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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: June 30, 2000 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___
---
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common Stock Outstanding as of July 31, 2000: 6,316,631
Transitional Small Business Disclosure Format: Yes ___ No X
---
Number of pages in this Form 10-Q SB 12
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AML COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Statements of Operations (unaudited) for the three month periods ended 3
June 30, 2000 and June 30, 1999
Balance Sheets at June 30, 2000 (unaudited) and March 31, 2000 4
Statements of Cash Flows (unaudited) for the three month periods ended 5
June 30, 2000 and June 30, 1999
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</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
-----------------------------------
June 30, 2000 June 30, 1999
---------------- ---------------
<S> <C> <C>
Net sales $ 1,547,000 $ 2,277,000
Cost of goods sold 1,066,000 1,454,000
---------------- ---------------
Gross profit 481,000 823,000
Operating expenses:
Selling, general and administrative 618,000 691,000
Research and development 665,000 382,000
---------------- ---------------
1,283,000 1,073,000
---------------- ---------------
Operating loss (802,000) (250,000)
Other income, net 23,000 63,000
---------------- ---------------
Loss before provision for income taxes (779,000) (187,000)
Provision for income taxes -- --
---------------- ---------------
Net loss $ (779,000) $ (187,000)
================ ===============
Basic and diluted loss per common share $ (0.12) $ ( 0.03)
================ ===============
Basic and diluted weighted average number of shares of
Common stock outstanding 6,316,000 6,266,000
================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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AML COMMUNICATIONS, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
----------------- -----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 3,915,000 $ 4,659,000
Accounts receivable, net of allowance for doubtful accounts of
$72,000 at June 30, 2000 and March 31, 2000 911,000 1,134,000
Inventories 2,622,000 2,341,000
Other current assets 481,000 512,000
----------------- -----------------
Total current assets 7,929,000 8,646,000
----------------- -----------------
Property and Equipment, at cost: 5,091,000 4,884,000
Less - Accumulated depreciation and amortization (3,266,000) (3,051,000)
----------------- -----------------
1,825,000 1,833,000
Deferred Taxes 288,000 288,000
Other Assets 15,000 14,000
----------------- -----------------
$ 10,057,000 $ 10,781,000
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 1,163,000 $ 844,000
Current portion of capital lease obligations 63,000 65,000
Accrued expenses:
Accrued payroll and payroll related expenses 288,000 359,000
Accrued commissions 104,000 99,000
Income tax payable -- 190,000
Other accrued liabilities 217,000 254,000
----------------- -----------------
Total current liabilities 1,835,000 1,811,000
----------------- -----------------
Capital Lease Obligations, net of current portion 171,000 141,000
----------------- -----------------
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; 6,431,131 shares issued
and 6,316,631 shares outstanding at June 30, 2000 and 6,429,756 shares
issued and 6,315,256 outstanding at March 31, 2000 64,000 64,000
Capital in excess of par value 9,481,000 9,480,000
Treasury stock-114,500 shares, at cost (223,000) (223,000)
Accumulated deficit (1,271,000) (492,000)
----------------- -----------------
8,051,000 8,829,000
----------------- -----------------
$ 10,057,000 $ 10,781,000
================= =================
</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>
Three Months Ended
----------------------------------
June 30, June 30,
2000 1999
--------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (779,000) $ (187,000)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 215,000 176,000
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable 223,000 (1,038,000)
Inventories (281,000) (357,000)
Other assets 30,000 (129,000)
Income taxes receivable (190,000) 55,000
Increase (decrease) in:
Accounts payable 319,000 251,000
Accrued expenses (103,000) 264,000
--------------- -------------
Net cash used in operating activities (566,000) (965,000)
--------------- -------------
Cash Flows from Investing Activities:
Purchases of property and equipment (160,000) (41,000)
--------------- -------------
Net cash used in investing activities (160,000) (41,000)
--------------- -------------
Cash Flows from Financing Activities:
Exercise of stock options 1,000 4,000
Principal payments on capital lease obligations (19,000) (15,000)
--------------- -------------
Net cash used in financing activities (18,000) (11,000)
--------------- -------------
Net Decrease in Cash and Cash Equivalents (744,000) (1,017,000)
Cash and Cash Equivalents, beginning of period 4,659,000 6,597,000
--------------- -------------
Cash and Cash Equivalents, end of period $ 3,915,000 $ 5,580,000
=============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,000 $ 6,000
=============== =============
Income taxes $ 190,000 $ -
=============== =============
Non-cash transactions:
Debt incurred to purchased property and equipment $ 47,000 $ -
=============== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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AML COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
1. Basis of Presentation
AML Communications, Inc. (the "Company") is a designer, manufacturer, and
marketer of amplifiers and related products for the global wireless industry.
The Company currently focuses on the following sectors of the wireless market:
cellular telephony, broadband wireless access, personal communication services,
wireless messaging, low earth orbit satellite networks and hybrid microwave
circuits.
The accompanying unaudited financial statements have been prepared in
conformity with accounting principles generally accepted in the United States.
However, certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States 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 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,
2000 audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-KSB.
2. Earnings Per Share
Basic earnings 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 or loss by the total of the
weighted average number of shares outstanding plus, if applicable, the dilutive
effect of outstanding stock options (applying the treasury stock method).
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:
June 30, 2000 March 31, 2000
------------- --------------
(Unaudited) (Audited)
Raw materials $2,018,000 $ 1,785,000
Work-in-process 285,000 252,000
Finished goods 319,000 304,000
----------- -----------
$2,622,000 $ 2,341,000
=========== ===========
6
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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 materially from
the results discussed in the forward-looking statements. When used in this
report, the words "expects" "anticipates" and "estimates" and similar
expressions are intended to identify forward looking statements. Factors that
might cause a difference include, but are not limited to: the ability to attract
and retain qualified, knowledgeable employees; economic conditions; reductions
or cancellations in orders from new or existing customers; limited number of
potential customers; variability in gross margins on new products; success in
the design of new products; failure to acquire new customers; continued or new
deterioration of business and economic conditions in the Company's customers'
marketplaces; intensely competitive industry conditions with increasing price
competition; business conditions; and, growth in the wireless communications
market. Please read the factors set forth in "Additional Factors That May Affect
Future Results" and other risks detailed in the Company's Securities and
Exchange Commission filings. AML Communications, Inc. undertakes no obligation
to publicly release any revisions to these forward looking statements to reflect
events or circumstances after the date this report is filed with the Securities
and Exchange Commission or to reflect the occurrence of unanticipated events.
Results of Operations
---------------------
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net sales. Net sales for the three months ended June 30, 2000 were $1.5
million compared to net sales of $2.3 million in the three months ended June 30,
1999, a 32.1% decrease. The decrease in net sales is largely attributable to a
decrease in sales of the Company's cellular products, which contributed
$542,000, or 35.0% of net sales for the three months ended June 30, 2000,
compared to $2.0 million, or 87.8% of net sales for the three months ended June
30, 1999. This decrease was due to the fulfillment of a large contract from a
cellular service provider during the three month period ending June 30, 1999.
Overall, net sales for PCS/paging products in the three months ended June 30,
2000 were $721,000, or 46.6% of net sales, compared to $89,000 or 3.9% of net
sales, for the three months ended June 30, 1999. Sales of hybrid microwave
circuit and other products were $284,000, or 18.4% of net sales, for the three
months ended June 30, 2000, compared to $188,000, or 8.3% of net sales, for the
three months ended June 30, 1999.
Gross profit. Gross profit for the three months ended June 30, 2000 was
$481,000 or 31.1% of net sales, compared to $823,000, or 36.1% of net sales, for
the three months ended June 30, 1999. Gross profit declined as a result of
insufficient absorption of overhead fixed costs at lower shipment levels, and
lower average selling prices and gross margins for the Company's products in the
highly competitive OEM market. The Company expects that this pressure on selling
prices for its current products will continue in fiscal 2001.
Selling, general and administrative costs. Selling, general and
administrative costs for the three months ended June 30, 2000, were $618,000, or
39.9% of net sales, compared to $691,000, or 30.3% of net sales, for the three
months ended June 30, 1999. The absolute dollar difference is primarily due to
the reduction in commission expenses which were due to lower shipment levels.
These reductions partially were offset by costs associated with the registration
of warrants with underlying shares of common stock with the Securities and
Exchange Commission. The registration allows the underwriters of the Company's
initial public offering to publicly trade shares that they could acquire through
the exercise of certain warrants granted at the time of the Company's initial
public offering in December, 1995. The Company believes continued investment in
sales and marketing is 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 June 30, 2000 were $665,000, or 43.0% of net sales, compared
to $382,000, or 16.8% of net sales, for the three months ended June 30, 1999.
This increase primarily was due to increased expenses associated with hiring
more personnel for research and development, as well as material costs
associated with the development of new products.
Other income, net. Other income for the three months ended June 30, 2000
was $23,000 compared to $63,000 for the three months ended June 30, 1999. The
decrease is due mainly to a decrease in interest income.
7
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Provision for income taxes. For both the three months ended June 30, 2000
and June 30, 1999, even though the Company incurred losses, the Company recorded
no benefit from income taxes since the Company has utilized all carry-back
benefits.
Net loss. For the reasons set forth above, the Company generated a net loss
in the first quarter of fiscal 2001 of $779,000, compared to a net loss of
$187,000 in the first quarter of fiscal 2000.
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 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
have also been used to maintain inventory and working capital balances.
On August 10, 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. The Company repurchased 114,500 shares at an aggregate cost of
$224,000 during fiscal 1999. The Company has not repurchased any additional
shares subsequent to fiscal 1999.
In October 1999, the Company entered into a new revolving bank line of
credit. The agreement is comprised of two separate credit facilities. The
initial facility is a $1,500,000 revolving line of credit, which bears interest
at the bank's reference rate (9.50% at June 30, 2000) 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 100% of the purchase price of equipment used
in the Company's business. The second facility bears an interest rate at the
bank's reference rate (9.50% at June 30, 2000) plus 1.50%. Both facilities are
secured primarily by all of the Company's assets and expire on October 26, 2000.
As of June 30, 2000, the Company has not borrowed from either facility. As of
June 30, 2000, the Company was not in compliance with one financial covenant of
the loan agreement. The Company failed to meet the quarterly net income covenant
and requested a wavier for this covenant requirement. The waiver was granted and
the Company retains the right to borrow from both credit facilities.
In April 2000, the Company entered into two non-cancelable capital leases
to acquire test equipment valued in aggregate at $47,000. The terms of the
leases are identical and call for 36 equal monthly aggregate payments of $1,524
commencing in May 2000 and at an annual interest rate of 9.9%.
At June 30, 2000, the Company had $3.9 million in cash and cash
equivalents. The Company's operating activities used cash of approximately
$566,000 in first quarter of fiscal 2001 primarily as a result of a loss from
operations. The Company's capital expenditures of $160,000 for first quarter of
fiscal 2001 were primarily for manufacturing test equipment, improvements to the
production floor, and information system upgrades and additions.
The Company believes that its current holdings of cash 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.
8
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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 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 base station equipment of various
OEMs, 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, maintain its financial liquidity, and worldwide economic
and political conditions.
The Company experiences significant price competition and expects price
competition in the sale of its products to remain very competitive. No
assurances 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 expects that its customers will continue to establish demanding
specifications for quality, performance and reliability that must be met by the
Company's products. Products as complex as those offered by the Company often
encounter development delays and may contain undetected defects or failures when
first introduced or after commencement of commercial shipments. There can be no
assurances that defects or failures will not occur in the future relating to the
Company's product quality, performance and reliability that may have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company received its ISO 9001 quality certification, a uniform
worldwide quality management system standard, for its headquarters and
manufacturing facility located in Camarillo, California in August, 1999.
Numerous customers and potential customers throughout the world, particularly in
Europe, require that their suppliers be ISO certified. In addition, many such
customers require that their suppliers purchase components only from
subcontractors that are ISO certified. Failure of the Company to maintain such
quality certifications may affect current and future orders and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Sales of products outside the United States represented approximately 20.0%
and 10.8% of net sales during fiscal 1999 and 2000, respectively. The Company is
actively pursuing international customers, although no assurances can be given
as to the degree of success of the Company's strategic plan. International sales
involve a number of inherent risks, including imposition of government controls,
currency exchange fluctuations, potential insolvency of international
distributors and representatives or customers, reduced protection for
intellectual property rights in some countries, the impact of recessionary
environments in economies outside the United States, political instability and
generally longer receivable collection periods, as well as tariffs and other
trade barriers. In addition, because substantially all of the Company's foreign
sales are denominated in U.S. dollars, increases in the value of the dollar
relative to the local currency would increase the price of the Company's
products in foreign markets and make the Company's products relatively more
expensive and less price competitive than competitors' products that are priced
in local currencies. There can be no assurances that these factors will not have
a material adverse effect on the Company's future international sales and,
consequently, on the Company's business, financial condition and results of
operations.
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
9
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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.
Demand for wireless infrastructure equipment is driven by demand for
wireless service. Although demand for power amplifiers has grown in recent
years, if demand for wireless services fails to increase or increases slower
than the Company or it's customers currently anticipate, the Company's business,
financial condition and results of operations would be materially and adversely
affected.
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
this regard, with the deployment of PCS, the Company has developed a line of
amplifiers for PCS networks. The Company has developed several Broadband
Wireless Access products and still has more in development. There can be no
assurances that the Company will manufacture such products at competitive prices
in sufficient volumes.
The Company's quarterly and annual results have in the past been, and will
continue to be, subject to significant fluctuations due to a number of factors,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will not experience such fluctuations in the future. The Company
establishes its expenditure levels for product development and other operating
expenses based on its expected revenues, and expenses are relatively fixed in
the short term. As a result, variations in timing of revenues can cause
significant variations in quarterly results of operations. There can be no
assurances that the Company will be profitable on a quarter-to-quarter basis in
the future. The Company believes that period-to-period comparisons of its
financial results are not necessarily meaningful and should not be relied upon
as an indication of future performance. Due to these factors, it is likely that
in some future quarter or quarters the Company's revenues or operating results
will not meet the expectations of public stock market analysts or investors. In
such event, the market price of the Company's common stock would be materially
adversely affected.
10
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no current Reports on Form 8-K during the quarter
ended June 30, 2000.
11
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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: August 11, 2000 /s/ Karl R. Brier
-----------------
Karl R. Brier
Chief Financial Officer and Treasurer
12
