<PAGE>
UNITED STATES
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 QUARTERLY PERIOD ENDED JANUARY 1, 2000
[ ] 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.
(Exact name of small business issuer as specified in its charter)
Delaware 23-1922958
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Commerce Boulevard, Quakertown, Pennsylvania 18951-2237
- ------------------------------------------------ ----------
(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 February 9, 2000, there were 32,477,657 shares of the Registrant's Common
Stock, par value $.10 per share, outstanding.
<PAGE>
AM COMMUNICATIONS, INC.
FORM 10-QSB
FOR THE QUARTER ENDED JANUARY 1, 2000
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements
<S> <C>
Balance Sheets - January 1, 2000 (Unaudited) and April 3, 1999 3
Statements of Operations -- Three Month Periods and Nine Month 4
Periods Ended January 1, 2000 and December 26, 1998,
(Unaudited)
Statements of Cash Flows -- Nine Months Ended and January 1,
2000 and December 26, 1998 (Unaudited) 5
Notes to Financial Statements 6, 7
Item 2. Management's Discussion and Analysis of Operations 8 - 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities & Use of Proceeds 13
Item 6. Exhibits and Reports on Form 8-K 13 - 14
</TABLE>
2
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Item 1. Financial Statements
AM COMMUNICATIONS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
January 1, April 3,
2000 1999
------------ ------------
ASSETS (Unaudited)
Current Assets:
<S> <C> <C>
Cash $ 6,000 $ 24,000
Accounts Receivable, Net of Reserves of $217,000 and
$221,000 at January 1, 2000 and April 3, 1999, respectively 2,269,000 1,489,000
Due from Affiliates 226,000 42,000
Inventory 1,234,000 1,218,000
Prepaid Expenses and Other 69,000 43,000
------------ ------------
Total Current Assets 3,804,000 2,816,000
Equipment and Fixtures, Net 226,000 396,000
Other Assets 54,000 16,000
------------ ------------
Total Assets $ 4,084,000 $ 3,228,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Capital Lease Obligations $ 5,000 $ 38,000
Current Portion of Notes Payable 30,000 30,000
Bank Line of Credit 750,000 625,000
Accounts Payable 1,470,000 1,163,000
Advances 151,000 --
Accrued Expenses 1,050,000 889,000
------------ ------------
Total Current Liabilities 3,456,000 2,745,000
------------ ------------
Capital Lease Obligations - Long Term 3,000 --
Notes Payable - Long Term 120,000 120,000
Senior Convertible Redeemable Preferred Stock,
$100 Par Value, Authorized 1,000,000 Shares; Issued
and Outstanding 25,825 Shares at January 1, 2000 and
April 3, 1999 2,583,000 2,583,000
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, $.10 Par Value, Authorized 50,000,000
Shares at January 1, 2000 and April 3, 1999; Issued
and Outstanding 32,387,596 Shares at January 1, 2000
and 31,072,296 at April 3, 1999 3,239,000 3,107,000
Capital in Excess of Par 33,239,000 31,981,000
Accumulated Deficit (38,556,000 (37,308,000)
------------ ------------
Stockholders' Equity (Deficit) (2,078,000 (2,220,000)
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,084,000 $ 3,228,000
============ ============
</TABLE>
See Notes to Financial Statements
3
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AM COMMUNICATIONS, INC.
STATEMENTS OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
January 1, December 26, January 1, December 26,
2000 1998 2000 1998
-------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 2,669,000 $ 2,099,000 $ 6,838,000 $ 6,953,000
Cost and Expenses:
Cost of Sales 1,610,000 1,118,000 3,642,000 3,893,000
Selling, General and Administrative 675,000 530,000 1,946,000 1,889,000
Research and Development 763,000 1,136,000 2,441,000 3,089,000
-------------- ------------ ------------- --------------
Operating Loss (379,000) (685,000) (1,191,000) (1,918,000)
Other Expense (22,000) (4,000) (57,000) (6,000)
-------------- ------------ ------------- --------------
Loss Before Income Taxes (401,000) (689,000) (1,248,000) (1,924,000)
-------------- ------------ ------------- --------------
Net Loss $ (401,000) $ (689,000) $ (1,248,000) $ (1,924,000)
============== ============= ============= ==============
Basic Net Loss Per Share $ (0.01) $ (0.02) $ (0.04) $ (0.06)
============== ============= ============= ==============
Diluted Net Loss Per Share $ (0.01) $ (0.02) $ (0.04) $ (0.06)
============== ============= ============= ==============
Shares Used in Computation of Basic
Net Loss Per Share 32,367,000 31,072,000 31,948,000 31,072,000
============== ============= ============= ==============
Shares Used in Computation of
Diluted Net Loss Per Share 32,367,000 31,072,000 31,948,000 31,072,000
============== ============= ============= ==============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
AM COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
January 1, December 26,
2000 1998
----------- -----------
Cash Flows from Operating Activities:
<S> <C> <C>
Net Income (Loss) $(1,248,000) $ 1,924,000)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided by (Used in) Operating Activities:
Warrants Issued to NeST for Services 1,157,000 --
Depreciation and Amortization 228,000 339,000
Changes in Assets and Liabilities Which
Provided (Used) Cash:
Accounts Receivable (780,000) 496,000
Due from Affiliates (184,000) --
Inventory (16,000) 544,000
Prepaid Expenses and Other (67,000) (16,000)
Accounts Payable 307,000 (173,000)
Advances 151,000 (194,000)
Accrued and Other Expenses 161,000 88,000
----------- -----------
Net Cash Used In Operating Activities (291,000) (840,000)
Cash Flows From Investing Activities:
Purchase of Equipment and Intangible Assets (49,000) (31,000)
----------- -----------
Net Cash Used In Investing Activities (49,000) (31,000)
Cash Flows from Financing Activities:
Proceeds from Borrowings Under Bank Line of Credit 125,000 250,000
Proceeds from Note Payable -- 135,000
Exercise of Stock Options 197,000 --
Issuance of Warrants 36,000 --
Payments Under Capital Lease Obligations (36,000) (91,000)
----------- -----------
Net Cash Provided By Financing Activities 322,000 294,000
Net Decrease In Cash (18,000) (577,000)
Cash:
Beginning 24,000 710,000
----------- -----------
Ending $ 6,000 $ 133,000
=========== ===========
Interest Paid $ 59,000 $ 13,000
=========== ===========
Income Taxes Paid $ 2,000 $ 19,000
=========== ===========
Non-Cash Financing Activities:
Equipment Purchased Under Capital Lease $ 6,000 $ --
=========== ===========
</TABLE>
see Notes to Financial Statements
5
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AM COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
As of January 1, 2000 and for the 39 Week Periods Ended
January 1, 2000 and December 26, 1998
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 January 1,
2000 and the related Statements of Operations and Statements of Cash Flows
for the quarters and nine months ended January 1, 2000 and December 26,
1998 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.
January 1, April 3,
2000 1999
-------------- --------------
(Unaudited)
2. Inventory Comprises:
Raw Material $ 1,818,000 $ 1,940,000
Work in Process 978,000 595,000
Finished Goods 147,000 183,000
-------------- --------------
2,943,000 2,718,000
Inventory Reserves (1,709,000) (1,500,000)
--------------- --------------
Net Inventory $ 1,234,000 $ 1,218,000
============== ==============
3. Accrued Expenses Comprise:
Accrued Compensation $ 389,000 $ 341,000
Accrued Contracted Services 74,000 ---
Accrued Trade Show Costs 4,000 ---
Accrued Rent 165,000 180,000
Accrued Real Estate Taxes 80,000 41,000
Warranty Reserve 203,000 203,000
Accrued Income Taxes --- 2,000
Accrued Professional Fees 61,000 63,000
Other 74,000 59,000
-------------- --------------
$ 1,050,000 $ 889,000
============== ==============
4. Income Taxes:
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109.
6
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The provision for taxes on income consisted of:
<TABLE>
<CAPTION>
Nine Months Ended
------------------
January 1, December 26,
2000 1998
---------------- -----------
<S> <C> <C>
Current Income Taxes $ --- $ ---
Deferred Income Taxes (518,000) (787,000)
Change in Valuation Allowance 518,000 787,000
------------- ------------
Net $ --- $ ---
============= ============
</TABLE>
A reconciliation between the provision (benefit) 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>
Nine Months Ended
-----------------
January 1, December 26,
2000 1998
------------- ------------
Federal Income Tax Provision (Benefit) at
<S> <C> <C>
Statutory Rate $ (424,000) $ (654,000)
State Income Taxes, Net of Federal Benefit (82,000) (126,000)
Research and Development Credits (15,000) (10,000)
Permanent Differences 3,000 3,000
Change in Valuation Allowance 518,000 787,000
------------- ------------
Income Tax Provision $ --- $ ---
============= ============
</TABLE>
The components of the net deferred tax asset as of January 1, 2000 and
April 3, 1999 were as follows:
<TABLE>
<CAPTION>
January 1, April 3,
2000 1999
-------------- --------------
Deferred Tax Items:
<S> <C> <C>
Inventory $ 694,000 $ 609,000
Accrued Expenses and Reserves 371,000 379,000
Net Operating Loss Carryforwards 9,237,000 8,811,000
Tax Credit Carryforwards 837,000 822,000
Valuation Allowance (11,139,000) (10,621,000)
-------------- --------------
Net Deferred Tax Assets $ --- $ ---
============== ==============
</TABLE>
The Company has total net operating loss carryforwards available to offset
future taxable income of approximately $26.5 million expiring at various times
from 2000 through 2014. Due to certain statutory limitations under Internal
Revenue Code Section 382, a portion of such carryforwards may expire unutilized.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Operations
The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements represent the Company's present expectations or beliefs concerning
future events. The Company cautions that such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results. 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.
The following discussion should be read in conjunction with the Company's
Form 10-KSB for its 1999 fiscal year ended April 3, 1999.
General
The Company is a provider of high technology system level products for the
broadband communications industry, primarily for CATV monitoring and control
systems. As disclosed in the Company's Form 10-KSB for the fiscal year ended
April 3, 1999, the Company undertook several major organizational changes in
November, 1999 in response to changing business conditions including entering
into a strategic development and manufacturing relationship with Network Systems
& Technologies (P) Ltd. (NeST), under which NeST provides a substantial portion
of the Company's engineering and manufacturing requirements. Using the expanded
NeST engineering resources, the Company undertook an aggressive development
program to upgrade its software and certain hardware products. The Company
elected a new Chairman, Mr. Javad K. Hassan, who is also the Chairman, CEO and
majority shareholder of NeST. Through certain contractual agreements associated
with Mr. Hassan becoming Chairman and his ownership of NeST, Mr. Hassan controls
the voting of 14,391,837 shares of the Company's Common Stock presently owned by
the Company's majority shareholder, Alvin Hoffman, and has rights to acquire an
additional 12,862,334 shares through the exercise of stock options and warrants.
The Company believes the actions taken during fiscal 1999 improved the
Company's ability to compete and the Company is presently undertaking an
aggressive marketing and sales effort to re-establish its market position and
return to profitability. During the second quarter of fiscal 2000, the Company
commenced shipment of its new Omni2000 software platform, Omni2000 Ingress
Management System, and several cost reduced hardware products. Initial market
reaction to these products has been favorable and the Company's future success
depends, in large part, on the successful market acceptance of these new
products.
8
<PAGE>
Results of Operations
Quarter 3 Fiscal 2000 vs. Fiscal 1999
Quarter 3 Quarter 3
Fiscal 2000 Fiscal 1999
----------- -----------
Revenues 100.0% 100.0%
Cost of Sales 60.3 53.2
Selling, General and Administrative 25.3 25.3
Research and Development 28.6 54.1
---- ----
Operating Loss (14.2) (32.6)
Revenues
Revenues were $2.7 million and $6.8 million for the third quarter and first
nine months of fiscal 2000 ended January 1, 2000, representing a 27% increase
and 2% decline, respectively, compared to the prior year periods. The
improvement in third quarter revenues is due to increased OEM account activity
primarily related to new international business. The Company is experiencing an
increase in its business levels as its new Omni2000 software platform and other
related products commenced shipment in September 1999 which has improved its
competitive position. The Company also has expanded its selling efforts to
identify new opportunities. However, the success of the new products and
increased selling efforts is subject to the risks and uncertainties inherent
during the sales cycle in closing new business. The Company continues to
maintain key strategic OEM relationships with General Instrument, Philips, and
Scientific-Atlanta, and during the recent third quarter, established new
relationships with BARCO and Wavetek, Wandel, Goltermann. Backlog was $3.9
million at January 1, 2000, up from $2.1 million at the end of the second
quarter of fiscal 2000 and $1.4 million at December 26, 1998.
Development and software revenues totaled $339,000 and $234,000 in the
third quarter of fiscal years 2000 and 1999, respectively, and $960,000 and
$959,000 in the first nine months of fiscal years 2000 and 1999, 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 charged to research and development when incurred.
Cost of Sales
Costs of sales includes all manufacturing costs of the Company's hardware
products. Cost of sales represented 60.3% of revenues in the third quarter of
fiscal 2000 compared to 53.2% in the third quarter of fiscal 1999 and 53.3% and
56% in the first nine months of fiscal 2000 and fiscal 1999, respectively. The
increase in cost of sales percentage in the third quarter of fiscal 2000 is due
to an additional $450,000 charge to increase inventory reserves as a result of
the Company's transition to an out-source manufacturing strategy with Nestronics
which commenced January 2, 2000.
During the fourth quarter of fiscal 2000, the Company will outsource all of
its manufacturing requirements to a company called Nestronics. Nestronics
provides complete turnkey electronic design and outsourcing services to third
party customers, and is owned and controlled by the Company's Chairman, Mr.
Javad K. Hassan. Under the terms of the relationship, the Company's staff
responsible for managing the existing manufacturing operation were transferred
to Nestronics effective January 2, 2000. In return, the Company received a
commitment from Nestronics to manage and supply all the Company's manufacturing
requirements for a three year period under agreed upon pricing. In addition,
Nestronics will assume and credit the Company for the net book value of the
Company's inventory as of January 2, 2000. The Company believes that such an
outsourcing strategy will result in more efficient purchase of the Company's
products and relieve its operation from the risk of incurring manufacturing
inefficiencies associated with operating at fluctuating volume levels.
9
<PAGE>
The Company's margins are generally dependent on product mix and customer
mix, with sales to OEM customers generally having a lower profit margin.
Selling, General and Administrative
Selling, general and administrative (S, G & A) expenses were $675,000 and
$530,000 in the third quarter of fiscal 2000 and fiscal 1999, respectively, and
approximately $2.0 million and $1.9 million for the first nine months of fiscal
2000 and fiscal 1999, respectively. Expenses in sales and marketing have
increased as the Company has added to its direct sales and application
engineering staff to support the new product introductions. Offsetting this has
been a decline in administrative expenses as the Company is performing certain
administrative functions for NeST in return for a management fee.
Research and Development
Research and development expense totaled approximately $763,000 and $2.4
million in the third quarter and first nine months of fiscal 2000 compared to
$1.1 million and $3.1 million reported in the comparable periods a year ago. The
decline in research and development spending during fiscal 2000 has resulted
from the transition to lower cost engineering services provided by the NeST
development team.
The Company has been limited in its access to development resources which
has negatively impacted its competitive position. As a result of the NeST
partnership announced in November 1998, the Company has significantly increased
the number of engineering staff members working on Company projects and has
released new products in the second quarter of fiscal 2000, including its new
Omni2000 software platform, Omni2000 Ingress Management System, a new lower cost
master control unit, and several new transponders.
The Company has the option of paying for development services provided by
NeST in cash or warrants to purchase shares of the Company's stock. NeST
expenses incurred during the third quarter and nine months ended January 1, 2000
were $411,000 and $1.2 million, respectively, compared to $212,000 in the
comparable periods a year ago. All NeST services related costs have been paid by
the issuance of warrants to purchase the Company's Common Stock. The warrants
are exercisable at $0.01 per share, subject to the application of certain
anti-dilution provisions set forth in the warrants, on or before April 3, 2004.
Net Income (Loss)
The Company experienced net losses of $401,000 and $1.2 million for the
third quarter and first nine months of fiscal 2000, respectively, compared to
losses of $689,000 and $1.9 million, respectively, in the comparable prior year
periods. The reduction in net loss is a result of reduced operating costs,
including product costs and research and development. This reduction in
operating costs is primarily attributable to the cost savings achieved from the
Company's transition to its strategic relationship with NeST. While the Company
has operated at a loss for the most recent third quarter, the Company's focus
for the remainder of this fiscal year is to increase revenues from the
introduction of its new platform products and to return to profitability.
10
<PAGE>
Income Taxes
Due to the significant net operating loss carryforward, the Company is
subject to minimum income taxes which include state income taxes and federal
income taxes based on an "alternative minimum tax" calculation.
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 CATV network monitoring products has generally increased as
monitoring of cable distribution systems has become an important factor in
increasing operating efficiency and reliability. However, the Company's
operations are subject to the timing and success of new product introductions,
the scheduling of orders by customers and the Company's ability to support its
technology in the field. The Company continues to identify product development
needs in excess of its available development resources, which could negatively
impact its competitive position. 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.
Liquidity and Capital Resources
The Company has financed its operating losses through reductions in cash,
accounts receivables and inventory, an increase in accounts payables, drawdowns
on its line of credit and the payment of NeST development expenses through the
issuance of warrants.
As of January 1, 2000, the Company's cash totaled $6,000 and outstanding
borrowings under its bank line of credit was $750,000 compared to $24,000 and
$625,000, respectively at April 3, 1999. The Company's line of credit is limited
to $750,000 and borrowings are based on 80% of the value of qualified accounts
receivable. Under the terms of the agreement, all the Company's assets are
pledged and interest is payable at 2% above prime. As of January 1, 2000, the
Company's working capital totaled $348,000. The Company is in technical default
of the bank line of credit agreement which requires $500,000 minimum working
capital and minimum tangible net worth of $175,000 and is presently working with
the financial lender to amend certain of the financial covenants.
In June 1999, the Company entered into an agreement with its chairman,
Javad K. Hassan, whereby Mr. Hassan will provide a $500,000 line of credit to
the Company, with interest payable at 10%. Payment of all outstanding borrowings
and interest is due by December 31, 2000. No amounts have been drawn under this
line.
11
<PAGE>
Under the terms of the NeST Development Agreement, the Company has the
option to pay for NeST development services either in cash or by the issuance of
warrants to purchase AM Common Stock. The Company issued 3,628,316 warrants to
purchase common stock at an exercise price of $0.01 per share as payment for
$1.2 million owed NeST for services performed from April 4, 1999 through January
1, 2000 and issued 4,234,018 shares as payment for $670,000 owed NeST for
services performed from November 1998 through April 3, 1999. The Company
anticipates that future NeST expenses occurring after January 1, 2000 will be
paid in cash.
The Company has undertaken several restructuring actions during fiscal 1999
and during the first three quarters of fiscal 2000, which are designed to reduce
operating cash expenses. The Company expects to continue to utilize the NeST
technology resources in India for a substantial portion of its development
efforts, which is expected to allow the Company to reduce its overall expenses
for research and development and provide flexibility in payment of services
through the issuance of warrants or payment in cash, at the Company's option.
During the first quarter of fiscal 2000, the Company agreed to provide
certain administrative and manufacturing support services and provide office
space to NeST and several other entities associated with Mr. Hassan's non-AM
business ventures. The Company is to receive a fee of $142,000 per quarter for
such services. Should the level of services exceed planned levels, the parties
will negotiate an increase in the quarterly fee.
As previously described, the Company was required to undertake a
significant upgrade to its software products during fiscal 1999 and fiscal 2000
which impacted its ability to attract new customers and increase revenues
sufficient to cover the operating costs of the business. The new software
product platform has commenced shipment in the second quarter of fiscal 2000 and
the Company has re-focused its marketing efforts in an attempt to expand its
revenue base.
The Company believes its present operating structure has reduced its cash
operating requirements to a level which can be supported under the Company's
present revenue levels. It is the Company's goal to increase revenue levels
through successful marketing of its upgraded product offerings during fiscal
2000. During the first nine months of fiscal 2000, the Company expanded its
marketing efforts by replacing and adding to its sales and technical support
staff and launched an aggressive marketing program. The Company believes that
existing cash and available lending lines will provide sufficient liquidity to
support operations through the next fiscal year. However, should operating
losses continue beyond levels which can be supported, the Company would expect
to implement further actions to reduce expenses or raise additional capital to
enable continued execution of its strategy. There can be no assurance that
additional capital can be raised under acceptable terms.
Capital expenditures totaled $55,000 in the first nine months of fiscal
2000 and $31,000 in the comparable period in fiscal 1999 which included capital
leases, computers, manufacturing assembly and test equipment, and facility
related improvements and fixtures.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruption of operations, including among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
12
<PAGE>
The Company believes that it has minimal exposure to contingencies related
to the Year 2000 Issue for the products it has sold.
The Company's present internal reporting system has been modified to
operate beyond December 31, 1999, however, a plan has been initiated to
implement a replacement software system. Management expects this software system
will be installed and fully operational during the first quarter of fiscal 2001.
The anticipated cost of this project is $150,000, of which $75,000 has been
incurred to date.
The Company plans to engage in formal communication with all of its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. There can be no guarantee that the systems of other companies
on which the Company's systems rely or interface with will be timely converted,
or that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
On January 1, 2000, the Company issued warrants to purchase 1,139,068
shares of the Company's Common Stock (the "Warrants") to Network Systems &
Technologies (P) Ltd. ("NeST"). The Warrants were issued by the Company in
exchange for certain development services in the amount of $384,000 provided by
NeST to the Company during the three month period ended on January 1, 2000. The
Warrants entitle the holder(s) thereof to purchase the indicated number of
shares of the Company's Common Stock at a price of $0.01 per share, subject to
the application of certain anti-dilution provisions set forth in the Warrants,
on or before April 3, 2004.
The Warrants were issued by the Company in reliance upon the exemption from
registration provided for in Section 4(2) of the Securities Act of 1933, as
amended, as a transaction not involving any public offering. The Warrants were
issued only to NeST, as compensation for services provided by NeST to the
Company. No offer of the securities was made by the Company to any other person.
Item 6. 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.
4-b Warrant issued to NeST.
****9-a Voting Trust and Share Participation Agreement (Exhibit 9.1)
**10-a. 1991 Incentive Stock Option Plan.
13
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***10-b. Joint Development Agreement between AM Communications and
Scientific-Atlanta dated May 1996.
***10-c. Distribution Agreement and Manufacturing License dated June 14,
1996.
***10-d. Registration Rights Agreement dated June 17, 1996.
***10-e. Warrant Agreement dated June 17, 1996.
****10-f. 1999 Stock Option Plan.
10-g. Line of Credit Commitment Letter with Progress Bank dated
June 29, 1999.
****10-h. Services Agreement between the Company and Jay Hassan
(Exhibit 10.1)
****10-i. Consulting Services Agreement between the Company and NeST.
(Exhibit 10.2)
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
March 30, 1996.
**** Incorporated by reference to the Exhibit number indicated in
Registrant's Report on Form 8-K dated November 9, 1998.
**** Incorporated by reference to the Exhibit number indicated in
Registrant's Report on 10-KSB for the fiscal year ended April 3,
1999.
(b) The Company filed a report on Form 8-K in October, 1999 reporting upon
a change in the Company's independent certified accountant.
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: February 15, 2000 By: /s/ Keith D. Schneck
------------------ --------------------
Keith D. Schneck
President and Chief Financial Officer
14
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<FISCAL-YEAR-END> OCT-3-1999
<PERIOD-END> JAN-01-2000
<CASH> 6,000
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3,239,000
2,583,000
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