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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2000
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-27250
AML COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 77-0130894
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 AVENIDA ACASO, CAMARILLO, CALIFORNIA 93012
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(Address of principal executive offices) (Zip Code)
(805) 388-1345
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Stock, $.01 par value
Check whether the issuer (1) 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
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $ 7,877,000.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant on June 26, 2000, was approximately
$13,484,092. The per share stock price for computational purposes was $3.19,
based on the closing sale price per share for the Registrant's common stock on
the NASDAQ National Market on June 26, 2000. This value is not intended to be a
representation as to the value or worth of the Registrant's common stock. The
number of non-affiliates of the Registrant has been calculated by subtracting
the number of shares held by persons affiliated with the Registrant from the
number of outstanding shares. The number of shares of the Registrant's common
stock outstanding on June 26, 2000 was 6,316,631.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on September
14, 2000, are incorporated by reference into Items 10 and 11 of Part III of this
Form 10-KSB. The Proxy Statement will be filed within 120 days after the end
of the fiscal year covered by this report.
Transitional Business Disclosure Format (Check One). Yes No X
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This Annual Report on Form 10-KSB, the exhibits hereto and the information
incorporated by reference herein contain "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and such forward looking statements involve risks
and uncertainties. When used in this report, the words "expects," "anticipates"
and "estimates" and similar expressions are intended to identify forward looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially from those projected. These risks and
uncertainties include those discussed below and those discussed in "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" or
incorporated by reference herein. 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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
AML Communications, Inc., ("AML" or the "Company") was incorporated in
California in 1986 as Advanced Milliwave Laboratories, Inc. Early in 1994, the
Company changed its name to AML Communications, Inc. In December 1995, in
conjunction with the initial public offering of its common stock, the
Company changed its state of incorporation from California to Delaware. In May
1996, the Company moved its principal office and manufacturing facility to its
current location, 1000 Avenida Acaso, Camarillo, California, 93012.
AML designs and manufactures single and multicarrier, RF and microwave, power
and low noise amplifiers for a variety of frequency ranges and transmission
protocols. These products typically find use in a variety of commercial
communications markets including cellular, Personal Communications Services
(PCS), Broadband Wireless Access (BWA), and wireless messaging. Our products
support a wide range of analog and digital formats including Code Division
Multiple Access (CDMA), Time Division Multiple Access (TDMA), Global System for
Mobile communications (GSM), Wide band CDMA (WCDMA), Advanced Mobile Phone
System (AMPS), among others. The power amplifiers are used to boost signal
transmission, and the low noise amplifiers improve signal reception.
The Company was founded to develop and manufacture hybrid microcircuit
microwave and RF amplifiers to support the communications market. We also
developed a product line of highly linear moderate power amplifiers. In 1994,
the Company became active in the BWA market, then known as Wireless Local Loop
(WLL). We developed a multicarrier linear power amplifier supporting this market
in the 300-450 MHz range. In late 1994, the Company developed a multicarrier
linear RF power amplifier specifically for boosting signal strengths in the
cellular communications market. We marketed this multicarrier product directly
to the domestic cellular service providers. In 1995 through 1996, we developed
derivative multicarrier cellular products at alternative power levels to support
differing needs in the service provider market.
In the fourth quarter of fiscal 1997, the Company experienced a significant
decrease in its revenue, attributable to several factors. Original equipment
manufacturers (OEMs) offered significantly reduced prices on their improved base
station products, and the service providers began to outsource the
infrastructure build out and maintenance to their OEM equipment providers who
used their own equipment in the cell site. Also, the mobile communications
industry focused substantial financial and human resources on the build out of
the nascent PCS services, and competitors began to offer similar products within
the domestic US market.
As a result, the Company decided to change its market focus and concentrate on
selling to the OEM customer base. Late in fiscal 1997, AML entered the
satellite communications gateway market by offering a high power linear
amplifier for data transmission applications in a Low Earth Orbit (LEO) network.
In fiscal 1998, we received significant revenue from an OEM in the South
American market and introduced products for the PCS markets and the wireless
messaging market. We also invested heavily in the BWA market for applications
with Korean and European OEMs.
During fiscal 1999, we developed a new generation of our original cellular
multicarrier products and continued to develop and diversify our customer base
and invest in the development of BWA products. Significant negative impacts to
revenue occurred due to the delay and cancellation of customer BWA rollout
programs.
In February 1999, AML announced a change in management. Mr. Kirk A. Waldron
was appointed President and Chief Executive Officer of the Company following the
resignation of Mr. Jacob Inbar. Mr. Scott T. Behan was appointed Executive Vice
President of Sales and Marketing following Mr. Edwin J. McAvoy's resignation of
his Vice
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President position. Mr. McAvoy was, in turn, appointed Director of Custom
Programs. Both Mr. Waldron and Mr. Behan were also elected to the Board of
Directors following the resignations of Dr. Tiberiu Mazilu and Mr. McAvoy from
the Board. In March 1999, AML announced the appointment of Gerald M. Starek to
the Board of Directors of the Company, expanding the board to six members.
In August 1999, we received our ISO9001 certification, a uniform worldwide
quality management system standard. In August of 1999, we successfully
transitioned our production technology from traditional batch assembly to a
flexible, self-balancing, one piece flow process. We believe this substantially
increases our capacity and production efficiency to support growth.
In January 2000, to expand our hybrid microwave product line, we purchased a
product line and certain assets of a company exiting the military small signal
amplifier market. This purchase is intended to bolster our hybrid microwave
product line and position that segment of the business for future growth into
higher frequency segments of the market. Orders received from the purchased
product line will be manufactured in AML's current facility.
AML believes its future success depends upon our ability to broaden our
customer base and capture volume product delivery opportunities. For fiscal
2000, our five largest customers account for $6.1 million or approximately 76.9%
of our net sales.
A limited number of large OEMs account for a majority of RF amplifier
purchasers in the wireless equipment market, and our future success is dependent
upon our ability to establish and maintain relationships with these types of
customers. While we continually attempt to expand our customer base, we cannot
give any assurance that a major customer will not reduce, delay or eliminate its
purchases from AML. Such a reduction would have a material adverse effect on
our business, results of operations, and financial condition.
We have experienced, and expect to continue to experience, declining average
sales prices for our products. Wireless infrastructure manufacturers have come
under increasing price pressure from wireless service providers, which in turn
has resulted in downward pricing pressure on our products. In addition, ongoing
competitive pressures in the RF amplifier market have put continued pressure on
us to continually reduce the sales price of our products. Consequently, we
believe that in order to maintain or improve our existing gross margins in the
near term, we must achieve manufacturing cost reductions, and in the long term
develop new products that incorporate advanced features that generate higher
gross margins.
Business Strategy
AML's business strategy is to become the most efficient manufacturer of high
performance RF amplifiers used in digital wireless networks worldwide and
includes the following key elements: (i) provide leading technology to the RF
amplifier industry through research and product development that continues to
improve our products' technical performance and establish new levels of
technical performance, to improve our manufacturing productivity and efficiency,
and to lower costs; (ii) leverage our technical and manufacturing agility to
increase market share and expand our relationships with existing customers;
(iii) focus our business growth through the expansion of our customer base of
wireless network OEMs; (iv) maintain our focus on the quality, reliability and
manufacturability of our RF amplifier products.
Our focus on RF amplifier technology and the experience we have gained through
the implementation of our products in digital wireless networks has enabled us
to develop substantial expertise in RF power and low noise amplification
technology. We intend to continue to invest in research and development of new
methods to improve RF amplifier performance, including efforts to support high
rate wireless data transmission. We believe that our existing platforms and new
products in development will enable us to continue to expand our customer base
by offering a broad range of products to meet the diverse requirements of OEMs
and wireless network operators. We also intend to leverage our product lines
in an attempt to expand our relationships with our existing customers and to add
new customers. AML has implemented self balancing, one piece flow manufacturing
which we believe allows us to efficiently manufacture RF amplifiers of various
configurations, on a single line, at varying rates to support variable customer
demand. We believe we are able to respond quickly and cost-effectively to new
transmission protocols and design specifications by obtaining components from
numerous leading technology companies. We also believe our focus on the
manufacturability of our amplifier designs and our implementation of self-
balancing, one piece flow manufacturing will help us increase our productivity
while reducing our product costs. We believe this combination of
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product offering, design agility and manufacturing techniques represents a
competitive advantage over other third party RF amplifier manufacturers.
Markets
We sell our RF amplifier products into various segments of the wireless
communications market. Our primary focus is on the digital mobile
communications (PCS and cellular), BWA, and wireless messaging markets. In
fiscal 2000, we derived approximately 68.9% of our revenues from the cellular
market and 21.8% from the PCS and wireless messaging market.
Cellular and PCS. Cellular networks utilize a number of base stations with
high power antennas to serve a geographical region. Each region is broken down
into a number of smaller geographical areas, or "cells." Each cell has its own
base station which uses wireless technology to receive subscribers calls and
transmit those calls through the wireline Public Switched Telephone Network
(PSTN). Cellular networks operate within the 800 and 900 MHz bandwidths of the
radio spectrum. PCS networks operate in a substantially similar manner as
cellular networks, except that PCS networks operate at 1800 and 1900 MHz
bandwidths and utilize only digital transmission protocols. Transmissions at the
higher frequencies utilized by PCS networks have shorter transmission waves as
compared to cellular frequency transmissions, which tends to limit the distances
PCS transmissions can travel without significant degradation. Lower frequency
signals penetrate into buildings and other obstacles better than higher
frequency signals. Therefore, PCS networks operating at the higher frequency
ranges should require smaller operating cells and more base stations than
existing cellular networks to cover the same total geographic region.
In analog cellular networks, each base station is allocated a certain number
of frequency channels, each of which can carry only one call at a time.
Originally, cellular base stations in analog networks used single carrier RF
power amplifiers for each frequency channel allocated to the cell. Many analog
cellular networks are now utilizing a process known as adaptive channel
allocation in order to increase network capacity. In adaptive channel
allocation, which is optimized with multi-carrier RF power amplifiers, unused
channels in cells are temporarily reallocated to augment more heavily utilized
adjacent cells. The signals are amplified simultaneously through a multi-carrier
RF power amplifier which allows for the simultaneous amplification of all
channels within a base station. Multi-carrier RF power amplifiers require
significantly higher linearity than do single carrier designs, but do not
require separate, high-maintenance, tunable cavity filters. By eliminating the
need for separate cavity filters for each channel, multi-carrier RF power
amplifiers reduce overall deployment and maintenance costs associated with base
stations. While adaptive channel allocation using multi-carrier linear
amplifiers has increased the capacity of analog networks, many service providers
still require additional capacity to serve the increased flow of transmissions
through their networks. This has led many service providers to move from analog
networks to digital networks. In digital networks, calls are segmented into
time slots or codes and transmitted across the entire bandwidth of allocated
spectrum, rather than in single channels of that spectrum. The calls are then
reassembled when received at the base station or cellular phone. While using the
entire bandwidth of allocated spectrum results in greater system capacity, there
is a greater likelihood that even minimal background noise will result in
interrupted or dropped calls. Accordingly, linear amplification is even more
critical in digital networks than in their analog counterparts. AML provides
linear multi-carrier RF power amplifiers which are located in base stations and
work to increase the signal strength of outgoing transmissions. Our single
carrier and multi-carrier RF power amplifiers work in base stations with a
variety of other sophisticated electronic equipment, including receivers, radios
and oscillators.
Wireless Messaging. The wireless messaging networks consist of a substantial
number of local and nationwide transceivers that distribute and collect
information from numerous handheld wireless messaging handsets. These handsets
allow the user to perform functions such as accessing the internet, retrieving
and responding to e-mail, and instant messaging, among others. The wireless
messaging protocols are being adapted to deliver greater amounts of digital
information, requiring high power, linear amplification for transmission from
the base stations, and low noise tower mount receive amplifiers to maximize the
sensitivity of the base station reception. AML has provided low noise tower
mount receive amplifiers and RF power amplifiers to several wireless messaging
network operators. Currently, the two largest markets for wireless messaging
products are the domestic U.S. and China.
Broadband Wireless Access. Formerly known as WLL, the BWA market refers to
wireless products designed for fixed or limited mobility applications which
provide and/or replace traditional wireline telephone systems. These systems
are finding increasing use as alternative "last mile" solutions to providing
high speed wireless data capability to outlying areas that have no access to
traditional "cabled" high speed data access such as DSL (Digital Subscriber
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Line), CATV (Community Access Television), or fiber optic services. BWA systems
are often far less expensive to install than "wired" systems, particularly for
low-density areas. The BWA markets span a wide range of frequencies and
protocols dependent upon the geopolitical requirements of regions. AML has
developed and continues to develop its product offering to support this market.
Hybrid Microwave Circuit. The hybrid microwave circuits are sold to OEM
customers with broadband, microwave frequency, component requirements. These
parts typically support applications including surveillance, optics, signal
detection, satellite communication and telemetry. They are used in both the
transmission and reception signal paths. The technology permits accurate,
reproducible, volume products supporting broad bandwidths and higher frequencies
to be designed and manufactured. Moderate volume requirements and custom design
requirements characterize these markets.
Products
The Company designs and manufactures single and multicarrier RF power
amplifiers and low noise receive amplifiers that are sold primarily into the
cellular, PCS, wireless messaging and BWA markets.
Cellular. The Company has offered its M series cellular multicarrier
amplifiers since 1994. These are linear multicarrier RF power amplifiers
suitable for use in the amplification of analog and digital communications
formats. These products range in power levels from 30 to 140 watts and provide
flexible features/options such as AC or DC supply operation, replaceable input
modules that allow wide variation and combination of signal gain and connection
types.
PCS. The Company has developed several RF low noise receive and single
channel power amplifiers for various OEMs. These products offer cost effective
amplification of their respective formats to support the OEM requirements. We
have integrated real time embedded microprocessor control within some of these
products to assist in the manufacturability and field diagnostic capabilities.
Typical power levels range from 4 watts to 80 watts.
Wireless Messaging. The Company has developed a wide range of receive
products to support the wireless messaging market. These products include tower
mount receive amplifiers, RF power amplifiers, and base station receive
multicouplers. AML believes these products offer excellent performance in terms
of maximizing receive sensitivity while minimizing the effects of interference
from alternative services. We also offer derivative products of our cellular RF
power amplifier product line to support the wireless messaging base station
transmission requirements.
BWA. The Company has developed, and continues to develop products in support
of the BWA market. These products include base station RF power and low noise
receive amplifiers as well as tower mounted RF power and low noise receive
products. Typical system applications include CDMA and TDMA protocols with
output powers ranging from 2 to 10 watts. These systems operate at various
frequencies ranging from below 400 MHz to above 30 GHz. AML uses its
linearization technology along with its knowledge of RF device technology
capability to select the appropriate implementation for each application.
Hybrid Microwave Circuit. We produce standard hybrid microwave circuit
products that are listed in our web-based catalog and selection guide. We also
produce derivative products that are based upon minor modification of the
catalog items. The frequencies range from 50kHz to 30GHz. Power levels range
from less than one milliwatt to several watts.
Our RF power amplifiers range in price from $500 to over $10,000 per
amplifier, depending upon technology, complexity, quantity, and implementation.
Our receive products range in price from $400 to $3,000 per amplifier, depending
upon system requirements and implementation.
Customers
We sell products to wireless OEM customers worldwide, including Hyundai, LGIC,
Transcept, ViaSat, Raytheon, Marconi, Andrew Corp. and EMS Wireless. We have
also sold products to wireless network operators such as AT&T Wireless Services,
MCI/Worldcom, BellSouth, Pele-Phone, Wireless Data, and Weblink Wireless.
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For the fiscal year ended March 31, 2000, our largest customer was AT&T
Wireless Services, which accounted for approximately 43.0% of net sales.
MCI/Worldcom was our second largest customer with approximately 19.9% of net
sales. The loss of either of these customers, or a significant loss, reduction,
or rescheduling of orders from any of our customers could have a material
adverse effect on our business, results of operations and financial condition.
Marketing and Distribution, International Sales
We sell our products through a combination of a technically proficient direct
sales force and independent sales representatives. Direct sales personnel are
assigned to geographic territories and, in addition to sales responsibilities,
manage networks of independent sales representatives. We also utilize a network
of independent sales representatives selected for their familiarity with our
potential customers and their knowledge of the wireless infrastructure equipment
market. Both the direct sales personnel and independent sales representatives
generate product sales, provide product and customer service, and provide
customer feedback for product development. In addition, the sales personnel and
independent sales representatives receive support from our marketing, product
support and customer service departments.
AML's marketing efforts are focused on establishing and developing long-term
relationships with potential customers. Sales cycles for certain of our
products, particularly our base station RF power amplifiers, are lengthy,
typically ranging from six to eighteen months. Our customers typically conduct
significant technical evaluations of our products before making purchase
commitments. In addition, as is customary in the industry, sales are made
through standard purchase orders which can be subject to cancellation,
postponement or other types of delays. While certain customers provide us with
forecasted needs, they are not bound by such forecasts.
Warranty
AML's warranty varies by product type and typically covers defects in material
and workmanship. We perform warranty obligations and other maintenance services
at our facilities in Southern California.
Product Development
We invest significant resources in the research and development of new methods
to improve amplifier performance, including reduced noise, and increased
efficiency in the RF amplification process. We also invest significant
resources in the development of new amplifier products to support transmission
protocols, including Enhanced Data Rate for GSM Evolution (EDGE), and WCDMA.
Our development efforts also seek to reduce the cost and increase the
manufacturing efficiency of new and existing products. Our research and
development staff consisted of 19 people as of March 31, 2000. Expenditures for
research and development amounted to approximately $1.9 million in fiscal 2000
and $3.0 million in fiscal 1999.
Competition
The wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development, rapid product obsolescence, evolving industry standards, and
significant price erosion over the life of a product. Our products compete on
the basis of the following key characteristics: performance, functionality,
reliability, pricing, quality, designs that can be efficiently manufactured in
large volumes, time-to-market delivery capabilities and compliance with industry
standards. While we believe we compete favorably with respect to the foregoing
characteristics, there can be no assurance we will be able to continue to do so.
Our current competitors include Chesapeake Microwave, Microwave Power Devices,
Inc., Powerwave Technologies, Inc., Spectrian Corporation, and Stealth
Microwave, Inc., in addition to the amplifier manufacturing operations captive
within certain of the leading wireless infrastructure OEMs such as Ericsson,
Lucent, Motorola, Nokia and Samsung. Some competitors have significantly greater
financial, technical, manufacturing, sales, marketing and other resources than
AML and have achieved greater name recognition for their existing products and
technologies than we have. We cannot guarantee we will be able to successfully
increase our market penetration or our overall share of the RF amplifier
marketplace. Our results of operations could be adversely impacted if we are
unable to effectively increase our share of the RF amplifier marketplace.
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AML's success depends in large part upon the rate at which wireless
infrastructure OEMs incorporate our products into their systems. We believe that
a substantial portion of the present worldwide production of RF amplifiers is
captive within the internal manufacturing operations of a small number of
leading wireless infrastructure manufacturers such as Ericsson, Lucent,
Motorola, Nokia and Samsung. Some of these companies regularly evaluate whether
to manufacture their own RF amplifiers rather than purchase them from third-
party vendors such as AML. These companies could also directly compete with AML
by selling their RF amplifiers to other manufacturers and operators, including
our customers. These companies may enter into joint ventures or strategic
relationships with our competitors. Our results of operations, net sales and
profitability could be adversely impacted if certain OEMs were to actively
market RF power amplifier products in direct competition with us or continue to
manufacture RF power amplifiers internally or enter into joint ventures or other
strategic relationships with our competitors. If we are not successful in
increasing the use of our products by the leading wireless infrastructure OEMs,
there would be a material adverse effect on our business, financial condition
and results of operations.
We have experienced significant price competition and expect price competition
in the sale of RF power amplifiers to increase. No assurance can be given that
our competitors will not develop new technologies or enhancements to existing
products or introduce new products that will offer superior price or performance
features. We expect our competitors to offer new and existing products at
prices necessary to gain or retain market share. Certain of our competitors
have substantial financial resources, which may enable them to withstand
sustained price competition or a market downturn better than us. There can be
no assurance that we will be able to compete successfully in the pricing of our
products, or otherwise, in the future.
Manufacturing and Suppliers
Our headquarters and our manufacturing facility are located in Camarillo,
California. Our manufacturing process involves the assembly of numerous
individual components and precise fine-tuning by production technicians. The
parts and materials we use consist primarily of printed circuit boards,
specialized subassemblies, fabricated housings, relays, and small electric
circuit components, such as integrated circuits, semiconductors, resistors and
capacitors.
We obtained ISO 9001 certification, a uniform worldwide quality management
system standard, on our headquarters and manufacturing facility located in
Camarillo, California. Numerous customers and potential customers throughout the
world, particularly in Europe, require their suppliers be ISO certified. In
addition, many customers require their suppliers to purchase components only
from subcontractors that are ISO certified.
We currently procure, and expect to continue to procure, certain components
from single source manufacturers due to unique component designs as well as
certain quality and performance requirements. In addition, in order to take
advantage of volume pricing discounts, we purchase certain customized components
from single sources. We have experienced, and may in the future experience,
shortages of single-source components. In such event, we may have to make
adjustments to both product designs and production schedules which could result
in delays in production and delivery of products. Such delays could have an
adverse effect on our operating results and financial condition.
Intellectual Property
We rely on trade secrets and patents to protect our intellectual property. We
execute confidentiality and non-disclosure agreements with our employees and
limit access to and distribution of our proprietary information. We own several
patents relating to multicarrier power amplifier circuits and implementation. We
have an on-going program which encourages applications for both U.S. and
international patents for various aspects of our technology. These efforts
allow us to rely upon the knowledge and experience of our management and
technical personnel and our ability to market our existing products and to
develop new products. The departure of any of our management and technical
personnel, the breach of their confidentiality and non-disclosure obligations to
AML, or the failure to achieve our intellectual property objectives may have a
material adverse effect on our business, financial condition and results of
operations.
We believe our success depends upon the knowledge and experience of our
management and technical personnel and our ability to market our existing
products and to develop new products. We do not have non-compete agreements with
our employees who are employed on an "at-will" basis. Therefore, employees may
and have left us to go to work for a competitor. While we believe that we have
adequately protected our proprietary technology, and we will take all
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appropriate and reasonable legal measures to protect it, the use of our
processes by a competitor could have a material adverse effect on our business,
financial condition and results of operations.
Our ability to compete successfully and achieve future revenue growth will
depend, in part, on our ability to protect our proprietary technology and
operate without infringing upon the rights of others. We may not be able to
successfully protect our intellectual property, and our intellectual property or
proprietary technology may otherwise become known or be independently developed
by competitors. In addition, the laws of certain countries in which our products
have been or may be sold may not protect our products and intellectual property
rights to the same extent as the laws of the United States.
The inability to protect our intellectual property and proprietary technology
could have a material adverse effect on our business, financial condition and
results of operations. As the number of patents, copyrights and other
intellectual property rights in our industry increases, and as the coverage of
these rights and the functionality of the products in the market further
overlap, we believe that companies in our industry may face more frequent
infringement claims. We may in the future be notified that we are infringing
upon certain patent or other intellectual property rights of others. Although
we are not aware of any pending or threatened intellectual property lawsuits
against us, we cannot guarantee that such litigation or infringement claims will
not occur in the future. Such litigation or claims could result in substantial
costs and diversion of resources and could have a material adverse effect on our
business, results of operations and financial condition. A third party claiming
infringement may also be able to obtain an injunction or other equitable relief,
which could effectively block our ability or our customer's ability to
distribute, sell or import allegedly infringing products. If it appears
necessary or desirable, we may seek licenses from third parties covering
intellectual property that we are allegedly infringing. No assurance can be
given, however, that any such licenses could be obtained on terms acceptable to
us, if at all. The failure to obtain the necessary licenses or other rights
could have a material adverse effect on our business, financial condition and
results of operations.
Government Regulation
Radio frequency transmissions and emissions, and certain equipment used in
connection therewith, are regulated in the United States, Canada and Price Range
of Common Stock internationally. Regulatory approvals often must be obtained by
AML in connection with the manufacture and sale of its products, and by AML's
customers to operate AML's products. There can be no assurance that the United
States Federal Communications Commission (FCC), International Telecommunications
Union (ITU), European Telecommunications Standard Institute (ETSI), or other
organizations charged with regulating the requirements of RF equipment, will not
adopt more stringent regulations for the communications industry. If such
regulations are adopted, AML, the OEMs and the wireless system operators may be
required to alter the manner in which radio signals are transmitted, or
otherwise to alter the equipment transmitting such signals, which could
materially and adversely affect AML's products and markets. The enactment by
federal, state, local or international governments of new laws or regulations,
or a change in the interpretation of existing laws or regulations, could affect
the market for AML's products. Recent deregulation of international
communications industries, along with recent RF spectrum allocations made by the
FCC, have increased the potential demand for the Company's products by providing
users of those products with opportunities to establish new wireless personal
communications services. However, there can be no assurances that the trend
toward deregulation and current regulatory developments favorable to the
promotion of new and expanded personal communications services will continue or
that other future regulatory changes will have a positive impact on the Company.
The increasing demand for wireless communications has exerted pressure on
regulatory bodies worldwide to adopt new standards for such products, generally
following extensive investigation of and deliberation over competing
technologies. The delays inherent in this governmental approval process may
cause the cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers.
Employees
As of March 31, 2000, the Company had 72 full-time employees, including 19 in
research and development; 38 in manufacturing, production engineering and
quality assurance; nine in administration; and six in sales, marketing, order
entry and customer support. The Company believes the success of its business
depends, in part, on its ability to attract and retain qualified personnel,
particularly qualified scientific, technical and key management personnel.
Company employees are not governed by collective bargaining agreements. The
Company believes its relationships with its employees are good.
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Environmental Regulations
The Company is subject to federal, state and local governmental regulations
relating to the storage, discharge, handling, emission, generation, manufacture
and disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company believes it is currently in compliance in all
material respects with such regulations. Failure to comply with current or
future regulations could result in the imposition of substantial fines on the
Company, suspension of production, alteration of its manufacturing processes,
cessation of operations, or other actions which could materially and adversely
affect the Company's business, financial condition and results of operations.
History
AML Communications, Inc., ("AML" or the "Company") was incorporated in
California in 1986 as Advanced Milliwave Laboratories, Inc. Early in 1994, the
Company changed its name to AML Communications, Inc. In December 1995, in
conjunction with the initial public offering of its common stock, the Company
changed its state of incorporation from California to Delaware. In May 1996, the
Company moved its principal office and manufacturing facility to its current
location, 1000 Avenida Acaso, Camarillo, California, 93012.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's administrative, engineering and manufacturing facilities are
located in a 25,000 square foot leased building in Camarillo, California. The
Company's lease for this space expires in April 2003. The Company believes its
current facilities are in reasonable condition and provide adequate expansion
capabilities.
ITEM 3. LEGAL PROCEEDINGS
The Company may be subject, from time to time, to various legal proceedings
relating to claims arising out of its operations in the ordinary course of its
business. Two purported class action lawsuits were filed against the Company and
certain of its current and former officers and directors. The first lawsuit,
entitled Ronny Sussman v. AML Communications, Inc., et al., Case No. CIV 179776,
-------------------------------------------------
was filed on March 19, 1998 in the Superior Court for the State of California
(Ventura County) (the "State Action"). The second lawsuit, entitled Ronny
-----
Sussman v. AML Communications, Inc., et al., Case No. 98-2010 CAS (Ex) (C.D.
-------------------------------------------
Cal.), was filed on March 20, 1998 in the federal district court in Los Angeles,
California (the "Federal Action"). While the Federal Action asserts claims under
the federal securities laws and the State Action asserts claims under
California's securities laws, the complaints are otherwise essentially
identical, and 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 years 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 Federal Action, in November, 1999, the parties reached a settlement in
principle for $2.25 million, all of which was covered by the Company's insurers.
On May 1, 2000, the lawsuit was dismissed pursuant to an order of the district
court from which no appeal has been taken. The judgment is thus now final and
non-appealable. Pursuant to the stipulation of settlement, the plaintiffs
dismissed their State action lawsuit with prejudice in June 2000.
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
Not applicable.
9
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the NASDAQ National Market under the
symbol "AMLJ." The table below sets forth the high and low sales prices for the
Company's common stock on the NASDAQ National Market for the periods indicated.
<TABLE>
<CAPTION>
Price Range of Common Stock
High Low
---- ---
<S> <C> <C>
Fiscal year ended March 31, 1999
First quarter........................................ $ 5.13 $3.00
Second quarter....................................... $ 4.13 $1.38
Third quarter........................................ $ 2.06 $0.94
Fourth quarter....................................... $ 1.88 $0.75
Fiscal year ended March 31, 2000
First quarter........................................ $ 1.75 $1.13
Second quarter....................................... $ 4.56 $1.25
Third quarter........................................ $ 5.69 $2.28
Fourth quarter....................................... $11.00 $3.63
</TABLE>
At June 26, 2000 there were approximately 63 holders of record of the
Company's common stock.
The Company has not paid cash dividends and does not anticipate paying cash
dividends in the foreseeable future. The Company expects to utilize future
earnings to finance future growth. The actual amount of any dividends paid
would be subject to the discretion of the Board of Directors of the Company and
would depend on the Company's operations, financial and business requirements,
compliance with bank covenants and other factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table summarizes the Company's results of operations both in
dollars and as a percentage of net sales for the fiscal years ended March 31,
1999 and 2000.
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended March 31,
------------------------------------------------------
1999 2000
--------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues
Cellular and wireless telephony........................... $ 4,160 53.5% $ 5,431 68.9%
Wireless messaging........................................ 2,116 27.2 1,713 21.8
Custom and other.......................................... 1,499 19.3 733 9.3
------- ------ ------- ------
Total net sales....................................... 7,775 100.0 7,877 100.0
Cost of goods sold........................................ 5,733 73.7 5,285 67.1
------- ------ ------- ------
Gross profit.............................................. 2,042 26.3 2,592 32.9
Operating expenses:
Selling, general and administrative.................... 3,049 39.2 2,594 32.9
Research and development............................... 2,981 38.3 1,917 24.3
------- ------ ------- ------
Operating loss............................................ (3,988) (51.3) (1,919) (24.3)
Other income, net......................................... (384) (4.9) (242) (3.0)
------- ------ ------- ------
Loss before benefit from income taxes..................... (3,604) (46.4) (1,677) (21.3)
Benefit from income taxes................................. 475 (6.1) -- --
------- ------ ------- ------
Net loss.................................................. $(3,129) (40.2)% $(1,677) (21.3)%
======= ====== ======= ======
</TABLE>
10
<PAGE>
Fiscal Years Ended March 31, 2000 and 1999
Net sales. Net sales for fiscal 2000 were $7.9 million compared to $7.8
million in fiscal 1999. Cellular and wireless telephony products contributed
$5.4 million, or 68.9% of net sales in fiscal 2000 compared to $4.2 million, or
53.5.% of sales in fiscal 1999. The increase in cellular and wireless telephony
products is attributable to increased demand for the Company's cellular products
during the first half of the year and from sales of its wireless telephony
products into the Korean market. Sales of wireless messaging products totaled
$1.7 million, or 21.8% of net sales in fiscal 2000, compared to $2.1 million, or
27.2% of net sales in fiscal 1999. The decrease in sales of wireless messaging
products can be attributed to the Company fulfilling a large contract to a
single customer during the first quarter of fiscal 1999. The Company announced
in April 2000 that it had received orders for more than $1.0 million of wireless
messaging amplifiers. Custom and other sales were $733,000, or 9.3% of net sales
in fiscal 2000 compared to $1.5 million, or 19.3% of net sales in fiscal 1999.
The reduction reflects a decision by previous management to exit the custom
sales market. Late in fiscal 2000, the Company made a strategic decision to
focus more on this market and during the year purchased the rights to a line of
hybrid microwave circuit products and hired engineering talent with experience
in this segment. Sales of products outside the United States represented
approximately 20.0% and 10.8% of net sales during fiscal 1999 and 2000,
respectively.
Gross profit. Gross profit for fiscal 2000 was $2.6 million, or 32.9% of net
sales, compared to $2.0 million, or 26.3% of net sales, in fiscal 1999. The
percentage increase is a result of reduced costs related to labor and overhead,
consistent with the Company's cost reduction initiatives and benefiting from the
redesign of its production floor. These cost savings were partially offset by
lower average selling prices and gross margins for the Company's products in the
highly competitive wireless industry. The Company expects the pressure on
selling prices to continue in fiscal 2001.
Selling, general and administrative costs. Selling, general and
administrative costs for fiscal 2000 were $2.6 million, or 32.9% of net sales,
compared to $3.0 million, or 39.2% of net sales, for fiscal 1999. The decrease
is attributable to reduced sales and administration labor and benefit costs
related to the workforce reduction on March 12, 1999, and lower professional and
consulting fees. These reductions were partially offset by higher commissions at
increased rates for outside sales representatives and increased travel and
advertising costs to promote the Company. The Company believes continued
investment in marketing and administration is necessary to compete profitably in
the intensely competitive wireless industry.
Research and development costs. Research and development costs for fiscal 2000
were $1.9 million, or 24.3% of net sales, compared to $3.0 million, or 38.3% of
net sales, for the corresponding period in fiscal 1999. The decrease is due
primarily to one-time charges related to the termination of unmarketable
projects in fiscal 1999, and reduced labor and benefits costs related to the
workforce reductions on March 12, 1999. Additional reductions came from a more
strategic streamline approach to research and development projects, which
decreased material and inventory obsolescence costs. Depreciation expense was
higher due to increased levels of capital equipment required to design and
develop new products for the cellular and wireless telephony markets.
Other income, net. Other income for fiscal 2000 decreased to $242,000
compared to $384,000 for fiscal 1999. The reduction is due to interest income
generated from cash invested. The cash balances are a function of the net
proceeds from the Company's public offering in December 1995 and from the net
cash flow as a result of operations.
Benefit from taxes. The Company recorded no benefit from taxes for fiscal 2000
compared to a benefit from taxes of $475,000 at a rate of approximately 34% for
1999. The Company utilized its net operating loss carryback during fiscal 1999
to create the benefit from taxes.
Net loss. For the reasons set forth above, the Company generated a net loss
in fiscal 2000 of $1.7 million, or 21.3% of net sales compared to a net loss of
$3.1 million, or 40.2% of net sales in fiscal 1999.
Liquidity and Capital Resources
Historically, the Company financed its operations primarily from internally
generated funds and, to a lesser extent, loans from stockholders and capital
lease obligations. In December 1995, the Company completed its initial public
offering of 1,725,000 shares of common stock (including the exercise of the
underwriters' over allotment option), raising net proceeds of approximately $7.7
million. Of such net proceeds, $425,000 was used to repay loans from
11
<PAGE>
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, and
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 were purchased from
time to time on the open market and are being held for issuance in connection
with the future exercise of employee stock options. During fiscal 2000, the
Company did not repurchase any additional shares in open market transactions and
has retained the 114,500 shares repurchased during 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 (9.00% at March 31, 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 (9.00% at March 31, 2000) plus 1.50%. Both facilities
are secured primarily by all of the Company's assets and expire on October 26,
2000. As of March 31, 2000, the Company has not borrowed from either facility.
As of March 31, 2000, the Company was not in compliance with two financial
covenants of the loan agreement. The Company failed to meet the quarterly and
annual net income covenants and requested a wavier for these covenant
requirements. This waiver was granted and the Company retains its right to
borrow from both credit facilities.
At March 31, 2000, the Company had $4.7 million in cash and cash equivalents.
The Company's operating activities used cash of approximately $1.5 million in
fiscal 2000 primarily as a result of a loss from operations and increases in
accounts receivable and inventory. The Company's capital expenditures of
$490,000 for fiscal 2000 were primarily for manufacturing test equipment,
improvements to our production floor, and information system upgrades and
additions.
The Company believes the net proceeds from the initial public offering,
together with net cash from operations will be sufficient to finance the Company
for at least the next 12 months. Inflation has not had a significant effect to
date on the Company's results of operations.
Additional Factors That May Affect Future Results
Future operating results may be impacted by a number of factors that could
cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include industry
specific factors (including the reliance upon continued growth of the wireless
communications market, significant competition in the communications
infrastructure equipment industry characterized by rapid technological change,
new product development, product obsolescence, and significant price erosion
over the life of a 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.
12
<PAGE>
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 currently sells a majority of its product into the operator
distribution channel to market. As a result, the Company receives periodic
order forecasts from its major customers who have no obligation to purchase the
forecasted amounts. Nonetheless, the Company maintains significant work in
process and raw materials inventory as well as increased levels of technical
production staff to meet order forecasts and/or management's projections. To
the extent its major customers purchase less than the forecasted amounts, the
Company will have higher levels of inventory than otherwise needed, increasing
the risk of obsolescence and the Company will have increased levels of
production staff to support such forecasted orders. Such higher levels of
inventory and increased employee levels could reduce the Company's liquidity and
could have a material adverse effect on the Company's business, results of
operation and financial condition.
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 WLL products and has still more
in development. There can be no assurances that the Company will manufacture
such products at competitive prices in sufficient volumes.
13
<PAGE>
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.
Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk exposure is interest rate risk. As of March
31, 2000, the Company's line of credit facilities were the only debt facilities
subject to variable interest rates. The Company will monitor the level of risk
by keeping variable rate exposures at acceptable levels.
14
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Report of Independent Public Accountants................................................................. 16
Balance Sheet as of March 31, 2000....................................................................... 17
Statements of Operations for each of the two years ended March 31, 2000.................................. 18
Statements of Stockholders' Equity for each of the two years ended March 31, 2000........................ 19
Statements of Cash Flows for each of the two years ended March 31, 2000.................................. 20
Notes to Financial Statements............................................................................ 21
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AML Communications, Inc.:
We have audited the accompanying balance sheet of AML Communications, Inc. (a
Delaware corporation) as of March 31, 2000, and the related statements of
operations, stockholders' equity and cash flows for each of the two years ended
March 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AML Communications, Inc. as of
March 31, 2000, and the results of its operations and its cash flows for each of
the two years ended March 31, 2000, in conformity with accounting principals
generally accepted in the United States.
Arthur Andersen LLP
Los Angeles, California
May 19, 2000
16
<PAGE>
AML COMMUNICATIONS, INC.
BALANCE SHEET
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
ASSETS
------
Current Assets:
<S> <C>
Cash and cash equivalents................................................ $ 4,659,000
Accounts receivable, net of allowance for doubtful accounts of $72,000... 1,134,000
Inventories.............................................................. 2,341,000
Other current assets..................................................... 512,000
-----------
Total current assets.................................................. 8,646,000
Property and Equipment, at cost............................................ 4,884,000
Less--Accumulated depreciation and amortization.......................... (3,051,000)
-----------
1,833,000
Deferred taxes............................................................. 288,000
Other assets............................................................... 14,000
-----------
$10,781,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable......................................................... $ 844,000
Current portion of capital lease obligations............................. 65,000
Accrued expenses:
Accrued payroll and payroll related expenses.................. 359,000
Accrued commissions........................................... 99,000
Income tax payable............................................ 190,000
Other accrued expenses........................................ 254,000
-----------
Total current liabilities.......................................... 1,811,000
Capital lease obligations, net of current portion.......................... 141,000
Commitments and Contingencies (Notes 3 and 7)
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;
6,429,756 shares issued and 6,315,256 outstanding..................... 64,000
Capital in excess of par value........................................... 9,480,000
Treasury stock--114,500 shares, at cost.................................. (223,000)
Accumulated deficit...................................................... (492,000)
-----------
Total stockholders' equity.......................................... 8,829,000
-----------
$10,781,000
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
17
<PAGE>
AML COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<CAPTION>
Year Ended
----------------------------------
March 31, March 31,
1999 2000
------------ -----------
<S> <C> <C>
Net Sales............................................. $ 7,775,000 $ 7,877,000
Cost of goods sold.................................... 5,733,000 5,285,000
------------ -----------
Gross profit..................................... 2,042,000 2,592,000
Operating Expenses:
Selling, general and administrative................. 3,049,000 2,594,000
Research and development............................ 2,981,000 1,917,000
------------ -----------
6,030,000 4,511,000
------------ -----------
Operating loss................................... (3,988,000) (1,919,000)
Other (Income) Expense:
Interest income..................................... (394,000) (269,000)
Interest expense.................................... 16,000 27,000
Other............................................... (6,000) --
------------ -----------
(384,000) (242,000)
------------ -----------
Loss before benefit
from income taxes.............................. (3,604,000) (1,677,000)
Benefit from income taxes............................. (475,000) --
------------ -----------
Net loss......................................... $ (3,129,000) $(1,677,000)
============ ===========
Basic and Diluted Loss Per Common Share............... $ (0.50) $ (0.27)
============ ===========
Basic and Diluted Weighted Average Number of Shares of
Common Stock Outstanding............................. 6,279,000 6,270,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
AML COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<CAPTION> Retained
Common Stock Capital in Earnings/
---------------------- Excess of Treasury Stock Accumulated Retained
Shares Amount Par Value Shares Amount Deficit Total
---------------------- ------------ --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998.... 6,291,930 $63,000 $9,331,000 -- $ -- $ 4,314,000 $13,708,000
Exercise of stock
options................ 82,699 1,000 34,000 -- -- -- 35,000
(1,000)
Repurchase of treasury
shares................ (114,500) -- (114,500) (223,000) -- (224,000)
Net loss................ -- -- -- -- -- (3,129,000) (3,129,000)
--------- ------- ---------- -------- --------- ------------ -----------
Balance, March 31, 1999.... 6,260,129 63,000 9,365,000 (114,500) (223,000) 1,185,000 10,390,000
Exercise of stock
options................ 55,127 1,000 115,000 -- -- -- 116,000
Net loss................ -- -- -- -- -- (1,677,000) (1,677,000)
--------- ------- ---------- -------- --------- ------------ -----------
Balance, March 31, 2000.... 6,315,256 $64,000 $9,480,000 (114,500) $(223,000) $ (492,000) $ 8,829,000
========= ======= ========== ======== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
AML COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 2000
<TABLE>
<CAPTION>
Year Ended
---------------------------
March 31, March 31,
1999 2000
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.............................. $(3,129,000) $(1,677,000)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization...... 726,000 763,000
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable.......... 1,201,000 (707,000)
Inventories.................. 942,000 (557,000)
Income tax receivable........ (537,000) 537,000
Other assets................. 41,000 (294,000)
Deferred tax asset........... 61,000 --
Increase (decrease) in:
Accounts payable............. (208,000) 286,000
Accrued expenses............. (200,000) (42,000)
Income taxes payable......... (195,000) 190,000
----------- -----------
Net cash used in operating (1,298,000) (1,501,000)
activities.................. ----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment... (486,000) (490,000)
----------- -----------
Net cash used in investing (486,000) (490,000)
activities.................. ----------- -----------
Cash Flows from Financing Activities:
Treasury stock repurchase............. 35,000 116,000
Proceeds from exercise of stock
options.............................. (224,000) --
Principal payments capital lease (38,000) (63,000)
obligations.......................... ----------- -----------
Net cash (used in) provided
by financing activities..... (227,000) 53,000
----------- -----------
Net decrease in Cash and Cash (2,011,000) (1,938,000)
Equivalents............................
Cash and Cash Equivalents, beginning of 8,608,000 6,597,000
year................................... ----------- -----------
Cash and Cash Equivalents, end of year.. $ 6,597,000 $ 4,659,000
=========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest......................... $ 16,000 $ 26,000
=========== ===========
Income taxes..................... $ 191,000 $ 0
=========== ===========
Non-cash transactions:
Debt incurred to purchase
equipment........................ $ 226,000 $ 24,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
AML COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
1. Line of Business
AML Communications, Inc. is a designer, manufacturer and marketer of
amplifiers and related products for the global wireless communications industry.
The Company currently focuses on the following sectors of the wireless market:
cellular telephony, broadband wireless access, personal communications services,
wireless messaging, low earth orbit satellite networks, and hybrid microwave
circuit products.
2. Summary of Significant Accounting Policies
Concentration of Cash
The Company considers all liquid investments with an original maturity of
three months or less to be cash equivalents. As of March 31, 2000, the Company
had cash and cash equivalent balances totaling $4,521,000 in financial
institutions which were in excess of federally insured amounts.
Credit Risk
The Company performs ongoing credit evaluations of its customers' financial
conditions and generally does not require collateral on accounts receivable,
hence the accounts receivable are unsecured and the Company is at risk to the
extent such amounts become uncollectable. As of March 31, 2000, two customers
comprised 51.1% and 12.9% of accounts receivable, respectively.
During fiscal 1999, the Company had sales to two customers which represented
20.5% and 11.9% of net sales, respectively. During fiscal 2000, the Company had
sales to two customers which represented 43.0% and 19.9% of net sales,
respectively.
The Company's customers are comprised primarily of cellular service providers
and original equipment manufacturers ("OEMs"). Customers are located primarily
throughout the United States. However, the Company also had sales to customers
in South America, Western Europe, Canada, Israel, Russia, and Korea. During the
fiscal years ended March 31, 1999 and March 31, 2000, international sales were
$1.6 million, or 20.0% of net sales and $849,000, or 10.8% of net sales,
respectively.
Industry Risk
The wireless communications equipment industry is highly competitive and is
characterized by rapid technology change, new product development, product
obsolescence, evolving industry standards and substantial price erosion over the
life of a product. The Company continues to be subject to such risk.
Revenue Recognition
The Company recognizes revenue from product sales at the time of shipment.
21
<PAGE>
Inventories
Inventories include costs of materials, 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>
March 31,
2000
-----------
<S> <C>
Raw materials..................... $1,785,000
Work in process................... 252,000
Finished goods.................... 304,000
----------
$2,341,000
==========
</TABLE>
Depreciation and Amortization
Property and equipment are being depreciated and amortized on the straight-
line basis over the following estimated useful lives:
Machinery and equipment...................................... 3 to 5 years
Furniture and fixtures....................................... 5 years
Leasehold improvements....................................... Life of lease
The Company capitalizes expenditures that materially increase asset lives and
charges ordinary repairs and maintenance to operations as incurred. When assets
are sold or otherwise disposed of, the cost and related depreciation or
amortization are removed from the accounts and any resulting gain or loss is
included in other income (expense) in the accompanying statements of operations.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, 2000
--------------
<S> <C>
Machinery and equipment.............................. $4,147,000
Furniture and fixtures............................... 129,000
Leasehold improvements............................... 608,000
----------
$4,884,000
==========
</TABLE>
Warranty and Customer Support
The Company typically warrants its products against defects in materials and
workmanship for a period of one year from the date of shipment. A provision for
estimated future warranty and customer support is recorded when products are
shipped. To date, warranty and customer support costs have not been material.
Earnings (Loss) Per Share
Earnings per share calculations are in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings per Share". Accordingly, "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).
22
<PAGE>
Due to the loss in fiscal 1999 and fiscal 2000, the effect of outstanding
options was not included as the effect would be anti-dilutive.
Use of Estimate in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Business Segments
The Company operates as one reportable business segment. The Company designs,
manufactures, and markets amplifiers and related products for the global
wireless communications industry, including, cellular telephony, broadband
wireless access, personal communications services, wireless messaging, low earth
orbit satellite networks, and hybrid microwave circuit products.
3. Debt and Lease Commitments
Bank Line of Credit
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 (9.00% at March 31, 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 (9.00% at March 31, 2000) plus 1.50%. Both facilities are secured
primarily by all of the Company's assets and expire on October 26, 2000. As of
March 31, 2000, the Company has not borrowed from either facility. As of March
31, 2000, the Company was not in compliance with two financial covenants of the
loan agreement. The Company failed to meet the quarterly and annual net income
covenants and requested a wavier for these covenant requirements. This waiver
was granted and the Company retains its right to borrow from both credit
facilities.
Capital and Operating Lease Obligations
The Company leases its office space, manufacturing facility and certain
equipment under long-term operating leases expiring at various dates through
April 2003. Total rent expense under these operating leases was approximately
$158,000 and $155,000 during the years ended March 31, 1999 and 2000,
respectively. Included in property and equipment is approximately $340,000 of
equipment, which is leased under non-cancelable leases, accounted for as capital
leases which expire through September 30, 2003. The effective interest rate for
these leases range from 8.64% to 9.98%.
23
<PAGE>
Total minimum lease payments under the above leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases Total
--------------- -------------- ---------------
Year ending March 31,
<S> <C> <C> <C>
2001............................................... $ 80,000 $159,000 $239,000
2002............................................... 63,000 168,000 231,000
2003............................................... 63,000 178,000 241,000
2004............................................... 32,000 15,000 47,000
Thereafter......................................... -- -- --
-------- -------- --------
238,000 $520,000 $758,000
======== ========
Less--Amount representing interest.................... (32,000)
--------
Present value of minimum lease payments............... 206,000
Less--Current portion................................. (65,000)
--------
$141,000
========
</TABLE>
4. Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"). Under SFAS 109, deferred
income tax assets or liabilities are computed based on the temporary difference
between the financial statement and income tax bases of assets and liabilities
using the currently enacted marginal income tax rate. Deferred income tax
expenses or credits are based on the changes in the deferred income tax assets
or liabilities from period to period.
The Company did not record a provision or benefit for income taxes for the
year ended March 31, 2000 due to the net loss.
The benefit for income taxes for the year ended March 31, 1999 consists of the
following:
<TABLE>
<CAPTION>
Year Ended
-------------------
March 31, 1999
-------------------
<S> <C>
Current:
Federal................................. $(485,000)
State................................... (51,000)
---------
(536,000)
---------
Deferred.................................. 61,000
---------
Benefit for income taxes.................. $(475,000)
=========
</TABLE>
Differences between the provision (benefit) for income taxes and income taxes
at the statutory federal income tax rate for years ended March 31, 1999 and 2000
are as follows:
<TABLE>
March 31, March 31,
1999 2000
--------------------------- -------------------------
Amount Percent Amount Percent
------------ ------------ ----------- ----------
<S> <C> <C> <C> <C>
Income tax at statutory federal rate.. $(1,209,000) (34%) $(570,000) (34.0%)
State income taxes, net of federal
income tax........................... (33,000) (1) -- -
Effect of permanent differences....... 65,000 2 6,000 0.4
Research and development credit....... -- -- -- -
Change in valuation allowance......... (111,000) (3) 913,000 54.4
Other................................. 813,000 23 (349,000) (20.8)
----------- ---- --------- -----
$ (475,000) (13%) $ 0 (0.0%)
=========== ==== ========= =====
</TABLE>
24
<PAGE>
Under SFAS 109, deferred tax assets may be recognized for temporary
differences that will result in deductible amounts in future periods and for
loss carry forwards. A valuation allowance is recognized if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax asset will not be realized.
A detail of the Company's deferred tax asset as of March 31, 2000 follows:
<TABLE>
<CAPTION>
<S> <C>
Inventory reserves................................ $ 280,000
Allowance for doubtful accounts................... 29,000
Accrued vacation.................................. 46,000
Accrued bonus..................................... 47,000
Accrued warranty and customer support............. 29,000
Other............................................. 84,000
General tax credit carryforwards.................. 504,000
Net operating loss carryforwards.................. 1,088,000
Depreciation...................................... (4,000)
-----------
2,103,000
Valuation allowance............................... (1,815,000)
-----------
$ 288,000
===========
</TABLE>
As of March 31, 2000, the Company had Federal net operating loss carry-
forwards of approximately $2.8 million, expiring at various dates through 2020.
5. Stockholders' Equity
Stock Option Plan
The Company's Stock Incentive Plan provides for the granting of non-qualified
and incentive stock options to purchase up to 1,096,586 shares of common stock
for periods not to exceed 10 years. Options typically vest 25% after one year
from the date of grant with remaining options vesting at a rate of 25% per year
thereafter. Options may be granted to employees, officers, directors and
consultants. Activity under this plan is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
---------- ---------------
<S> <C> <C>
Outstanding at March 31, 1998....................................... 343,382 $4.39
Granted............................................................. 298,500 2.14
Exercised........................................................... (82,699) .41
Canceled............................................................ (108,091) 7.18
--------
Outstanding at March 31, 1999....................................... 451,092 3.74
Granted............................................................. 268,000 1.96
Exercised........................................................... (55,127) 2.10
Canceled............................................................ (55,413) 3.27
--------
Outstanding at March 31, 2000....................................... 608,552 $3.07
========
</TABLE>
The weighted average fair value for options granted during each year was $2.01
and $1.81 for fiscal 1999 and fiscal 2000, respectively.
The number of common stock options available for grant as of each year were
327,866 for fiscal 1999 and 115,279 for fiscal 2000.
25
<PAGE>
Options outstanding at March 31, 2000 and related weighted average price and
life information is as follows:
<TABLE>
<CAPTION>
Weighted Total
Total Average Weighted Weighted
Range of Options Remaining Life Average Options Average
Exercise Prices Outstanding (Years) Exercise Price Exercisable Exercise Price
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.00 - $ 1.22 182,500 9.0 $ 1.20 3,750 $ 1.00
$1.28 - $ 1.44 110,625 8.9 $ 1.32 3,750 $ 1.28
$2.00 - $ 2.66 27,500 8.7 $ 2.27 3,750 $ 2.00
$3.25 - $ 3.88 180,363 7.2 $ 3.56 42,238 $ 3.81
$4.22 - $ 6.67 84,064 4.9 $ 5.14 40,500 $ 6.12
$8.06 - $ 15.75 23,500 3.4 $12.05 17,500 $14.11
-------------- ------- --- ------ ------- ------
$1.00 - $15.75 608,552 7.0 $ 3.07 111,488 $ 6.02
</TABLE>
As of March 31, 1999 there were 76,982 options exercisable with a weighted
average exercise price of $6.11.
As permitted by SFAS 123, the Company continues to apply the accounting rules
of APB 25 governing the recognition of compensation expense from its Stock
Incentive Plan. Such accounting rules measure compensation expense on the first
date at which both the number of shares and the exercise price are known. Under
the Company's plan, this would typically be the grant date. To the extent that
the exercise price equals or exceeds the market value of the stock on the grant
date, no expense is recognized. As options are generally granted at exercise
prices not less than the fair market value on the date of grant, no compensation
expense is recognized under this accounting treatment in the accompanying
statements of operations.
The fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
1999 2000
---- ----
Expected life (years) ...................................... 10 10
Dividend yield............................................... -- --
The interest rate range is 4.53% - 6.82% and the range for volatility is 96.2%
- 109.4%. The estimated stock-based compensation cost calculated using the
assumptions indicated totaled $567,000 and $481,000 in fiscal 1999 and fiscal
2000, respectively. This would result in a pro forma net loss resulting from
the increased compensation cost of $3,696,000, or $(0.58) per diluted share in
fiscal 1999, and pro forma net loss of $2,158,000, or $(0.34) per diluted share
in fiscal 2000. The effect of stock-based compensation on the net loss for
fiscal 1999 and 2000 may not be representative of the effect on pro forma net
income (loss) in future years because compensation expense related to grants
made prior to fiscal 1997 is not considered.
Warrants
In connection with the initial public offering in December 1995, the Company
sold the underwriters five-year warrants to purchase an aggregate of 150,000
shares of the Company's common stock at $6.40 per common share. As of March 31,
2000, all 150,000 warrants are outstanding and currently exercisable. The
warrants expire December 2000.
Stock Repurchase Program
In August 1998, the Company announced that its board of directors authorized a
stock repurchase program of up to 400,000 shares of the Company's outstanding
common stock. Shares repurchased pursuant to the repurchase program were bought
from time to time in the open market and are 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 in fiscal year 1999. For the
year 2000, the Company did not repurchase any shares in open
market transactions.
26
<PAGE>
6. Employee Benefit Plan
The Company has a defined contribution 401(k) employee retirement plan (the
"Plan"). Under the terms of the Plan, eligible employees, as defined, may
contribute from 1% to 16% of their pre-tax earnings to the Plan. At its
discretion, the Company may match the employees' contribution up to 6%. The
Company made no matching contribution for the years ended March 31, 1999 and
2000. However, for the years ended March 31, 1999 and 2000 the Company
contributed $36,000 and $57,900 in discretionary contributions, respectively.
7. Legal Proceedings
The Company may be subject, from time to time, to various legal proceedings
relating to claims arising out of its operations in the ordinary course of its
business. Two purported class action lawsuits were filed against the Company
and certain of its current and former officers and directors. The first
lawsuit, entitled Ronny Sussman v. AML Communications, Inc., et al., Case No.
-------------------------------------------------
CIV 179776, was filed on March 19, 1998 in the Superior Court for the State of
California (Ventura County) (the "State Action"). The second lawsuit, entitled
Ronny Sussman v. AML Communications, Inc., et al., Case No. 98-2010 CAS (Ex)
-------------------------------------------------
(C.D. Cal.), was filed on March 20, 1998 in the federal district court in Los
Angeles, California (the "Federal Action"). While the Federal Action asserts
claims under the federal securities laws and the State Action asserts claims
under California's securities laws, the complaints are otherwise essentially
identical, and 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 years 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 Federal Action, in November, 1999, the parties reached a settlement in
principle for $2.25 million, all of which was covered by the Company's insurers.
On May 1, 2000, the lawsuit was dismissed pursuant to an order of the district
court from which no appeal has been taken. The judgment is thus now final and
non-appealable. Pursuant to the stipulation of settlement, the plaintiffs
dismissed their State action lawsuit with prejudice in June 2000.
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 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
27
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
The Board of Directors consists of six directors divided into three classes
serving staggered three-year terms. The following table sets forth certain
information with respect to the executive officers and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position Term Expires
---- --- -------- --------------
<S> <C> <C> <C>
Jacob Inbar 51 Chairman of the Board 2001
Kirk A. Waldron 37 President, Chief Executive Officer and Director 2000
Scott T. Behan 39 Executive Vice President, Engineering 2002
and Director
David A. Derby 59 Director 2000
Richard W. Flatow 59 Director 2002
Gerald Starek 59 Director 2001
</TABLE>
All officers are appointed by and serve at the discretion of the Board of
Directors. There are no family relationships among any directors or officers of
the Company.
Jacob Inbar is a co-founder of the Company and has been a Director and
Chairman of the Board since September 1985. From 1986 to 1999, Mr. Inbar served
as President and Chief Executive Officer of the Company. Mr. Inbar holds a B.S.
in Electrical Engineering from Ben Gurion University, Israel and an M.B.A. from
California Lutheran University.
Kirk A. Waldron has been a Director, President and Chief Executive Officer of
the Company since February 1999. From 1996 up until his current appointment,
Mr. Waldron served as the Company's Chief Financial Officer and in 1998 he was
appointed as the Company's Chief Operating Officer. From 1994 to 1996, Mr.
Waldron was Chief Financial Officer at Dynamotion/ATI Corp., a publicly held
high-tech manufacturer of precision drilling equipment. Mr. Waldron holds a
B.S. in Business Administration from the University of Southern California.
Scott T. Behan has been a Director and Executive Vice President of Engineering
since February 2000 and has been a Director of Vsource, Inc., (Nasdaq:VSCR.OB ),
formerly Interactive Buyers Network, a high-tech Internet E-commerce service
provider, since 1998. From 1994 up until his current appointment, Mr. Behan
served as the Company's Vice President of New Business Development. From 1987
to 1994, Mr. Behan has held a variety of engineering and sales and marketing
positions within the Company. Mr. Behan holds a B.S. in Electrical Engineering
from Worcester Polytechnical Institute.
David A. Derby has been a Director of the Company since December 1995, and has
been President, Chief Executive Officer and a Director of Datron Systems
Incorporated (Nasdaq: DTSI), a manufacturer of radio and satellite communication
systems and products, since May 1982. In April 1998, Mr. Derby was elected
Chairman of the Board of Datron Systems Incorporated.
Richard W. Flatow has been a Director of the Company since December 1995 and
has been the President of RWF Enterprises, a management consulting firm, since
1994. From 1993 to 1994, Mr. Flatow was President and Chief Executive Officer of
Futurekids, Inc., a franchiser of computer training for children. Previously,
Mr. Flatow was a Managing Partner and Senior Consultant for Hankin & Co., a
middle-market management consulting firm.
28
<PAGE>
Gerald M. Starek has been a Director of the Company since March 1999, and has
served as a Director of Advanced Energy Industries, Inc. since 1998. From 1993
to 1995, Mr. Starek served on the Board of Directors of Systems Chemistry, Inc.,
a privately held company that was purchased in 1995 by SubMicron Systems, Inc..
Previously, Mr. Starek served as President, Chief Executive Officer and Chairman
of the Silicon Valley Group, a supplier of automated wafer processing equipment
for the semiconductor industry that he founded in 1977.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Act"),
requires directors, certain officers of the Company and persons holding more
than 10% of the Company's Common Stock to file reports concerning their
ownership of Common Stock by dates established under the Act and also requires
that the Company disclose in this annual report on Form 10-KSB any non-
compliance with those requirements during the fiscal year ended March 31, 2000.
Based solely upon a review of reports delivered to the Company for fiscal 2000,
all Section 16(a) filing requirements were satisfied.
ITEM 10. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the
information under the captions "Executive Compensation" and "Election of
Directors" in the Company's definitive proxy statement for the 2000 Annual
Meeting of Stockholders to be held on September 14, 2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT
Information required by this item is incorporated by reference to the
information under the caption "Principal Stockholders" in the Company's
definitive proxy statement for the 2000 Annual Meeting of the Stockholders to be
held on September 14, 2000.
Item 12. Certain Relationships and Related Transactions
During fiscal 2000, the Company did not have any material transactions with
related or affiliated officers and directors.
29
<PAGE>
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following are attached as Exhibits to this Form 10-KSB:
<TABLE>
<S> <C>
3.1 Articles of Incorporation(1)
3.2 Bylaws(1)
10.1 AML Communications, Inc. Stock Incentive Plan(1)
10.2 Form of Incentive Stock Option Agreement(1)
10.3 Form of Non-employee Director Incentive Stock Option Agreement(1)
10.4 Incentive Stock Option Agreement, dated August 1, 1994, between the Company and Jacob Inbar.(7)
10.5 Stock Option Agreement, dated December 15, 1995, between the Company and David A. Derby.(7)
10.6 Stock Option Agreement, dated August 28, 1996, between the Company and David A. Derby.(7)
10.7 Stock Option Agreement, dated December 15, 1995, between the Company and Richard W. Flatow.(7)
10.8 Stock Option Agreement, dated August 28, 1996, between the Company and Richard W. Flatow.(7)
10.9 Incentive Stock Option Agreement, dated April 28, 1997, between the Company and Kirk A. Waldron.(7)
10.10 Form of Indemnity Agreement(1)
10.11 Standard offer, Agreement and Escrow Instructions for Purchase of Real Estate dated January 30,
1996, between the Company and Parr-Bohn Properties, Ltd. II, a California Limited Partnership(2)
10.12 Lease, dated March 11, 1996, between the Company and Parr-Bohn Properties, Ltd. II, a California
Limited Partnership(3)
10.13 Business Loan Agreement dated August 2, 1996, between the Company and Bank of America National
Trust and Savings Association (4)
10.14 Security Agreement dated August 2, 1996, between the Company and Bank of America National Trust and
Savings Association(4)
10.15 Amendment No. 1 dated September 2, 1997 to Business Loan Agreement dated August 2, 1996 between the
Company and Bank of America National Trust and Savings Association(5)
10.16 Stock Incentive Plan of AML Communications, Inc., as Amended and Restated on June 24, 1998 (6)
10.17 Form of amended Non-employee Director Stock Option Agreement. (6)
10.18 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. (6)
10.19 Change in Control Agreement dated August 25, 1998 between the Company and Kirk A. Waldron.(8)
10.20 Employment Agreement dated February 23, 1999 between the Company and Jacob Inbar.(8)
10.21 Employment Agreement dated February 23, 1999 between the Company and Tiberiu Mazilu (8)
10.22 Employment Agreement dated February 23, 1999 between the Company and Edwin J. McAvoy.(8)
10.23 Loan and Security Agreement dated October 26, 1999 between the Company and Silicon Valley Bank. (9)
10.24 Intellectual Property Security Agreement.(9)
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
(1) Previously filed with the Securities and Exchange Commission as an exhibit to the Registration Statement on Form
SB-2 No. 33-99102-LA and incorporated herein by reference
(2) Previously filed with the Securities and Exchange Commission as an exhibit to Current Report on Form 8-K of the
Company, as filed with the Securities and Exchange Commission on March 13, 1996, and incorporated herein by
reference
(3) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Form 10-KSB for
fiscal year ended March 31, 1996 and incorporated herein by reference
(4) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Form 10-QSB for the
quarter ended September 30, 1997 and incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Form 10-QSB for the
quarter ended September 30, 1998 and incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Form 10-KSB for the
fiscal year ended March 31, 1998 and incorporated herein by reference.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
(8) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Form 10-KSB for the
fiscal year ended March 31, 1999 and incorporated herein by reference
(9) Previously filed with the Securities and Exchange Commission as an exhibit to the Company's Form 10-QSB for the
quarter ended December 31, 1999 and incorporated herein by reference.
</TABLE>
(b) Reports on Form 8-K
None.
31
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AML Communications, Inc.
By: /s/ Kirk A. Waldron Dated: June 29, 2000
------------------------------- ----------------
Kirk A. Waldron
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
------------------------------- ------------------------- -------------
<S> <C> <C>
/s/ Jacob Inbar Chairman of the June 29, 2000
------------------------------- Board -------------
Jacob Inbar
/s/ Kirk A. Waldron President, Chief June 29, 2000
------------------------------- Executive Officer and -------------
Kirk A. Waldron Director
/s/ Scott T. Behan Secretary, Executive Vice June 29, 2000
------------------------------- President-Engineering, -------------
Scott T. Behan and Director
/s/ David A. Swoish Controller and Chief June 29, 2000
------------------------------- Accounting Officer -------------
David A. Swoish
/s/ David A. Derby Director June 29, 2000
------------------------------- -------------
David A. Derby
/s/ Richard W. Flatow Director June 29, 2000
------------------------------- -------------
Richard W. Flatow
/s/ Gerald M. Starek Director June 29, 2000
------------------------------- -------------
Gerald M. Starek
</TABLE>
32
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Articles of Incorporation(1)
3.2 Bylaws(1)
10.1 AML Communications, Inc. Stock Incentive Plan(1)
10.2 Form of Incentive Stock Option Agreement(1)
10.3 Form of Non-employee Director Incentive Stock Option Agreement(1)
10.4 Incentive Stock Option Agreement, dated August 1, 1994, between the Company and Jacob Inbar.(7)
10.5 Stock Option Agreement, dated December 15, 1995, between the Company and David A. Derby.(7)
10.6 Stock Option Agreement, dated August 28, 1996, between the Company and David A. Derby.(7)
10.7 Stock Option Agreement, dated December 15, 1995, between the Company and Richard W. Flatow.(7)
10.8 Stock Option Agreement, dated August 28, 1996, between the Company and Richard W. Flatow. (7)
10.9 Incentive Stock Option Agreement, dated April 28, 1997, between the Company and Kirk A. Waldron.(7)
10.10 Form of Indemnity Agreement(1)
10.11 Standard offer, Agreement and Escrow Instructions for Purchase of Real Estate dated January 30, 1996,
between the Company and Parr-Bohn Properties, Ltd. II, a California Limited Partnership(2)
10.12 Lease, dated March 11, 1996, between the Company and Parr-Bohn Properties, Ltd. II, a California Limited
Partnership(3)
10.13 Business Loan Agreement dated August 2, 1996, between the Company and Bank of America National Trust and
Savings Association(4)
10.14 Security Agreement dated August 2, 1996, between the Company and Bank of America National Trust and
Savings Association(4)
10.15 Amendment No. 1 dated September 2, 1997 to Business Loan Agreement dated August 2, 1996 between the
Company and Bank of America National Trust and Savings Association(5)
10.16 Stock Incentive Plan of AML Communications, Inc., as Amended and Restated on June 24, 1998 (6)
10.17 Form of amended Non-employee Director Stock Option Agreement. (6)
10.18 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. (6)
10.19 Change in Control Agreement dated August 25, 1998 between the Company and Kirk A. Waldron(8)
10.20 Employment Agreement dated February 23, 1999 between the Company and Jacob Inbar.(8)
10.21 Employment Agreement dated February 23, 1999 between the Company and Tiberiu Mazilu,(8)
10.22 Employment Agreement dated February 23, 1999 between the Company and Edwin J. McAvoy.(8)
10.23 Loan and Security Agreement dated October 26, 1999 between the Company and Silicon Valley Bank. (9)
10.24 Intellectual Property Security Agreement.(9)
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
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</TABLE>
(1) Previously filed with the Securities and Exchange Commission as
an exhibit to the Registration Statement on Form SB-2 No. 33-
99102-LA and incorporated herein by reference.
(2) Previously filed with the Securities and Exchange Commission as
an exhibit to Current Report on Form 8-K of the Company, as
filed with the Securities and Exchange Commission on March 13,
1996, and incorporated herein by reference.
(3) Previously filed with the Securities and Exchange Commission as
an exhibit to the Company's Form 10-KSB for fiscal year ended
March 31, 1996 and incorporated herein by reference.
(4) Previously filed with the Securities and Exchange Commission as
an exhibit to the Company's Form 10-Q for the quarter ended
September 30, 1996 and incorporated herein by reference.
(5) Previously filed with the Securities and Exchange Commission as
an exhibit to the Company's Form 10-QSB for the quarter ended
September 30, 1997 and incorporated herein by reference.
(6) Previously filed with the Securities and Exchange Commission as
an exhibit to the Company's Form 10-QSB for the quarter ended
September 30, 1998 and incorporated herein by reference.
(7) Previously filed with the Securities and Exchange Commission as
an exhibit to the Company's Form 10-KSB for the fiscal year
ended March 31, 1998 and incorporated herein by reference.
(8) Previously filed with the Securities and Exchange Commission as
an exhibit to the Company's Form 10-KSB for the fiscal year
ended March 31, 1999 and incorporated herein by reference.
33
<PAGE>
(9) Previously filed with the Securities and Exchange Commission as
an exhibit to the Company's Form 10-QSB for the quarter ended
December 31, 1999 and incorporated herein by reference.
34
