<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 28, 1997
[ ] 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
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 Identification No.
incorporation or organization)
100 Commerce Boulevard, Quakertown, PA 18951-92237
- ---------------------------------------- -----------
(Address of principal executive offices) Zip Code
(215) 538-8700
----------------------------------------------
(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 11, 1997, there were 31,052,296 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 28, 1997
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- -------------------------------- --------
Item 1. Financial Statements
Balance Sheets - June 28 (Unaudited) and March 29, 1997 3
Statements of Operations - Quarters Ended June 28, 1997 4
and June 29, 1996 (Unaudited)
Statements of Cash Flows - Quarters Ended June 28, 1997 5
and June 29, 1996 (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
2
<PAGE>
Item 1. Financial Statements
- ----------------------------
AM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 28, March 29,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 63,000 $ 620,000
Accounts Receivable, Less Allowance for Doubtful
Accounts of $9,000 at June 28 and March 29,1997 2,474,000 1,160,000
Inventory 2,015,000 2,106,000
Prepaid Expenses and Other 92,000 68,000
------------ ------------
Total Current Assets 4,644,000 3,954,000
Equipment and Fixtures, Net 827,000 899,000
Other Assets 100,000 116,000
------------ ------------
Total Assets $ 5,571,000 $ 4,969,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Capital Lease Obligations $ 133,000 $ 133,000
Notes Payable 200,000 --
Accounts Payable 1,889,000 1,672,000
Advances 334,000 177,000
Accrued Expenses 562,000 652,000
------------ ------------
Total Current Liabilities 3,118,000 2,634,000
------------ ------------
Capital Lease Obligations - Long Term 115,000 149,000
------------ ------------
Total Liabilities $ 3,233,000 $ 2,783,000
============ ============
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 28
and March 29, 1997 2,583,000 2,583,000
Common Stock, $.10 Par Value, Authorized
50,000,000 Shares at June 28 and March 29, 1997;
Issued and Outstanding 31,052,296 Shares at
June 28 and 31,042,296 Shares at March 30, 1997 3,105,000 3,104,000
Capital in Excess of Par 31,266,000 31,264,000
Accumulated Deficit (34,616,000) (34,765,000)
------------ ------------
Stockholders' Equity 2,338,000 2,186,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 5,571,000 $ 4,969,000
============ ============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
June 28, June 29,
1997 1996
------------ ------------
<S> <C> <C>
Revenues $ 3,553,000 $ 2,462,000
Costs and Expenses:
Cost of Sales 1,770,000 1,068,000
Selling, General and Administrative 569,000 532,000
Research and Development 1,057,000 729,000
------------ ------------
Operating Income 157,000 133,000
Other Expense 8,000 1,000
------------ ------------
Income Before Income Taxes 149,000 132,000
Income Tax Provision --- ---
------------ ------------
Net Income $ 149,000 $ 132,000
=========== ============
Income Per Weighted Average Common
and Common Equivalent Share $ Nil $ Nil
=========== ============
Weighted Average Common Shares
Outstanding Used in Computing
Income Per Share 34,096,000 35,329,000
=========== ============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended
June 28, June 29,
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 149,000 $ 132,000
Adjustments to Reconcile Net Income to
Net Cash Provided By (Used in) Operating Activities:
Depreciation and Amortization 133,000 107,000
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable (1,314,000) (10,000)
Inventory 91,000 38,000
Prepaid Expenses and Other (24,000) (42,000)
Accounts Payable 217,000 (361,000)
Advances 157,000 (21,000)
Accrued and Other Expenses (90,000) (57,000)
----------- -----------
Net Cash Used In Operating Activities (681,000) (214,000)
----------- -----------
Cash Flow From Investing Activities:
Purchase of Equipment & Intangible Assets (45,000) (39,000)
----------- -----------
Net Cash Used In Investing Activities (45,000) (39,000)
----------- -----------
Cash Flows from Financing Activities:
Proceeds From Issuance of Short Term Debt 200,000 --
Exercise of Warrants and Stock Options 3,000 20,000
Payments Under Capital Lease Obligations (34,000) (15,000)
----------- -----------
Net Cash Provided By Financing Activities 169,000 5,000
----------- -----------
Net Decrease in Cash (557,000) (248,000)
Cash:
Beginning 620,000 664,000
----------- -----------
Ending $ 63,000 $ 416,000
=========== ===========
Interest Paid $ 9,000 $ 5,000
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Income Taxes Paid $ -- $ --
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</TABLE>
See Notes to Financial Statements
5
<PAGE>
AM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
As of June 28, 1997 and for the Quarters Ended
June 28, 1997 and June 29, 1996
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 28, 1997 and
the related Statements of Operations and Statements of Cash Flows for the
quarters ended June 28, 1997 and June 29, 1996 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 28, March 29,
1997 1997
----------- -----------
(Unaudited)
2. Inventory Comprises:
Raw Material $ 1,783,000 $ 2,106,000
Work-in-Process 1,256,000 749,000
Finished Goods 101,000 391,000
----------- -----------
3,140,000 3,246,000
Inventory Reserves (1,125,000) (1,140,000)
----------- -----------
Net Inventory $ 2,015,000 $ 2,106,000
=========== ===========
3. Accrued Expenses Comprise:
Accrued Compensation $ 195,000 $ 291,000
Accrued Rent 137,000 98,000
Accrued Real Estate Taxes 42,000 27,000
Warranty Reserve 55,000 55,000
Accrued Taxes 2,000 2,000
Accrued Professional Fees 8,000 47,000
Other 123,000 132,000
----------- -----------
$ 562,000 $ 652,000
=========== ===========
6
<PAGE>
4. Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109.
The provision for taxes on income consisted of:
<TABLE>
<CAPTION>
Quarters Ended
----------------------------
<S> <C> <C>
June 28, June 29,
1997 1996
-------- --------
Current Income Taxes $ -- $ --
Deferred Income Taxes 49,000 37,000
Change in Valuation Allowance (49,000) (37,000)
--------- --------
Net $ -- $ --
========= ========
</TABLE>
A reconciliation between the provision for income taxes, computed by
applying the statutory federal income tax rate of 34% to income before income
taxes and the actual provision for income taxes follows:
<TABLE>
<CAPTION>
Quarters Ended
------------------------------
June 28, June 29,
1997 1996
----------- ----------
<S> <C> <C>
Federal Income Tax Provision at Statutory Rate $ 51,000 $ 45,000
State Income Taxes, Net of Federal Benefit 9,000 9,000
Research and Development Credits (13,000) (13,000)
Permanent Differences 1,000 1,000
Change in Valuation Allowance (49,000) (37,000)
Other 1,000 (5,000)
----------- -----------
Income Tax Provision $ -- $ --
=========== ===========
</TABLE>
The components of the net deferred tax asset as of June 28 and March 29
were as follows:
<TABLE>
<CAPTION>
June 28, March 29,
1997 1997
------------- --------
<S> <C> <C>
Deferred Tax Items:
Inventory $ 456,000 $ 463,000
Accrued Expenses and Reserves 123,000 123,000
Net Operating Loss Carryforwards 7,756,000 7,811,000
Tax Credit Carryforwards 688,000 675,000
Valuation Allowance (9,023,000) (9,072,000)
------------- ------------
Net Deferred Tax Assets $ -- $ --
============= ============
</TABLE>
The Company has total net operating loss carryforwards available to offset
future taxable income of $27.1 million expiring at various times from 1998 to
2012. Due to certain statutory limitations under Internal Revenue Code Section
382, a portion of such carryforwords may not be available or may expire before
being utilized.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Operations
- -------------------------------------------------------------
Results 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.
Revenues
Revenues for the first quarter ended June 28, 1997 were $3.6 million,
representing a 44% increase over the $2.5 million reported in the comparable
quarter a year ago. Included in revenues are billings for software and
engineering services which totaled $459,000 and $226,000 for the first quarter
of fiscal 1998 and 1997, respectively.
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(TM) next generation status
monitoring system, which have improved the Company's ability to compete. The
Company also expanded its customer base with the addition of Comcast, Cable One,
Scientific-Atlanta and others to replace the revenue contribution from Lucent
Technologies. Revenues from Lucent Technologies have concluded as the customer
had curtailed the major project which involved the Company's products. The
Company maintains key strategic OEM relationships with ADC Communications, Next
Level Systems (formerly General Instrument), Philips Broadband Systems and
Scientific-Atlanta.
Backlog at July 29, 1997 was $8.5 million up from $1.9 million at July
29, 1996 which is due to the impact of the Company's marketing and research and
development investments made over the past two years. The Company continues to
experience increased levels of new business opportunities world-wide through its
direct sales efforts and through OEM relationships. The Company also has
introduced several new monitoring products as it expands its OmniStat(TM)
System, including OEM products for Philips, General Instrument, and
Scientific-Atlanta. However, given that the Company's selling cycle can be
extended and subject to competition, there can be no assurance that such new
opportunities will turn into revenues.
Cost of Sales
Cost of sales includes manufacturing costs of the Company's hardware
products. Cost of sales represented 50% of revenues in the first quarter of
fiscal 1998 compared to 43% in the first quarter of fiscal 1997. The Company's
margins are generally dependent on product and customer mix, with sales to OEM
customers generally having a lower profit margin. Margins have declined in the
first quarter of fiscal 1998 compared to a year ago due to competitive pressures
on several higher volume new products which have resulted in lower selling
prices and material variances incurred on new products which were recently moved
into volume manufacturing.
8
<PAGE>
Selling, General and Administrative
Selling, general and administrative (S,G&A) expenses were $569,000 in the
first quarter of fiscal 1998 compared to $532,000 in the first quarter of fiscal
1997, representing a 7% increase. The Company expects S,G&A expenses to increase
modestly in the future as it continues to expand its field support staff, expand
marketing activities and increases its administrative staff to support increased
growth opportunities world-wide.
Research and Development
Research and development expense increased $328,000 to $1,057,000 in the
first quarter of fiscal 1998, compared to $729,000 in the same period in fiscal
1997. Expenses increased in fiscal 1998 for both OEM products and continued
development on the OmniStat(TM) System including software and MCU products. The
Company expects to continue to increase development expenditures in software and
hardware development, though at more moderate levels, in response to expanded
customer interest in the Company's products.
Income Taxes
As the Company has available unused federal and state net operating loss
carryforwards in excess of $27 million, and has fully provided a valuation
allowance against its existing deferred tax assets, it will generally not record
income tax expense until such time as the net operating loss carryforwards are
utilized, expire, or that the valuation allowance is reduced. The current
expiration dates range from the years 1998 through 2012. Due to certain
statutory limitations under Internal Revenue Code Section 382, a portion of such
carryforwards may not be available or may expire before being utilized.
Industry Factors
The cable and broadband communications industry continues to undergo
significant change as cable television (CATV) operators respond to the
competitive threat of telephone companies (telcos) and other alternative
providers or video services entering the cable video services market. This has
resulted in CATV operators planning to expand and upgrade their distribution
infrastructures and telcos and other providers 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 1998, the Company's operating activities
consumed net cash of $681,000 compared to cash used in operations of $214,000 in
the first quarter of fiscal 1997. 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.
As of June 28, 1997, the Company's cash totaled $63,000 compared to
$620,000 at March 29, 1997 with the reduction due primarily to funding increased
amounts receivable related to the revenue increase. In August 1997, the Company
received a working capital loan commitment from a commercial bank to provide a
line of credit up to $1 million based on the value of accounts receivable. Under
the terms of the commitment, all the Company's assets would be pledged and
interest would be payable at 1-1/2% above prime. The Company expects to reach
final agreement on the line of credit in August 1997.
Capital expenditures totaled $45,000 and $39,000 in the first quarter of
fiscal 1998 and 1997, respectively, which includes computers, and manufacturing
assembly and test equipment.
The Company is focusing its efforts on maintaining profitability and
believes that available sources of liquidity, including projected cash flows
from operations, future equipment leasing arrangements, net operating loss
carryforwards and the new line of credit commitment will satisfy the projected
capital requirements for at least the next twelve months.
Forward Looking Statements
This Form 10-QSB discusses primarily historical information. Statements
included in this Form 10-QSB, 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.
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.
10
<PAGE>
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 11, 1997 By: /s/ Keith D. Schneck
--------------- ----------------------
Keith D. Schneck
President and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-END> JUN-28-1997
<CASH> 63,000
<SECURITIES> 0
<RECEIVABLES> 2,474,000
<ALLOWANCES> 9,000
<INVENTORY> 2,015,000
<CURRENT-ASSETS> 4,644,000
<PP&E> 4,039,000
<DEPRECIATION> 3,212,000
<TOTAL-ASSETS> 5,571,000
<CURRENT-LIABILITIES> 3,118,000
<BONDS> 0
0
2,583,000
<COMMON> 3,105,000
<OTHER-SE> 31,266,000
<TOTAL-LIABILITY-AND-EQUITY> 5,571,000
<SALES> 3,553,000
<TOTAL-REVENUES> 3,553,000
<CGS> 1,770,000
<TOTAL-COSTS> 3,396,000
<OTHER-EXPENSES> (1,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 149,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 149,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
