**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C.20549**

 

**FORM 10-QSB**

 

| **ý**                                                                                                                                                                                                                                                                                                                                                                                            | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                          |
| **For the quarterly period ended:**                                                                                                                                                                                                                                                                                                                                                                   | **June 30, 2003 or**                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                          |
| **o**                                                                                                                                                                                                                                                                                                                                                                                                 | **TRANSITION REPORT PURSUANT TO  SECTION 13 0R 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                          |
| **For the transition period from                                 to                              ** |
|                                                                                                                                                                                                                                                                                                                                                                                                  |                                                                                          |
| **Commission File Number:**                                                                                                                                                                                                                                                                                                                                                                           | **0-27252**                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                       |                                                                                               |  |

 

**AML COMMUNICATIONS, INC.**

(Exact name of small business issuer as specified in its charter)

 

| **Delaware**                                                    |   | **77-0130894**                     |
|-----------------------------------------------------------------|--------|------------------------------------|
| (State or Other jurisdiction of  incorporation or organization) |   | (IRS Employer  Identification No.) |
|                                                            |   |                               |
| **1000 Avenida Acaso  Camarillo, California**                   |   | **93012**                          |
| (Address of principal executive offices)                        |   | (Zip Code)                         |
|                                                            |   |                               |
| **(805) 388-1345**                                              |
| (Issuer’s telephone number including area code)            |

 

Check whether the issuer (1)has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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   ý  No   o

 

Common Stock Outstanding as ofAugust 1, 2003:                       7,829,459

 

Transitional Small Business DisclosureFormat: Yes  o    No ý

 

Number of pages in this Form 10-Q                                                         SB   16

 

 

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**AML COMMUNICATIONS,INC.**

 

**INDEX TO FORM 10QSB**

 
| **PART I**  | **FINANCIAL INFORMATION**                                                                    |
|-------------|----------------------------------------------------------------------------------------------|
|        |                                                                                         |
| Item 1.     | Financial Statements                                                                         |
|        |                                                                                         |
|        | Balance  Sheets at June 30, 2003 and March 31, 2003                                          |
|        |                                                                                         |
|        | Statements  of Operations for the three-month periods ended  June 30, 2003 and June 30, 2002 |
|        |                                                                                         |
|        | Statements of Cash Flows for the  three-month periods ended  June 30, 2003 and June 30, 2002 |
|        |                                                                                         |
|        | Notes to Interim Financial Statements                                                        |
|        |                                                                                         |
| Item 2.     | Management’s Discussion and Analysis of  Financial Condition and Results of Operations  |
|        |                                                                                         |
| Item 3.     | Controls and Procedures                                                                      |
|        |                                                                                         |
| **PART II** | **OTHER INFORMATION**                                                                        |
|        |                                                                                         |
| Item 6.     | Exhibits and Reports on Form 8-K                                                             |
|        |                                                                                         |
|        | **SIGNATURES**                                                                               |

 

2

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**PARTI****- FINANCIAL INFORMATION**

 

**Item1****.  Financial Statements**

 

**AML COMMUNICATIONS, INC.****CONDENSEDBALANCE SHEET**

 
|                                                                                                                                         |   | **June 30,  2003** |       | **March 31,  2003** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|------------|---------------------|------------|
|                                                                                                                                         |   |               |       |                |       |
| **ASSETS**                                                                                                                                   |   |               | ** ** |                | ** ** |
| Current Assets:                                                                                                                              |   |               |       |                |       |
| Cash and cash equivalents                                                                                                                    |   | $                  | 54,000     |                | $          | 195,000 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $35,550 at June 30, 2003 and $35,550 March 31, 2003                          |   | 1,147,000          |       | 609,000             |       |
| Inventories, net                                                                                                                             |   | 975,000            |       | 1,059,000           |       |
| Other current assets                                                                                                                         |   | 117,000            |       | 135,000             |       |
| Total current assets                                                                                                                         |   | 2,293,000          |       | 1,998,000           |       |
|                                                                                                                                         |   |               |       |                |       |
| Property and Equipment, at cost:                                                                                                             |   | 4,270,000          |       | 4,267,000           |       |
| Less - Accumulated depreciation and  amortization                                                                                            |   | (3,717,000         | )          | (3,631,000          | )          |
|                                                                                                                                         |   | 553,000            |       | 636,000             |       |
|                                                                                                                                         |   |               |       |                |       |
| Other Assets                                                                                                                                 |   | 43,000             |       | 43,000              |       |
|                                                                                                                                         |   | $                  | 2,889,000  |                | $          | 2,677,000 |   |
|                                                                                                                                         |   |               |       |                |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                |   |               |       |                |       |
|                                                                                                                                         |   |               |       |                |       |
| Current Liabilities:                                                                                                                         |   |               |       |                |       |
| Accounts payable                                                                                                                             |   | $                  | 464,000    |                | $          | 568,000 |   |
| Line of credit                                                                                                                               |   | 661,000            |       | 482,000             |       |
| Current portion of capital lease  obligations                                                                                                |   | 155,000            |       | 168,000             |       |
| Accrued expenses:                                                                                                                            |   |               |       |                |       |
| Accrued payroll and payroll related  expenses                                                                                                |   | 115,000            |       | 160,000             |       |
| Other accrued liabilities                                                                                                                    |   | 168,000            |       | 243,000             |       |
| Total current liabilities                                                                                                                    |   | 1,563,000          |       | 1,621,000           |       |
|                                                                                                                                         |   |               |       |                |       |
| Notes payable - officers                                                                                                                     |   | 150,000            |       | 50,000              |       |
| Capital Lease Obligations, net of current  portion                                                                                           |   | 74,000             |       | 126,000             |       |
|                                                                                                                                         |   |               |       |                |       |
| Stockholders’ Equity:                                                                                                                   |   |               |       |                |       |
| Preferred stock, $.01 par value:                                                                                                             |   |               |       |                |       |
| 1,000,000 shares authorized; no shares  issued or outstanding                                                                                |   | —             |       | —              |       |
| Common stock, $.01 par value: 15,000,000  shares authorized; 7,829,459 shares issued and outstanding at June 30, 2003  and at March 31, 2003 |   | 73,000             |       | 73,000              |       |
|                                                                                                                                         |   |               |       |                |       |
| Capital in excess of par value                                                                                                               |   | 10,301,000         |       | 10,301,000          |       |
| Accumulated deficit                                                                                                                          |   | (9,272,000         | )          | (9,494,000          | )          |
| Total stockholders’ equity                                                                                                              |   | 1,102,000          |       | 880,000             |       |
|                                                                                                                                         |   | $                  | 2,889,000  |                | $          | 2,677,000 |   |

 

The accompanying notes are an integral partof these financial statements.

 

3

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**AML COMMUNICATIONS, INC.****CONDENSEDSTATEMENTS OF OPERATIONS**

 
|                                                                             |   | **Three  Months Ended** |      |
|----------------------------------------------------------------------------------|--------|-------------------------|-----------|
|                                                                             |   | **June 30,  2003**      |      | **June 30,  2002** |   |
|                                                                             |   |                    |      |   |   |
| Net sales                                                                        |   | $                       | 1,548,000 |   | $ | 1,332,000 |   |
| Cost of goods sold                                                               |   | 831,000                 |      | 708,000 |   |
| Gross profit                                                                     |   | 717,000                 |      | 624,000 |   |
|                                                                             |   |                    |      |   |   |
| Operating expenses:                                                              |   |                    |      |   |   |
| Selling, general and administrative                                              |   | 265,000                 |      | 300,000 |   |
| Research and development                                                         |   | 199,000                 |      | 322,000 |   |
|                                                                             |   | 464,000                 |      | 622,000 |   |
|                                                                             |   |                    |      |   |   |
| Operating income (loss)                                                          |   | 253,000                 |      | 2,000 |   |
|                                                                             |   |                    |      |   |   |
| Other (expense) income, net                                                      |   | (30,000                 | )         | (18,000 | ) |
| Income (loss) before provision for income  taxes                                 |   | 223,000                 |      | (16,000 | ) |
| Provision for income taxes                                                       |   | —                  |      | — |   |
|                                                                             |   |                    |      |   |   |
| Net income (loss)                                                                |   | $                       | 223,000   |   | $ | (16,000 | ) |
|                                                                             |   |                    |      |   |   |
| Basic earnings (loss) per common share                                           |   | $                       | 0.03      |   | $ | 0.00 |   |
|                                                                             |   |                    |      |   |   |
| Diluted earning (loss) per common share                                          |   | $                       | 0.02      |   | $ | 0.00 |   |
| Basic and diluted weighted average number  of shares of common stock outstanding |   | 7,829,000               |      | 7,829,000 |   |
| Diluted weighted average number of shares  of common stock outstanding           |   | 9,393,000               |      | 7,829,000 |   |

 

The accompanying notes are an integral partof these financial statements.

 

4

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**AML COMMUNICATIONS, INC.****CONDENSEDSTATEMENTS OF CASH FLOWS**

 
|                                                                         |   | **Three Months Ended** |       |
|------------------------------------------------------------------------------|--------|------------------------|------------|
|                                                                         |   | **June 30,  2003**     |       | **June 30,  2002** |   |
|                                                                         |   |                   | ** ** |   | ** ** |
| Cash Flows from Operating Activities:                                        |   |                   |       |   |   |
| Net profit (loss)                                                            |   | $                      | 223,000    |   | $ | (16,000 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |   |                   |       |   |   |
| Depreciation and amortization                                                |   | 85,000                 |       | 158,000 |   |
| Changes in assets and liabilities:                                           |   |                   |       |   |   |
| Decrease (increase) in:                                                      |   |                   |       |   |   |
| Accounts receivable                                                          |   | (538,000               | )          | 446,000 |   |
| Inventories                                                                  |   | 84,000                 |       | (11,000 | ) |
| Other current assets                                                         |   | 18,000                 |       | 71,000 |   |
| Accounts payable                                                             |   | (106,000               | )          | (526,000 | ) |
| Accrued expenses                                                             |   | (119,000               | )          | (144,000 | ) |
| Net cash used in operating activities                                        |   | (353,000               | )          | (22,000 | ) |
|                                                                         |   |                   |       |   |   |
| Cash Flows from Investing Activities:                                        |   |                   |       |   |   |
| Purchases of property and equipment                                          |   | (2,000                 | )          | (7,000 | ) |
| Net cash used in investing activities                                        |   | (2,000                 | )          | (7,000 | ) |
|                                                                         |   |                   |       |   |   |
| Cash Flows from Financing Activities:                                        |   |                   |       |   |   |
| Net Proceeds from line of credit                                             |   | 179,000                |       | 236,000 |   |
| Proceeds from note payable                                                   |   | 100,000                |       | — |   |
| Principal payments on capital lease  obligations                             |   | (65,000                | )          | (58,000 | ) |
| Net cash from (used in) financing  activities                                |   | 214,000                |       | 178,000 |   |
| Net Decrease in Cash and Cash Equivalents                                    |   | (141,000               | )          | 149,000 |   |
| Cash and Cash Equivalents, beginning of  period                              |   | 195,000                |       | 160,000 |   |
| Cash and Cash Equivalents, end of period                                     |   | $                      | 54,000     |   | $ | 309,000 |   |
|                                                                         |   |                   |       |   |   |
| Supplemental disclosures of cash flow  information:                          |   |                   |       |   |   |
| Cash paid during the period for:                                             |   |                   |       |   |   |
| Interest                                                                     |   | $                      | 30,000     |   | $ | 23,000 |   |
| Income taxes                                                                 |   | —                 |       | — |   |
| Non-cash transactions:                                                       |   |                   |       |   |   |
| Debt incurred to purchased property and  equipment                           |   | $                      | —     |   | $ | 50,000 |   |

 

The accompanying notes are an integral partof these financial statements.

 

5

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**AMLCOMMUNICATIONS, INC.****NOTES TO FINANCIAL STATEMENTS**

**JUNE 30, 2003**

 

**1.****                                      Basisof Presentation**

 

AMLCommunications, Inc. (the “Company”) is a designer, manufacturer, and marketerof amplifiers and related products that address the defense microwave markets.

 

Theaccompanying unaudited financial statements have been prepared in conformitywith accounting principles generally accepted in the United States.  However, certain information and footnotedisclosures normally included in financial statements prepared in accordancewith accounting principles generally accepted in the United States have beenomitted or condensed pursuant to the rules and regulations of the Securitiesand Exchange Commission (“SEC”).  In theopinion of management, all adjustments (consisting of normal recurringadjustments) necessary for a fair presentation have been included.  The results of operations and cash flows forthe three-month period presented are not necessarily indicative of the resultsof operations for a full year.  Thesefinancial statements should be read in conjunction with the Company’s March 31,2003 audited financial statements and notes thereto included in the Company’sAnnual Report on Form 10-KSB.

 

Going Concern Issues

 

In connectionwith the audit for the year ended March 31, 2003, we received a report from ourindependent certified public accountants that includes an explanatory paragraphdescribing uncertainty in our ability to continue as a going concern.  Our financial statements included hereincontemplate our ability to continue and as such do not include any adjustmentsthat might result from this uncertainty. These financial statements should beread in conjunction with the Company’s March 31, 2003 audited financialstatements and notes thereto included in the Company’s Annual Report on Form10-KSB.

 

**2.****                                      EarningsPer Share**

 

Basic earningsper share is computed by dividing net income or loss by the weighted averagenumber of shares outstanding for the year. “Diluted” earnings per share is computed by dividing net income or lossby the total of the weighted average number of shares outstanding, and thedilutive effect of outstanding stock options (applying the treasury stockmethod).

 

**3.**                                      **Inventories**

 

Inventoriesinclude costs of material, labor and manufacturing overhead and are stated atthe lower of cost (first-in, first-out) or market and consist of the following:

 
|            |   | **June 30,  2003** |    | **March 31,  2003** |   |
|-----------------|--------|--------------------|---------|---------------------|--------|
|            |   | **(Unaudited)**    |    | **(Audited)**       |   |
| Raw materials   |   | $                  | 749,000 |                | $      | 800,000 |   |
| Work-in-process |   | 50,000             |    | 132,000             |   |
| Finished goods  |   | 176,000            |    | 127,000             |   |
|            |   | $                  | 975,000 |                | $      | 1,059,000 |   |

 

6

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Line of Credit

 

In November 2002, we renewed our $1,000,000 line of credit with SiliconValley Bank.  This revolving line ofcredit bears interest at the bank’s reference rate at 4.25% plus 1%, totaling5.25% at June 30, 2003.  This line ofcredit is secured by substantially all of the Company’s assets and expires onDecember 15, 2003. As of June 30, 2003, there was $661,000 in outstandingborrowings under the line of credit. Borrowings under the line of credit aresubject to a borrowing base of accounts receivable, and there are no financialcovenants.

 

**CapitalLeases**

 

In June 2002,the Company entered into a non-cancelable capital lease to acquire testequipment valued at approximately $50,000. The terms of the lease call for 12 equal monthly aggregate payments of$4,192 commencing in July 2002 with no annual interest.

 

**4.****                                      RecentlyIssued Accounting Pronouncements**

 

In April 2003, the Financial AccountingStandards Board issued Statement of Financial Accounting Standard (SFAS)No. 149, Amendment of Statement 133 on Derivative Instruments and HedgingActivities. The Statement further clarifies accounting for derivativeinstruments. The company believes the adoption of this Statement will have nomaterial impact on its financial statements.

 

In May 2003, the FASB issued Statementof Financial Accounting Standards No. 150, “Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity,”(“SFAS 150”). SFAS 150 establishes standards for how an issuerclassifies and measures certain financial instruments with characteristics ofboth liabilities and equity. It requires that an issuer classify a financialinstrument that is within its scope as a liability (or an asset in somecircumstances). Many of those instruments were previously classified as equity.SFAS 150 is effective for financial instruments entered into or modifiedafter May 31, 2003, and otherwise is effective at the beginning of thefirst interim period beginning after June 15, 2003. We do not believe theadoption of SFAS 150 will have a material impact on our consolidatedfinancial statements.

 

 

**5.**                                      **Listing History**

 

Our common stock currently trades on Nasdaq’s OTC Bulletin Board underthe symbol “AMLJ.OB”. Our common stock traded on the Nasdaq Small Cap Marketfrom October 8, 2001 to August 13, 2002 and on the Nasdaq NationalMarket prior to that time.  We weredelisted from NASDAQ because of our failure to meet the $1.00 minimum bid pricerequirement.

 

 

**6.****                                      SubsequentEvent**

 

In July 2003 the Company raised $288,000 ($100,000 of which was aconversion from an advance received in June 2003), primarily from currentofficers and directors, in the form of notes with warrants. The promissorynotes bear interest at the rate of 8% and have a two-year maturity.  The warrants to purchase 240,000 shares ofcommon stock have an exercise price of $0.24, vest immediately, and have a termof five years from the date of the note.

 

 

**Item2****.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

This filingcontains forward-looking statements which involve risks and uncertainties.  The Company’s actual future results maydiffer materially from the results discussed in the forward-looking statements.  When used in this report, the words “expects”“anticipates” and “estimates” and similar expressions are intended to identify

 

7

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forward-looking statements.Factors that could cause actual results to differ materially from thoseexpressed in any forward-looking statement made by the Company include, but arenot limited to:

 

•                  our ability tofinance our activities and maintain our financial liquidity;

•                  our ability toattract and retain qualified, knowledgeable employees;

•                  the impact ofgeneral economic conditions on our business;

•                  postponements,reductions, or cancellations in orders from new or existing customers;

•                  the limitednumber of potential customers for our products;

•                  the variabilityin gross margins on our new products;

•                  our ability to designnew products successfully;

•                  our failure toacquire new customers in the future;

•                  the continued ornew deterioration of business and economic conditions in our customers’marketplaces;

•                  intenselycompetitive industry conditions with increasing price competition; and

•                  the rate ofgrowth in the wireless and MIC communications markets.

 

Please read the factors setforth in “Additional Factors That May Affect Future Results” and other risksdetailed in the Company’s SEC filings. The Company undertakes no obligation to publicly release any revisionsto these forward-looking statements to reflect events or circumstances afterthe date this report is filed with the SEC or to reflect the occurrence ofunanticipated events.

 

**Resultsof Operations**

 

**ThreeMonths Ended June 30, 2003 Compared to Three Months Ended June 30, 2002**

 

*Net sales. *Net sales for thethree months ended June 30, 2003 were $1.55 million, compared to net sales of$1.33 million in the three months ended June 30, 2002, an increase of 16%. Theincrease in sales is attributable to increased sales for our MIC productsserving the Defense markets. Net sales of Cellular, PCS and two-way messagingproducts for the three months ended June 30, 2003 were $22,000, or 1.4% of netsales, compared to $108,000, or 8.1% of net sales, for the three months endedJune 30, 2002. This decrease is attributed to the softness in the wirelesscommunications market and the decrease in demand for our legacy cellularproducts. The decrease in PCS, two-way messaging and cellular sales was  offset by an increase in sales of our MIC,defense related, amplifier products of approximately 24.7%. Specifically, salesof our MIC products were $1.53 million, or 98.6% of net sales for the threemonths ended June 30, 2003 compared to sales of $1.2 million, or 91.9% of netsales for the three months ended June 30, 2002. The increase in defense relatedMIC sales is largely attributable to our continued penetration of the fracturedMIC market, the fast acquisition rate for new MIC customers, and increaseddemand for defense related MIC products due to the procurement of upgrade,replacement, and spare parts for defense applications. As a result of the U.S.government announced plans to increase defense spending, we anticipate that MICsales will continue to be a significant portion of our revenue.

 

*Gross profit. *Gross profit for the three months endedJune 30, 2003 was $717,000 or 46.3% of net sales, compared to $624,000 , or46.8% of net sales, for the three months ended June 30, 2002.  Gross profit increased as a result ofincreased material margins for our defense related MIC products, whichaccounted for virtually all of the sales during the quarter ended June 30,2003, and due to the effects of cost reductions and efficiency gains.

 

*Selling, general andadministrative costs. *Selling,general and administrative costs for the three months ended June 30, 2003, were$265,000, or 17.1% of net sales, compared to $300,000, or 22.5% of net sales,for the three months ended June 30, 2002. The decrease is attributable to reduced commission expenses inconnection with Government Contracts, and decline in travel associated withsales, as well as decreased advertising and trade show activities.

 

*Research and development costs. *Research and developmentcosts for the three months ended June 30, 2003 were $199,000 or 12.9% of netsales, compared to $322,000, or 24.2% of net sales, for the three months endedJune 30, 2002.  The decrease isprimarily due to the decline in depreciation expense, as many R&D assetshave become fully depreciated, and there has been a significant drop inengineering direct labor, drafting, and documentation costs from headcountreductions.

 

8

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*Other expense.  *Other expense, for the three monthsended June 30, 2003 was $30,000, compared to other expense of $18,000 for thethree months ended June 30, 2002.  Theincrease is due to interest expense and finance charges related to capital leasesand to the Line of Credit balance.

 

*Provision for incometaxes. *Forboth the three months ended June 30, 2003 and June 30, 2002, we recorded noprovision for or benefit from income taxes. Although we recorded a net profitfor the three months ended June 30, 2003, we did not record a provision fortaxes for the first quarter of fiscal 2003, as the tax effect on the incomewill be mitigated by the utilization of loss carry-forwards.

 

*Netincome/loss. *Forthe reasons set forth above, we generated a net income in the first quarter offiscal 2004 of $223,000 compared to net loss of $16,000 in the first quarter offiscal 2003.

 

**Liquidityand Capital Resources**

 

Historically, we have financed our operationsprimarily from internally generated funds and, to a lesser extent, loans fromstockholders and capital lease obligations. In December 1995, we completedan initial public offering of 1,725,000 shares of common stock (including theexercise of the underwriters’ over allotment option), raising net proceeds ofapproximately $7.7 million. Of such net proceeds, $425,000 was used torepay loans from certain stockholders and the remainder was used to expandmanufacturing capability through the leasing and outfitting of substantiallylarger facilities, the acquisition of equipment sufficient to produce higherproduct quantities and the employment and training of additional employeescapable of expanding production and sales. From March 2001 throughJanuary 2002, we raised approximately $1.0 million in additionalfunds from the completion of four (4) equity private placements. The netproceeds of the equity private placements have also been used to maintaininventory and working capital balances.

 

In April 2001, we entered into threenon-cancelable capital leases to acquire test equipment valued in aggregate at$137,000. The terms of the leases are identical and call for 36 equal monthlyaggregate payments of $4,396, commencing in April 2001, and at an annualinterest rate of 9.4%.

 

In December 2001, we entered into anon-cancelable capital lease to acquire test equipment valued at $53,000. Theterms of the lease call for 48 equal monthly aggregate payments of $1,503.89commencing in December 2001 and at an annual interest rate of 15.63%.

 

In December 2001, we entered into apromissory note payable with a principal value of $50,000 with Mr. TiberiuMazilu, PhD, an officer and director of the Company. The terms of the note callfor quarterly interest payments to Dr. Mazilu commencing onSeptember 30, 2002, with the interest payment calculated quarterly basedon the prime interest rate plus 1.25%. The principal amount of the note is dueon January 2, 2005 but would become due and payable by the Companyimmediately upon the consolidation or merger of the Company with anotherentity, the death of Dr. Mazilu, or the Company’s termination ofDr. Mazilu’s employment with the Company.

 

In June 2002, the Company entered into anon-cancelable capital lease to acquire test equipment valued at approximately$50,000. The terms of the lease call for 12 equal monthly aggregate payments of$4,192 commencing in July 2002 with no annual interest.

 

In November 2002, we renewed our$1,000,000 line of credit with Silicon Valley Bank. This revolving line ofcredit bears interest at the bank’s reference rate prime rate at 4.25% plus 1%,totaling 5.25% at June 30, 2003. This line of credit is secured bysubstantially all of the Company’s assets and expires on December 15,2003. As of June 30, 2003, there was $661,000 in outstanding borrowings underthe line of credit. Borrowings under the line of credit are subject to aborrowing base of accounts receivable, and there are no financial covenants.

 

In December 2002, the Company enteredinto a non-cancelable capital lease to acquire test equipment valued inaggregate at approximately $50,000. The terms of the lease call for 36 equalmonthly payments of $1,699 commencing in December 2002 and at an annualinterest rate of 13.7%.

 

9

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At June 30, 2003, we had $54,000 in cash andcash equivalents. The Company’s operating activities created a negative cashflow of approximately $353,000 in fiscal 2004, a direct result of reduced salesduring the previous quarter, coupled with increased production and materialcost in the quarter ending June 30, 2003. We anticipate capital expenditures ofapproximately $300,000 in fiscal 2004. We have scheduled principal payments;capital lease payments and operating lease payments totaling $250,000 in fiscal2004.

 

In July 2003 the Company raised $288,000  ($100,000 of which was a conversion from an advance received inJune 2003), primarily from current officers and directors, in the form of noteswith warrants. The promissory notes bear interest at the rate of 8% and have atwo-year maturity, with five-year warrants at 20% of the investment.

 

Our auditors have included an explanatory paragraph relating to ourability to continue as a going concern as of our fiscal year ended March 31, 2003, in their Report of CertifiedPublic Accountants included in our audited financial statements contained inour Form 10-KSB. For the year ended March 31, 2003, we incurred a net loss of$1.2 million and negative cash flows from operations of approximately $119,000primarily as a result of the reduction of accounts payable balances. The auditorsconsidered that these factors raise substantial doubt about our ability tocontinue as a going concern.

 

Recovery of our assets is dependent upon future events, the outcome ofwhich is indeterminable. Successful completion of our development programs andattaining profitable operations are dependent upon our maintaining a level ofsales adequate to support our cost structure. In addition, realization of amajor portion of the assets in the accompanying balance sheet is dependent uponour ability to meet our financing requirements and the success of our plans tosell our products.  The financialstatements do not include any adjustments relating to the recoverability andclassification of recorded asset amounts or amounts and classifications ofliabilities that might be necessary should we be unable to continue inexistence.

 

We believe that funds provided from the private placements and theborrowing capacity from our line of credit may not be sufficient to finance ouroperations for the next 12 months. In addition to the funds raised in July  2003, we may attempt to procure additionalsources of financing in the event that the capital available as of June 30,2003, along with the capital raised in July 2003, is insufficient for ouroperating needs. These sources may include, but are not limited to, an equityinvestment in the Company by a third party. There are, however, no assurancesthat we will be able successfully obtain additional financing at termsacceptable to us. Failure to obtain such financing could have a materialadverse effect on our ability to operate as a going concern.

 

 

**CriticalAccounting Policies**

 Our discussion and analysis of our financial conditions andresults of operations are based upon our financial statements, which have beenprepared in accordance with generally accepted accounting principles in theUnited States. The preparation of financial statements requires managers tomake estimates and disclosures on the date of the financial statements. On anon-going basis, we evaluate our estimates, including, but not limited to, thoserelated to revenue recognition. We use authoritative pronouncements, historicalexperience and other assumptions as the basis for making judgments. Actualresults could differ from those estimates. We believe that the followingcritical accounting policies affect our more significant judgments andestimates in the preparation of our financial statements.

 

*Revenue recognition.*  We arerequired to make judgments based on historical experience and future expectations,as to the realizability of shipments made to our customers. These judgments arerequired to assess the propriety of the recognition of revenue based on StaffAccounting Bulletin (“SAB”) No. 101, “Revenue Recognition,” and relatedguidance. We make these assessments based on the following factors:i) customer-specific information, ii) return policies, andiii) historical experience for issues not yet identified.

 

*Inventory.*  We arerequired to make judgments based on historical experience and futureexpectations as to the realizability of inventory. We make these assessmentsbased on the following factors: i) existing orders, ii) age of theinventory, and iii) historical experience. Management is currentlyreviewing the accounting policies regarding the application of overhead to itsinventories and is unable to estimate any effect it may have on futureoperations.

 

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**AdditionalFactors That May Affect Future Results**

 

Futureoperating results may be impacted by a number of factors that could causeactual results to differ materially from those stated herein, which reflectmanagement’s current expectations. These factors include:

 

•                  industry-specificfactors (including the reliance upon growth of the defense microwave andwireless communications markets, significant competition in the communicationsinfrastructure equipment industry characterized by rapid technological change,new product development, product obsolescence, and significant price erosionover the life of a product);

 

•                  our ability totimely develop and produce commercially viable products at competitive prices;

 

•                  our ability toproduce products which meet the quality standards of both existing andpotential new customers;

 

•                  our ability toaccurately anticipate customer demand;

 

•                  our ability tomanage expense levels, the availability and cost of components;

 

•                  our ability tofinance our activities, maintain our financial liquidity; and

 

•                  the impactof  worldwide economic and politicalconditions on our business.

 

We believethat, to the extent that foreign sales are recognized, we may face increasedrisk associated with political and economic instability, compliance withforeign regulatory rules governing export requirements, tariffs and other tradebarriers, differences in intellectual property protections, longer accountsreceivable cycles, currency fluctuations and general trade restrictions.  If any of these risks materialize, theycould have a material adverse effect on our business, results of operations andfinancial condition.

 

We haveevaluated the credit exposure associated with conducting business with foreigncustomers and have concluded that such risk is acceptable.  Nevertheless, any significant change in theeconomy or a deterioration in United States trade relations or the economic orpolitical stability of foreign markets could have a material adverse effect onour business, results of operations and financial condition.

 

Sales toforeign customers are invoiced in U.S. dollars.  Accordingly, we currently do not engage in foreign currencyhedging transactions.  However, as weexpand further into foreign markets, we may experience greater risk associatedwith general business, political and economic conditions in those markets.  At such time, we may seek to lessen ourexposure through currency hedging transactions.  We cannot assure you that a currency hedging strategy would besuccessful in avoiding currency exchange related losses.  In addition, should the relative value ofthe U.S. dollar in comparison to foreign currencies increase, the resultingincrease in the price of our products to foreign customers could result indecreased sales which could have a material adverse impact on our business,results of operations and financial condition.

 

We experiencesignificant price competition and expect price competition in the sale of ourproducts to remain intense.  We cannotassure you that our competitors will not develop new technologies orenhancements to existing products or introduce new products that will offersuperior price or performance features. We expect our competitors to offer newand existing products at prices necessary to gain or retain market share.  Several of our competitors have substantialfinancial resources, which may enable them to withstand sustained pricecompetition or a downturn in the pricing of their products in the future.  Substantially all of our competitors have,and potential future competitors could have, substantially greater technical,marketing, distribution and other resources than we do and have, or could have,greater name recognition and market acceptance of their products andtechnologies.

 

We receiveperiodic order forecasts from our major customers who have no obligation topurchase the forecasted amounts. Nevertheless, we maintain significant work in process and raw materialsinventory, as well as increased levels of technical production staff to meetorder forecasts and/or management’s projections.  To the extent our major customers purchase less than theforecasted amounts, we will have higher levels of inventory than

 

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otherwise needed, increasingthe risk of obsolescence, and we will have increased levels of production staffto support such forecasted orders.  Suchhigher levels of inventory and increased employee levels could reduce ourliquidity and could have a material adverse effect on our business, results ofoperations and financial condition.

 

The markets inwhich our customers and we compete are characterized by rapidly changingtechnology, evolving industry standards and communications protocols andcontinuous improvements in products and services.  Our future success depends on our ability to enhance our currentproducts and to develop and introduce in a timely manner new products that keeppace with technological developments, industry standards and communicationsprotocols, compete effectively on the basis of price, performance and quality,adequately address OEM customer and end-user customer requirements and achievemarket acceptance.  We believe that toremain competitive in the future we will need to continue to develop newproducts, which will require the investment of significant financial resourcesin new product development.  In theevent our newly developed products are not timely developed or do not gainmarket acceptance, our business, results of operations and financial conditioncould be materially adversely affected.

 

Our quarterly and annual results have in the past been, and willcontinue to be, subject to significant fluctuations due to a number of factors,any of which could have a material adverse effect on our business, financialcondition and results of operations. There can be no assurance that we will not experience such fluctuationsin the future. We establish our expenditure levels for product development andother operating expenses based on expected revenues, and expenses arerelatively fixed in the short term. As a result, variations in timing ofrevenues can cause significant variations in quarterly results of operations.There can be no assurances that we will be profitable on a quarter-to-quarterbasis in the future. We believe that period-to-period comparisons of ourfinancial results are not necessarily meaningful and should not be relied uponas an indication of future performance. Due to these factors, it is likely thatin some future quarter or quarters our revenues or operating results will notmeet the expectations of public stock market analysts or investors. In suchevent, the market price of our common stock would be materially adverselyaffected.

 

 

**Item 3****.  Controls andProcedures.**

 

(a)  *Evaluationof disclosure controls and procedures*. Within the 90 days priorto the date of this report, the Company carried out an evaluation, under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Director of Finance, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures pursuant to Exchange Act Rule 13a-14. Based upon thatevaluation, the Chief Executive Officer and Director of Finance concluded thatthe Company’s disclosure controls and procedures are effective in timely alertingthem to material information relating to the Company required to be included inthe Company’s periodic SEC filings.

 

(b)  *Changes ininternal controls*. No significant changes were made in the Company’sinternal controls or in other factors that could significantly affect thesecontrols subsequent to the date of their evaluation.

 

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**PARTII****- OTHERINFORMATION**

 

**Item 6****.****                           Exhibits and Reports on Form8-K.**

(a)                                                                                                                                              Exhibits

 

31.1   Certification of ChiefExecutive Officer Pursuant to 302 of the Sarbanes-Oxley Act of 2002

31.2   Certification of Directorof Finance Pursuant to 302 of the Sarbanes-Oxley Act of  2002

32.1   Certification of ChiefExecutive Officer Pursuant to 906 of the Sarbanes-Oxley Act of 2002

32.2   Certification of Directorof Finance Pursuant to 906 of the Sarbanes-Oxley Act of 2002

 

(b)                                                                    Reportson Form 8-K

 

The Companyfiled no Current Reports on Form 8-K during the quarter ended June 30, 2003. 

 

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**SIGNATURES**

 

In accordancewith the requirements of the Exchange Act, the registrant caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.

 

 
|   |             | AML  Communications, Inc.                                     |
|--------|------------------|---------------------------------------------------------------|
|   |             |                                                          |
|   |             |                                                          |
| Date:  | August 12,  2003 | /s/ Jacob  Inbar                                              |   |
|   |             | Jacob Inbar                                                   |
|   |             | Chairman of the Board, President  and Chief Executive Officer |
|   |             |                                                          |
|   |             |                                                          |
| Date:  | August 12,  2003 | /s/ Susan J.  Fite                                            |   |
|   |             | Susan J.  Fite                                                |
|   |             | Director of Finance and  Chief Accounting Officer             |
|        |                  |                                                               |  |  |

 

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