**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, 2002 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**                                                                                                                                                                                        |

 

**AMLCOMMUNICATIONS, INC.**

(Exact name of smallbusiness 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 filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes ý  No o

 

State the number of shares outstanding of each of the issuer’s classesof common stock, as of the latest practicable date.

 

Common Stock Outstandingas of August 5, 2002:        7,829,456

 

Transitional Small Business Disclosure Format: Yes o  No ý

 

Number of pages in this Form 10-Q  SB   16

 

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**AML COMMUNICATIONS, INC.**

 

**INDEX**

 
| **PART I**  | **FINANCIAL INFORMATION**                                                                   |   |
|-------------|---------------------------------------------------------------------------------------------|--------|
|        |                                                                                        |   |
| Item 1.     | Financial Statements                                                                        |   |
|        |                                                                                        |   |
|        | Balance  Sheets (unaudited) at June 30, 2002 and March 31, 2002                             |   |
|        |                                                                                        |   |
|        | Statements of Operations  (unaudited) for the three-month periods  ended               |   |
|        | June 30, 2002 and June 30,  2001                                                            |   |
|        |                                                                                        |   |
|        | Statements of Cash Flows  (unaudited) for the three-month periods ended                     |   |
|        | June 30, 2002 and June 30,  2001                                                            |   |
|        |                                                                                        |   |
|        | Notes to the Financial  Statements                                                          |   |
|        |                                                                                        |   |
| Item 2.     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|        |                                                                                        |   |
| **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**

 

**AMLCOMMUNICATIONS, INC.**

**BALANCESHEETS**

**(unaudited)**

** **
|                                                                                                                            |   | **June 30,  2002** |      | **March 31,  2002** |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-----------|---------------------|--------|
|                                                                                                                            |   | **(Unaudited)**    |      | **(Audited)**       |   |
| **ASSETS**                                                                                                                      |   |               |      |                |   |
| Current Assets:                                                                                                                 |   |               |      |                |   |
| Cash and cash  equivalents                                                                                                      |   | $                  | 309,000   |                | $      | 160,000 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $52,100 at June 30,  2002 and $57,150 March 31, 2002            |   | 999,000            |      | 1,445,000           |   |
| Inventories, net                                                                                                                |   | 1,113,000          |      | 1,102,000           |   |
| Other current  assets                                                                                                           |   | 166,000            |      | 237,000             |   |
| Total current  assets                                                                                                           |   | 2,587,000          |      | 2,944,000           |   |
|                                                                                                                            |   |               |      |                |   |
| Property and  Equipment, at cost:                                                                                               |   | 4,756,000          |      | 4,699,000           |   |
| Less —  Accumulated depreciation and amortization                                                                          |   | (3,564,000         | )         | (3,406,000          | )      |
|                                                                                                                            |   | 1,192,000          |      | 1,293,000           |   |
|                                                                                                                            |   |               |      |                |   |
| Other Assets                                                                                                                    |   | 38,000             |      | 38,000              |   |
|                                                                                                                            |   | $                  | 3,817,000 |                | $      | 4,275,000 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                  |   |               |      |                |   |
| Current  Liabilities:                                                                                                           |   |               |      |                |   |
| Accounts payable                                                                                                                |   | $                  | 356,000   |                | $      | 882,000 |   |
| Line of credit                                                                                                                  |   | 572,000            |      | 336,000             |   |
| Current portion  of capital lease obligations                                                                                   |   | 268,000            |      | 223,000             |   |
| Accrued  expenses:                                                                                                              |   |               |      |                |   |
| Accrued payroll  and payroll related expenses                                                                                   |   | 116,000            |      | 145,000             |   |
| Customer deposit                                                                                                                |   | 12,000             |      | 145,000             |   |
| Other accrued  liabilities                                                                                                      |   | 114,000            |      | 96,000              |   |
| Total current  liabilities                                                                                                      |   | 1,438,000          |      | 1,827,000           |   |
|                                                                                                                            |   |               |      |                |   |
| Note payable —  officers                                                                                                   |   | 50,000             |      | 50,000              |   |
| Capital Lease  Obligations, net of current portion                                                                              |   | 276,000            |      | 330,000             |   |
|                                                                                                                            |   |               |      |                |   |
| 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; 7,943,959 shares issued and 7,829,459 shares outstanding  at June 30, 2002 and at March 31, 2002 |   | 73,000             |      | 73,000              |   |
| Capital in  excess of par value                                                                                                 |   | 10,524,000         |      | 10,524,000          |   |
| Treasury  stock-114,500 shares, at cost                                                                                         |   | (223,000           | )         | (223,000            | )      |
| Accumulated  deficit                                                                                                            |   | (8,321,000         | )         | (8,306,000          | )      |
|                                                                                                                            |   | 2,053,000          |      | 2,068,000           |   |
|                                                                                                                            |   | $                  | 3,817,000 |                | $      | 4,275,000 |   |

 

 

The accompanyingnotes are an integral part of these financial statements.

 

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**AMLCOMMUNICATIONS, INC.**

**STATEMENTS OF OPERATIONS**

**(Unaudited)**

** **
|                                                                             |   | **Three  Months Ended** |      |
|----------------------------------------------------------------------------------|--------|-------------------------|-----------|
|                                                                             |   | **June 30,  2002**      |      | **June 30,  2001** |   |
|                                                                             |   |                    |      |   |   |
| Net sales                                                                        |   | $                       | 1,332,000 |   | $ | 1,854,000 |   |
| Cost of goods  sold                                                              |   | 708,000                 |      | 1,136,000 |   |
| Gross profit                                                                     |   | 624,000                 |      | 718,000 |   |
|                                                                             |   |                    |      |   |   |
| Operating  expenses:                                                             |   |                    |      |   |   |
| Selling, general  and administrative                                             |   | 300,000                 |      | 276,000 |   |
| Research and  development                                                        |   | 322,000                 |      | 368,000 |   |
|                                                                             |   | 622,000                 |      | 644,000 |   |
|                                                                             |   |                    |      |   |   |
| Operating income                                                                 |   | 2,000                   |      | 74,000 |   |
|                                                                             |   |                    |      |   |   |
| Other (expense)  income, net                                                     |   | (18,000                 | )         | (23,000 | ) |
| Income (loss)  before provision for income taxes                                 |   | (16,000                 | )         | 51,000 |   |
| Provision for  income taxes                                                      |   | —                  |      | — |   |
|                                                                             |   |                    |      |   |   |
| Net income  (loss)                                                               |   | $                       | (16,000   | ) | $ | 51,000 |   |
|                                                                             |   |                    |      |   |   |
| Basic and diluted  earnings (loss) per common share                              |   | $                       | 0.00      |   | $ | 0.01 |   |
| Basic and  diluted weighted average number of shares of common stock outstanding |   | 7,829,000               |      | 6,932,000 |   |

 

 

The accompanyingnotes are an integral part of these financial statements.

 

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**AMLCOMMUNICATIONS, INC.**

**STATEMENTS OF CASH FLOWS**

**(Unaudited)**

** **
|                                                                         |   | **Three  Months Ended** |    |
|------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                         |   | **June 30,  2002**      |    | **June 30,  2001** |   |
|                                                                         |   |                    |    |   |   |
| Cash Flows from  Operating Activities:                                       |   |                    |    |   |   |
| Net profit  (loss)                                                           |   | $                       | (16,000 | ) | $ | 51,000 |   |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                    |    |   |   |
| Depreciation and  amortization                                               |   | 158,000                 |    | 201,000 |   |
| Changes in  assets and liabilities:                                          |   |                    |    |   |   |
| Decrease  (increase) in:                                                     |   |                    |    |   |   |
| Accounts  receivable                                                         |   | 446,000                 |    | (120,000 | ) |
| Inventories                                                                  |   | (11,000                 | )       | 141,000 |   |
| Other current  assets                                                        |   | 71,000                  |    | 159,000 |   |
| Other assets                                                                 |   | —                  |    | (3,000 | ) |
| Increase  (decrease) in:                                                     |   |                    |    |   |   |
| Accounts payable                                                             |   | (526,000                | )       | (704,000 | ) |
| Accrued expenses                                                             |   | (144,000                | )       | (264,000 | ) |
| Net cash used in  operating activities                                       |   | (22,000                 | )       | (539,000 | ) |
|                                                                         |   |                    |    |   |   |
| Cash Flows from  Investing Activities:                                       |   |                    |    |   |   |
| Purchases of  property and equipment                                         |   | (7,000                  | )       | (28,000 | ) |
| Net cash used in  investing activities                                       |   | (7,000                  | )       | (28,000 | ) |
|                                                                         |   |                    |    |   |   |
| Cash Flows from  Financing Activities:                                       |   |                    |    |   |   |
| Exercise of stock  options                                                   |   | —                  |    | — |   |
| Proceeds from  line of credit                                                |   | 236,000                 |    | 166,000 |   |
| Principal  payments on capital lease obligations                             |   | (58,000                 | )       | (69,000 | ) |
| Net cash from  (used in) financing activities                                |   | 178,000                 |    | 97,000 |   |
| Net Decrease in  Cash and Cash Equivalents                                   |   | 149,000                 |    | (470,000 | ) |
| Cash and Cash  Equivalents, beginning of period                              |   | 160,000                 |    | 860,000 |   |
| Cash and Cash  Equivalents, end of period                                    |   | $                       | 309,000 |   | $ | 390,000 |   |
|                                                                         |   |                    |    |   |   |
| Supplemental  disclosures of cash flow information:                          |   |                    |    |   |   |
| Cash paid during  the period for:                                            |   |                    |    |   |   |
| Interest                                                                     |   | $                       | 23,000  |   | $ | 36,000 |   |
| Income taxes                                                                 |   | —                  |    | — |   |
| Non-cash  transactions:                                                      |   |                    |    |   |   |
| Debt incurred to  purchased property and equipment                           |   | $                       | 50,000  |   | $ | 137,000 |   |

 

 

The accompanying notes are an integral part of these financialstatements.

 

5

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**AML COMMUNICATIONS, INC.**

**NOTESTO FINANCIAL STATEMENTS**

**JUNE 30, 2002**

** **

**1.             Basis ofPresentation**

 

AML Communications, Inc. (the “Company”) is adesigner, manufacturer, and marketer of amplifiers and related products thataddress the defense microwave and wireless communications markets.

 

The accompanying unaudited financial statements havebeen prepared in conformity with accounting principles generally accepted inthe United States.  However, certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States have been omitted or condensed pursuant to the rules andregulations of the Securities and Exchange Commission (“SEC”).  In the opinion of management, alladjustments (consisting of normal recurring adjustments) necessary for a fairpresentation have been included.  Theresults of operations and cash flows for the three-month periods presented arenot necessarily indicative of the results of operations for a full year.  These financial statements should be read inconjunction with the Company’s March 31, 2002 audited financial statements andnotes thereto included in the Company’s Annual Report on Form 10-KSB.

 

Going ConcernIssues

 

 In connectionwith the audit for the year ended March 31, 2002, 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, 2002 audited financialstatements and notes thereto included in the Company’s Annual Report on Form10-KSB.

 

**2.             EarningsPer Share**

 

Basic earnings per share is computed by dividing netincome or loss by the weighted average number of shares outstanding for theyear.  “Diluted” earnings per share iscomputed by dividing net income or loss by the total of the weighted averagenumber of shares outstanding plus, if applicable, the dilutive effect ofoutstanding stock options (applying the treasury stock method).

 

**3.**             **Inventories**

 

Inventories include costs of material, labor andmanufacturing overhead and are stated at the lower of cost (first-in,first-out) or market and consist of the following:

 
|            |   | **June 30,  2002** |      | **March 31,  2002** |   |
|-----------------|--------|--------------------|-----------|---------------------|--------|
|            |   | **(Unaudited)**    |      | **(Audited)**       |   |
| Raw materials   |   | $                  | 880,000   |                | $      | 896,000 |   |
| Work-in-process |   | 118,000            |      | 104,000             |   |
| Finished goods  |   | 115,000            |      | 102,000             |   |
|            |   | $                  | 1,113,000 |                | $      | 1,102,000 |   |

 

6

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**4.**                                     Line of Credit

 

In November 2001, werenewed our $1,000,000 line of credit with Silicon Valley Bank.  This revolving line of credit bears interestat the bank’s reference rate (prime rate) plus 1.00 percent (5.75% at June 30,2002).  This line of credit is securedby substantially all of the Company’s assets and expires on November 20, 2002.As of June 30, 2002, there were $572,000 in outstanding borrowings under theline of credit. Borrowings under the line of credit are subject to a borrowingbase of accounts receivable, and there are no financial covenants.

 

**5.**                                     Capital Leases

** **

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 callfor 12 equal monthly aggregate payments of $4,192 commencing in July 2002 withno annual interest.

 

**6.**                                     Recently Issued Accounting Pronouncements

** **

In June 2001, theFinancial Accounting Standards Board (“FASB”) issued SFAS No. 141, “BusinessCombinations.”  This statement addressesfinancial accounting and reporting for business combinations and supersedes APBOpinion No. 16, “Business Combinations,” and SFAS No. 38, “Accounting forPre-Acquisition Contingencies of Purchased Enterprises.” All businesscombinations in the scope of this statement are to be accounted for using onemethod, the purchase method.  Theprovisions of this statement apply to all business combinations initiated afterJune 30, 2001.  Use of thepooling-of-interests method for those business combinations is prohibited.  This statement also applies to all businesscombinations accounted for using the purchase method for which the date ofacquisition is July 1, 2001 or later. The Company does not expect adoption of SFAS No. 141 to have a materialimpact, if any, on its financial position or results of operations.

 

In June 2001, theFASB issued SFAS No. 142, “Goodwill and Other Intangible Assets.”  This statement addresses financialaccounting and reporting for acquired goodwill and other intangible assets andsupersedes APB Opinion No. 17, “Intangible Assets.”  It addresses how intangible assets that are acquired individuallyor with a group of other assets (but not those acquired in a businesscombination) should be accounted for in financial statements upon theiracquisition.  This statement also addresseshow goodwill and other intangible assets should be accounted for after theyhave been initially recognized in the financial statements.  It is effective for fiscal years beginningafter December 15, 2001.  Earlyapplication is permitted for entities with fiscal years beginning after March15, 2001, provided that the first interim financial statements have not beenissued previously.  This statement isnot applicable to the Company.

 

In June 2001, theFASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.”  This statement applies to legal obligationsassociated with the retirement of long-lived assets that result from theacquisition, construction, development, and/or the normal operation of long-livedassets, except for certain obligations of lessees.    This statement is not applicable to the Company.

 

In August 2001,the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.”  This statementaddresses financial accounting and reporting for the impairment or disposal oflong-lived assets.  This statementreplaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets andfor Long-Lived Assets to be Disposed of,” the accounting and reportingprovisions of APB No. 30, “Reporting the Results of Operations - Reporting theEffects of Disposal of a Segment of a Business, and Extraordinary, Unusual, andInfrequently Occurring Events and Transactions,” for the disposal of a segmentof a business, and amends Accounting Research Bulletin No. 51, “ConsolidatedFinancial Statements,” to eliminate the exception to consolidation for asubsidiary for which control is likely to be temporary.    The Company does not expect adoption ofSFAS No. 144 to have a material impact, if any, on its financial position or resultsof operations.

 

In April 2002, theFASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64,Amendment of FASB Statement No. 13, and Technical Corrections.”  SFAS No. 145 updates, clarifies, andsimplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and lossesfrom extinguishment of debt to be aggregated and, if material, classified as anextraordinary item, net of related income tax effect.  As a result, the criteria in APB No. 30 will now be used toclassify those gains and losses.  SFASNo. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has beenrescinded.  SFAS No. 44 has been rescindedas it is no longer necessary.  SFAS No.145 amends SFAS No. 13 to require that certain lease

** **

**7**

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**modificationsthat have economic effects similar to sale-leaseback transactions be accountedfor in the same manner as sale-lease transactions.  This statement also makes technical corrections to existingpronouncements.  While those correctionsare not substantive in nature, in some instances, they may change accountingpractice.  The Company does not expectadoption of SFAS No. 145 to have a material impact, if any, on its financial positionor results of operations.**

** **

**7.**                                        SubsequentEvents

 On July 17, 2001, we received notification ofa Nasdaq Staff Determination indicating that we had failed to comply with theminimum market value of public float requirement for continued listing asrequired by Marketplace Rule 4450(a)(2), and that our securities were thereforesubject to delisting from The Nasdaq National Market. At that time, the NasdaqListing Qualifications Staff also requested that we address two other NasdaqMarketplace Rules that we were not in compliance with, specifically, theminimum net tangible assets and minimum bid price of $1.00 requirements ofNasdaq Marketplace Rules 4450(a)(3) and 4450 (a)(5), respectively. As permittedby Nasdaq rules, we requested a hearing before the Nasdaq ListingsQualifications Panel to review the Staff’s determination and a  date for the hearing was set for Friday,August 31, 2001. At the hearing, we requested that our common stock betransferred to the NASDAQ SmallCap Market. On October 4, 2001, the NasdaqListing Qualifications Panel granted our request for transfer to the NASDAQSmallCap Market, conditioned upon the filing of our Form 10-Q for the periodended September 30, 2001 evidencing either net tangible assets of $2 million orshareholders equity of  $2.5 million,which we complied with on November 8, 2001. As calculated in the financialstatements of our Form 10-QSB for the period ended September 30, 2001, our nettangible assets were $2,270,000.  Ourcommon stock began trading on the Nasdaq SmallCap Market effective October 8,2001.

On November 27, 2001, theNasdaq Listing Qualifications Panel further conditioned the continued listingof our common stock on the Nasdaq SmallCap Market upon the filing of our Form10-Q for the period ended December 31, 2001 evidencing either net tangibleassets of $2 million or shareholders equity of $2.5 million and upon our compliance with all the requirements forcontinued listing on the Nasdaq SmallCap Market, including maintaining aminimum bid price of $1.00. As calculated from the financial statements in our10-QSB filed for the period ended December 31, 2001, our net tangible assets asof December 31, 2001 were $2,181,000. On January 2, 2002, The Nasdaq StockMarket reinstated the requirements for the minimum bid price of $1.00 andmodified the rules for the grace period afforded members of the SmallCap Marketfrom 90 days to 180 days. The reinstated and revised Nasdaq Marketplace Rulesessentially allowed us 30 consecutive trading days from January 2, 2002 withwhich to comply to the minimum $1.00 bid price.  If we were unable to attain and maintain the minimum $1.00 bidprice, we would then be afforded a 180 calendar day grace period in which toregain compliance.

 

On February 14, 2002, the Nasdaq Listing QualificationPanel notified the Company that we had failed to comply with the $1.00 minimumbid price requirement and that, if we could not show compliance with thisrequirement by August 13, 2002, our shares would be delisted from the NasdaqSmallCap Market. Further, the Listing Qualifications Panel notified the Companythat it would not be provided a second oral hearing on the bid issue and thatthe Company must be compliant on or before August 13, 2002. In order to regaincompliance, our common stock would have to close over $1.00 for any tenconsecutive trading days prior to August 13, 2002. The trading price of ourcommon stock has not met the $1.00 minimum bid price requirement at any pointin the last 60 days and there is currently no possibility that we will regaincompliance with the minimum bid price requirements prior to the August 13thdeadline.  Consequently, our commonstock is almost certain to be delisted from the Nasdaq SmallCap Market at the closeof business on or about August 13, 2002 and will only trade on the over thecounter market (commonly known as the bulletin board).  Delisting from the Nasdaq SmallCap Marketwould have a substantial adverse effect on the liquidity of our common stock,which in turn is likely to have an adverse effect on the trading price of suchstock.

 

 

8

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**Item 2.  Management’s Discussion****and Analysis of Financial Conditionand 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-lookingstatements.  When used in this report,the words “expects” “anticipates” and “estimates” and similar expressions are intendedto identify forward-looking statements. Factors that could cause actual resultsto differ materially from those expressed in any forward-looking statement madeby the Company include, but are not limited to:

 

•      our abilityto finance our activities and maintain our financial liquidity;

•      our abilityto attract and retain qualified, knowledgeable employees;

•      the impactof general economic conditions on our business;

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

•      the limitednumber of potential customers for our products;

•      thevariability in gross margins on our new products;

•      our abilityto design new products successfully;

•      our failureto acquire new customers in the future;

•      thecontinued or new deterioration of business and economic conditions in ourcustomers’ marketplaces;

•      intenselycompetitive industry conditions with increasing price competition; and

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

 

Please read thefactors set forth in “Additional Factors That May Affect Future Results” andother risks detailed in the Company’s SEC filings.  The Company undertakes no obligation to publicly release anyrevisions to these forward-looking statements to reflect events or circumstancesafter the date this report is filed with the SEC or to reflect the occurrenceof unanticipated events.

**Resultsof Operations**

**ThreeMonths Ended June 30, 2002 Compared to Three Months Ended June 30, 2001**

*Net sales. *Netsales for the three months ended June 30, 2002 were $1.3 million, compared tonet sales of $1.9 million in the three months ended June 30, 2001, a decreaseof 28.2%. The decrease in sales is largely attributable to reduced sales forour PCS and two-way messaging products in the ongoing contraction of the globalwireless communications market and the fulfillment of a single contract forthese products during the quarter ended June 30, 2001. Net sales of PCS andtwo-way messaging products for the three months ended June 30, 2002 were $31,000,or 2.3% of net sales, compared to $869,000, or 46.9% of net sales, for thethree months ended June 30, 2001. Sales of our cellular and other productsdecreased to $77,000, or 5.8% of net sales for the three months ended June 30,2002 compared to $209,000, or 11.3% of net sales for the three months endedJune 30, 2001. This decrease can be attributed the aforementioned softness inthe wireless communications market and the decrease in demand for our legacycellular products as wireless service providers replace their cellularequipment with newer, non-cellular based equipment. The decrease in PCS,two-way messaging and cellular sales was partially offset by an increase insales of our MIC, defense related, amplifier products of approximately 159%.Specifically, sales of our MIC products were $1.2 million, or 91.9% of netsales for the three months ended June 30, 2002 compared to sales of $771,000,or 41.6% of net sales for the three months ended June 30, 2001. The increase indefense related MIC sales is largely attributable to our continued penetrationof the fractured MIC market, the doubling in our acquisition rate for new MICcustomers, and increased demand for defense related MIC products due to theprocurement of upgrade, replacement, and spare parts for defense applications.As a result of the U.S. government’s announced plans to increase defensespending, we anticipate that MIC sales will continue to be a significantportion of our revenue.

*Gross profit. *Gross profit for the three months ended June 30, 2002was $624,000 or 46.8% of net sales, compared to $718,000, or 38.7% of netsales, for the three months ended June 30, 2001.  Gross profit increased as a result of increased material marginsfor our defense related MIC products, which accounted for 91.9% of sales duringthe quarter ended June 30, 2002, and due to the effects from cost reductionsand efficiency gains. We expect pressure on selling prices in all markets tocontinue in fiscal 2003.

*Selling, general and administrativecosts. *Selling, general and administrative costs for thethree months ended June 30, 2002, were $300,000, or 22.5% of net sales,compared to $276,000, or 14.9% of net sales, for the three months ended June30, 2001.  The increase is attributableto an increase in commissions expense recognized

 

 

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from theamortization of prepaid royalties related to sales from certain product linespurchased in December 1999, from additional labor and benefit costs due to theexpansion of our sales and marketing department, and from increased advertisingcosts. Lower legal and investor relation fees offset these increases. Webelieve that increased investment in our sales and marketing efforts areimperative to meet our future goals.

*Research and development costs. *Research and development costs for the three monthsended June 30, 2002 were $322,000, or 24.2% of net sales, compared to $368,000,or 19.8% of net sales, for the three months ended June 30, 2001.  The decrease is primarily due to lowermaterial and labor costs on fewer research and development projects in thecurrent quarter ended June 30, 2002. Expenses attributable to research anddevelopment projects were reduced by the completion of the development ofproducts and by the reduction in new, customer-driven product researchresulting from the current market conditions for wireless products. During thequarter ended June 30, 2002 we expanded our offering of catalog products andmodules that will allow for a rapid assembly of MIC amplifiers to enable a10-day delivery on new defense orders. We believe continued investment in thedevelopment of a broad-based product line could increase research anddevelopment costs in future quarters.

*Other income, net. *Other expense for the three months ended June 30, 2002was $18,000, compared to other expense of $23,000 for the three months endedJune 30, 2001.  The decrease is duemainly to decreased interest expense related to capital leases .

*Provision for income taxes. *For both the three months ended June 30, 2002 and June30, 2001, we recorded no provision for or benefit from income taxes. Althoughwe recorded a net loss for the three months ended June 30, 2002, we recorded nobenefit from income taxes since we have utilized all net operating losscarry-back benefits  and we did notrecord a provision for taxes for the first quarter of fiscal 2001 as the taxeffect on the income will be mitigated by the utilization of losscarry-forwards.

*Net income/loss. *For the reasons set forth above, we generated a netloss in the first quarter of fiscal 2003 of $16,000, compared to net income of$51,000 in the first quarter of fiscal 2002.

**Liquidity and CapitalResources**

Historically, we havefinanced our operations primarily from internally generated funds and, to alesser extent, loans from stockholders and capital lease obligations.  In December 1995, we completed an initialpublic offering of 1,725,000 shares of common stock (including the exercise ofthe underwriters’ over allotment option), raising net proceeds of approximately$7.7 million. Of such net proceeds, $425,000 was used to repay loans fromcertain stockholders and the remainder has been used to expand manufacturingcapability through the leasing and outfitting of substantially larger facilities,the acquisition of equipment sufficient to produce higher product quantitiesand the employment and training of additional employees capable of expandingproduction and sales.  From March 2001through January 2002, we raised approximately $1.0 million in additional fundsfrom the completion of four (4) equity private placements. The net proceeds ofthe initial public offering and the equity private placements have also beenused to maintain inventory and working capital balances.

 

On August 10, 1998, we announced that our board ofdirectors had authorized a stock buyback program of up to 400,000 shares of theCompany’s outstanding common stock. Shares repurchased pursuant to the buyback will be purchased from timeto time in the open market or in negotiated transactions and will be held forissuance in connection with the future exercise of employee stock options.  We repurchased 114,500 shares at anaggregate cost of $224,000 during fiscal 1999. We have not repurchased anyadditional shares subsequent to fiscal 1999.

 

In November 2001, we renewed our $1,000,000 line ofcredit with Silicon Valley Bank.  Thisrevolving line of credit bears interest at the bank’s reference rate (primerate) plus 1.00 percent (5.75% at June 30, 2002).  This line of credit is secured by substantially all of theCompany’s assets and expires on November 20, 2002. As of June 30, 2002, therewere $572,000 in outstanding borrowings under the line of credit. Borrowingsunder the line of credit are subject to a borrowing base of accountsreceivable, and there are no financial covenants.

 

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 callfor 12 equal monthly aggregate payments of $4,192 commencing in July 2002 withno annual interest.

 

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At June 30, 2002, we had$309,000 in cash and cash equivalents. Our operating activities used cash ofapproximately $22,000 in first quarter of fiscal 2002, primarily as a result ofthe reduction of accounts payable balances. Our capital expenditures of $7,000for first quarter of fiscal 20021 were primarily for manufacturing testequipment.

 

Our auditors haveincluded an explanatory paragraph relating to our ability to continue as agoing concern as of  our fiscal yearended March 31, 2002, in their Report of Certified Public Accountants includedin our audited financial statements contained in our Form 10-KSB. For the yearended March 31, 2002, we incurred a net loss of $713,000, and negative cashflows from operations of approximately $1.1 million primarily as a result ofthe reduction of accounts payable balances. The auditors considered that thesefactors raise substantial doubt about our ability to continue as a goingconcern.

 

Recovery of our assets isdependent upon future events, the outcome of which is indeterminable.Successful completion of our development programs and attaining profitableoperations are dependent upon our maintaining a level of sales adequate tosupport our cost structure. In addition, realization of a major portion of theassets in the accompanying balance sheet is dependent upon our ability to meetour financing requirements and the success of our plans to sell our products.  The financial statements do not include anyadjustments relating to the recoverability and classification of recorded assetamounts or amounts and classifications of liabilities that might be necessaryshould we be unable to continue in existence.

 

We believe that fundsprovided from the private placements and the borrowing capacity from our lineof credit may not be sufficient to finance us for the next 12 months. We areattempting to procure additional sources of financing in the event that the capitalavailable as of June 30, 2002 is insufficient for our operating needs. Thesesources may include, but are not limited to, an equity investment in theCompany by a third party. There are, however, no assurances that we will beable successfully obtain additional financing at terms acceptable to us.Failure to obtain such financing could have a material adverse effect on ourability to operate as a going concern.

 

**CriticalAccounting Policies**

Our discussion andanalysis of our financial conditions and results of operations are based uponour financial statements, which have been prepared in accordance with generallyaccepted accounting principles in the United States. The preparation offinancial statements require managers to make estimates and disclosures on thedate of the financial statements. On an on-going basis, we evaluate ourestimates, including, but not limited to, those related to revenue recognition.We use authoritative pronouncements, historical experience and otherassumptions as the basis for making judgements. Actual results could differfrom those estimates. We believe that the following critical accountingpolicies affect our more significant judgements and estimates in thepreparation of our financial statements.

*Revenue recognition.* We are required to make judgements basedon historical experience and future expectations, as to the realizability ofshipments made to our customers. These judgements are required to assess thepropriety of the recognition of revenue based on Staff Accounting Bulletin(“SAB”) No. 101, “Revenue Recognition,” and related guidance. We make theseassessments based on the following factors: i) customer-specific information,ii) return policies, and iii) historical experience for issues not yetidentified.

*Inventory valuation.* We are required to make judgements basedon historical experience and future expectations, as to the realizability ofinventory. We make these assessments based on the following factors: i)existing orders, ii) age of the inventory, and iii) historical experience.

 

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**Additional Factors ThatMay Affect Future Results**

                        Future operating results may be impactedby a number of factors that could cause actual results to differ materiallyfrom those stated herein, which reflect management’s current expectations.  These factors include:

•                  industry-specific factors (including the reliance upongrowth of the defense microwave and wireless communications markets,significant competition in the communications infrastructure equipment industrycharacterized by rapid technological change, new product development, productobsolescence, and significant price erosion over the life of a product);

•                  our ability to timely develop and produce commerciallyviable products at competitive prices;

•                  the ability of our products to operate and becompatible with base station equipment of various OEMs;

•                  our ability to produce products which meet the qualitystandards of both existing and potential new customers;

•                  our ability to accurately anticipate customer demand;

•                  our ability to manage expense levels, the availabilityand cost of components;

•                  our ability to finance our activities, maintain ourfinancial liquidity; and

•                  the impact of worldwide economic and political conditions on our business.

 

On July 17, 2001, wereceived notification of a Nasdaq Staff Determination indicating that we hadfailed to comply with the minimum market value of public float requirement forcontinued listing as required by Marketplace Rule 4450(a)(2), and that oursecurities were therefore subject to delisting from The Nasdaq National Market.At that time, the Nasdaq Listing Qualifications Staff also requested that weaddress two other Nasdaq Marketplace Rules that we were not in compliance with,specifically, the minimum net tangible assets and minimum bid price of $1.00requirements of Nasdaq Marketplace Rules 4450(a)(3) and 4450 (a)(5),respectively. As permitted by Nasdaq rules, we requested a hearing before theNasdaq Listings Qualifications Panel to review the Staff’s determination anda  date for the hearing was set forFriday, August 31, 2001. At the hearing, we requested that our common stock betransferred to the NASDAQ SmallCap Market. On October 4, 2001, the NasdaqListing Qualifications Panel granted our request for transfer to the NASDAQSmallCap Market, conditioned upon the filing of our Form 10-Q for the periodended September 30, 2001 evidencing either net tangible assets of $2 million orshareholders equity of  $2.5 million,which we complied with on November 8, 2001. As calculated in the financialstatements of our Form 10-QSB for the period ended September 30, 2001, our nettangible assets were $2,270,000.  Ourcommon stock began trading on the Nasdaq SmallCap Market effective October 8,2001.

On November 27, 2001, theNasdaq Listing Qualifications Panel further conditioned the continued listingof our common stock on the Nasdaq SmallCap Market upon the filing of our Form10-Q for the period ended December 31, 2001 evidencing either net tangibleassets of $2 million or shareholders equity of $2.5 million and upon our compliance with all the requirements forcontinued listing on the Nasdaq SmallCap Market, including maintaining aminimum bid price of $1.00. As calculated from the financial statements in our10-QSB filed for the period ended December 31, 2001, our net tangible assets asof December 31, 2001 were $2,181,000. On January 2, 2002, The Nasdaq StockMarket reinstated the requirements for the minimum bid price of $1.00 andmodified the rules for the grace period afforded members of the SmallCap Marketfrom 90 days to 180 days. The reinstated and revised Nasdaq Marketplace Rulesessentially allows us 30 consecutive trading days from January 2, 2002 withwhich to comply to the minimum $1.00 bid price.  If we were unable to attain and maintain the minimum $1.00 bidprice, we would then be afforded a 180 calendar day grace period in which toregain compliance.

On February 14, 2002, theNasdaq Listing Qualification Panel notified the Company that it had failed tocomply with the $1.00 minimum bid price requirement and that, if we could notshow compliance with this 

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requirement by August 13,2002, our shares would be delisted from the Nasdaq Small Cap Market. Further,the Listing Qualifications Panel notified the Company that it would not beprovided a second oral hearing on the bid issue and that the Company must becompliant on or before August 13, 2002. In order to regain compliance, ourcommon stock would have to close over $1.00 for any ten consecutive tradingdays prior to August 13, 2002. The trading price of our common stock has notmet the $1.00 minimum bid price requirement at any point in the last 60 daysand there is currently no possibility that we will regain compliance with theminimum bid price requirements prior to the August 13th deadline.Consequently, our common stock is almost certain to be delisted from the NasdaqSmallCap Market at the close of business on or about August 13, 2002 and willonly trade on the over the counter market (commonly known as the bulletinboard). Delisting from the Nasdaq Small Cap Market would have a substantialadverse effect on the liquidity of our common stock, which in turn is likely tohave an adverse effect on the trading price of such stock.

For the year ended March31, 2002, we incurred a net loss of $713,000 and negative cash flows fromoperations of approximately $1.1 million primarily as a result of the reductionof accounts payable balances. Our auditors considered these factors, combinedwith the current economic conditions and our ability to comply with all of thelisting requirements to remain on the Nasdaq Small Cap Market, to raisesubstantial doubt about our ability to continue as a going concern. Recovery ofour assets and to a lesser extent, our continued listing on the Nasdaq SmallCapMarket, is dependent upon future events, the outcome of which isindeterminable. Successful completion of our development program and attainingprofitable operations are dependent upon our maintaining a level of salesadequate to support our cost structure. In addition, realization of a majorportion of the assets in the accompanying balance sheet is dependent upon ourability to meet our financing requirements and the success of our plans to sellour products.  The financial statementsdo 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 fundsprovided from the private placements and the borrowing capacity from our lineof credit may not be sufficient to finance us for the next 12 months. We areattempting to procure additional sources of financing in the event that thecapital available as of March 31, 2002 is insufficient for our operating needs.These sources may include, but are not limited to, an equity investment in usby a third party. There are, however, no assurances that we will be able tosuccessfully obtain additional financing at terms acceptable to us. Failure tomaintain or secure adequate financing could have a material impact on ourliquidity and results from operations.

 

We believe that,to the extent that foreign sales are recognized, we may face increased riskassociated with political and economic instability, compliance with foreignregulatory 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 have evaluated the credit exposure associated withconducting business with foreign customers and have concluded that such risk isacceptable.  Nevertheless, anysignificant change in the economy or a deterioration in United States traderelations or the economic or political stability of foreign markets could havea material adverse effect on our business, results of operations and financialcondition.

 

Sales to foreigncustomers are invoiced in U.S. dollars. Accordingly, we currently do not engage in foreign currency hedgingtransactions.  However, as we expandfurther into foreign markets, we may experience greater risk associated withgeneral business, political and economic conditions in those markets.  At such time, we may seek to lessen our exposurethrough 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

 

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future competitors could have, substantially greater technical, marketing,distribution and other resources than we do and have, or could have, greatername recognition and market acceptance of their products and technologies.

 

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 otherwiseneeded, increasing the risk of obsolescence, and we will have increased levelsof production staff to support such forecasted orders.  Such higher levels of inventory andincreased employee levels could reduce our liquidity and could have a materialadverse effect on our business, results of operations 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.

 

                Ourquarterly and annual results have in the past been, and will continue to be,subject to significant fluctuations due to a number of factors, any of whichcould have a material adverse effect on our business, financial condition andresults of operations.  There can be noassurance that we will not experience such fluctuations in the future. Weestablish our expenditure levels for product development and other operatingexpenses based on expected revenues, and expenses are relatively fixed in theshort term. As a result, variations in timing of revenues can cause significantvariations in quarterly results of operations. There can be no assurances thatwe will be profitable on a quarter-to-quarter basis in the future. We believethat period-to-period comparisons of our financial results are not necessarilymeaningful and should not be relied upon as an indication of futureperformance. Due to these factors, it is likely that in some future quarter orquarters our revenues or operating results will not meet the expectations ofpublic stock market analysts or investors. In such event, the market price ofour common stock would be materially adversely affected.

 

 

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**PARTII - OTHER INFORMATION**

** **

**Item 6**.      Exhibits and Reports on Form 8-K.

** **
| (a)    |   | Exhibits                                                                                  |
|--------|--------|-------------------------------------------------------------------------------------------|
|   |   |                                                                                      |
|   | 99.1   | Certification by the Chief Executive Officer                                              |
|   | 99.2   | Certification by the Director of Finance                                                  |
|   |   |                                                                                      |
| (b)    |   | Reports on Form 8-K                                                                       |
|   |   |                                                                                      |
|   |   | The Company filed no current Reports on Form 8-K  during the quarter ended June 30, 2002. |

 

 

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**SIGNATURES**

 

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
|   |            | AML Communications,  Inc.         |
|--------|-----------------|-----------------------------------|
|   |            |                              |
|   |            |                              |
| Date:  | August 12, 2002 | /s/ Jacob Inbar                   |   |
|   |            | Jacob Inbar                       |
|   |            | Chairman of the Board,  President |
|   |            | and  Chief Executive Officer      |
|   |            |                              |
| Date:  | August 12, 2002 | /s/ David A. Swoish               |   |
|   |            | David A. Swoish                   |
|   |            | Director of Finance and           |
|   |            | Chief  Accounting Officer         |
|        |                 |                                   |  |  |

 

 

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