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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
-
ACT OF 1934
For the quarterly period ended: December 31, 1999 or
_ TRANSITION REPORT PURSUANT TO SECTION 13 0R 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 0-27252
AML COMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 77-0130894
- ------------------------------- ------------------
(State or Other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1000 Avenida Acaso
Camarillo, California 93012
--------------------- -----
(Address of principal executive offices) (Zip Code)
(805) 388-1345
--------------------------------
(Issuer's telephone number including area code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes __ No X
-
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Common Stock Outstanding as of February 2, 2000: 6,380,570
Transitional Small Business Disclosure Format: Yes No X
Number of pages in this Form 10-Q SB 14
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AML COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Statements of Operations for the three months and nine months ended
December 31, 1999 and December 31, 1998 3
Balance Sheets at December 31, 1999 and March 31, 1999 4
Statements of Cash Flows for the nine months ended 5
December 31, 1999 and December 31, 1998
Notes to the Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AML COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- ------------------------------------
December 31, December 31, December 31, December 31,
1999 1998 1999 1998
----------------- ------------------ ------------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 1,514,000 $ 2,005,000 $ 6,066,000 $ 6,653,000
Cost of goods sold 1,083,000 1,339,000 3,886,000 4,216,000
----------------- ------------------ ------------------ -----------
Gross profit 431,000 666,000 2,180,000 2,437,000
Operating expenses:
Selling, general & administrative 554,000 740,000 1,916,000 2,116,000
Research and development 436,000 801,000 1,229,000 2,090,000
----------------- ------------------ ------------------ -----------
Operating loss (559,000) (875,000) (965,000) (1,769,000)
Other income, net (65,000) (87,000) (195,000) (307,000)
----------------- ------------------ ------------------ -----------
Loss before benefit for (494,000) (788,000) (770,000) (1,462,000)
income taxes
Benefit for income taxes - (268,000) - (507,000)
----------------- ------------------ ------------------ -----------
Net loss $ (494,000) $ (520,000) $ (770,000) $ (955,000)
================= ================== ================== ===========
Basic and Diluted loss per share $ (0.08) $ (0.08) $ (0.12) $ (0.15)
================= ================== ================== ===========
Basic and Diluted weighted average number
of shares of common stock outstanding 6,266,000 6,288,000 6,266,000 6,286,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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AML COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------------- ----------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash and cash equivalents $ 4,857,000 $ 6,597,000
Accounts receivable, net of allowance for doubtful accounts of
$80,000 at December 31, 1999 and $42,000 at March 31, 1999 1,100,000 427,000
Inventories 2,400,000 1,783,000
Income taxes receivable 537,000 537,000
Other current assets 533,000 118,000
----------- -----------
Total current assets 9,427,000 9,462,000
Property and Equipment, at cost: 4,713,000 4,370,000
Less - Accumulated depreciation and amortization (2,826,000) (2,288,000)
----------- -----------
1,887,000 2,082,000
Deferred Taxes 288,000 288,000
Other Assets 14,000 114,000
----------- -----------
$11,616,000 $11,946,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 1,183,000 $ 558,000
Current portion of capital lease obligations 69,000 60,000
Accrued expenses:
Accrued payroll and payroll related expenses 311,000 349,000
Accrued commissions 51,000 40,000
Other accrued liabilities 225,000 364,000
----------- -----------
Total current liabilities 1,839,000 1,371,000
Capital Lease Obligations, net of current portion 154,000 185,000
Stockholders' Equity:
Preferred stock, $.01 par value:
1,000,000 shares authorized; no shares issued or outstanding - -
Common stock, $.01 par value:
15,000,000 shares authorized; 6,266,070 shares issued
and outstanding at December 31, 1999 and 6,260,129 shares issued and
outstanding at March 31, 1999 63,000 63,000
Capital in excess of par value 9,368,000 9,365,000
Less treasury stock: 114,500 shares, at cost (223,000) (223,000)
Retained earnings 415,000 1,185,000
----------- -----------
9,623,000 10,390,000
----------- -----------
$11,616,000 $11,946,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
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AML COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------------
December 31, December 31,
1999 1998
-------------------- -------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (770,000) $ (955,000)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 538,000 546,000
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (673,000) 253,000
Inventories (617,000) 357,000
Income tax receivable - (572,000)
Other assets (315,000) (56,000)
Increase (decrease) in:
Accounts payable 625,000 (114,000)
Accrued expenses (166,000) (401,000)
Income taxes payable - (5,000)
------------- -----------
Net cash used in operating activities (1,378,000) (947,000)
------------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment (343,000) (475,000)
------------- -----------
Net cash used in investing activities (343,000) (475,000)
------------- -----------
Cash Flows from Financing Activities:
Treasury stock repurchase - (224,000)
Proceeds from exercise of stock options 3,000 35,000
Principal payments on capital lease obligations (22,000) (15,000)
------------- -----------
Net cash used in financing activities (19,000) (204,000)
------------- -----------
Net decrease in Cash and Cash Equivalents (1,740,000) (1,626,000)
Cash and Cash Equivalents, beginning of period 6,597,000 8,608,000
------------- -----------
Cash and Cash Equivalents, end of period $ 4,857,000 $ 6,982,000
============= ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 23,000 $ 5,000
============= ===========
Income taxes $ - $ 190,000
============= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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AML COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(Unaudited)
1. Basis of Presentation
AML Communications, Inc. (the "Company") is a designer, manufacturer and
marketer of amplifiers and related products for the global wireless industry.
The company currently focuses on the following sectors of the wireless market:
cellular telephony, wireless local loop, personal communications services (PCS),
two way paging, low earth orbit satellite networks, and custom wireless
applications.
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles. However, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted or condensed pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
have been included. The results of operations and cash flows for the three and
nine month periods presented are not necessarily indicative of the results of
operations for a full year. These financial statements should be read in
conjunction with the Company's March 31, 1999 audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB.
2. Earnings Per Share
Basic earnings per share is computed by dividing net income or loss by the
weighted average number of shares outstanding for the year. "Diluted" earnings
per share is computed by dividing net income or loss by the total of the
weighted average number of shares outstanding plus, if applicable, the dilutive
effect of outstanding stock options (applying the treasury stock method).
3. Inventories
Inventories include costs of material, labor and manufacturing overhead and
are stated at the lower of cost (first-in, first-out) or market and consist of
the following:
December 31, March 31,
------------ ---------
1999 1999
---- ----
(Unaudited) (Audited)
Raw materials $1,401,000 $1,217,000
Work-in-process 691,000 343,000
Finished goods 308,000 223,000
---------- ----------
$2,400,000 $1,783,000
========== ==========
4. Legal Proceedings
As described in the Company's Form 10-KSB for the fiscal years ended March
31, 1998 and March 31, 1999, two purported class action lawsuits are pending in
federal and state court against the Company and certain of its current and
former officers and directors. 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 substantially identical. The complaints
allege that in order to profit from insider trading at artificially inflated
prices during the purported class period of April 10, 1996 to March 25, 1997,
the defendants engaged in a scheme to artificially inflate and maintain the
Company's stock price by disseminating materially false and misleading
information. Generally, plaintiffs allege
6
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that the Company failed to disclose adverse business trends, increasing
competition and difficulties associated with the development of new products.
In the federal action, Sussman v. AML Communications, Inc., et al.,
-------------------------------------------
U.S.D.C. Case No. 98-2010 CAS (Ex) (C.D. Cal.), four lead plaintiffs and co-lead
counsel were appointed on June 29, 1998 pursuant to The Private Securities
Litigation Reform Act of 1995. On September 3, 1998, plaintiffs filed an
amended complaint. The Company responded to the amended complaint by filing a
motion to dismiss the case. A hearing on the motion to dismiss was held on
February 8, 1999. The court took the motion under submission. On August 2,
1999, in light of the Ninth Circuit's decision in In re Silicon Graphics Sec.
---------------------------
Litig., 183 F.3d 970 (9th Cir. 1999), the court ordered plaintiffs to show cause
- ------
why their amended complaint should not be dismissed. On September 3, 1999, in
response to plaintiffs' motion for a stay of any determination of the motion to
dismiss until after a petition for rehearing in Silicon Graphics was decided,
----------------
the court stayed the action against the Company for 90 days. On October 27,
1999, the Ninth Circuit denied the petition for rehearing in Silicon Graphics.
----------------
All discovery is stayed unless and until it is determined that plaintiffs have
stated an actionable claim. With respect to the state action, all proceedings
have been stayed until the stay of discovery is lifted in the federal action.
In November, 1999, the parties reached a settlement in principle which is
intended to resolve fully both the federal and state actions. Counsel for the
parties currently are in the process of preparing settlement documents, which
shall be submitted to the federal court for preliminary approval of the
settlement. If the proposed settlement is consummated, the total amount of the
settlement would be covered by insurance and will not have a material adverse
impact on the Company's financial condition.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This quarterly report contains forward-looking statements which involve
risks and uncertainties. The Company's actual future results may differ
materially from the results discussed in the forward-looking statements. When
used in this report, the words "expects" "anticipates" and "estimates" and
similar expressions are intended to identify forward looking statements. Factors
that might cause a difference include, but are not limited to, product demand
and the rate of market acceptance, the effect of economic conditions, the impact
of competitive products and pricing, delays in product development, capacity and
supply constraints or difficulties, general business and economic conditions,
factors set forth in "Additional Factors That May Affect Future Results" and
other risks detailed in the Company's filings with the Securities and Exchange
Commission. AML Communications, Inc., undertakes no obligation to publicly
release any revisions to these forward looking statements to reflect events or
circumstances after the date this report is filed with the Securities and
Exchange Commission or to reflect the occurrence of unanticipated events.
Results of Operations
- ---------------------
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Net sales. Net sales for the three months ended December 31, 1999 were $1.5
million compared to net sales of $2.0 million in the three months ended December
31, 1998, a 25% decrease. The decrease in net sales is largely attributable to
the fulfillment of an order for Low Earth Orbit (LEO) satellite network
amplifiers during the three months ended December 31, 1998. Sales of the
Company's cellular products increased to $999,000, or 66.0% of net sales, for
the three months ended December 31, 1999, compared to $651,000, or 32.5% of net
sales, for the three months ended December 31, 1998. The increase in cellular
product sales can be attributed to increased sales for the Company's M30 product
line during the quarter. Sales of Wireless Local Loop ("WLL") products decreased
to $125,000, or 8.2% of net sales, during the three months ended December 31,
1999, compared to $188,000, or 9.4% of net sales, during the three months ended
December 31, 1998. Sales of PCS/paging products decreased to $162,000, or 10.7%
of net sales, for the three months ended December 31, 1999, compared to
$426,000, or 21.2% of net sales, for the three months ended December 31, 1998.
Sales of custom products for the three months ended December 31, 1999 was
$227,000, or 15.0% of net sales, compared to $217,000, or 10.8% of net sales, in
the three months ended December 31, 1998.
Gross profit. Gross profit for the three months ended December 31, 1999 was
$431,000 or 28.5% of net sales, compared to $666,000, or 33.2% of net sales, for
the three months ended December 31, 1998. Production costs increased to 71.5% of
net sales, for the three months ended December 31, 1999 compared to 66.8% of net
sales for the three months ended December 31, 1998. Gross profit decreased as a
result of insufficient absorption of overhead infrastructure and indirect costs
at lower sales volumes, and lower average selling prices for the Company's
products in the highly competitive market. The Company expects that this
pressure on selling prices for its current products will continue through the
foreseeable future.
Selling, general and administrative costs. Selling, general and
administrative costs for the three months ended December 31, 1999, decreased to
$554,000, or 36.6% of net sales, compared to $740,000 or 36.9% of net sales, for
the three months ended December 31, 1998. The decrease in cost is attributable
to the reduction in marketing and administrative personnel and its related
expenses, reduced commission expense at lower sales volumes, and lower
professional fees.
Research and development costs. Research and development costs for the
three months ended December 31, 1999 were $436,000, or 28.8% of net sales,
compared to $801,000, or 39.9% of net sales, for the three months ended December
31, 1998. The decrease is primarily due to reduced research and development
material cost and lower labor costs and its related expenses. The Company
continues to invest both material and labor in the design and development of new
products for the cellular, PCS, paging, and WLL communications markets
Other income, net. Other income for the three months ended December 31,
1999 was $65,000 compared to $87,000 for the three months ended December 31,
1998. The decrease is due mainly to a decrease in interest income as a result of
decreased average invested funds.
8
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Benefit for taxes. For the three months ended December 31, 1999, the
Company recorded no benefit for income taxes, compared to a benefit for income
taxes of $268,000, based on an effective tax rate of approximately 34%, for the
three months ended December 31, 1998. No benefit for income taxes was recorded
for the quarter since the Company has utilized all carry-back benefits during
the 1999 fiscal year. The difference between the rate used and the statutory
rate of approximately 40% is due to research and development tax credits
available to the Company which reduce taxes payable and tax benefits associated
with the exercise of employee stock options.
Net loss. For the reasons set forth above, the Company generated net loss
in the third quarter of fiscal 2000 of $494,000, or 32.6% of net sales, compared
to a net loss of $520,000, or 25.9% of net sales, in the third quarter of fiscal
1999.
Nine Months Ended December 31, 1999 Compared to Nine Months Ended December 31,
1998
Net sales. Net sales for the nine months ended December 31, 1999 were $6.1
million compared to net sales of $6.7 million in the nine months ended December
31, 1998, an 8.8% decrease. The decrease in net sales is largely attributable to
the Company's fulfillment of a contract for amplifiers for the LEO satellite
network totaling $523,000 or 7.8% of net sales for the nine months ended
December 31, 1998. Sales of the Company's PCS/paging products, contributed
$910,000, or 15.0% of net sales, for the nine months ended December 31, 1999,
compared to $2.1 million or 30.8% of net sales, for the nine months ended
December 31, 1998. The decrease in the PCS/paging product sales can be
attributed to the Company fulfilling a large contract to a single customer
during the first quarter of fiscal 1999. Sales of cellular products increased to
$4.0 million, or 66.1% of net sales, for the nine months ended December 31 1999,
compared to $2.9 million, or 42.8% of net sales, for the nine months ended
December 31, 1998. The increase in cellular sales is due to greater short-term
demand for the Company's existing cellular products. Sales of WLL products
increased to $605,000, or 10.0% of net sales, during the nine months ended
December 31, 1999, compared to $424,000, or 6.40% of net sales, during the nine
months ended December 31, 1998. The increase in WLL sales is due to increased
shipment levels of the Company's product for the first nine months of the year.
Sales of custom products contributed $543,000, or 9.0% of net sales for the nine
months ended December 31, 1999 compared to $810,000, or 12.2% of net sales, in
the nine months ended December 31, 1998. The reduction in custom product sales
reflects the Company's previous decision to move away from the custom sales
segment of the market. During the second and third quarters of fiscal 2000, the
Company embarked on a program to return to the custom sales segment and the
Company believes it will see increased custom revenues from its efforts.
Gross profit. Gross profit for the nine months ended December 31, 1999 was
$2.2 million or 35.9% of net sales, compared to $2.4 million, or 36.6% of net
sales, for the nine months ended December 31, 1998. Production costs increased
in aggregate to $3.9 million, or 64.1% of net sales for the nine months ended
December 31, 1999 compared to $4.2 million, or 63.4% of net sales, for the nine
months ended December 31, 1998. Gross profit decreased as a result of lower
sales volumes, lower average selling prices and gross margins for the Company's
products in the highly competitive market, and insufficient absorption of
overhead and indirect costs.
Selling, general and administrative costs. Selling, general and
administrative costs for the nine months ended December 31, 1999, were $1.9
million, or 31.6% of net sales, compared to $2.1 million, or 31.8% of net sales,
for the nine months ended December 31, 1998. The difference is primarily due to
the reduction in marketing and administrative personnel and its related expenses
and lower professional fees. These cost reductions were offset by increases due
to higher commission rates for outside sales representatives and additional
travel costs to promote the Company and its products. The Company believes sales
and marketing costs will increase is necessary to promote the Company's products
due to the intensely competitive nature of the industry.
Research and development costs. Research and development costs for the nine
months ended December 31, 1999 were $1.2 million, or 20.3% of net sales,
compared to $2.1 million, or 31.4% of net sales, for the nine months ended
December 31, 1998. The decrease is primarily due to lower research and
development material costs and reduced labor costs. The Company continues to
invest both material and labor in the design and development of new products for
the cellular, PCS, paging, and WLL communications markets.
Other income, net. Other income for the nine months ended December 31, 1999
was $195,000 compared to $307,000 for the nine months ended December 31, 1998.
The decrease is due mainly to a decrease in interest income as a result of
decreased average invested funds.
9
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Benefit for taxes. For the nine months ended December 31, 1999, the Company
recorded no benefit for income taxes, compared to a benefit for income taxes of
$507,000, based on an effective tax rate of approximately 34%, for the nine
months ended December 31, 1998. No benefit for income taxes has been recorded in
fiscal 2000 since the Company has utilized all carry-back benefits during the
1999 fiscal year. The difference between the rate used and the statutory rate of
approximately 40% is due to research and development tax credits available to
the Company which reduce taxes payable and tax benefits associated with the
exercise of employee stock options.
Net loss. For the reasons set forth above, the Company generated net loss
in the nine months ended December 31, 1999 of $770,000, or 12.7% of net sales,
compared to a net loss of $955,000, or 14.4% of net sales, for the nine months
ended December 31, 1999.
Liquidity and Capital Resources
- -------------------------------
Historically, the Company has financed its operations primarily from
internally generated funds and, to a lesser extent, loans from stockholders and
capital lease obligations. In December 1995, the Company completed its initial
public offering of 1,725,000 shares of common stock (including the exercise of
the underwriters' over allotment option), raising net proceeds of approximately
$7.7 million. Of such net proceeds, $425,000 was used to repay loans from
certain stockholders and the remainder has been used to expand manufacturing
capability through the leasing and outfitting of substantially larger
facilities, the acquisition of equipment sufficient to produce higher product
quantities and the employment and training of additional employees capable of
expanding production and sales. The net proceeds of the initial public offering
have also been used to maintain inventory and working capital balances.
On August 10, 1998, the Company announced that its board of directors
authorized a stock buyback program of up to 400,000 shares of the Company's
outstanding common stock. Shares repurchased pursuant to the buyback will be
purchased from time to time in the open market or in negotiated transactions and
will be held for issuance in connection with the future exercise of employee
stock options. The Company repurchased 114,500 shares at an aggregate cost of
$223,000 during fiscal 1999. The Company did not repurchase any additional
shares during the first nine months of fiscal 2000.
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 (prime rate) 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 plus 1.50%. Both facilities are secured primarily by all of the
Company's assets and expire on October 26, 2000. As of December 31, 1999, the
Company has not borrowed from either facility.
At December 31, 1999 the Company had $4.9 million in cash and cash
equivalents. The Company's operating activities used cash of approximately $1.4
million for the nine months ended December 31, 1999 primarily as a result of a
loss from operations, an increase in receivables, and an increase in
inventories. The Company's capital expenditures of $343,000 for the nine months
ended December 31, 1999 were primarily for manufacturing test equipment,
information system improvements and leasehold improvements.
The Company believes that the net proceeds from the initial public offering
and the cash provided by 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.
Year 2000 Compliance Issue
- --------------------------
10
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The Company uses computer software programs purchased from various
independent vendors who may have written their programs using a two digit date
field rather than a four digit date field to define the applicable year. Such
computer programs which utilize a two digit date field may recognize a date
using "00" as the year 1900 rather than the year 2000 (the "Year 2000 Issue").
The Year 2000 Issue could potentially result in a system failure or in
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices or engage in other
similar normal business activities.
The Company has identified the Year 2000 Issue in certain of its computer
software applications and has upgraded or replaced such applications with
software which, according to representations from the software providers,
recognize two digit date fields "00" as the year 2000. The Company has tested
all such applications that have been represented by software providers to be
year 2000 compliant. The Company's assessment of its internal information
technology systems has resulted in the replacement of all non-compliant systems.
The cost of upgrading or replacing such applications has not had a material
effect on the operations of the Company and has been funded through operating
cash flows.
The Company has contacted its key customers, suppliers, and other third
parties with whom the Company exchanges electronic information to determine the
impact, if any, the Year 2000 Issue has had on their information technology
systems, which in turn, would have an impact on the Company. The Company has
reviewed the responses from its key customers, suppliers, and other third
parties and assessed that there has not been any impact to the Company. However,
there can be no assurance that such customers, suppliers or third parties will
not suffer business disruptions due to the Year 2000 Issue in the future. Such
failures could have a material adverse effect on the Company's business, results
of operations and financial condition.
Because the Company has upgraded or replaced the computer software
applications which run most of its information technology systems (said software
has been represented by the software providers not to be affected by the Year
2000 Issue) the Company did not develop Year 2000 specific contingency plans.
The Company intends to develop such plans if it identifies a business function
at risk. The Company does not currently anticipate that the affects of the Year
2000 Issue will have a material effect on its business, results of operations,
or financial condition.
Additional Factors That May Affect Future Results
- ---------------------------------------------------
Future operating results may be impacted by a number of factors that could
cause actual results to differ materially from those stated herein, which
reflect management's current expectations. These factors include: industry
specific factors (including the reliance upon continued growth of the wireless
communications market, significant competition in the communications
infrastructure equipment industry characterized by rapid technological change,
new product development, product obsolescence and significant price erosion over
the life of a product), our ability to timely develop and produce commercially
viable products at competitive prices, the ability of our products to operate
and be compatible with various OEM base station equipment, our ability to
produce products which meet the quality standards of both existing and potential
new customers, our ability to accurately anticipate customer demand, our ability
to manage expense levels, the availability and cost of components, our ability
to finance our activities and maintain our financial liquidity and worldwide
economic and political conditions.
We believe that, to the extent that foreign sales are recognized, we may
face increased risk associated with political and economic instability,
compliance with foreign regulatory rules governing export requirements, tariffs
and other trade barriers, differences in intellectual property protections,
longer accounts receivable cycles, currency fluctuations and general trade
restrictions. If any of these risks materialize, they could have a material
adverse effect on our business, results of operations and financial condition.
We have identified potential new customers serving new markets in developing
countries. Our WLL products offer a viable alternative to the construction of a
wireline infrastructure in such areas. However, to the extent that our customers
delay development or deployment of WLL communications networks and/or technology
continues to evolve, we may experience a material adverse effect on our
business, results of operations and financial condition.
We have evaluated the credit exposure associated with conducting business
with foreign customers and have concluded that such risk is acceptable.
Nevertheless, any significant change in the economy or a deterioration in United
States trade relations or the economic or political stability of foreign markets
could have a material adverse effect on our business, results of operations and
financial condition.
11
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Sales to foreign customers are invoiced in U.S. dollars. Accordingly, we
currently do not engage in foreign currency hedging transactions. However, as we
expand further into foreign markets, greater risk associated with general
business, political and economic conditions in those markets, may be
experienced. At such time, we may seek to lessen our exposure through currency
hedging transactions. No assurance can be made that a currency hedging strategy
would be successful in avoiding currency exchange related losses. In addition,
should the relative value of the U.S. dollar in comparison to foreign currencies
increase, the resulting increase in the price of the Company's products to
foreign customers could result in decreased sales which could have a material
adverse impact on our business, results of operations and financial condition.
We experience significant price competition and expect price competition in
the sale of our products to remain intense. 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. Several of our 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 our competitors have, and potential future competitors
could have, substantially greater technical, marketing, distribution and other
resources than we do and have, or could have, greater name recognition and
market acceptance of their products and technologies.
We receive periodic order forecasts from our major customers who have no
obligation to purchase the forecasted amounts. Nevertheless, we maintain
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 our major customers purchase less than the forecasted
amounts, we will have higher levels of inventory than otherwise needed,
increasing the risk of obsolescence and we will have increased levels of
production staff to support such forecasted orders. Such higher levels of
inventory and increased employee levels could reduce our liquidity and could
have a material adverse effect on our business, results of operations and
financial condition.
The markets in which we and our customers compete are characterized by
rapidly changing technology, evolving industry standards and communications
protocols and continuous improvements in products and services. Our future
success depends on our ability to enhance our 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.
We believe that to remain competitive in the future we will need to continue to
develop new products, which will require the investment of significant financial
resources in new product development. In the event our newly developed products
are not timely developed or do not gain market acceptance, our business, results
of operations, and financial condition could be materially adversely affected.
12
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
As described in the Company's Form 10-KSB for the fiscal years ended March
31, 1998 and March 31, 1999, two purported class action lawsuits are pending in
federal and state court against the Company and certain of its current and
former officers and directors. 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 substantially identical. The complaints
allege that in order to profit from insider trading at artificially inflated
prices during the purported class period of April 10, 1996 to March 25, 1997,
the defendants engaged in a scheme to artificially inflate and maintain the
Company's stock price by disseminating materially false and misleading
information. Generally, plaintiffs allege that the Company failed to disclose
adverse business trends, increasing competition and difficulties associated with
the development of new products.
In the federal action, Sussman v. AML Communications, Inc., et al.,
-------------------------------------------
U.S.D.C. Case No. 98-2010 CAS (Ex) (C.D. Cal.), four lead plaintiffs and co-lead
counsel were appointed on June 29, 1998 pursuant to The Private Securities
Litigation Reform Act of 1995. On September 3, 1998, plaintiffs filed an amended
complaint. The Company responded to the amended complaint by filing a motion to
dismiss the case. A hearing on the motion to dismiss was held on February 8,
1999. The court took the motion under submission. On August 2, 1999, in light of
the Ninth Circuit's decision in In re Silicon Graphics Sec. Litig., 183 F.3d 970
---------------------------------
(9th Cir. 1999), the court ordered plaintiffs to show cause why their amended
complaint should not be dismissed. On September 3, 1999, in response to
plaintiffs' motion for a stay of any determination of the motion to dismiss
until after a petition for rehearing in Silicon Graphics was decided, the court
----------------
stayed the action against the Company for 90 days. On October 27, 1999, the
Ninth Circuit denied the petition for rehearing in Silicon Graphics. All
----------------
discovery is stayed unless and until it is determined that plaintiffs have
stated an actionable claim. With respect to the state action, all proceedings
have been stayed until the stay of discovery is lifted in the federal action.
In November, 1999, the parties reached a settlement in principle which is
intended to resolve fully both the federal and state actions. Counsel for the
parties currently are in the process of preparing settlement documents, which
shall be submitted to the federal court for preliminary approval of the
settlement. If the proposed settlement is consummated, the total amount of the
settlement would be covered by insurance and will not have a material adverse
impact on the Company's financial condition.
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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no current Reports on Form 8-K during the quarter
ended December 31, 1999.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AML Communications, Inc.
Date: February 4, 2000 /s/ David A. Swoish
-------------------------
David A. Swoish
Chief Accounting Officer and
Controller
(Principal Accounting Officer)
14
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<FISCAL-YEAR-END> MAR-31-2000 MAR-31-1999
<PERIOD-START> OCT-01-1999 OCT-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 4,857,000 6,982,000
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<RECEIVABLES> 1,180,000 1,436,000
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<DEPRECIATION> 2,826,000 2,109,000
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<OTHER-EXPENSES> 990,000 1,541,000
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<INTEREST-EXPENSE> (65,000) (87,000)
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