<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-KSB
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee Required) for the fiscal year ended March 29, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No Fee Required) for the transition period from to
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Commission File Number: 0-9856
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AM COMMUNICATIONS, INC.
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(Name of small business issuer in its charter)
Delaware 23-1922958
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Commerce Blvd, Quakertown, Pennsylvania 18951-2237
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (215)-538-8700
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Securities Registered Under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
None
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Securities Registered Under Section 12(g) of the Act:
Common Stock, $.10 Par Value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 which is not contained in this form, and no disclosure
will 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 fiscal year ended March 29, 1997 were $10,510,000.
On June 9, 1997, the aggregate market value of Registrant's outstanding
voting (Common) Stock held by non-affiliates, was approximately $5,990,936
(based on the average between the bid and the asked prices of such stock on that
date).
On June 9, 1997, there were 31,042,296 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.
<PAGE>
PART I
Item 1. Description of Business
AM Communications, Inc. (the "Company", "AM"), a Delaware Corporation,
designs, manufactures and markets network monitoring systems, which include
hardware and software, to the broadband communications market, primarily for
cable TV (CATV) systems. AM has applied its technical strengths in RF
communications, microprocessor controlled circuits and application software to
produce a proprietary system that allows CATV operators to monitor the
performance and operation of the complete broadband distribution network,
thereby enhancing network reliability and optimizing performance. The Company's
principal activity from its formation in 1974 to 1989 was the construction of
cable TV systems, which was discontinued in 1989. The Company's current products
have been the result of a diversification strategy undertaken during the late
1980's.
The Company's network monitoring systems are computer controlled devices
which monitor the condition and performance of cable TV and broadband
telecommunications systems. A monitoring system includes system software
installed on a PC, master control units, and transponders. These devices are
placed at various locations in a network and continuously monitor such functions
as signal levels and temperature and instantaneously report any problems, thus
enabling the operator of the system to pinpoint trouble spots and avoid or
minimize system downtime. The system software is installed on an IBM compatible
PC at the central monitoring location. The PC is connected to one or more Master
Control Units (MCU) typically located in the headend of a monitored system. The
MCU serves as a real-time "polling engine" for the software system and
communicates with remote monitors called "transponders" via a dedicated RF
frequency on the monitored broadband system. The MCU processes the PC's request
for information, communicates that request to the appropriate transponders, and
distills the response into a form that the PC will accept. The transponders are
data collection and control devices located in remote transmission equipment
(line amplifiers, power supplies, etc.), which can communicate with the MCU.
The Company also provides performance monitoring products designed to
assist cable TV operators in collecting and analyzing the data associated with
the mandated FCC system proof of performance tests and to assess operating
characteristics of the system at remote points. Performance monitoring units can
make frequency response measurements from 40 MHz through 1 GHz, can measure RF
levels against alarm limits, analyze noise, distortion, and hum, and measure
channel frequencies. They also perform real-time spectrum analysis and system
sweep measures, with the results displayed in high-resolution color graphics.
Current cable TV and broadband telecommunications systems are experiencing
significant change. The cable TV industry is undergoing a trend toward
consolidation as larger operators purchase systems from smaller operators. Cable
TV operators are also developing plans to expand their revenue base by offering
telephony services and other alternative video and multimedia services such as
video on demand, home shopping, interactive data services, distance learning,
home monitoring, etc. The U.S. telephone (telco) industry also has become
aggressive in their plans to enter the video services business by building new
communications networks capable of providing voice, video and data services. The
recent telecommunications legislation has further increased the competitive
environment among service providers.
2
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The communications network conceived to be able to handle the range of
voice, video and data being planned has been termed the "information
superhighway". Both CATV operators and telephone providers desiring to provide
video services recognize a need to upgrade their existing communications
networks to provide two-way transmission and receipt of services in the near
future in order to deliver the wide range of services planned. The Company has
experienced increased demand for status and performance monitoring products as
the monitoring function has become a critical component to improve operating
efficiencies and insure the reliability of the new communications networks.
In response to this recent increased demand for monitoring systems, the
Company significantly increased its development expenditures in fiscal 1996 and
1997, and during fiscal 1997 introduced the OmniStat(TM) System, an advanced
status monitoring system for broadband networks. The OmniStat(TM) system
represents the second generation of monitoring technology built on the Company's
legacy technical monitoring system platform.
OmniStat(TM) is a total integrated system comprised of hardware and
software products designed to address the evolving need for standards based
network management architectures. The product family consists of OmniVU(TM)
software, OmniProbe transponders, and the OmniMCU headend controller.
The OmniVU(TM) monitoring software is a multi-user, multi-tasking system
that runs under either Windows 95 or Windows NT. Features include Topologer, a
schematic-based display node that allows a user to view the status of regions,
systems, headends and distribution networks. The system is designed specifically
to address new market requirements for integrated, enterprise wide network
management systems and allows users to interface OmniVU(TM) to operation support
systems and other third party software applications. The Company commenced
shipment of its initial release of OmniVU(TM) in April 1996.
OmniProbe transponders are available for virtually every major brand and
type of network distribution equipment, including amplifiers, power supplies,
and optical nodes. The Company currently has over 40 different transponders and
has 10 currently in design. Products include new models with features such as
frequency agility communications and downloadable firmware and existing legacy
AM monitor products.
OmniProbe amplifier monitors are available for popular amplifier brands.
These transponders monitor amplifier internal currents, voltages, signal levels,
and temperature and perform certain control functions.
OmniProbe power supply transponders monitor and control the status of
standby power packs and provide notice of local power failures, state of
batteries, input and output voltages, output current demand, and enclosure
temperature and monitor the RF levels of the system monitoring communications
channels.
OmniProbe fiber node transponders monitor and control the operation of the
fiber optic node equipment and measure the optical power received by the node,
as well as the power supply voltages, currents, and temperature within the node.
Node monitors also allow remote control of the possible operational modes of the
node.
3
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The OmniMCU is based on an industrial PC platform, and features
intelligent, frequency agile RF modem cards manufactured by AM. The OmniMCU
polls transponders at the rate of 250 units/second, and processes transponder
alarms in less than 3 seconds, regardless of system size. Each OmniMCU can
control up to 10,000 OmniProbe transponders. The Company commenced shipment of
the OmniMCU during the first quarter of fiscal 1998.
The Company's strategy has been to form close working relationships with
the major OEM CATV network suppliers and to develop customized monitors which
meet the specific requirements, including size and performance characteristics,
for each type of network equipment offered. The Company's system is generally
inter-operable with most cable network distribution and transmission equipment.
The Company believes it has the broadest monitoring product line in the
monitoring industry.
In addition, several of the major network equipment suppliers have entered
into OEM agreements with AM to private label the AM product. The Company
currently has OEM agreements or provides OEM private label products to ADC
Communications, Lucent Technologies, General Instrument, Scientific-Atlanta and
Philips Broadband Systems.
There are several communications delivery technologies which can be
utilized in building the "information superhighway" communications network,
including hybrid fiber/coax (HFC), fiber-to-the curb (FTTC), wireless and
others. HFC technology is being utilized most extensively by the CATV providers
due to its economics and proven architecture and also has been recently chosen
by several telephone providers as the technology used to build their video
delivery systems. The Company's current products are substantially focused in
HFC architecture systems, however, the Company is undertaking a strategy to
broaden its product base. Should the industry adopt other competing
architectures or the Company be unsuccessful in broadening its product base, the
Company's revenue opportunities for its existing products could be adversely
affected.
The Company's business is not subject to marked seasonal fluctuation.
Major Customers
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Three customers in fiscal 1997 and two customers in fiscal 1996 accounted
for 10% or more of the Company's total revenues as follows: 18%, 15% and 14% in
fiscal 1997 and 60% and 12% in fiscal 1996. There is no assurance that any of
such customers will be the source of significant revenues to the Company during
the next fiscal year. The Company's customer base changes from year to year due,
in part, to industry rebuild and upgrade cycles.
Backlog
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At June 9, 1997, the Company's backlog of orders totaled $7.4 million as
compared with a backlog of $2.4 million as of June 11, 1996. All orders in the
backlog are expected to ship during fiscal 1998.
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Marketing and Markets
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The Company sells its products directly to end user customers through its
OEM (original equipment manufacturer) relationships, through its direct sales
force, and through independent sales representatives in selected international
markets. Beginning in fiscal 1996, the Company expanded its direct sales
strategy for the U.S. market by hiring direct sales staff to replace third party
sales representatives and expanding promotional advertising and trade show
participation which previously was limited. Promotional advertising and trade
show participation also play a key role in increasing customer awareness and
establishing brand recognition. Direct end user accounts are typically large
cable television systems where considerable time and technical support are
necessary to complete a sale and ensure proper installation and customer
satisfaction. The complex nature of the Company's products necessitates close
on-going marketing and technical engineering support for its direct end users,
OEM partners, and representatives. This is accomplished, when possible, through
telephone support but during initial product demonstration, installation and
subsequent after sale support, on site support by the Company's technical
personnel is required.
The Company's marketing activity is also directed towards establishing
strategic OEM relationships in which the OEM customer will purchase private
label versions of the Company's products and include them as part of an
integrated package to the OEM's customers. The OEM strategy allows the Company
to greatly expand its selling presence, particularly in the international
markets. The Company also utilizes its OEM relationships to assist in defining
new products. Direct end user customers and sales representatives generated 37%
of the Company's sales, and OEM partnerships generated 63% of sales during
fiscal 1997 compared to 27% and 73%, respectively in fiscal 1996.
Manufacturing and Supplies
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The Company purchases parts, components and subassemblies (some of which
are designed by the Company) necessary for its products from various suppliers,
primarily in the United States. These materials are then assembled by the
Company into finished products which often are integrated with standard
peripherals. The Company has recently begun to utilize third party vendors for
assembly of higher volume products. The Company develops the proprietary
hardware used to control various network systems, as well as the software for
such systems. The Company's operations also include extensive testing of its
systems and components.
The Company generally has multiple sources of supply for the various
component parts which it purchases. However, shortages or delayed deliveries of
certain components are possible and could have an adverse effect on the
Company's business.
Product Development
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Certain areas of the Company's business involve sophisticated technology
and undergo rapid technological change. The Company's ability to compete
successfully in these areas will depend upon the continued refining and
enhancing of its existing products and its development of new products.
5
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The Company currently maintains OEM agreements with or provides private
label versions of its products to ADC, General Instrument (GI), Lucent
Technologies (Lucent), Scientific Atlanta and Philips Broadband Networks
(Philips). Under these agreements, the Company generally designs customer
specific versions of its monitoring products and allows OEM's to purchase
private label versions of these products for resale. Development is undertaken
pursuant to an agreement which may include funding of a portion of the
development costs by the OEM. Revenue from custom development efforts specific
to original equipment manufacturers ("OEMs") is recognized as contractual
milestones are achieved. Under certain instances, the Company may market the OEM
specific products directly and pay the OEM a royalty. The OEM agreements do not
require the purchase of any minimum quantity of product. The OEM's generally
have rights to access the technology and manufacture the products provided by AM
should AM default on the Agreements.
The Company continues to work towards establishing new OEM relationships as
well as expanding existing relationships. Revenues from OEMs for research and
development totaled $667,000 and $456,000 in fiscal 1997 and 1996, respectively.
The Company's research and development costs totaled $4.0 million in fiscal
1997 and $2.2 million in fiscal 1996.
Competition
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The diversity of a provider's product lines, including compatibility with
OEM distribution equipment, product features, software, equipment reliability,
price, technical support and warranty terms is the major competitive factor in
the CATV network monitoring market. The Company has substantially increased its
spending in research and development and marketing during fiscal 1996 and fiscal
1997 and believes that it has improved its competitive position with respect to
these factors.
The network systems monitoring market is intensely competitive and the
Company must continue to invest significant amounts in technology development to
maintain or increase its market position.
The Company's major competitor for its monitoring system is Superior
Electronics, a Florida based company. The Company also competes with smaller OEM
suppliers who continue to market their own line of monitoring products.
The Company's family of status monitoring products is designed to be
compatible with many brands of amplifiers and power supplies. This has enabled
the Company to form business relationships with OEM suppliers who otherwise
would have been competitors but who chose to replace their status monitoring
equipment with a product developed by the Company.
6
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There can be no assurance that either existing or new competitors will not
develop products or provide services that are more advanced than the Company's
products or services or achieve greater market acceptance. Cable Labs, a CATV
industry standards setting committee, has recently formulated a committee to
work to establish technical standards for status monitoring systems. The goal of
the committee, in which the Company is a participant, is to develop a standards
based specification for a low cost monitor which would enable a more widespread
use of monitoring within CATV networks. The Company is unable to assess the
impact of these activities at the present time, however, the development of
standards for status monitoring could result in additional competitors offering
monitoring solutions or downward pressure on pricing and margins.
Warranties
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The Company warrants its products against defects in materials and
workmanship for up to five years for its performance/status monitoring products.
Warranties on these products are on a repair or replacement policy.
Patent Protection
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It is the Company's policy to seek patents on significant products and
systems where possible and to take other measures to protect proprietary
information concerning its products and systems. The Company holds several
patents relating to its status monitoring products.
Government Regulation
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The Company's manufacturing activities are not subject to any significant
direct governmental regulations, other than those generally applicable to
manufacturers.
Employees
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As of June 9, 1997, the Company had 90 full-time employees including 9 in
administration, 8 in marketing and sales, 42 in engineering, and 31 in
manufacturing. In addition, the Company utilizes contract employees and
temporary employees to meet peak production demands or special project needs.
Item 2. Description of Property.
The Company's office and production operations are located in Quakertown,
PA in a 40,000 sq. ft. modern leased facility. The Company's lease expires on
January 31, 2002.
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Item 3. Legal Matters.
On June 6, 1996, the Company was served with a lawsuit filed by Computer
Aid, Inc. in the District Court of Eastern PA. The lawsuit, which named the
Company and other parties, including Hewlett-Packard, Inc., as defendants,
alleged that the defendants acted to wrongfully assert dominion over and exploit
Computer Aid's software product, misappropriated trade secrets and prevented
Computer Aid from marketing its product. The suit sought damages in excess of
$100 million. After legal discovery, Computer Aid withdrew its lawsuit and
dismissed all claims against the Company on June 12, 1997.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Common Equity and Related Stockholders Matters.
The Company's Common Stock is traded in the over-the-counter market under
the symbol AMCM. The following table sets forth the closing bid quotations as
supplied by NASD market makers. These quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs or commissions and do not necessarily
represent actual transactions.
Bid Quotations
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Fiscal Quarter High Low
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1996
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First Quarter 2 1/2 1 1/8
Second Quarter 1 9/16 1
Third Quarter 13/16 3/4
Fourth Quarter 11/16 9/16
1997
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First Quarter 15/16 7/16
Second Quarter 7/8 5/8
Third Quarter 11/16 3/8
Fourth Quarter 13/16 1/2
As of June 9, 1997 there were approximately 1,026 holders of record of the
Company's Common Stock.
The Company has never declared nor paid any dividends on its Common Stock.
The Board of Directors currently intends to retain any earnings for use in the
Company's business, and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.
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Item 6. Management's Discussion and Analysis of Operations
AM Communications is a provider of high technology system level products
for the broadband communications industry, primarily for CATV monitoring and
control systems. In response to increased demand for network monitoring systems
from the CATV industry, the Company has undertaken a strategy over the past two
years to significantly upgrade and enhance its products and technology. This has
resulted in a significant expansion of research and development and marketing
expenditures for fiscal 1997 and 1996. During fiscal 1997, the Company commenced
shipment of its new OmniStat(TM) system which includes new application software,
a new control unit and new field transponders. The costs of developing this
system has resulted in large operating losses reported for fiscal 1997 and 1996.
See "Description of Business".
The Company expects to continue its level of commitment to expand its
business and anticipates revenue growth in fiscal 1998 due to the Company's
present backlog and expanded customer base. However, no assurance can be
provided that revenue levels will be sufficient to allow the Company to achieve
profitability.
Results of Operations
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Fiscal 1997 vs. 1996
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Fiscal 1997 Fiscal 1996
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Revenues 100.0% 100.0%
Costs of Sales 54.4 63.1
Selling, General and Administrative 24.6 23.6
Research and Development 38.5 26.7
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Operating Loss (17.5) (13.4)
Other Income (.1) (.3)
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Loss Before Income Taxes (17.4) (13.1)
Income Tax Provision (8.9) (--)
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Net Loss (26.3)% (13.1)%
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Revenues
Revenues for the fiscal year ended March 29, 1997 were $10.5 million,
representing a 26% increase compared to fiscal 1996 revenues. Revenues for the
fiscal year ended March 30, 1996 were $8.4 million, representing a 58.5%
increase compared to fiscal 1995 revenues. The increase in revenues during
fiscal 1997 is due to continued increased demand for the Company's status and
performance monitoring products and the Company's success in expanding its OEM
and CATV customer relationships. During fiscal 1997, the Company also introduced
several new products including the new OmniStat(TM) System and new monitors
developed as part of strategic OEM relationships. The Company maintains key
strategic OEM relationships with Lucent Technologies, ADC Communications,
General Instrument, and Philips and, in June 1996, signed an OEM agreement with
Scientific-Atlanta.
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The Company diversified its customer base in fiscal 1997 with three
customers individually contributing greater than 10% of revenues with the range
being 14% to 18% of revenues. During fiscal 1996, 60% of the Company's revenues
were derived from sales to one customer, Lucent Technologies. Revenues from this
customer dropped to 15% of revenues in fiscal 1997 and are expected to decline
in the future as the customer has curtailed the major project which involved the
Company's products.
Backlog at June 9, 1997 was $ 7.4 million, compared to $2.4 million at June
11, 1996 and $4.8 million at June 11, 1995. The increase in current backlog is
due to the expansion of the Company's customer base as a result of the expanded
marketing efforts which have added major new CATV operators and OEMs and the
introduction of the OmniStat(TM) monitoring system. The Company is currently
experiencing a significant increase in the volume (both quantity and dollar
value) of new sales opportunities, driven by increased demand world-wide from
both cable operators and major telephone providers which are entering the market
for video and data services.
Cost of Sales
Costs of sales includes manufacturing costs of the Company's hardware
products. Cost of sales represented 54.4% of revenues in fiscal 1997 compared to
63.1% in fiscal 1996. The Company's margins are generally dependent on product
mix and customer mix, with sales to OEM customers generally having a lower
profit margin. Gross margins improved in fiscal 1997 as the Company achieved
cost reductions in material costs, replaced the Lucent business with a higher
margin mix of new business, and did not require an increase in its inventory
reserves.
Cost of sales were impacted in fiscal year 1996 due to production
inefficiencies and higher costs in ramping new products to volume production.
This included excessive yield losses, product research, capacity limitations and
expediting costs. The Company also recorded an inventory reserve of $300,000 in
fiscal 1996 related to the costs of product transition to the new OmniStat(TM)
system.
Development and software revenues totaled $955,000 and $635,000 in fiscal
1997 and 1996, respectively. Development revenues primarily relate to OEM
development efforts which are recognized when defined milestones are reached,
the timing of which may be different from when the related development expenses
were incurred. The related development costs are reported as research and
development expense. All software development costs are changed to research and
development when incurred.
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses were $2.6 million in
fiscal 1997, compared to $2.0 million in fiscal 1996, representing a 31%
increase. Expenses increased in 1997 due to increased marketing and sales costs
related to expanded business opportunities, including establishment of a direct
sales strategy, added field application engineers and support of new OEM
customers. The Company expects S,G&A expenses to increase in the future, though
at more moderate pace, as it continues to support added OEM customers and new
customer efforts.
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Research and Development
Research and development expense increased $1.8 million to $4.0 million in
fiscal 1997, compared to $2.2 million in fiscal 1996. Expenses increased in
fiscal 1997 due to expanded OEM development efforts and expanded hardware and
software development efforts. These efforts resulted in the introduction, in
fiscal 1997, of the Company's OmniStat(TM) monitoring system. The Company
expects research and development activities to continue to increase, though at
more moderate levels, as it focuses on expanding development of new status
monitoring products and software and evaluation of technology opportunities in
related products and markets.
Operating Loss
The Company experienced significant operating losses of $1.8 million and
$1.1 million for fiscal 1997 and fiscal 1996, respectively. These losses were
primarily due to the increased levels of research and development and marketing
expenses as the Company developed and launched its OmniStat(TM) monitoring
system.
Income Taxes
Due to the significant net operating loss carry-forward, the Company pays
minimum income taxes which include state income taxes and limited federal income
taxes.
During fiscal 1997, the Company evaluated the carrying value of its
deferred tax asset which was recorded in fiscal 1995 and determined, after
consideration of the current year's loss, that this asset should be fully
reserved. Accordingly, an income tax expense adjustment of $936,000 was recorded
to fully reserve this asset.
Industry Factors
The cable and broadband communications industry is undergoing significant
change as cable television (CATV) operators continue to expand and consolidate
their operations. Operators are also implementing new interactive services such
as video on demand, internet access and telephony. In addition, competition for
video services has increased with new entrants, including telephone and
satellite providers. This has resulted in existing CATV operators planning to
expand and upgrade their distribution infrastructures and new providers planning
to construct new distribution systems capable of providing a mix of 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.
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Liquidity and Capital Resources
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In 1997, the Company's operating activities generated net cash of $211,000
due primarily from decreased levels of inventory and receivables and increased
payables. Cash used in operations totaled $1,916,000 in fiscal 1996.
The Company has financed its operations over the past two years with the
cash proceeds of $2.6 million related to the exercise of 5.8 million warrants in
April 1995. Additional cash was provided by the exercise of stock options during
fiscal 1996 which provided an additional $266,000 and the issuance of warrants
for $300,000 in fiscal 1997.
As of March 29,1997, the Company's cash totaled $620,000 compared to
$664,000 at March 30, 1996. The Company is focusing its efforts on reaching
profitability through its expanded sales and marketing efforts which involve its
new technology platform called OmniStat(TM), greater promotional and trade show
activities, and expansion of OEM marketing activities. The Company believes that
available sources of liquidity, including projected cash flows from operations,
future equipment leasing arrangements, and the net tax operating loss carry
forwards, will satisfy the projected working capital and capital expenditure
requirements for at least the next twelve months.
In June 1997, the Company received a $200,000 short-term loan from its
principal stockholder to support inventory requirements related to the increased
sales backlog.
The Company currently has no bank line of credit and is currently working
to establish such a financing line.
Capital expenditures totaled $696,000 in fiscal 1997 and $594,000 in fiscal
1996 and include computers, manufacturing assembly and test equipment and
facility related improvements and fixtures. Included in capital expenditures in
fiscal 1997 and 1996 is $196,000 and $198,000, respectively, of equipment
purchased under capital leases.
Accounting for Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) was adopted by the Company in April 1996
and the Company continued to account for such items using the intrinsic value
method as outlined under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, (APB 25) with pro forma disclosures of net income
and net income per share as if the fair value method applied.
Forward Looking Statements
This Form 10-KSB discusses primarily historical information. Statements
included in this Form 10-KSB, to the extent that they are forward looking, are
based on current management expectations that involve a number of uncertainties
and risks. Potential risks and uncertainties include, without limitation, the
impact of economic conditions generally; the competitive nature of the CATV
network monitoring market; the Company's ability to enhance its existing
products and develop and introduce new products which keep pace with
technological developments in the marketplace; and market demand.
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Item 7. Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
AM Communications, Inc.
Quakertown, Pennsylvania
We have audited the accompanying balance sheets of AM Communications, Inc. as of
March 29, 1997 and March 30, 1996 and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. 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 generally accepted auditing
standards. 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 AM Communications, Inc. as of
March 29, 1997 and March 30, 1996 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
May 9, 1997, except as to Notes 11 and 12, as to which the dates are June 11 and
June 23, 1997, respectively.
13
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AM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended
March 29, March 30,
1997 1996
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<S> <C> <C>
Revenues $10,510,000 $8,373,000
Costs and Expenses:
Cost of Sales 5,715,000 5,285,000
Selling, General and Administrative 2,590,000 1,977,000
Research and Development 4,045,000 2,234,000
----------- -----------
Operating Loss (1,840,000) (1,123,000)
Other Income (15,000) (34,000)
----------- -----------
Loss Before Income Taxes (1,825,000) (1,089,000)
Income Tax Provision 936,000 12,000
----------- -----------
Net Loss $(2,761,000) $(1,101,000)
=========== ===========
Loss Per Weighted Average Common
and Common Equivalent Share $(0.09) $(0.04)
====== ======
Weighted Average Common Shares
Outstanding Used in Computing
Loss Per Share 31,018,000 30,042,000
=========== ===========
</TABLE>
See Notes to Financial Statements
14
<PAGE>
AM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 29, March 30,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 620,000 $ 664,000
Accounts Receivable, Less Allowance for Doubtful
Accounts of $9,000 - 1997 and 1996 1,160,000 1,588,000
Inventory 2,106,000 2,334,000
Prepaid Expenses and Other 68,000 112,000
Deferred Tax Asset --- 229,000
------------ ------------
Total Current Assets 3,954,000 4,927,000
Equipment and Fixtures, Net 899,000 565,000
Intangibles, Net of Accumulated Amortization of
$478,000 - 1997 and $473,000 - 1996 58,000 54,000
Deferred Software Development Costs, Net of
Accumulated Amortization of $573,000 - 1997,
and $462,000 - 1996 51,000 162,000
Other 7,000 20,000
Deferred Tax Asset --- 707,000
------------ ------------
Total Assets $ 4,969,000 $ 6,435,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Capital Lease Obligations $ 133,000 $ 63,000
Accounts Payable 1,672,000 1,233,000
Advances 177,000 39,000
Accrued Expenses 652,000 375,000
------------ ------------
Total Current Liabilities 2,634,000 1,710,000
------------ ------------
Capital Lease Obligations - Long Term 149,000 110,000
------------ ------------
Total Liabilities $ 2,783,000 $ 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 in 1997
and 1996 2,583,000 2,583,000
Common Stock, $.10 Par Value, Authorized
50,000,000 Shares in 1997 and 1996; Issued
and Outstanding 31,042,296 Shares in 1997,
30,962,962 Shares in 1996 3,104,000 3,096,000
Capital in Excess of Par 31,264,000 30,940,000
Accumulated Deficit (34,765,000) (32,004,000)
------------ ------------
Stockholders' Equity 2,186,000 4,615,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,969,000 $ 6,435,000
============ ============
</TABLE>
See Notes to Financial Statements
15
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital
----------------- -------------------- in Excess Accumulated
Shares Amount Shares Amount of Par Deficit
------ ------ ------ ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance,
April 1, 1995 25,825 $2,583,000 24,564,391 $ 2,456,000 $ 28,682,000 $(30,903,000)
Exercise of
Warrants --- --- 5,848,570 585,000 2,047,000 ---
Exercise of
Incentive Stock
Options --- --- 550,001 55,000 211,000 ---
Net Loss
for Year Ended
March 30, 1996 --- --- --- --- --- (1,101,000)
------ ---------- ---------- ---------- ----------- ------------
Balance,
March 30, 1996 25,825 $2,583,000 30,962,962 $3,096,000 $30,940,000 $(32,004,000)
====== ========== ========== ========== =========== ============
Issuance of
Warrants --- --- --- --- 300,000 ---
Exercise of
Incentive Stock
Options --- --- 79,334 8,000 24,000 ---
Net Loss
for Year Ended
March 29, 1997 --- --- --- --- --- (2,761,000)
------ ---------- ---------- ---------- ----------- ------------
Balance,
March 29, 1997 25,825 $2,583,000 31,042,296 $ 3,104,000 $31,264,000 $(34,765,000)
====== ========== ========== ========== =========== ============
</TABLE>
See Notes to Financial Statements
16
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Year Ended
March 29, March 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(2,761,000) $(1,101,000)
Adjustments to Reconcile Net Loss to Net
Cash Provided By (Used In) Operating Activities:
Depreciation and Amortization 469,000 372,000
Deferred Income Taxes 936,000 ---
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable 428,000 (777,000)
Inventory 228,000 (974,000)
Prepaid Expenses and Other 57,000 (71,000)
Accounts Payable 439,000 633,000
Advances 138,000 22,000
Accrued Expenses 277,000 (20,000)
----------- -----------
Net Cash Provided By (Used In) Operating Activities 211,000 (1,916,000)
----------- -----------
Cash Flows From Investing Activities:
Purchase of Equipment and Intangible Assets (500,000) (396,000)
----------- -----------
Net Cash Used In Investing Activities (500,000) (396,000)
----------- -----------
Cash Flows from Financing Activities:
Exercise of Warrants and Stock Options 32,000 2,547,000
Issuance of Warrants 300,000 ---
Payments Under Capital Lease Obligations (87,000) (25,000)
----------- -----------
Net Cash Provided By Financing Activities 245,000 2,522,000
----------- -----------
Net Increase (Decrease) in Cash (44,000) 210,000
Cash:
Beginning 664,000 454,000
----------- -----------
Ending $ 620,000 $ 664,000
=========== ===========
Interest Paid $ 25,000 $ 9,000
=========== ===========
Income Taxes Paid $ --- $ 37,000
=========== ===========
Non-Cash Financing Activities:
Equipment Purchased Under Capital Lease $ 196,000 $ 198,000
=========== ===========
</TABLE>
See Notes to Financial Statements
17
<PAGE>
AM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies:
Description of Business
- -----------------------
AM Communications, Inc. (the "Company", "AM"), a Delaware Corporation,
designs, manufactures and markets network monitoring systems which include
hardware and software to the broadband communications markets, primarily for
cable TV systems.
Fiscal Year
- -----------
The Company's fiscal year ends on the Saturday closest to the end of March.
The fiscal years ending March 29, 1997 and March 30,1996 included 52 weeks each.
Revenue Recognition
- -------------------
AM Communications, Inc. (the "Company") derives its revenues principally
from sales of its products to the cable TV industry. As is customary in the
industry, the Company's sales are made pursuant to individual purchase orders
and are recognized upon the shipment of the product. Revenue from custom
development efforts specific to original equipment manufacturers ("OEMs") is
recognized as contractual milestones are achieved.
In 1996, revenue of approximately $300,000 was recognized under a
bill-and-hold transaction related to the cancellation of certain purchase orders
as discussed in Note 9 to the financial statements.
Inventory
- ---------
Manufacturing inventory which comprises raw materials, work-in-process and
finished goods is valued at the lower of cost (first-in, first-out method) or
market.
Equipment and Fixtures
- ----------------------
Equipment and fixtures are stated at cost. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method.
Intangibles
- -----------
Intangibles include goodwill and the costs associated with the acquisition
of patents and fees for the successful defense of patents. Goodwill is being
amortized over 40 years and amortization of patents is being provided on a
straight-line basis, over their estimated useful lives of five years. Costs
related to unsuccessful patents or patents relating to products no longer
manufactured are written off. Effective March 30, 1997, goodwill is being
amortized over three years.
18
<PAGE>
Deferred Software Development Costs
- -----------------------------------
Costs incurred for the successful production of computer software that is
used as an integral part of certain of the Company's products are not
capitalized until technological feasibility has been established for the
software, and all research and development activities for the software and for
the other components of the product have been completed. Deferred software
development costs consist of direct salaries, related payroll costs and other
direct costs. Amortization, on a product-by-product basis, commences upon the
product's general release to customers and occurs over a period of three years
as a function of estimated product life. Amortization of deferred software
development costs charged to research and development expense was $111,000 for
the year ended March 29, 1997 and $146,000 for the year ended March 30, 1996.
Other research and development costs are expensed currently. None of the
Company's software development efforts in fiscal 1997 or 1996 met the
requirements for capitalization.
Income Taxes
- ------------
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes".
Use of Estimates
- ----------------
The management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Stock Based Compensation
- ------------------------
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) was adopted by the Company in April 1996
and the Company continued to account for such items using the intrinsic value
method as outlined under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, (APB 25) with pro forma disclosures of net income
and net income per share as if the fair value method applied, as discussed in
Note 10.
Loss Per Common Share
- ---------------------
Loss per common and common equivalent share has been computed based on the
weighted average number of common shares outstanding during the period plus the
effect of common shares contingently issuable (to the extent such shares have a
dilutive effect) for convertible preferred stock, options and warrants. In loss
years, common stock equivalents are not included in the calculation of loss per
share.
Reclassifications
- -----------------
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation.
19
<PAGE>
Note 2. Inventory:
March 29, March 30,
1997 1996
---------- ----------
Raw Material $2,106,000 $2,205,000
Work-in-Process 749,000 1,087,000
Finished Goods 391,000 310,000
---------- ----------
3,246,000 3,602,000
Inventory Reserve (1,140,000) (1,268,000)
---------- ----------
Net Inventory $2,106,000 $2,334,000
========== ==========
The Company evaluates the inventory reserve annually to reflect product
line transitions which have resulted from new product development. The reserve
represents management's estimate of excess inventory not usable in new product
generations.
Note 3. Equipment and Fixtures:
Estimated March 29, March 30,
Useful Lives 1997 1996
------------ ---------- ----------
Equipment 3-5 yrs. $3,587,000 $3,134,000
Furniture and Fixtures 3-5 yrs. 294,000 172,000
Leasehold Improvements 5 yrs. 116,000 27,000
---------- ----------
3,997,000 3,333,000
Accumulated Depreciation
& Amortization (3,098,000) (2,768,000)
---------- ----------
$ 899,000 $ 565,000
========== ==========
Note 4. Related Party Transactions:
Under a consulting agreement, Lemuel A. Tarshis, a Director of the Company,
was paid $24,000 during fiscal 1997.
Note 5. Accrued Expenses:
Accrued expenses consist of the following items:
March 29, March 30,
1997 1996
--------- ---------
Accrued Compensation $291,000 $182,000
Accrued Rent 98,000 ---
Accrued Real Estate Taxes 27,000 ---
Warranty Reserve 55,000 25,000
Accrued Taxes 2,000 1,000
Accrued Professional Fees 47,000 32,000
Other 132,000 135,000
-------- --------
$652,000 $375,000
======== ========
20
<PAGE>
Note 6. Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109.
The provision (benefit) for income taxes consisted of:
Fiscal 1997 Fiscal 1996
----------- -----------
Current Income Taxes $ --- $ 12,000
Deferred Income Taxes (1,064,000) (708,000)
Change in Valuation Allowance 2,000,000 708,000
----------- ----------
Net $ 936,000 $ 12,000
=========== ==========
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:
Fiscal 1997 Fiscal 1996
----------- -----------
Federal Income Tax Provision at Statutory Rate $ (620,000) $(370,000)
State Income Taxes, Net of Federal Benefit (120,000) (37,000)
Research and Development Credits (149,000) (50,000)
Other Permanent Differencies (175,000) (239,000)
Change in Valuation Allowance 2,000,000 708,000
---------- --------
Income Tax Provision $ 936,000 $ 12,000
========== ========
The components of the net deferred tax asset as of March 29, 1997 and March
30, 1996 were as follows:
March 29, March 30,
1997 1996
----------- ----------
Deferred Tax Items:
Inventory $ 463,000 $ 515,000
Accrued Expenses and Reserves 123,000 98,000
Net Operating Loss Carryforwards 7,811,000 6,869,000
Tax Credit Carryforwards 675,000 526,000
Valuation Allowance (9,072,000) (7,072,000)
----------- ----------
Net Deferred Tax Assets $ --- $ 936,000
=========== ==========
During fiscal 1997, the Company evaluated the carrying value of the
deferred tax asset which was established in fiscal 1995, and determined, after
consideration of the current year's loss, that this asset should be fully
reserved. Accordingly, income tax expense of $936,000 was recognized in fiscal
1997 to fully reserve this asset.
The Company has total net operating loss carryforwards available to offset
future taxable income of $27,301,000 expiring at various times from 1998 to
2012. Due to certain statutory limitations under the Internal Revenue Code, a
portion of such carryforwards may expire unulitized.
21
<PAGE>
Note 7. Operating Leases:
The Company leases its facility under a lease expiring in January 2002. The
Company also leases certain equipment under short term leases. Rental expense
charged to operations for fiscal years 1997 and 1996 was $275,000 and $250,000,
respectively.
Future minimum lease commitments under the Company's facility lease are:
1998 198,000
1999 279,000
2000 300,000
2001 350,000
2002 322,000
----------
$1,449,000
==========
Note 8. Obligations Under Capital Leases:
The Company has capital lease agreements for machinery and equipment as
follows:
March 29, March 30,
1997 1996
--------- ---------
Capitalized cost $ 482,000 $ 286,000
Accumulated amortization (219,000) (118,000)
--------- ---------
$ 263,000 $ 168,000
========= =========
Amortization expense on assets capitalized under capital lease obligations
is included in depreciation and amortization. The lease agreements are secured
by the leased property.
Future minimum lease payments under capital leases for following fiscal
years, together with the present value of the net minimum lease payments as of
March 29, 1997, are:
1998 $155,000
1999 117,000
2000 42,000
--------
Total minimum lease payments 314,000
Less amount representing interest 32,000
--------
Present value of net minimum lease payments 282,000
Less current maturities 133,000
--------
Capital lease obligations - long term $149,000
========
Note 9. Business, Major Customers, and Credit Risk:
The Company operates in one business segment which manufactures and
supplies products and services to the broadband telecommunications and the cable
TV industries. The majority of the Company's revenues and accounts receivable
relate to customers in these industries.
22
<PAGE>
Three customers in fiscal 1997 and two customers in 1996 accounted for 10%
or more of the Company's revenues as follows: 18%,15%, and 14% in fiscal 1997
and 60%, and 12% in fiscal 1996.
In the fourth quarter of fiscal 1996, the Company was notified by the OEM
that contributed 60% of fiscal 1996 revenue that unfilled open orders totaling
$2 million were put on hold. In fiscal 1997, the Company reached an agreement to
cancel a portion of these orders as part of a negotiated settlement which
provided cash payments to AM sufficient to cover the carrying cost of inventory
related to these orders.
Note 10. Capital Stock:
The Company has an incentive stock option plan (the "1991 Plan") for its
employees. Under this Plan, options may be granted to purchase shares of the
Company's stock at a price not less than its fair market value on the date of
the grant. Options become exercisable one-third per year commencing one year
after the date of grant and terminating after 10 years. In October 1996, the
stockholders approved an increase in the number of shares available under the
1991 Plan from 4,000,000 to 5,000,000.
A prior plan (the "1982 Plan") covering 2,100,000 shares expired on March
24, 1992. Options granted under this plan expire 10 years after the date of
grant.
The following summary shows the aggregate stock option activity expressed
in shares for the 1982 and 1991 Plans:
Fiscal Years Ended
March 29, March 30,
1997 1996
--------- ----------
Outstanding at Beginning of Year 3,885,333 3,949,333
Granted 2,073,000 582,000
Terminated (168,166) (85,999)
Expired (14,000) (10,000)
Exercised (79,334) (550,001)
--------- ---------
Outstanding at End of Year 5,696,833 3,885,333
========= =========
Available for Grant 391,665 1,384,667
========= =========
Exercisable at End of Year 3,701,334 2,843,686
========= =========
Price Range of Options Outstanding at March 29, 1997 - $0.21 - $1.44
(Weighted Average - $0.55)
23
<PAGE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan. Accordingly, no compensation cost has been recognized.
Had compensation cost for the Company's Plan been determined consistent with
FASB Statement No. 123, the Company's net loss and loss per share would have
been increased to the pro forma amounts indicated below:
Fiscal Years Ended
March 29, March 30,
1997 1996
------------ ------------
Net loss As Reported $(2,761,000) $(1,101,000)
Pro forma $(3,052,000) $(1,257,000)
Loss per share As Reported $ (.09) $ (.04)
Pro forma $ (.10) $ (.04)
The per share weighted-average fair value of stock options granted during
fiscal year 1997 and 1996 was $.28 and $.29 on the date of grant calculated
using the Black Scholes option-pricing model with the following weighted-average
assumptions:
Fiscal Years Ended
March 29, March 30,
1997 1996
--------- ---------
Expected Life (Years) 5.0 5.5
Risk-Free Interest Rate 6.10% 6.67%
Volatility 60% 60%
Dividend Yield 0% 0%
Pro forma net income reflects only options granted in fiscal 1997 and 1996.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period and compensation cost for options granted prior to April 2, 1995 is not
considered.
At March 29, 1997, the following warrants to purchase the Company's common
stock were outstanding:
Issued in Expiration Exercise Number of
Fiscal Year Date Price Shares
----------- -------------- -------- ----------
1993 March 18, 1998 $0.45 300,000
1996 July 1, 2004 $1.00 1,500,000
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
$1,781,000.
In July 1996, the Company issued warrants to purchase 1,500,000 shares of
common stock at $1.00 per share in return for $300,000 cash. These warrants
become exercisable at the rate of 500,000 shares per year commencing July 1,
1997 and expire five years after they become exercisable.
24
<PAGE>
Alvin Hoffman, the Company's majority stockholder and a director,
owns the 25,825 shares of Senior Convertible Redeemable Preferred Stock which is
convertible into Common Stock at $1.00 per share. Such stock is redeemable at
the Company's option under certain circumstances should the holder not elect to
convert. In addition, upon the occurrence of certain events (e.g. - sale of the
Company, merger, bankruptcy), the Company may be required by the holder of any
shares of the Senior Convertible Redeemable Preferred Stock, to redeem, either
in whole or in part, shares of this Senior Convertible Redeemable Preferred
Stock at a price of $100 per share, which such redeemable shares shall then be
retired and not reissued.
In addition to the Senior Convertible Redeemable Preferred Stock, the
Company has authorized 974,175 additional shares of Preferred Stock, $.10 par
value, none of which are outstanding as of March 29, 1997.
Note 11. Commitments and Contingencies
On June 6, 1996 the Company was served with a lawsuit filed by Computer
Aid, Inc. in the District Court of Eastern PA. The lawsuit, which named the
Company and other defendants including Hewlett-Packard, Inc. alleged that the
defendants acted to wrongfully assert dominion over and exploit Computer Aid's
software product, misappropriated trade secrets and prevented Computer Aid from
marketing its product. The suit sought damages in excess of $100 million. After
legal discovery, Computer Aid withdrew its lawsuit and dismissed all claims
against the Company on June 12, 1997.
Note 12. Subsequent Events
In June 1997, the Company received a short term loan of $200,000 from its
principal stockholder.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
During the fourth quarter of the year ended March 31, 1996, the Company
filed a Form 8-K with the Securities and Exchange Commission, dated January 16,
1996, pertaining to the change in its accountants from Deloitte & Touche LLP to
KPMG Peat Marwick LLP.
25
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Name Age Position
- ---- --- --------
Henry I. Boreen (1) 70 Chairman, Chief Executive Officer,
and Director
Keith D. Schneck 42 President, Chief Financial Officer
and Director
Robert Vogel 36 Senior Vice President, Sales and
Marketing
David L. DeLane 57 Vice President, Sales
Michael L. Quelly 43 Vice President, Engineering
Joseph D. Rocci 49 Vice President, Product Technology
Herman O. Benninghoff, II (2) 66 Director
R. Barry Borden (2) 57 Director
Alvin Hoffman (1) (2) 68 Director
Burt Hoffman (2) 43 Director
Hal Krisbergh (1) 49 Director
Lemuel A. Tarshis, Ph.D. 56 Director
(1) Member of Compensation and Stock Option Committee of the Board.
(2) Member of Audit Committee of the Board.
All directors and officers of the Company are elected for a term of one
year at the Annual Meeting of Stockholders and the subsequent Board of Directors
meeting, respectively, to serve in their office for the next succeeding year and
until their successors are duly elected and qualified.
Henry I. Boreen has been a director of the Company since 1985 and has
served as Chairman and Chief Executive Officer since October 1990. He also has
served as Chief Financial Officer and President from 1990 through April 1995. He
has been Chief Executive Officer and director of HIB International, Inc., which
participates in high technology joint ventures, since 1985. Mr. Boreen is also
Chairman and interim chief executive officer of Integrated Circuit Systems, a
publicly held company.
Keith D. Schneck joined the Company in April 1995 as President and Chief
Financial Officer and became a Director in June 1995. From 1987 until he joined
the Company, Mr. Schneck held senior management positions at Integrated Circuit
Systems, Inc. including Chief Operating Officer and Senior Vice President,
Finance.
Robert Vogel joined the Company in January 1996 as Vice President,
Strategic Marketing. Since April 1997, he has served as Senior Vice President,
Sales and Marketing. From 1993 until he joined the Company, Mr. Vogel served as
Director of Digital Systems at General Instrument Corporation. Prior to 1993,
Mr. Vogel was a principal owner for seven years of ISCG (Integrated Systems
Consulting Group), a software and integration consulting firm.
26
<PAGE>
David L. DeLane joined the Company in January 1988 as Vice President, Sales
and Marketing. From 1986 until he joined the Company, Mr. DeLane served as Vice
President, Marketing and Sales for the LC Systems Division of Eagle-Picher
Industries, Inc.
Michael L. Quelly joined the Company in 1982. He has served as Vice
President, Engineering from September 1989 to the present, except for the period
October 1990 through March 1995 when he also was Executive Vice President. He
was employed by E-Com Corporation from 1975 until the Company's acquisition of
E-Com Corporation in 1982.
Joseph D. Rocci joined the Company in October 1983 as Director of
Engineering and in 1988 was appointed Vice President of Products and Technology.
Herman O. Benninghoff, II has served as a director of the Company since
February 1988. He has been the Chairman of the Board of the Philadelphia Pipe
Bending Co., Philadelphia, PA and D Kay Fabricators, Inc., Youngstown, OH since
1977. He is a director and principal in Philadelphia Pipe Bending Co.,
Philadelphia, PA.
R. Barry Borden has been a director of the Company since October 1996.
Since 1984, Mr. Borden has served as President of LMA Group, Inc., a general
management consulting firm. He previously has held executive level positions
with other high technology companies including Mergent International, Cricket
Software, Inc., Franklin Computer Corporation and Delta Data Systems. Mr. Borden
is also a director of Opcode Systems, Matterhorn Growth Fund, and Scangraphics,
a publicly held company.
Alvin Hoffman was appointed a director of the Company in March 1995. He has
been a private investor and a registered broker with Makefield Securities in
Boca Raton, Florida since 1982.
Burt Hoffman has served as a director of the Company since October 1996.
Mr. B. Hoffman has served as an investment manager and a broker with Makefield
Securities since 1985 and is the son of Mr. Alvin Hoffman.
Hal Krisbergh was appointed a director of the Company in October 1996. He
is President of WorldGate Communications located in Rydal, PA and is also a
director of Ortel Corporation. Mr. Krisbergh previously served as President of
the Communications Division of General Instrument Corporation from 1981 to 1994.
Lemuel A. Tarshis was elected director of the Company in October 1996. Dr.
Tarshis is a private consultant and also has been associated with Assessment
Alternatives, Inc., a management consulting firm since 1992. He also is a
director and research professor at Stevens Institute of Technology since 1991.
Dr. Tarshis held vice president positions with General Instrument Corporation
from 1986 to 1990.
27
<PAGE>
Section 16 (a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than 10% of its
common stock, to file reports of ownership and changes in ownership of the
Common Stock with the Securities and Exchange Commission. The Company believes
that during the fiscal year of the Company ended on March 29, 1997, all filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were timely satisfied.
Item 10. Executive Compensation
The following tables set forth certain information concerning (a) the cash
remuneration paid by the Company during each of the last three fiscal years to
the Company's Chief Executive Officer and to each executive officer of the
Company whose cash compensation exceeded $100,000 per annum during any such
year, and stock options granted during the last three fiscal years to each such
individual.
Summary Compensation Table
--------------------------
Annual and Long Term Ction
Name & Principal Fiscal Stock Options
Position Year Salary Awarded
- -------------------------------------------------------------------------------
Henry I. Boreen 1997 --- 50,000
Chairman and CEO 1996 --- 10,000
1995 --- ---
- -------------------------------------------------------------------------------
Keith D. Schneck 1997 116,000 400,000
President and CFO 1996 90,000 450,000
1995 * --- ---
* Mr. Schneck began his employment with the Company in fiscal year 1996.
Summary Option Grant Table
--------------------------
<TABLE>
<CAPTION>
% of Total
No. of Securities Options Granted Exercise
Fiscal Underlying Options to Employees Price Expiration
Year Granted in Fiscal Year ($/Share) Date
----- ------------------ ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Henry I. Boreen 1997 40,000 Nil $.50 1/03/07
1996 10,000 Nil $.54 7/01/06
1995 10,000 Nil $.84 7/31/05
- --------------------------------------------------------------------------------------------------------
Keith D. Schneck 1997 400,000 24% $.50 1/03/07
1996 150,000 20% $.69 3/16/05
300,000 40% $.69 3/16/05
1995 --- --- --- ---
</TABLE>
28
<PAGE>
The following table sets forth certain information pertaining to the stock
options held by the individuals named in the Summary Cash Compensation Table:
Fiscal 1997 Year End Option Values
----------------------------------
<TABLE>
<CAPTION>
Number of Value of
Unexercised Options In-the-Money Options
At Fiscal Year End at March 29, 1997(1)
------------------------------ -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Henry I. Boreen 925,000 --- $110,500 ---
Keith D. Schneck 300,000 --- --- ---
</TABLE>
(1) Value is based upon the closing price of the stock on March 29, 1997,
less the exercise price.
There were no stock option or stock appreciation rights exercised by Mr.
Boreen or Mr. Schneck during the last fiscal year. The Company does not maintain
any long term incentive plans for its officers.
Directors who are not officers or employees of the Company are paid $500
for each Board of Directors meeting and Committee meeting attended. In addition
to the standard director fees, each director was granted options to purchase
50,000 shares at an exercise price of $0.50 on January 3, 1997.
The Company does not have any employment contracts or arrangements with any
of its executive officers.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The table below sets forth certain information as of June 9, 1997 with
respect to each person and entity known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of the Company's common stock,
each director of the Company and each executive officer listed in the cash
compensation table who owns shares of common stock, and all officers and
directors of the Company as a group.
<TABLE>
Beneficial Ownership
-------------------------------------------
Beneficial Owner (1) (2) Amount Percentage of Class
- ------------------------- ------ -------------------
<S> <C> <C>
Alvin Hoffman 18,097,337 (3) 53.7%
Henry I. Boreen 1,655,765 (4) 5.2%
Burt Hoffman 1,145,510 (5) 3.7%
Keith D. Schneck 402,500 (6) 1.3%
Herman O. Benninghoff, II 305,000 (7) 1.0%
Hal Krisbergh 60,000 (8) *
R. Barry Borden 60,000 (9) *
Lemuel A. Tarshis 50,000 (10) *
All Directors and Executive
Officers as a Group (12 Persons) 23,463,435 (11) 63.8%
* Less than one percent.
</TABLE>
29
<PAGE>
(1) To the best of the Company's knowledge, all shares of stock are owned
beneficially, and sole voting and investment power is held with respect thereto,
by the persons and entities named, except as otherwise noted. Share amounts
include additional shares issuable pursuant to options or warrants held by such
owners which are exercisable or may become exercisable within 60 days of the
date hereof.
(2) The address of all beneficial owners is c/o AM Communications, Inc.,
100 Commerce Boulevard, Quakertown, PA 18951-2237.
(3) The information concerning the beneficial ownership of Mr. Hoffman is
based, in part, upon information furnished by Mr. Hoffman to the Company. The
beneficial ownership indicated represents (i) an aggregate of 14,391,837 shares
of Common Stock currently owned, (ii) 25,825 shares of Senior Convertible
Preferred Stock convertible into 2,582,500 shares of Common Stock, (iii) 50,000
shares issuable pursuant to stock options, and (iv) 1,073,000 shares of Common
Stock currently owned by Mr. Hoffman's wife. Mr. Hoffman disclaims beneficial
ownership of the shares set forth in (iv) above.
(4) Includes 100,000 shares which may be acquired upon the exercise of
warrants and 925,000 shares issuable pursuant to stock options.
(5) Includes 50,000 shares which may be acquired upon the exercise of
warrants and 50,000 shares issuable pursuant to stock options.
(6) Includes 300,000 shares issuable pursuant to stock options.
(7) Includes 210,000 shares issuable pursuant to stock options.
(8) Includes 60,000 shares issuable pursuant to stock options.
(9) Includes 50,000 shares issuable pursuant to stock options.
(10) Includes 50,000 shares issuable pursuant to stock options.
(11) Includes an aggregate of 20,311,604 shares of Common Stock and
Preferred Stock currently owned and 3,151,831 shares which may be acquired upon
the exercise of options and warrants.
All outstanding shares of the Company Senior Convertible Redeemable
Preferred Stock as of June 9, 1997 are owned by Alvin Hoffman.
Item 12. Certain Relationships and Related Transactions
During April 1995, warrants held by Messrs. Hoffman, Boreen, Bastian,
Benninghoff along with those held by Keystone Venture II, L.P. were exercised.
The exercise price was paid in cash except for $850,803 which was satisfied by a
note receivable, bearing 8% interest, from Mr. Hoffman. The note was due and
paid on June 30, 1995.
30
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) (1) Exhibits
See end of exhibit list for footnote references indicated by asterisks.
*3-a. (3.1) Restated Certificate of Incorporation of Registrant.
*3-b. (3.2) Amended By-Laws of Registrant.
*4-a. (4.1) Specimen of Common Stock Certificate, par value $.10 per
share.
**10-l. 1991 Incentive Stock Option Plan.
***10-n. Senior Promissory Notes and Form of Warrant dated March 18, 1993.
10-o. Purchase Agreement between AM Communications, Inc. and
Lucent Technologies effective May 1, 1996.
10-p. Joint Development Agreement between AM Communications and
Scientific-Atlanta dated May 1996.
10-q. Distribution Agreement and Manufacturing License dated June 14,
1996.
10-r. Registration Rights Agreement dated June 17, 1996.
10-s. Warrant Agreement dated June 17, 1996.
11. Computation of Per Share Earnings for fiscal years ended
March 29, 1997 and March 30, 1996.
23. Independent Auditors' Consent dated June 26, 1997.
Exhibit No. 27 - Financial Data Schedule
* Incorporated by reference to the Exhibit with the number
indicated parenthetically in Registrant's Registration Statement
on Form S-1, File No. 33-10163.
** Incorporated by reference to the Exhibit number indicated in
Registrant's Annual Report on Form 10-K for the fiscal year ended
March 28, 1992.
*** Incorporated by reference to the Exhibit number indicated in
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended April 3, 1993
(b) No reports on Form 8-K have been filed for the last quarter of the period
covered by this report on Form 10-KSB.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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)
/s/ Keith D. Schneck
--------------------------------------
By: Keith D. Schneck
President, Chief Financial Officer and
Chief Accounting Officer
Date: June 26, 1997
------------------------------
In accordance with the Securities Exchange Act, this report has been signed
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
/s/ Henry I. Boreen /s/ Keith D. Schneck
- ------------------------------------ ----------------------------------
Henry I. Boreen Keith D. Schneck
Chairman, Chief Executive Officer President, Chief Financial Officer,
and Director and Director
Date: June 26, 1997 Date: June 26, 1997
------------------------------ ---------------------------
/s/ Herman O. Benninghoff, II /s/ R. Barry Borden
- ------------------------------------ ----------------------------------
Herman O. Benninghoff, II R. Barry Borden
Director Director
Date: June 26, 1997 Date: June 26, 1997
------------------------------ ---------------------------
/s/ Alvin Hoffman /s/ Burt Hoffman
- ------------------------------------ ----------------------------------
Alvin Hoffman Burt Hoffman
Director Director
Date: June 26, 1997 Date: June 26, 1997
------------------------------ ---------------------------
/s/ Hal Krisbergh /s/ Lemuel A. Tarshis
- ------------------------------------ ----------------------------------
Hal Krisbergh Lemuel A. Tarshis
Director Director
Date: June 26, 1997 Date: June 26, 1997
------------------------------ ---------------------------
<PAGE>
Exhibit 11
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------
March 29, March 30,
1997 1996
------------ ------------
<S> <C> <C>
Primary Loss Per Share Data:
Net Loss for Year $(2,761,000) $(1,101,000)
----------- -----------
Weighted Average Number of Common and
Common Equivalent Shares:
Weighted Average Common Shares Outstanding
During the Year 31,018,000 30,041,652
Common Equivalents: (1)
Convertible Preferred Stock --- ---
Incremental Shares Issuable on Exercise
of Warrants --- ---
Incremental Shares Issuable on Exercise
of Options --- ---
----------- -----------
Total Shares 31,018,000 30,041,652
----------- -----------
Primary Per Share Data ($0.09) $(0.04)
====== ======
</TABLE>
(1) In loss years common stock equivalents are not included in the calculations
of the loss per share.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Am Communications, Inc.
We consent to incorporation by reference in the registration statements on Form
S-8 (No. 33-53822 and No. 33-81500) of AM Communications, Inc. of our report
dated May 9, 1997, except as to Notes 11 and 12, as to which the dates are June
11 and June 23, respectively, relating to the balance sheet of AM
Communications, Inc. as of March 29, 1997 and the related statements of
operations, stockholders' equity, and cash flows for the year ended March 29,
1997, which report is included in the March 29, 1997 Annual Report of Form
10-KSB of AM Communications, Inc.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
June 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-29-1997
<PERIOD-START> MAR-31-1996
<PERIOD-END> MAR-29-1997
<CASH> 620,000
<SECURITIES> 0
<RECEIVABLES> 1,160,000
<ALLOWANCES> 9,000
<INVENTORY> 2,106,000
<CURRENT-ASSETS> 3,954,000
<PP&E> 3,997,000
<DEPRECIATION> 3,098,000
<TOTAL-ASSETS> 4,969,000
<CURRENT-LIABILITIES> 2,634,000
<BONDS> 0
2,583,000
0
<COMMON> 3,104,000
<OTHER-SE> 31,264,000
<TOTAL-LIABILITY-AND-EQUITY> 4,969,000
<SALES> 10,510,000
<TOTAL-REVENUES> 10,510,000
<CGS> 5,715,000
<TOTAL-COSTS> 12,350,000
<OTHER-EXPENSES> (39,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,000
<INCOME-PRETAX> (1,825,000)
<INCOME-TAX> 936,000
<INCOME-CONTINUING> (2,761,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,761,000)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
