<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTER ENDED JUNE 29, 1996
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ________________ TO ________________
Commission File Number: 0-9856
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AM COMMUNICATIONS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 23-1922958
- ------------------------------- -----------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
1900 AM Drive, P. O. Box 9004, Quakertown, PA 18951-9004
- --------------------------------------------- -----------------
(Address of principal executive offices) Zip Code
(215) 536-1354
-----------------------------
(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, 1996, there were 31,035,296 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.
<PAGE>
AM COMMUNICATIONS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 29, 1996
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
Balance Sheets - June 29 (Unaudited) and March 30, 1996 3
Statements of Operations - Quarters Ended June 29, 1996 4
and July 1, 1995 (Unaudited)
Statements of Cash Flows - Quarters Ended June 29, 1996 5
and July 1, 1995 (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
AM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 29, March 30,
1996 1996
--------------- --------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 416,000 $ 664,000
Accounts Receivable, Less Allowance for Doubtful
Accounts of $9,000 at June 29 and March 30,1996 1,598,000 1,588,000
Inventory 2,296,000 2,334,000
Prepaid Expenses and Other 154,000 112,000
Deferred Tax Asset 229,000 229,000
--------------- --------------
Total Current Assets 4,693,000 4,927,000
Equipment and Fixtures, Net 527,000 565,000
Intangibles, Net of Accumulated Amortization of
$474,000 at June 29 and $469,000 at March 30, 1996 57,000 54,000
Deferred Software Development Costs, Net of
Accumulated Amortization of $495,000 at
June 29 and $462,000 at March 30, 1996 129,000 162,000
Deferred Tax Asset, Net 707,000 707,000
Other 20,000 20,000
--------------- --------------
Total Assets $ 6,133,000 $ 6,435,000
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Capital Lease Obligations $ 63,000 $ 63,000
Accounts Payable 872,000 1,233,000
Advances 18,000 39,000
Accrued and Other Expenses 318,000 375,000
--------------- --------------
Total Current Liabilities 1,271,000 1,710,000
--------------- --------------
Capital Lease Obligations - Long Term 95,000 110,000
--------------- --------------
Total Liabilities $ 1,366,000 $ 1,820,000
--------------- --------------
Commitments and Contingencies
Stockholders' Equity:
Senior Convertible Redeemable Preferred Stock,
$100 Par Value, Authorized 1,000,000 Shares;
Issued and Outstanding 25,825 Shares at June 29
and March 30, 1996 2,583,000 2,583,000
Common Stock, $.10 Par Value, Authorized
40,000,000 Shares at June 29 and March 30, 1996;
Issued and Outstanding 31,011,296 at June 29
and 30,962,962 at March 30, 1996 3,101,000 3,096,000
Capital in Excess of Par 30,955,000 30,940,000
Accumulated Deficit (31,872,000) (32,004,000)
--------------- --------------
Stockholders' Equity 4,767,000 4,615,000
--------------- --------------
Total Liabilities and Stockholders' Equity $ 6,133,000 $ 6,435,000
=============== ==============
</TABLE>
See Notes to Financial Statements
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
June 29, July 1,
1996 1995
----------------- ----------------
<S> <C> <C>
Revenues:
Product Sales $ 2,462,000 $ 1,290,000
Costs and Expenses:
Cost of Sales 1,068,000 550,000
Selling, General and Administrative 532,000 448,000
Research and Development 729,000 580,000
----------------- ----------------
Operating (Loss) Income 133,000 (288,000)
Other (Income) Expense 1,000 (20,000)
----------------- ----------------
Income (Loss) Before Income Taxes 132,000 (268,000)
Income Tax Provision (Benefit) --- (112,000)
----------------- ----------------
Net Income (Loss) $ 132,000 $ (156,000)
================= ================
Earnings (Loss) Per Weighted Average Common
and Common Equivalent Share $ Nil $ Nil
================= ================
Weighted Average Common and Common
Equivalent Shares Outstanding Used in
Computing Earnings (Loss) Per Share 35,329,000 33,791,000
================= ================
</TABLE>
See Notes to Financial Statements
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
June 29, July 1,
1996 1995
----------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 132,000 $ (156,000)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided By (Used in) Operating Activities:
Depreciation and Amortization 107,000 69,000
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable (10,000) 118,000
Inventory 38,000 (1,227,000)
Prepaid Insurance and Other (42,000) 5,000
Deferred Income Tax --- (112,000)
Accounts Payable (361,000) 282,000
Advances (21,000) ---
Accrued and Other Expenses (57,000) (427,000)
--------------- --------------
Net Cash Used In Operating Activities (214,000) (1,448,000)
--------------- --------------
Cash Flow From Investing Activities:
Purchase of Equipment & Intangible Assets (39,000) (177,000)
--------------- --------------
Net Cash Used in Investing Activities (39,000) (177,000)
--------------- --------------
Cash Flows from Financing Activities:
Exercise of Warrants and Stock Options 20,000 2,632,000
Payments Under Capital Lease Obligations (15,000) ---
--------------- -----------
Net Cash Provided By Financing Activities 5,000 2,632,000
-------------- -------------
Net Increase (Decrease) in Cash (248,000) 1,007,000
Cash:
Beginning 664,000 454,000
-------------- -------------
Ending $ 416,000 $ 1,461,000
============== =============
Interest Paid $ 5,000 $ ---
-------------- -------------
Income Taxes Paid $ --- $ 19,000
-------------- -------------
</TABLE>
See Notes to Financial Statements
<PAGE>
AM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
As of June 29, 1996 and for The Quarters Ended
June 29, 1996 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 June 29, 1996 and
the related Statements of Operations and Statements of Cash Flows for the
quarters ended June 29, 1996 and July 1, 1995 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.
June 29, March 30,
1996 1996
------------- -------------
(Unaudited)
2. Inventory Comprises:
Raw Material $ 2,366,000 $ 2,205,000
Work-in-Process 941,000 1,087,000
Finished Goods 257,000 310,000
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3,564,000 3,602,000
Inventory Reserves (1,268,000) (1,268,000)
------------- -------------
Net Inventory $ 2,296,000 $ 2,334,000
============= =============
3. Accrued Expenses Comprise:
Accrued Compensation $ 132,000 $ 182,000
Accrued Professional Fees 33,000 32,000
Warranty Reserve 25,000 25,000
Other 128,000 136,000
------------- -------------
$ 318,000 $ 375,000
============= =============
<PAGE>
4. Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109.
The provision (benefit) for taxes on income consisted of:
Quarters Ended
-----------------------------------
June 29, July 1,
1996 1995
------------- ------------
Current Income Taxes $ --- $ ---
Deferred Income Taxes 37,000 (112,000)
Change in Valuation Allowance (37,000) ---
------------- ------------
Net $ --- $ (112,000)
============= ============
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>
<CAPTION>
Quarters Ended
---------------------------------
June 29, July 1,
1996 1995
--------------- -------------
<S> <C> <C>
Federal Income Tax Provision at Statutory Rate $ 45,000 $ (91,000)
State Income Taxes, Net of Federal Benefit 9,000 (21,000)
Utilization of Net Operating Loss Carryforwards (50,000) ---
Research and Development Credits (13,000) ---
Other 9,000
--------------- -------------
Income Tax Provision $ --- $ (112,000)
=============== =============
</TABLE>
The components of the net deferred tax asset as of June 29 and
March 30 were as follows:
<TABLE>
<CAPTION>
June 29, July 1,
1996 1995
--------------- -------------
<S> <C> <C>
Deferred Tax Items:
Inventory $ 515,000 $ 515,000
Accrued Expenses and Reserves 98,000 98,000
Net Operating Loss Carryforwards 6,819,000 6,869,000
Tax Credit Carryforwards 539,000 526,000
Valuation Allowance (7,035,000) (7,072,000)
--------------- --------------
Net Deferred Tax Assets $ 936,000 $ 936,000
=============== ==============
</TABLE>
The Company has total net operating loss carryforwards available to offset
future taxable income of $25.5 million expiring at various times from 1996 to
2011. Due to certain statutory limitations under Internal Revenue Code Section
382, only $19.6 million of such carryforwards are available at June 29,1996. The
remaining carryforwards of $5.9 million will become available ratably over the
carryforward period.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Operations
Results of Operations
The Company's operations continue to be focused on developing and marketing
its OmniStat, next generation status monitoring system which includes new
software, master control unit, and monitors. The Company's existing legacy
products are primarily responsible for generating the current revenue levels and
are compatible with the OmniStat system. The Company's future is heavily
dependent on the success of the OmniStat system in the marketplace and the
support of the industry leading OEM's. Accordingly, the Company continues to
invest heavily in research and development for OmniStat and support of its OEM
relationships.
Revenues
Revenues for the first quarter ended June 29, 1996 were $2.5 million,
representing a 91% increase over the $1.3 million reported in the comparable
quarter a year ago. The increase in revenues is attributable to increased demand
for the Company's status monitoring products from both OEM customers and direct
sales to CATV operators. The Company has benefited from new product
introductions, including new OEM monitors and the new OmniStat next generation
monitoring system, which have improved the Company's ability to compete.
Revenues from OEM relationships, primarily General Instrument, Lucent
Technologies, and Philips Broadband Networks comprised 52% of revenues compared
to 42% in the year ago quarter.
As disclosed in the Company's 1996 Form 10-KSB, revenues from Lucent
Technologies, a major OEM customer, which contributed 60% of fiscal 1996
revenues and 17% in the recent first quarter, were impacted by the cancellation
of open orders totaling $2 million. In June 1996, the Company reached agreement
with Lucent which will provide cash payments to AM sufficient to recover the
remaining carrying cost of inventory related to this matter. As a result, the
Company expects future revenues from Lucent to be minimal in the near term.
Backlog at July 29, 1996 was $1.9 million down from $4.6 million at July
30, 1995 due principally from the cancellation of open orders from Lucent. The
Company continues to pursue new business opportunities and believes that demand
for the Company's products will continue to grow. The Company has several new
products, including OEM products for Philips, ADC, and Scientific Atlanta for
which initial orders have been received or that orders are expected within this
fiscal year. However, there can be no assurance that these opportunities will be
sufficient to replace the volume of business related to Lucent as described
above and that revenues and operating results in the near-term will be
negatively impacted.
Cost of Sales
Cost of sales includes manufacturing costs of the Company's hardware
products. Cost of sales represented 43% of revenues in the first quarters of
fiscal 1997 and 1996. The Company's margins are generally dependent on product
and customer mix, with sales to OEM customers generally having a lower profit
margin.
8
<PAGE>
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses were $532,000 in the
first quarter of fiscal 1997 compared to $448,000 in the first quarter of fiscal
1996, representing a 19% increase. Expenses increased in fiscal 1997 due to
increased marketing and sales costs, primarily increased promotional costs and
staff additions related to expanded business opportunities. The Company expects
S,G&A expenses to increase in the future as it continues to expand its sales
force, field support and marketing activities and increases its administrative
staff to support increased growth opportunities world-wide.
Research and Development
Research and development expense increased $149,000 to $729,000 in the
first quarter of fiscal 1997, compared to $580,000 in the same period in fiscal
1996. Expenses increased in fiscal 1997 for both OEM products and continued
development on the OmniStat System. The Company expects to continue to increase
development expenditures in software and hardware development in response to
expanded customer interest in the Company's products.
Income Taxes
Due to the significant net operating loss carryforward, the Company pays
minimum income taxes which include state income taxes and limited federal income
taxes.
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, and significant capital costs.
Demand for the Company's monitoring products has increased as monitoring of
cable distribution systems has become an important factor in increasing
operating efficiency and reliability. 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 subject to risk.
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.
9
<PAGE>
Liquidity and Capital Resources
In the first quarter of fiscal 1997, the Company's operating activities
consumed net cash of $214,000 compared to cash used in operations of $1.5
million in the first quarter of fiscal 1996. The Company has been able to
operate with minimal cash requirements during the first quarter of fiscal 1997
due to profitable operations and a focus on minimizing inventory levels and
other working capital requirements.
As of June 29, 1996, the Company's cash totaled $416,000 compared to
$664,000 at March 30, 1996. In addition, the Company has reached agreement with
Lucent Technologies regarding their liability related to the cancellation of
open purchase orders, which is expected to provide approximately $1.5 million of
cash payable in the second quarter of fiscal 1997. Subsequent to June 29, 1996,
the Company received $300,000 related to the sale of warrants to purchase 1.5
million shares of the Company's stock. The Company believes that these sources
of liquidity, including projected cash flows from operations and the net
operating loss carryforwards, will satisfy the projected working capital and
capital expenditure requirements for at least the next twelve months.
Capital expenditures totaled $39,000 and $177,000 in the first quarter of
fiscal 1997 and 1996, respectively, which includes computers, and manufacturing
assembly and test equipment.
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 13, 1996 By: /s/ Keith D. Schneck
----------------- ----------------------
Keith D. Schneck
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-START> MAR-31-1996
<PERIOD-END> JUN-29-1996
<CASH> 416,000
<SECURITIES> 0
<RECEIVABLES> 1,598,000
<ALLOWANCES> 9,000
<INVENTORY> 2,296,000
<CURRENT-ASSETS> 4,693,000
<PP&E> 3,373,000
<DEPRECIATION> 2,846,000
<TOTAL-ASSETS> 6,133,000
<CURRENT-LIABILITIES> 1,271,000
<BONDS> 0
3,101,000
0
<COMMON> 2,583,000
<OTHER-SE> 30,955,000
<TOTAL-LIABILITY-AND-EQUITY> 6,133,000
<SALES> 2,462,000
<TOTAL-REVENUES> 2,462,000
<CGS> 1,068,000
<TOTAL-COSTS> 2,329,000
<OTHER-EXPENSES> (4,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> 132,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 132,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
