<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QS
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTER ENDED JULY 1, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission File Number: 0-9856
AM COMMUNICATIONS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 23-1922958
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(State or other jurisdiction of IR.'S. Employer Identification No.
incorporation or organization)
1900 AM Drive, P. Box 9004, Quakertown, PA 18951-9004
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(Address of principal executive offices) Zip Code
(215) 536-1354
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(Issuer's Telephone Number)
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
---- ----
On August 2, 1995, there were 30,412,961 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.
<PAGE>
AM COMMUNICATIONS, INC.
FORM 10-QS
FOR THE QUARTER ENDED JULY 1, 1995
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements
Balance Sheets - July 1 (Unaudited) and April 1, 1995 3
Statements of Operations - Quarters Ended July 1, 1995 4
and July 2, 1994 (Unaudited)
Statements of Cash Flows - Quarters Ended July 1, 1995 5
and July 2, 1994 (Unaudited)
Notes to Financial Statements 6, 7
Item 2. Management's Discussion and Analysis of Operations 8 - 10
PART II. OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K 10
<PAGE>
Item 1. Financial Statements
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AM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
July 1, April 1,
1995 1995
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<S> <C> <C>
ASSETS (Unaudited)
Current Assets:
Cash $ 1,461,000 $ 454,000
Accounts Receivable, Less Allowance for Doubtful
Accounts of $2,000 at July 1 and April 1, 1995 693,000 811,000
Inventory 2,587,000 1,360,000
Prepaid Insurance and Other 37,000 42,000
Deferred Tax Asset 341,000 229,000
------------ -----------
Total Current Assets 5,119,000 2,896,000
Equipment and Fixtures, Net 342,000 194,000
Intangibles, Net of Accumulated Amortization of
$470,000 at July 1 and $469,000 at April 1, 1995 56,000 57,000
Deferred Software Development Costs, Net of
Accumulated Amortization of $353,000 at
July 1 and $315,000 at April 1, 1995 271,000 308,000
Deferred Tax Asset, Net 707,000 707,000
Other 20,000 19,000
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$ 6,515,000 $ 4,181,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 884,000 $ 600,000
Advances 17,000 368,000
Accrued and Other Expenses 319,000 395,000
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Total Current Liabilities 1,220,000 1,363,000
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Commitments and Contingencies
Stockholders' Equity:
Senior Convertible Redeemable Preferred Stock.
$100 Par Value, Authorized; Issued and
Outstanding 25,825 Shares at July 1 and April 1,
1995 2,583,000 2,583,000
Common Stock, $.10 Par Value, Authorized
40,000,000 Shares; Issued and Outstanding
30,412,961 Shares at July 1 and 24,564,391
Shares at April 1, 1995 3,041,000 2,456,000
Capital in Excess of Par 30,730,000 28,682,000
Accumulated Deficit (31,059,000) (30,903,000)
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Stockholders' Equity 5,295,000 2,818,000
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$ 6,515,000 $ 4,181,000
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</TABLE>
See Notes to Financial Statements
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AM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
July 1, July 2,
1995 1994
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<S> <C> <C>
Revenues:
Product Sales $ 1,290,000 $ 785,000
Costs and Expenses:
Cost of Sales 550,000 327,000
Selling, General and Administration 448,000 253,000
Research and Development 580,000 154,000
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Operating (Loss) Income (288,000) 51,000
Other Income (Expense) 20,000 ---
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Income (Loss) Before Income Taxes (268,000) 51,000
Income Tax Provision (Benefit) (112,000) 6,000
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Net Income (Loss) (156,000) 45,000
============ ==============
Accumulated Deficit
Beginning of Quarter (30,903,000) (31,670,000)
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End of Quarter $31,059,000) $ (31,625,000)
============ ==============
Earnings Per Weighted Average Common
and Common Equivalent Share $ Nil $ Nil
=========== ==============
Weighted Average Common and Common
Equivalent Shares Outstanding Used in
Computing Earnings Per Share 33,791,000 28,823,000
=========== ==============
</TABLE>
See Notes to Financial Statements
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
July 1, July 2,
1995 1994
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<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (156,000) $ 45,000
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided By (Used in) Operating Activities:
Depreciation and Amortization 69,000 45,000
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable 118,000 394,000
Inventory (1,227,000) (231,000)
Prepaid Insurance and Other 5,000 8,000
Deferred Income Tax (112,000) --
Accounts Payable 282,000 (73,000)
Accrued and Other Expenses (427,000) 15,000
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Net Cash Provided by (Used In) Operating Activities (1,448,000) 203,000
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Cash Flows from Investing Activities:
Exercise of Warrants and Stock Options 2,632,000 --
Purchase of Equipment and Intangible Assets (177,000) --
Deferred Software Development Costs -- (52,000)
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Net Cash Provided By (Used In) Investing Activities 2,455,000 (52,000)
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Net Increase in Cash 1,007,000 151,000
Cash:
Beginning 454,000 190,000
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Ending $ 1,461,000 $ 341,000
============ ============
</TABLE>
See Notes to Financial Statements
<PAGE>
AM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
As of July 1, 1995 and for The Three Month Periods Ended
July 2, 1994 and July 1, 1995
1. The accompanying interim financial statements should be read in
conjunction with the annual financial statements and notes thereto
included in AM Communications, Inc.'s Annual Report. The Balance Sheet as
of July 1, 1995 and the related Statements of Operations and Statements of
Cash Flows for the quarters ended July 1, 1995 and July 2, 1994 are
unaudited, but in the opinion of management include all normal and
recurring adjustments necessary for a fair statement of the results for
such interim periods
<TABLE>
<CAPTION>
July 1, April 1,
1995 1995
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(Unaudited)
<S> <C> <C>
2. Inventory Comprises:
Raw Material $2,309,000 $1,572,000
Work-in-Process 1,075,000 610,000
Finished Goods 194,000 169,000
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Sub-total 3,578,000 2,351,000
Less Reserves for Obsolescence (991,000) (991,000)
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Net Inventory $2,587,000 $1,360,000
========== ==========
3. Accrued Expenses Comprise:
Accrued Compensation $ 168,000 $ 192,000
Commissions 6,000 3,000
Accrued Professional Fees 6,000 31,000
Warranty Reserve 20,000 20,000
Other 119,000 149,000
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$ 319,000 $ 395,000
========== ==========
</TABLE>
<PAGE>
4. Income Taxes:
Effective April 4, 1993, the Company adopted the Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
The provision for taxes on income consisted of:
<TABLE>
<CAPTION>
July 2, July 1,
1994 1995
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<S> <C> <C>
Current Income Taxes $ 6,000 $ --
Deferred Income Taxes 17,000 (112,000)
Change in Valuation Allowance (17,000) --
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Net $ 6,000 $(112,000)
======== =========
</TABLE>
A reconciliation between the provision for income taxes, computed by
applying the statutory federal income tax rate of 34% to income before
income taxes and the actual provision for income taxes follows:
<TABLE>
<S> <C> <C>
Federal Income Tax Provision at Statutory Rate $ 17,000 $ (91,000)
State Income Taxes, Net of Federal Benefit 6,000 (21,000)
Utilization of Net Operating Loss Carryforwards (17,000) --
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Income Tax Provision $ 6,000 $(112,000)
======== =========
</TABLE>
The components of the net deferred tax asset were as follows:
<TABLE>
<S> <C> <C>
Deferred Tax Items:
Inventory and Other $ 14,000 $ 443,000
Net Operating Loss Carryforwards 5,886,000 5,700,000
Tax Credit Carryforwards 521,000 521,000
Valuation Allowance (6,421,000) (5,616,000)
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Net Deferred Tax Assets $ -- $ 1,048,000
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</TABLE>
During fiscal 1995, the Company recorded a deferred tax asset in
accordance with FAS No. 109 to recognize a portion of the future income
tax benefits available.
The Company has total net operating loss carryforwards available to offset
future taxable income of $24.6 million expiring at various times from 1999
to 2008. Due to certain statutory limitations under Internal Revenue Code
Section 382, only $17.8 million of such carryforwards are available at
July 1, 1995. The remaining carryforwards of $6.8 million will become
available ratably over the carryforward period.
<PAGE>
Item 2. Management's Discussion and Analysis of Operations
Results of Operations
Revenues
For the first quarter ended July 1, 1995 revenues were $1.3 million, an
increase of 64% over the first quarter of fiscal 1995. The increase in
revenues is due to increased demand for the Company's status and performance
monitoring products and the Company's success in expanding its strategic OEM
relationships.
Backlog at July 3, 1995 totaled $4.7 million compared to $2.3 million at
July 4, 1994. The current backlog reflects a substantial amount of orders from
one major OEM customer.
Cost of Sales
Cost of sales represented 42.6% of revenues for the first quarter of
fiscal 1996 compared to 41.7% in the comparable prior year quarter. Cost of
sales is dependent on product mix and customer mix, with sales to OEM
customers generally having a lower profit margin.
During the first quarter of fiscal 1996, the Company expanded its
manufacturing operations in response to increased business levels including
hiring of additional staff and use of third party board assembly contractors.
Development costs charged to cost of sales were $19,200 and $31,200 for the
first quarter of fiscal 1996 and 1995, respectively. Development revenues
totaled $85,000 and $123,000 for the same periods.
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses were $448,000 for
the first quarter of fiscal 1996, up 77% from the $253,000 in the comparable
prior year period. Expenses increased due to increased marketing and sales
efforts including hiring of additional staff and expanded promotional efforts.
Administrative costs increased in response to increased business levels,
including staff additions and the establishment of a quality department.
Research and Development
Research and development expense was $580,000 for the first quarter of
fiscal 1995, an increase of 277% from the $154,000 for the first quarter of
fiscal 1995. The increase is due to substantial software and hardware
development costs incurred in the first quarter of fiscal 1996 including staff
additions and third party contractor costs. The Company has expanded its
software efforts to complete its OmniVu product, the next generation
monitoring software for use in principally all monitor products marketed by
the Company.
<PAGE>
Previously, software costs incurred by the Company were capitalized under
the requirements of FAS #2. The Company has reviewed its current status of
software development including its OmniVu project and other internal software
efforts and has determined that such current projects do not meet the criteria
for capitalization. Accordingly, the software development costs incurred
during the first quarter of fiscal 1996 totaling $262,000 were charged to
research and development expense compared to approximately $60,000 incurred
and capitalized in the first quarter of fiscal 1995. The Company expects that
significant software development efforts will continue through the remainder
of fiscal 1996.
Income Taxes
During fiscal 1995, the Company recorded a portion of its future
available income tax benefits as a deferred tax asset. The Company recorded
additional income tax benefits in the first quarter of fiscal 1996 based on an
estimated 42% effective tax rate for fiscal 1996.
Industry Factors
The cable and broadband communications industry is undergoing significant
change as cable television (CATV) operators begin to respond to the
competitive threat of telephone companies (telcos) entering the cable video
services market. This has resulted in CATV operators planning to expand and
upgrade their distribution infrastructures and telcos planning to construct
new distribution systems capable of providing telephone and video services.
There continues to be many unresolved issues and uncertainties impacting this
convergence of CATV and telecommunications industries including governmental
regulations, competing distribution technologies, significant capital costs
and others.
Demand for the Company's system status and performance monitoring
products has increased as monitoring of newer advanced distribution systems
has become an important factor in increasing the reliability of the services
provided by the service provider. The Company believes it is positioned
favorably to take advantage of opportunities in the evolving "information
superhighway", however, any increased demand for the Company's products
related to this changing environment is currently unknown.
In addition, the Company's operations are subject to the timing and
success of new product introductions and the scheduling of orders by
customers. Due to the effects of these factors on future operations, past
performance is a limited indicator in assessing potential future performance
and such factors could impact the trading price of the Company's common stock.
Financial Condition and Liquidity
Cash used in operating activities totaled $1,448,000 during the first
quarter of fiscal 1996 compared to cash generated from operations of $203,000
in the comparable prior year period. The primary use of cash was to fund a
$1.2 million increase in inventory. Inventory increased during the first
quarter of fiscal 1996 in response to current order levels and to enable the
Company to improve manufacturing lead times by purchasing long lead time items
for inventory.
<PAGE>
During April 1995, warrants to purchase a total of 5,848,470 shares of
common stock were exercised at $.45 per share with cash proceeds totaling
$1,781,009 (of which $351,473 was received in fiscal 1995 and reflected as an
advance pending exercise in April 1995) and an interest bearing $850,803 note
receivable provided by the majority shareholder due, June 30, 1995. The note
receivable was paid on the due date.
The Company has a $500,000 bank line of credit available for working
capital and other cash needs. The line contains restrictions and covenants and
is limited to a borrowing base formula based on accounts receivable and
available cash.
The Company believes that its existing sources of liquidity, including
projected cash flows from operations, the significant net operating loss tax
carryforward, the line of credit, and cash provided by the recent warrant
exercise will be sufficient to support its planned operations through fiscal
1996.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K have been filed for the period covered by this
report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AM COMMUNICATIONS, INC.
(Registrant)
Date: August 14, 1995 By: /s/ Keith D. Schneck
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Keith D. Schneck
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-01-1995
<PERIOD-START> APR-02-1995
<PERIOD-END> JUL-01-1995
<CASH> 1,461,000
<SECURITIES> 0
<RECEIVABLES> 695,000
<ALLOWANCES> 2,000
<INVENTORY> 2,587,000
<CURRENT-ASSETS> 5,119,000
<PP&E> 2,917,000
<DEPRECIATION> 2,575,000
<TOTAL-ASSETS> 6,515,000
<CURRENT-LIABILITIES> 1,220,000
<BONDS> 0
<COMMON> 3,041,000
0
2,583,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,515,000
<SALES> 1,290,000
<TOTAL-REVENUES> 1,290,000
<CGS> 550,000
<TOTAL-COSTS> 1,578,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (268,000)
<INCOME-TAX> (112,000)
<INCOME-CONTINUING> (156,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (156,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
