of previously owned shares of capital
stock of the Company (including "pyramiding") or other property,
provided that the Company is not then prohibited from purchasing or
acquiring shares of its capital stock or such other property,
(B) a reduction in the amount of Common Shares or other
property otherwise issuable pursuant to such Option, or
(C) the delivery of cash or a promissory note, the terms
and conditions of which shall be determined by the Committee;
(ii) a provision conditioning or accelerating the receipt of
benefits pursuant to such Option, either automatically or in the discretion
of the Committee, upon the occurrence of specified events, including,
without limitation, a change of control of the Company, an acquisition of a
specified percentage of the voting power of the Company, the dissolution or
liquidation of the Company, a sale of substantially all of the property and
assets of the Company or an event of the type described in Section 7
hereof; or
(iii) any provisions required in order for such Option to
qualify (A) as an incentive stock option (an "Incentive Stock Option")
under Section 422 of the Internal Revenue Code of 1986, as amended from
(the "Code"), provided that the recipient of such Option is eligible under
the Code to receive an Incentive Stock Option and/or (B) as performance
based compensation described in Section 162(m) of the Code ("Performance-
Based Compensation").
(d) Notwithstanding any other provision of this Plan, no Employee
shall be granted Options for in excess of 150,000 shares of Common Stock and no
Nonemployee Director shall be granted Options in excess of 25,000 shares of
Common Stock during any one calendar year. The limitation set forth in this
Section 3(d) shall be subject to adjustment as provided in Section 7 hereof, but
only to the extent such adjustment would not affect the status of compensation
attributable to Options hereunder as Performance-Based Compensation.
SECTION 4. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued pursuant
to all Incentive Stock Options granted under this Plan shall not exceed
1,500,000, subject to adjustment as provided in Section 7 hereof.
2
<PAGE>
(b) The aggregate number of Common Shares issued and issuable
pursuant to all Options (including Incentive Stock Options) granted under this
Plan shall not exceed 1,500,000, subject to adjustment as provided in Section 7
hereof.
(c) For purposes of Section 4(b) hereof, the aggregate number of
Common Shares issued and issuable pursuant to all Options granted under this
Plan shall at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such
time pursuant to Options granted under this Plan, other than Common Shares
that were subsequently reacquired by the Company pursuant to the terms and
conditions of such Options and with respect to which the holder thereof
received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise issuable
prior to such time pursuant to Options granted under this Plan, but that
were withheld by the Company as payment of the purchase price of the Common
Shares issued pursuant to such Options or as payment of the recipient's tax
withholding obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares issuable at or after
such time pursuant to Options granted under this Plan prior to such time.
(d) The "Fair Market Value" of a Common Share or other security on
any date (the "Determination Date") shall be equal to the closing price per
Common Share or unit of such other security on the business day immediately
preceding the Determination Date, as reported in The Wall Street Journal,
Western Edition, or, if no closing price was so reported for such immediately
preceding business day, the closing price for the next preceding business day
for which a closing price was so reported, or, if no closing price was so
reported for any of the 30 business days immediately preceding the Determination
Date, the average of the high bid and low asked prices per Common Share or unit
of such other security on the business day immediately preceding the
Determination Date in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ")
or such other system then in use, or, if the Common Shares or such other
security were not quoted by any such organization on such immediately preceding
business day, the average of the closing bid and asked prices on such day as
furnished by a professional market maker making a market in the Common Shares or
such other security selected by the Board.
SECTION 5. DURATION OF PLAN
Options shall not be granted under this Plan after November 1, 2005.
Although Common Shares may be issued on or after November 1, 2005 pursuant to
Options granted prior to such date, no Common Shares shall be issued under this
Plan after October 31, 2015.
3
<PAGE>
SECTION 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by a committee (the "Committee")
of the Board consisting of two or more directors, each of whom is a "non-
employee director" (as such term is defined in Rule 16b-3 promulgated under the
Exchange Act, as such Rule may be amended from time to time); provided, however,
-------- -------
that in the event the Committee is not comprised of two or more "non-employee
directors," then (i) the Committee shall only be authorized and empowered to
recommend to the Board all things necessary or desirable in connection with the
administration of this Plan, including, without limitation, the things listed in
Section 6, (ii) all recommendations of the Committee relating to this Plan shall
be subject to final approval by the Board and (iii) all references herein to the
Committee shall be deemed to refer to the Board; provided further, that unless
-------- -------
otherwise determined by the Board, with respect to any Option that is intended
to qualify as Performance-Based Compensation, the Plan shall be administered by
a committee consisting of two or more directors, each of whom is an "outside
director" (as such term is defined under Section 162(m) of the Code).
(b) Subject to the provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and regulations relating to
this Plan;
(ii) determine which persons are Employees and to which of such
Employees, if any, Options shall be granted hereunder;
(iii) grant Options to Employees and Nonemployee Directors
(provided that Nonemployee Directors shall not be eligible to be considered
for the grant of Incentive Stock Options) and determine the terms and
conditions thereof, including (A) the number of Common Shares issuable
pursuant thereto and (B) the exercise price for any Option, provided that
the exercise price of any option to purchase Common Shares shall not be
less than the Fair Market Value of a Common Share on the date such option
is granted, except that (1) the Committee may specifically provide that the
exercise price of any such option may be higher or lower in the case of an
option granted at the time an Employee commences employment with the
Company in assumption and substitution of options issued by another company
that are forfeited or cancelled at the time the Employee commences
employment with the Company, and (2) in the event an Employee is required
to pay or forego the receipt of any cash amount in consideration of receipt
of an option, the exercise price plus such cash amount shall equal or
exceed 100% of the Fair Market Value of a Common Share on the date the
option is granted;
(iv) determine whether, and the extent to which, adjustments are
required pursuant to Section 7 hereof; and
4
<PAGE>
(v) interpret and construe this Plan and the terms and
conditions of all Options granted hereunder.
SECTION 7. ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or a
different number or kind of securities, or if cash, property or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split or the like,
or if substantially all of the property and assets of the Company are sold,
then, unless the terms of such transaction shall provide otherwise, the
Committee may make appropriate and proportionate adjustments in (a) the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to Options theretofore granted under this Plan, (b) the
maximum number and type of shares or other securities that may be issued
pursuant to Incentive Stock and other Options thereafter granted under this
Plan, and (c) to the extent permitted under Section 3(e) hereof, the maximum
number of Common Shares for which options may be granted during any one calendar
year; provided, however, that no adjustment shall be made under this Section 7
-------- -------
to the number of Common Shares that may be acquired pursuant to outstanding
Incentive Stock Options or the maximum number of Common Shares with respect to
which Incentive Stock Options may be granted under this Plan to the extent such
adjustment would result in such options being treated as other than Incentive
Stock Options; provided further that no such adjustment shall be made to the
extent the Committee determines that such adjustment would result in the
disallowance of a federal income tax deduction for compensation attributable to
Options hereunder by causing such compensation to be other than Performance-
Based Compensation.
SECTION 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any
manner; provided, however, that no such amendment or termination shall deprive
-------- -------
the recipient of any Option theretofore granted under this Plan, without the
consent of such recipient, of any of his or her rights thereunder or with
respect thereto.
SECTION 9. EFFECTIVE DATE OF PLAN
The Stock Incentive Plan became effective on November 3, 1995. The
amendments to the Stock Incentive Plan reflected in this Amended and Restated
Stock Incentive Plan shall be effective as of June 24, 1998, the date upon
which it was approved by the Board; provided, however, that no Options may be
granted nor may Common Shares be issued under this Amended and Restated Stock
Incentive Plan until it has been approved, directly or indirectly, by (a) the
affirmative votes of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware or (b) the written consent of
the holders of a majority of the securities of the Company entitled to vote.
5
<PAGE>
AML COMMUNICATIONS, INC.
NONEMPLOYEE DIRECTOR
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of __________________, between AML
Communications, Inc., a Delaware corporation (the "Company"), and
_________________ (the "Optionee").
The Optionee is a nonemployee director of the Company (a "Nonemployee
Director").
Pursuant to the Company's Stock Incentive Plan, as amended and restated
(the "Plan"), the Optionee has been granted, as a matter of separate inducement
in connection with his or her engagement with the Company, an option (the
"Option") to purchase shares of the Common Stock, par value $0.01 per share, of
the Company (the "Common Stock") on the terms and conditions set forth herein.
This Option is not intended to qualify as an Incentive Stock Option under
Section 422A of the Internal Revenue Code (the "Code").
Capitalized terms used herein without definition shall have the same
meaning as in the Plan.
AGREEMENT
In consideration of the foregoing and of the mutual covenants set forth
herein and other good and valuable consideration, the parties hereto agree as
follows:
1. SHARES OPTIONED; OPTION PRICE. The Optionee may purchase all or any
part of an aggregate of ____________ shares of Common Stock, at the price of
$__________ per share (which shall not be less than the Fair Market Value (as
defined in the Plan)) of a share of Common Stock on the date of the grant of
Option.
2. OPTION TERM, TIMES OF EXERCISE. Unless expired earlier pursuant to
Section 3, the Option term shall end on ________________ (the "Expiration
Date").
At the expiration of one year from the date of grant, the Optionee shall be
entitled to exercise _____% of the Common Stock covered by this Option and at
the expiration of each year thereafter, the Optionee shall be entitled to
exercise an additional _____% of such Common Stock covered by this Option such
that the Optionee shall be entitled to exercise 100% of such Common Stock upon
the expiration of _______ years from the date of grant.
3. TERMINATION OF NONEMPLOYEE DIRECTOR STATUS; EFFECT ON OPTIONS.
(a) In the event the Optionee shall cease to be a Nonemployee
Director for any reason, (i) all outstanding Options which have been granted to
such Nonemployee Director and which have not yet become vested shall immediately
expire, and (ii) all outstanding Options which have been granted to such
Nonemployee Director and which have become vested shall expire on the second
anniversary of the date upon which the Optionee shall cease to be a Nonemployee
Director.
(b) Notwithstanding anything to the contrary herein, if Optionee
shall die at any time after the date on which he or she ceases to be a
Nonemployee Director and prior to the date on which the Option is terminated
pursuant to Section 3(a), the Option shall terminate on the earlier of the
Expiration Date or the first anniversary of the Optionee's death.
<PAGE>
4. EXERCISE: PAYMENT FOR AND DELIVERY OF STOCK AND PAYMENT OF INCOME
TAXES. This Option may be exercised only by the Optionee or his or her guardian
or legal representative or his or her transferees by will or the laws of descent
and distribution. This Option may be exercised by giving written notice of
exercise to the Company specifying the number of shares of Common Stock to be
purchased and the total purchase price.
Payment of the exercise price of this Option and the Optionee's tax
withholding obligation, if any, with respect to this Option shall be made in
full in cash concurrently with the exercise of such Option; provided, however,
that the payment of such exercise price and/or tax withholding may instead be
made, in whole or in part, by any one or more of the following;
(a) by the delivery to the Company of a certificate or certificates
representing shares of Common Stock, duly endorsed or accompanied by a duly
executed stock powers, which delivery effectively transfers to the Company
good and valid title to such shares, free and clear of any pledge,
commitment, lien, claim or other encumbrance (such shares to be valued on
the basis of the aggregate Fair Market Value (as defined in the Plan)
thereof on the date of such exercise), provided that the Company is not
then prohibited from purchasing or acquiring such shares of Common Stock;
or
(b) by reducing the number of shares of Common Stock to be delivered
to the Optionee upon exercise of such Option (such reduction to be valued
on the basis of the aggregate Fair Market Value on the date of such
exercise of the additional shares that would otherwise have been delivered
to such Optionee upon exercise of such Option), provided that the Company
is not then prohibited from purchasing or acquiring its Common Stock; or
(c) the delivery, concurrently with such exercise and in accordance
with Section 220.3(e)(4) of Regulation T promulgated under the Securities
Exchange Act of 1934, as amended, of a properly executed exercise notice
for such Option and irrevocable instructions to a broker promptly to
deliver to the Company a specified dollar amount of the proceeds of a sale
or a loan secured by the shares of Common Stock issuable upon exercise of
such Option.
5. RIGHTS IN SHARES BEFORE ISSUANCE AND DELIVERY. Neither the Optionee
nor his or her transferees by will or the laws of descent and distribution shall
be, or have any rights or privileges of, a stockholder of the Company with
respect to any shares of Common Stock issuable upon exercise of this Option,
unless and until certificates representing such shares shall have been issued
and delivered.
6. ADJUSTMENTS IN STOCK. In the event that the outstanding securities of
the class then subject to the Option are increased, decreased or exchanged for
or converted into cash, property and/or a different number or kind of
securities, or cash, property and/or securities are distributed in respect of
such outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, reclassification, dividend (other than
a regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless such event shall cause the
Option to terminate pursuant to Section 9 hereof, the Committee shall make
appropriate and proportionate adjustments in the number and type of shares or
other securities or cash or other property that may thereafter be acquired upon
the exercise of the Option; provided, however, that any such adjustments in the
Option shall be made without changing the aggregate exercise price of the then
unexercised portion of the Option.
7. NONTRANSFERABILITY OF OPTION. This Option is not transferable other
than by will or the laws of descent and distribution and shall be exercisable
during the Optionee's lifetime only by the Optionee or the Optionee's guardian
or legal representative. This Option shall not be otherwise
2
<PAGE>
transferred, assigned, pledged, hypothecated or otherwise disposed of in any
way, whether by operation or law or otherwise, and shall not be subject to
execution, attachment or similar process. Upon any attempt to transfer this
Option otherwise than by will or the laws of descent and distribution or to
assign, pledge, hypothecate or otherwise dispose of this Option, or upon the
levy of an execution, attachment or similar process upon this Option, this
Option shall immediately terminate and become null and void.
8. LEGALITY. No securities issuable upon exercise of this Option shall be
issued and delivered unless and until, in the opinion of the Company, such
securities may be issued and delivered without causing the Company to be in
violation of or incur any liability under any federal, state or other securities
law, any requirement of any securities-exchange listing agreement to which the
Company may be a party, or any other requirement of law or of any regulatory
body having jurisdiction over the Company.
9. TERMINATING TRANSACTIONS. Upon (i) the dissolution or liquidation of
the Company, (ii) a reorganization, merger or consolidation of the Company
(individually or collectively, a "Merger") with one or more corporations as a
result of which the Company goes out of existence or becomes a subsidiary of
another corporation, or (iii) the acquisition of all or substantially all of the
assets or more than eighty (80%) of the then outstanding stock of the Company by
another entity, Options granted under the Plan shall terminate unless provisions
be made in writing in connection with such transaction for the assumption of
such Options or the substitution for such Options of a new option covering the
stock of a successor corporation, or a parent or subsidiary thereof or of the
Company, with appropriate adjustments as to the number and kind of shares and
prices, in which event such Options shall continue in the manner and under the
term so provided.
10. NOTICES. Any notice to be given to the Company shall be addressed to
the Company in care of its Secretary at its principal office, and any notice to
be given to the Optionee shall be addressed to him or her at the address given
beneath his or her signature hereto, or at such other address as the Optionee
may hereafter designate in writing to the Company. Any such notice shall have
been deemed duly given when deposited in a post office or branch post office
regularly maintained by the United States Government.
11. LAWS APPLICABLE TO CONSTRUCTION. This Agreement has been executed and
delivered the day and year first above written at Camarillo, California, and
this Agreement shall be construed and enforced in accordance with the laws of
the State of California.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by an authorized officer, attested by its Secretary or one of its
Assistant Secretaries, and the Optionee has hereunto set his or her hand on the
day and year first above written.
AML COMMUNICATIONS, INC. OPTIONEE
By:________________________ ________________________
Jacob Inbar
President & CEO
ATTEST: Social Security No.:
________________________ ________________________
Edwin J. McAvoy
3
<PAGE>
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[LOGO OF BANK OF AMERICA APPEARS HERE] AMENDMENT TO DOCUMENTS
_______________________________________________________________________________
AMENDMENT NO. 2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of September 1, 1998 is
between Bank of America National Trust and Savings Association (the "Bank")
and Aml Communications, Inc. (the "Borrower"). l
RECITALS
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A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of August 2, 1996, as previously amended (the "Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
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1. DEFINITIONS. Capitalized terms used but not defined in this Amendment
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shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
-----------
2.1 In Paragraph 1.2 of the Agreement, the date "September 1, 1999" Is
substituted for the date "September 1, 1998."
2.2 Subparagraph (a) of Paragraph 1.3 of the Agreement Is amended to
real in Its entirety as follows:
"(a) The interest rate Is the Bank's Reference Rate!
2.3 A new subparagraph (d) Is added to Paragraph 2.1 of the Agreement,
which reads in Its entirety as follows:
"(d) The Borrower agrees not to permit the outstanding principal
balance of the line of credit, to exceed the Facility No. 2
Commitment."
2.4 In Paragraph 2.2 of the Agreement, the date "SEPTEMBER 1, 1999"
Is substituted for the date "SEPTEMBER 1, 1998."
2.5 Subparagraph (a) of Paragraph 2.3 of the Agreement is amended to
read In Its entirety as follows:
$(a) The Interest rate is the Bank's Reference Rate plus .25
percentage point."
2.6 In Subparagraph (b) of Paragraph 2.4 of the Agreement the date
"OCTOBER 1, 1999" is substituted for the date "OCTOBER 1, 1998" and
the date "September 1, 2003" Is substituted for the date "SEPTEMBER
1, 2002."
2.6 A new subparagraph (c) Is added to Paragraph 3.1 of the Agreement,
which reads In Its entirety as follows:
"(c) WAIVER FEE. If the Bank, at its discretion, agrees to waive
or amend any terms of this Agreement, the Borrower will, at
the Bank's option, pay the Bank a fee for each waiver or
amendment in an amount advised by the Bank at the time the
Borrower requests the waiver or amendment. Nothing In this
paragraph shall imply that the Bank Is obligated to agree to
any waiver or amendment requested by the Borrower. The Bank
may impose additional requirements as a condition to any
waiver or amendment"
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<PAGE>
2.8 A new Paragraph 7.14 Is added to the Agreement, which reads In Its
entirety as follows:
"7.14 Year 2000 Compliance. The Borrower has Implemented a
comprehensive program to address the "year 2000 problem" (that
is, the risk that computer applications may not be able to
properly perform date-sensitive functions after December 31,
1999) and expects to resolve on a timely basis any material year
2000 problem. The Borrower is in the process of making Inquiry of
each such supplier, vendor and customer of the Borrower that Is
of material Importance to the financial well-being of the
Borrower with respect to the year 2000 problem. On the basis of
that inquiry, the Borrower will Immediately notify the Bank if
any such supplier, vendor and customer of the Borrower will not
resolve any material year 2000 problem on a timely basis.'
2.9 Paragraph 10.4 of the Agreement is deleted In its entirety.
3. CONDITIONS. This Amendment will be effective when the Bank receives the
-----------
following Items, In form and content acceptable to the Bank:
3.1 Loan Fee (Facility No. 1). A loan fee of Five Thousand Six Hundred
Twenty Five Dollars ($5,625) due on the date of execution of this
Amendment.
3.2 Loan Fee (Facility No. 2). A loan fee of One Thousand Two Hundred
Fifty Dollars ($1.250) due on the date of execution of this
Amendment.
4. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
--------------------
terms and conditions of the Agreement shall remain In full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
National Trust and Saving AML Communications, Inc
George Simmons Kirk A. Waldron
By: George Simmons, Vice President Kirk A. Waldron, Vice President
Finance and Chief Financial
Officer
-2-
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<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998
<PERIOD-START> JUL-01-1999 JUL-01-1999
<PERIOD-END> SEP-30-1999 SEP-01-1998
<CASH> 7,532,000 8,608,000
<SECURITIES> 0 0
<RECEIVABLES> 1,430,000 1,628,000
<ALLOWANCES> 0 0
<INVENTORY> 2,561,000 2,726,000
<CURRENT-ASSETS> 12,099,000 13,114,000
<PP&E> 4,092,000 3,658,000
<DEPRECIATION> 1,933,000 1,562,000
<TOTAL-ASSETS> 14,728,000 15,679,000
<CURRENT-LIABILITIES> 1,544,000 1,933,000
<BONDS> 0 0
0 0
0 0
<COMMON> 63,000 63,000
<OTHER-SE> 13,094,000 13,645,000
<TOTAL-LIABILITY-AND-EQUITY> 14,728,000 15,679,000
<SALES> 1,590,000 2,805,000
<TOTAL-REVENUES> 1,590,000 2,805,000
<CGS> 1,098,000 1,594,000
<TOTAL-COSTS> 2,556,000 2,687,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 112,000 78,000
<INCOME-PRETAX> (854,000) 196,000
<INCOME-TAX> (304,000) 73,000
<INCOME-CONTINUING> (435,000) 236,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (550,000) 123,000
<EPS-PRIMARY> (0.09) 0.02
<EPS-DILUTED> (0.09) 0.02
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