**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:    September 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**

 

**AML COMMUNICATIONS, INC.**

(Exact name of smallbusiness issuer as specified in its charter)

 

| **Delaware**                                          |   | **77-0130894**      |
|-------------------------------------------------------|--------|---------------------|
| (State or Other  jurisdiction of                      |   | (IRS Employer       |
| incorporation or  organization)                       |   | 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 Outstanding as of November 12, 2002:   7,829,459

 

Transitional Small Business Disclosure Format: Yes  o  No  ý

 

Number of pages in this Form 10-QSB  18

 

 

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**AML COMMUNICATIONS, INC.**

 

**INDEX**

 
| **PART I**  | **FINANCIAL INFORMATION**                                                                                                              |
|-------------|----------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                   |
| Item 1.     | Financial Statements                                                                                                                   |
|        |                                                                                                                                   |
|        | Balance Sheets (unaudited) at September  30, 2002 and March 31, 2002                                                                   |
|        |                                                                                                                                   |
|        | Statements of Operations  (unaudited) for the three month and six  month periods ended September  30, 2002 and September 30, 2001 |
|        |                                                                                                                                   |
|        | Statements of Cash Flows  (unaudited) for the six month periods ended September 30, 2002 and September 30, 2001                        |
|        |                                                                                                                                   |
|        | Notes to the 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  4.    | Submission  of matters to a vote of Security Holders                                                                                   |
|        |                                                                                                                                   |
| Item  6.    | Exhibits  and Reports on Form 8-K                                                                                                      |
|        |                                                                                                                                   |
|        | **SIGNATURES**                                                                                                                         |

 

2

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**PARTI - FINANCIAL INFORMATION**

 

**Item1.  Financial Statements**

 

**AML COMMUNICATIONS, INC.**

**BALANCESHEETS**

**(unaudited)**

** **
|                                                                                                                                                                 |   | **September  30,  2002** |       | **March 31,********2002** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|------------|---------------------------|------------|
|                                                                                                                                                                 |   | **(Unaudited)**          |       | **(Audited)**             |       |
| **ASSETS**                                                                                                                                                           |   |                     | ** ** |                      | ** ** |
| Current Assets:                                                                                                                                                      |   |                     |       |                      |       |
| Cash and cash  equivalents                                                                                                                                           |   | $                        | 320,000    |                      | $          | 160,000 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $51,000 at September  30, 2002 and $57,000 at March 31, 2002                                         |   | 787,000                  |       | 1,445,000                 |       |
| Inventories, net                                                                                                                                                     |   | 1,013,000                |       | 1,102,000                 |       |
| Other current  assets                                                                                                                                                |   | 162,000                  |       | 237,000                   |       |
| Total current  assets                                                                                                                                                |   | 2,282,000                |       | 2,944,000                 |       |
|                                                                                                                                                                 |   |                     |       |                      |       |
| Property and  Equipment, at cost:                                                                                                                                    |   | 4,460,000                |       | 4,699,000                 |       |
| Less -  Accumulated depreciation and amortization                                                                                                                    |   | (3,535,000               | )          | (3,406,000                | )          |
|                                                                                                                                                                 |   | 925,000                  |       | 1,293,000                 |       |
|                                                                                                                                                                 |   |                     |       |                      |       |
| Other Assets                                                                                                                                                         |   | 45,000                   |       | 38,000                    |       |
|                                                                                                                                                                 |   | $                        | 3,252,000  |                      | $          | 4,275,000 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                       |   |                     |       |                      |       |
| Current  Liabilities:                                                                                                                                                |   |                     |       |                      |       |
| Accounts payable                                                                                                                                                     |   | $                        | 431,000    |                      | $          | 882,000 |   |
| Line of credit                                                                                                                                                       |   | 436,000                  |       | 336,000                   |       |
| Current portion  of capital lease obligations                                                                                                                        |   | 217,000                  |       | 223,000                   |       |
| Accrued  expenses:                                                                                                                                                   |   |                     |       |                      |       |
| Accrued payroll  and payroll related expenses                                                                                                                        |   | 157,000                  |       | 145,000                   |       |
| Customer  deposits                                                                                                                                                   |   | 2,000                    |       | 145,000                   |       |
| Other accrued  liabilities                                                                                                                                           |   | 241,000                  |       | 96,000                    |       |
| Total current liabilities                                                                                                                                            |   | 1,484,000                |       | 1,827,000                 |       |
|                                                                                                                                                                 |   |                     |       |                      |       |
| Notes Payable - Officers                                                                                                                                             |   | 50,000                   |       | 50,000                    |       |
| Capital Lease  Obligations, net of current portion                                                                                                                   |   | 144,000                  |       | 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 September 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                                                                                                                                                 |   | (8,800,000               | )          | (8,306,000                | )          |
|                                                                                                                                                                 |   | 1,574,000                |       | 2,068,000                 |       |
|                                                                                                                                                                 |   | $                        | 3,252,000  |                      | $          | 4,275,000 |   |

 

The accompanying notesare an integral part of these financial statements.

 

3

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**AML COMMUNICATIONS, INC.**

**STATEMENTSOF OPERATIONS**

**(Unaudited)**

 
|                                                                             |   | **Three  Months Ended**        |      | **Six Months  Ended**    |   |
|----------------------------------------------------------------------------------|--------|--------------------------------|-----------|--------------------------|--------|
|                                                                             |   | **September  30,********2002** |      | **September  30,  2001** |   | **September  30,  2002** |   | **September  30,  2001** |   |
|                                                                             |   |                           |      |                     |   |   |   |   |   |
| Net sales                                                                        |   | $                              | 1,041,000 |                     | $      | 1,391,000 |   | $ | 2,372,000 |   | $ | 3,245,000 |   |
| Cost of goods  sold                                                              |   | 687,000                        |      | 869,000                  |   | 1,395,000 |   | 2,005,000 |   |
| Gross profit  (loss)                                                             |   | 354,000                        |      | 522,000                  |   | 977,000 |   | 1,240,000 |   |
|                                                                             |   |                           |      |                     |   |   |   |   |   |
| Operating  expenses:                                                             |   |                           |      |                     |   |   |   |   |   |
| Selling, general  & administrative                                           |   | 342,000                        |      | 384,000                  |   | 641,000 |   | 660,000 |   |
| Research and  development                                                        |   | 313,000                        |      | 365,000                  |   | 636,000 |   | 733,000 |   |
|                                                                             |   | 655,000                        |      | 749,000                  |   | 1,277,000 |   | 1,393,000 |   |
| Loss from  operations                                                            |   | (301,000                       | )         | (227,000                 | )      | (300,000 | ) | (153,000 | ) |
|                                                                             |   |                           |      |                     |   |   |   |   |   |
| Other income  (expense), net                                                     |   | (177,000                       | )         | 57,000                   |   | (194,000 | ) | 34,000 |   |
| Loss before  provision for income taxes                                          |   | (478,000                       | )         | (170,000                 | )      | (494,000 | ) | (119,000 | ) |
|                                                                             |   |                           |      |                     |   |   |   |   |   |
| Provision for  income taxes                                                      |   | —                         |      | —                   |   | — |   | — |   |
|                                                                             |   |                           |      |                     |   |   |   |   |   |
| Net loss                                                                         |   | $                              | (478,000  | )                        | $      | (170,000 | ) | $ | (494,000 | ) | $ | (119,000 | ) |
|                                                                             |   |                           |      |                     |   |   |   |   |   |
| Basic and  diluted loss per common share                                         |   | $                              | (0.06     | )                        | $      | (0.02 | ) | $ | (0.06 | ) | $ | (0.02 | ) |
| Basic and  diluted weighted average number of shares of common stock outstanding |   | 7,829,000                      |      | 7,130,000                |   | 7,829,000 |   | 7,130,000 |   |

 

The accompanying notesare an integral part of these financial statements.

 

4

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**AML COMMUNICATIONS, INC.**

**STATEMENTSOF CASH FLOWS**

**(Unaudited)**

** **
|                                                                         |   | **Six Months  Ended**    |     |
|------------------------------------------------------------------------------|--------|--------------------------|----------|
|                                                                         |   | **September  30,  2002** |     | **September  30,  2001** |   |
|                                                                         |   |                     |     |   |   |
| Cash Flows from  Operating Activities:                                       |   |                     |     |   |   |
| Net loss                                                                     |   | $                        | (494,000 | ) | $ | (119,000 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                     |     |   |   |
| Depreciation and  amortization                                               |   | 298,000                  |     | 406,000 |   |
| Changes in  assets and liabilities:                                          |   |                     |     |   |   |
| Decrease  (increase) in:                                                     |   |                     |     |   |   |
| Accounts  receivable                                                         |   | 658,000                  |     | (272,000 | ) |
| Inventories                                                                  |   | 89,000                   |     | 91,000 |   |
| Other current  assets                                                        |   | 75,000                   |     | 101,000 |   |
| Other assets                                                                 |   | (7,000                   | )        | 10,000 |   |
| Increase  (decrease) in:                                                     |   |                     |     |   |   |
| Accounts payable                                                             |   | (451,000                 | )        | (728,000 | ) |
| Accrued expenses                                                             |   | 14,000                   |     | (198,000 | ) |
| Net cash from  (used in) operating activities                                |   | 182,000                  |     | (709,000 | ) |
|                                                                         |   |                     |     |   |   |
| Cash Flows from  Investing Activities:                                       |   |                     |     |   |   |
| Purchases of  property and equipment                                         |   | (70,000                  | )        | (102,000 | ) |
| Net cash used in  investing activities                                       |   | (70,000                  | )        | (102,000 | ) |
|                                                                         |   |                     |     |   |   |
| Cash Flows from  Financing Activities:                                       |   |                     |     |   |   |
| Exercise of  stock options                                                   |   | —                   |     | — |   |
| Proceeds from  private placement                                             |   | —                   |     | 100,000 |   |
| Proceeds from  line of credit                                                |   | 101,000                  |     | 246,000 |   |
| Principal  payments on capital lease obligations                             |   | (53,000                  | )        | (129,000 | ) |
| Net cash from  (used in) financing activities                                |   | 48,000                   |     | 217,000 |   |
| Net Increase  (Decrease) in Cash and Cash Equivalents                        |   | 160,000                  |     | (594,000 | ) |
| Cash and Cash  Equivalents, beginning of period                              |   | 160,000                  |     | 860,000 |   |
| Cash and Cash  Equivalents, end of period                                    |   | $                        | 320,000  |   | $ | 266,000 |   |
|                                                                         |   |                     |     |   |   |
| Supplemental  disclosures of cash flow information:                          |   |                     |     |   |   |
| Cash paid during  the period for:                                            |   |                     |     |   |   |
| Interest                                                                     |   | $                        | 34,000   |   | $ | 74,000 |   |
| Income taxes                                                                 |   | —                   |     | — |   |
| Non-cash  transactions:                                                      |   |                     |     |   |   |
| Debt incurred to  purchased property and equipment                           |   | $                        | 50,000   |   | $ | 137,000 |   |

 

The accompanying notesare an integral part of these financial statements.

 

5

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**AML COMMUNICATIONS, INC.**

**NOTESTO FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2002**

 

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

 

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, all adjustments(consisting of normal recurring adjustments) necessary for a fair presentationhave been included.  The results ofoperations and cash flows for the three-month and six-month periods presentedare not necessarily indicative of the results of operations for a fullyear.  These financial statements shouldbe read in conjunction with the Company’s March 31, 2002 audited financialstatements and notes thereto included in the Company’s Annual Report on Form10-KSB.

 

Going ConcernIssues

 

In connection with the audit for the year ended March31, 2002, we received a report from our independent certified publicaccountants that includes an explanatory paragraph describing uncertainty inour ability to continue as a going concern. Our financial statements included herein contemplate our ability tocontinue and as such do not include any adjustments that might result from thisuncertainty. These financial statements should be read in conjunction with theCompany’s March 31, 2002 audited financial statements and notes theretoincluded in the Company’s Annual Report on Form 10-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:

 

|            |   | **September 30, 2002** |      | **March 31, 2002** |   |
|-----------------|--------|------------------------|-----------|--------------------|--------|
|            |   | **(Unaudited)**        |      | **(Audited)**      |   |
| Raw materials   |   | $                      | 779,000   |               | $      | 896,000 |   |
| Work-in-process |   | 124,000                |      | 104,000            |   |
| Finished goods  |   | 110,000                |      | 102,000            |   |
|            |   | $                      | 1,013,000 |               | $      | 1,102,000 |   |

 

6

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**4.****                                      Lineof Credit**

 

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 September 30, 2002).  This line of credit is secured bysubstantially all of the Company’s assets and expires on November 20, 2002. Asof September 30, 2002, there were $436,000 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.****                                      CapitalLeases**

 

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, the FASB issuedSFAS No. 142, “Goodwill and Other Intangible Assets.”  This statement addresses financial accounting and reporting foracquired goodwill and other intangible assets and supersedes APB Opinion No.17, “Intangible Assets.”  It addresseshow intangible assets that are acquired individually or with a group of otherassets (but not those acquired in a business combination) should be accountedfor in financial statements upon their acquisition.  This statement also addresses how goodwill and other intangibleassets should be accounted for after they have been initially recognized in thefinancial statements.  It is effectivefor fiscal years beginning after December 15, 2001.  Early application is permitted for entities with fiscal yearsbeginning after March 15, 2001, provided that the first interim financialstatements have not been issued previously. This statement is not applicable to the Company.

 

In June 2001, the FASBissued 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 oflong-lived assets, except for certain obligations of lessees.  This statement is not applicable to theCompany.

 

In August 2001, the FASBissued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-LivedAssets.”  This statement addressesfinancial accounting and reporting for the impairment or disposal of long-livedassets.  This statement replaces SFASNo. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to be Disposed of,” the accounting and reporting provisions of APB No.30, “Reporting the Results of Operations - Reporting the Effects of Disposal ofa Segment of a Business, and Extraordinary, Unusual, and Infrequently OccurringEvents and Transactions,” for the disposal of a segment of a business, andamends Accounting Research Bulletin No. 51, “Consolidated FinancialStatements,” to eliminate the exception to consolidation for a subsidiary forwhich control is likely to be temporary.   The Company does not expect adoption of SFAS No. 144 to have a materialimpact, if any, on its financial position or results of operations.

 

In April 2002, the FASBissued 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 beenrescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease

 

7

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modifications that haveeconomic effects similar to sale-leaseback transactions be accounted for in thesame manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements.  While those corrections are not substantivein nature, in some instances, they may change accounting practice.  The Company does not expect adoption of SFASNo. 145 to have a material impact, if any, on its financial position or resultsof operations.

 

In June 2002, the FASB issued SFAS No. 146,“Accounting for Costs Associated with Exit or Disposal Activities.”  This statement addresses financialaccounting and reporting for costs associated with exit or disposal activitiesand nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “LiabilityRecognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring).”  This statement requires that a liability fora cost associated with an exit or disposal activity be recognized when theliability is incurred.  Under EITF Issue94-3, a liability for an exit cost, as defined, was recognized at the date ofan entity’s commitment to an exit plan. The provisions of this statement are effective for exit or disposalactivities that are initiated after December 31, 2002 with earlier applicationencouraged.  The Company does not expectadoption of SFAS No. 146 to have a material impact, if any, on its financialposition or results of operations.

 

In October 2002, the FASBissued SFAS No. 147, “Acquisition of Certain Financial Institutions.”  SFAS No. 147 annuls the requirement in SFASNo. 72 and Interpretation 9 thereto, to recognize and amortize any excess ofthe fair value of liabilities assumed over the fair value of tangible andidentifiable intangible assets acquired as an unidentifiable intangible asset.This statement requires that those transactions be accounted for in accordancewith SFAS No. 141.  In addition, thisstatement amends SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets,” to include certain financial institution-relatedintangibles. This statement is not applicable to the Company.

 

**7.****                                      SubsequentEvents**

 

On July 17, 2001, we received notification of a NasdaqStaff Determination indicating that we had failed to comply with the minimummarket value of public float requirement for continued listing as required byMarketplace Rule 4450(a)(2), and that our securities were therefore subject todelisting from The Nasdaq National Market. At that time, the Nasdaq ListingQualifications 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 financial statementsof our Form 10-QSB for the period ended September 30, 2001, our net tangibleassets were $2,270,000.  Our commonstock began trading on the Nasdaq SmallCap Market effective October 8, 2001.

 

On November 27, 2001, the Nasdaq Listing QualificationsPanel further conditioned the continued listing of our common stock on theNasdaq SmallCap Market upon the filing of our Form 10-Q for the period endedDecember 31, 2001 evidencing either net tangible assets of $2 million orshareholders equity of  $2.5 million andupon our compliance with all the requirements for continued listing on theNasdaq SmallCap Market, including maintaining a minimum bid price of $1.00. Ascalculated from the financial statements in our 10-QSB filed for the periodended December 31, 2001, our net tangible assets as of December 31, 2001 were$2,181,000. On January 2, 2002, The Nasdaq Stock Market reinstated therequirements for the minimum bid price of $1.00 and modified the rules for thegrace period afforded members of the SmallCap Market from 90 days to 180 days.The reinstated and revised Nasdaq Marketplace Rules essentially allowed us 30consecutive trading days from January 2, 2002 with which to comply to theminimum $1.00 bid price.  If we wereunable to attain and maintain the minimum $1.00 bid price, we would then beafforded a 180 calendar day grace period in which to regain 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

 

8

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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. Consequently, our common stock wasdelisted from the Nasdaq SmallCap Market effective with the close of businesson August 20, 2002.  Our common stockbegan trading on the over the counter market (commonly known as the bulletinboard) effective August 21, 2002. Delisting from the Nasdaq SmallCap Market hada substantial adverse effect on the liquidity of our common stock, which inturn is likely to have an adverse effect on the trading price of such stock.

 

**Item 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations.**

 

This filing contains forward-looking statements which involve risks anduncertainties.  The Company’s actualfuture results may differ materially from the results discussed in theforward-looking statements.  When usedin this report, the words “expects” “anticipates,” “believes” and “estimates”and similar expressions are intended to identify 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 to finance our activities andmaintain our financial liquidity;

•      our ability to attract and retainqualified, knowledgeable employees;

•      the impact of general economic conditionson our business;

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

•      the limited number of potential customersfor our products;

•      the variability in gross margins on ournew products;

•      our ability to design new productssuccessfully;

•      our failure to acquire new customers inthe future;

•      the continued or new deterioration ofbusiness and economic conditions in our customers’ marketplaces;

•      intensely competitive industry conditionswith increasing price competition; and

•      the rate of growth in the MIC and wirelesscommunications markets.

 

Please read the factors set forth in “Additional Factors That MayAffect Future Results” and other risks detailed in the Company’s SECfilings.  The Company undertakes noobligation to publicly release any revisions to these forward-lookingstatements to reflect events or circumstances after the date this report isfiled with the SEC or to reflect the occurrence of unanticipated events.

 

 

**Results of Operations**

 

**Three Months Ended September 30, 2002Compared to Three Months Ended September 30, 2001**

* *

*Netsales.  *Net sales forthe three months ended September 30, 2002 were $1.0 million compared to netsales of $1.4 million in the three months ended September 30, 2001, a decreaseof 25.2%.  The decrease in net sales islargely attributable to reduced sales of our PCS and two-way messaging productsand reduced sales in our legacy cellular products. Overall, net sales for PCSand wireless messaging in the three months ended September 30, 2002 were$35,000, or 3.4% of net sales, compared to $195,000, or 14.0% of net sales, forthe three months ended September 30, 2001. Sales of our cellular products were$100,000, or 9.6% of net sales, for the three months ended September 30, 2002,compared to $221,000, or 15.9% of net sales for the three months endedSeptember 30, 2001.  Sales of our PCS,two-way messaging, and cellular products decreased due to the decrease indemand for our products in light of the continued contraction in the wireless,PCS and two-way messaging markets. These decreases were partially offset by anincrease in shipments of our defense related MIC amplifier products whichcontributed $906,000, or 87.0% of net sales for the three months endedSeptember 30, 2002, compared to $833,000, or 59.9% of net sales for the threemonths ended September 30, 2001.  Theincrease in sales of MIC products is the result of our continued penetration ofthe MIC market, an increase in demand for our defense related MIC products, andthe continued acquisition of new MIC customers. As a result of the U.S.government’s announced plans to increase defense spending, we anticipate thatMIC sales will continue to be a significant portion of our revenue. Net salesfrom other products were zero and $142,000 for the three-month periods endingSeptember 30, 2002 and September 30, 2001, respectively.

 

9

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*Grossprofit. *Gross profitfor the three months ended September 30, 2002 was $354,000 or 34.0% of netsales, compared to a gross profit of $522,000, or 37.6% of net sales, for thethree months ended September 30, 2001. Gross profit decreased as a result of the absorption of fixed costsacross a smaller base of net sales during the three months ended September 30,2002 compared to the three months ended September 30, 2001. We expect pressureon selling prices in all markets to continue during fiscal 2003.

* *

*Selling,general and administrative costs. *Selling,general and administrative costs for the three months ended September 30, 2002,were $342,000, or 32.8% of net sales, compared to $384,000, or 27.5% of netsales, for the three months ended September 30, 2001.  The dollar decrease is primarily due to lower professional feesin the three months ended September 30, 2002 and the increase in bad debt expenserelated to the write down of a receivable for a specific wireless customerduring the three months ended September 30, 2001. These decreases were offsetby increased advertising, marketing, commissions and labor costs during thethree months ended September 30, 2002 as we are aggressively pursuing revenuesfrom new MIC customers and are continuing to expand our third-party salesrepresentative force.

* *

*Researchand development costs. *Researchand development costs for the three months ended September 30, 2002 were$313,000, or 30.1% of net sales, compared to $365,000, or 26.3% of net sales,for the three months ended September 30, 2001. The decrease is primarily due to lower material costs for research anddevelopment projects as material related to our current MIC research anddevelopment is less capital intensive and to a greater reliance on outsideengineering consultants during the three months ended September 30, 2001. Weanticipate that research and development costs may increase in future quarters.

* *

*Otherincome, net. *Otherexpense for the three months ended September 30, 2002 was $177,000, compared toother income of $57,000 for the three months ended September 30, 2001.  The increase in expense is due mainly to therecognition of a $170,000 loss on the sale of a certain fixed asset during thequarter ended September 30, 2002 which includes a write down of relatedinventory. The other income for the three months ended September 30, 2001related to a State of California Franchise Tax Board tax audit and a CaliforniaState Board of Equalization sales tax audit resulting in a net refund ofapproximately $60,000.

* *

*Provisionfor income taxes. *Forboth the three months ended September 30, 2002 and September 30, 2001, werecorded no provision for or benefit from income taxes. Although we recorded anet loss for the three months ended September 30, 2002 and September 30,2001,we recorded no benefit from income taxes since we have utilized all netoperating loss carry-back benefits.

* *

*Netloss. *For the reasonsset forth above, we generated a net loss in the second quarter of fiscal 2003of $478,000 compared to a net loss of $170,000 in the second quarter of fiscal2002.

 

 

**Six Months Ended September 30, 2002Compared to Six Months Ended September 30, 2001**

* *

*Netsales. *Net sales forthe six months ended September 30, 2002 were $2.4 million, compared to netsales of $3.2 million in the six months ended September 30, 2001, a decrease of26.9%.  The decrease in net sales islargely attributable to reduced sales of our PCS and two-way messaging productswhich accounted for $66,000, or 2.8% of net sales for the six months endedSeptember 30, 2002 compared to  $1.1million or, or 32.8% of net sales for the six months ended September 30, 2001.Sales of PCS and two-way messaging products decreased due to the decreaseddemand for these products from the continued contraction in the wireless, PCSand two-way messaging markets and due to the fulfillment of a large order forour PCS amplifiers during the six months ended September 30, 2001. The decreaseis also attributable to lower sales of our cellular products which contributed$177,000, or 7.5% of net sales for the six months ended September 30, 2002compared to $430,000, or 13.3% of net sales for the six months ended September30, 2001. Sales of our cellular products decreased due to the weakness in theglobal wireless communications market, the maturity of our product within itslife cycle and our emphasis on our defense related MIC product lines over thepast 18 months.  These decreases werepartially offset by increases in sales of our defense related MIC amplifierproducts which contributed $2.1 million, or 89.8% of net sales for the sixmonths ended September 30, 2002, compared to $1.5 million, or 46.5% of netsales for the six months ended September 30, 2001. The increase in sales of MICproducts is the result of our continued penetration of the MIC market, anincrease in demand for our defense related MIC products, and the continuedacquisition of new MIC customers. As a result of the U.S. government’s announcedplans to increase defense spending, we anticipate that MIC sales will continueto

 

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be a significant portion of our revenue. Net sales from other productswere zero and $242,000 for the six-month periods ending September 30, 2002 andSeptember 30, 2001, respectively.

* *

*Grossprofit. *Gross profitfor the six months ended September 30, 2002 was $977,000, or 41.2% of netsales, compared to $1.2 million, or 38.2% of net sales, for the six monthsended September 30, 2001. Gross profit as a percent of sales increased as aresult of increased margins due to lower material costs for our MIC productlines and the effects of management’s cost cutting policies. However, we expectpressure on selling prices in all markets to continue in fiscal 2003.

* *

*Selling,general and administrative costs. *Selling,general and administrative costs for the six months ended September 30, 2002,were $641,000, or 27.0% of net sales, compared to $660,000, or 20.4% of netsales, for the six months ended September 30, 2001.  The dollar decrease is attributable to the recognition of a baddebt expense for an additional reserve for doubtful accounts receivable relatedto a specific wireless customer during the six months ended September 30, 2001and due to a reduction in investor relations and professional fees during thecurrent six months ended September 30, 2002. These decreases were offset byincreases in commissions paid to our third-party representatives and increasedlabor and benefit related costs.

* *

*Researchand development costs. *Researchand development costs for the six months ended September 30, 2002 were$636,000, or 26.8% of net sales, compared to $733,000, or 22.6% of net sales,for the six months ended September 30, 2001. The decrease is primarily due to lower depreciation costs as an effectof the sale of underutilized or excess fixed assets over the past 12 months,lower material costs for research and development projects as material relatedto our current MIC research and development is less capital intensive and lowercosts from the decreased use of outside engineering consultants during thecurrent fiscal year. We believe investment in the further development ofdefense related MIC product lines will increase research and development costsin future quarters.

 

*Otherincome, net. *Otherexpense for the six months ended September 30, 2002 was $195,000, compared toother income of $34,000 for the six months ended September 30, 2001. Theincrease in expense is due mainly to the effects from the recognition of a$170,000 loss on the sale of a certain fixed asset during the six months endedSeptember 30, 2002, including a write down of related inventory. The otherincome for the six months ended September 30, 2001 related to a State ofCalifornia Franchise Tax Board tax audit and a California State Board ofEqualization sales tax audit resulting in a net refund of approximately$60,000.

* *

*Provisionfor income taxes. *Forboth the six months ended September 30, 2002 and September 30, 2001, althoughthe Company incurred losses, we recorded no benefit from income taxes since theCompany has utilized all net operating loss carry-back benefits.

 

*Netloss. *For the reasonsset forth above, we generated a net loss in the six months ended September 30,2002 of $494,000, compared to a net loss of $119,000 for the six months endedSeptember 30, 2001.

 

 

**Liquidity and 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 completed an initial public offering of 1,725,000shares of common stock (including the exercise of the underwriters’ over allotmentoption), raising net proceeds of approximately $7.7 million. Of such netproceeds, $425,000 was used to repay loans from certain stockholders and theremainder has been used to expand manufacturing capability through the leasingand outfitting of substantially larger facilities, the acquisition of equipmentsufficient to produce higher product quantities and the employment and trainingof additional employees capable of expanding production and sales.  From March 2001 through January 2002, weraised approximately $1.0 million in additional funds from the completion offour (4) equity private placements. The net proceeds of the initial publicoffering and the equity private placements have also been used to maintaininventory 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

 

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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 September 30, 2002).  This line of credit is secured bysubstantially all of the Company’s assets and expires on November 20, 2002. Asof September 30, 2002, there were $436,000 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.

 

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.

 

At September 30, 2002, we had $320,000 in cash andcash equivalents. Our operating activities provided  cash of approximately $182,000 in the first six months of fiscal2003, primarily as a result of the reduction in accounts receivable andinventory balances. Our capital expenditures of $70,000 for the six monthsended September 30, 2002 were primarily for manufacturing test equipment.

 

Our auditors have included an explanatory paragraphrelating to our ability to continue as a going 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 is dependent upon futureevents, the outcome of which is indeterminable. Successful completion of ourdevelopment programs and attaining profitable operations are dependent upon ourmaintaining a level of sales adequate to support our cost structure. Inaddition, realization of a major portion of the assets in the accompanyingbalance sheet is dependent upon our ability to meet our financing requirementsand the success of our plans to sell our products.  The financial statements do not include any adjustments relatingto the recoverability and classification of recorded asset amounts or amountsand classifications of liabilities that might be necessary should we be unableto continue in existence.

 

We believe that funds provided from the privateplacements and the borrowing capacity from our line of credit may not besufficient to finance us for the next 12 months. We are attempting to procureadditional sources of financing in the event that the capital available as ofSeptember 30, 2002 is insufficient for our operating needs. These sources mayinclude, but are not limited to, an equity investment in the Company by a thirdparty. There are, however, no assurances that we will be able successfullyobtain additional financing at terms acceptable to us. Failure to obtain suchfinancing could have a material adverse effect on our ability to operate as agoing concern.

 

 

**Critical Accounting Policies**

 

Our discussion and analysis of our financialconditions and results of operations are based upon our financial statements,which have been prepared in accordance with generally accepted accountingprinciples in the United States. The preparation of financial statements requiremanagers to make estimates and disclosures on the date of the financialstatements. On an on-going basis, we evaluate our estimates, including, but notlimited to, those related to revenue recognition. We use authoritativepronouncements, historical experience and other assumptions as the basis formaking judgments. Actual results could differ from those estimates. We believethat the following critical accounting policies affect our more significantjudgments and estimates in the preparation of our financial statements.

 

*Revenuerecognition.* We are required to make judgments based onhistorical experience and future expectations, as to the realizability ofshipments made to our customers. These judgments 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.

 

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*Inventoryvaluation.* We are required to make judgments based onhistorical 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 That May AffectFuture Results**

** **

Future operating results may be impacted by a numberof factors that could cause actual results to differ materially from thosestated herein, which reflect management’s current expectations.  These factors include:

 

•                  industry-specificfactors (including the reliance upon growth of the defense microwave market,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 totimely develop and produce commercially viable products at competitive prices;

 

•                  the ability ofour products to operate and be compatible with base station equipment ofvarious OEMs;

 

•                  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;

 

•                   theavailability and cost of components;

 

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

 

•                  the impactof  worldwide economic and politicalconditions on our business.

 

On July 17, 2001, we received notification of a NasdaqStaff Determination indicating that we had failed to comply with the minimummarket value of public float requirement for continued listing as required byMarketplace Rule 4450(a)(2), and that our securities were therefore subject todelisting from The Nasdaq National Market. At that time, the Nasdaq ListingQualifications 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, the Nasdaq ListingQualifications Panel further conditioned the continued listing of our commonstock on the Nasdaq SmallCap Market upon the filing of our Form 10-Q for theperiod ended December 31, 2001 evidencing either net tangible assets of $2million or shareholders equity of  $2.5million and upon our compliance with all the requirements for continued listingon the Nasdaq SmallCap Market, including maintaining a minimum bid price of$1.00. As calculated from the financial statements in our 10-QSB filed for theperiod ended December 31, 2001, our net tangible assets as of December 31, 2001were $2,181,000. On January 2, 2002, The Nasdaq Stock Market reinstated therequirements for the minimum bid price of $1.00 and modified the rules for thegrace period afforded members of the SmallCap Market from 90 days to 180 days.The reinstated and revised Nasdaq Marketplace Rules essentially allows us 30consecutive trading days from January 2, 2002 with which to comply to theminimum $1.00 bid price.  If we wereunable to attain and maintain the minimum $1.00 bid price, we would then beafforded a 180 calendar day grace period in which to regain compliance.

 

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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 that theCompany must be compliant on or before August 13, 2002. Consequently, ourcommon stock was delisted from the Nasdaq SmallCap Market effective with theclose of business on August 20, 2002. Our common stock began trading on the over the counter market (commonlyknown as the bulletin board) effective August 21, 2002. Delisting from theNasdaq SmallCap Market had a substantial adverse effect on the liquidity of ourcommon stock, which in turn is likely to have an adverse effect on the tradingprice of such stock.

 

For the year ended March 31, 2002, we incurred a netloss of $713,000 and negative cash flows from operations of approximately $1.1million primarily as a result of the reduction of accounts payable balances.Our auditors considered these factors, combined with the current economicconditions and our then ability to comply with all of the listing requirementsto remain on the Nasdaq Small Cap Market, to raise substantial doubt about ourability to continue as a going concern. Recovery of our assets is dependentupon future events, the outcome of which is indeterminable. Successfulcompletion of our development program and attaining profitable operations aredependent upon our maintaining a level of sales adequate to support our coststructure. In addition, realization of a major portion of the assets in theaccompanying balance sheet is dependent upon our ability to meet our financingrequirements 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 funds provided from the privateplacements and the borrowing capacity from our line of credit may not besufficient to finance us for the next 12 months. We are attempting to procureadditional sources of financing in the event that the capital available as ofSeptember 30, 2002 is insufficient for our operating needs. These sources mayinclude, but are not limited to, an equity investment in us by a third party.There are, however, no assurances that we will be able to successfully obtainadditional financing at terms acceptable to us. Failure to maintain or secureadequate financing could have a material impact on our liquidity and resultsfrom operations.

 

We believe that, to the extent that foreign sales arerecognized, we may face increased risk associated with political and economicinstability, compliance with foreign regulatory rules governing exportrequirements, tariffs and other trade barriers, differences in intellectualproperty protections, longer accounts receivable cycles, currency fluctuationsand general trade restrictions.  If anyof these risks materialize, they could have a material adverse effect on ourbusiness, results of operations and financial condition.

 

We have evaluated thecredit exposure associated with conducting business with foreign customers andhave concluded that such risk is acceptable. Nevertheless, any significant change in the economy or a deteriorationin United States trade relations or the economic or political stability offoreign markets could have a material adverse effect on our business, resultsof operations and financial condition.

 

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 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 experience significant price competition and expectprice competition in the sale of our products to remain intense.  We cannot assure you that our competitorswill not develop new technologies or enhancements to existing products orintroduce new products that will offer superior price or performance features.We expect our competitors to offer new and existing products at pricesnecessary to gain or retain market share. Several of our competitors have substantial financial resources, whichmay enable them to withstand sustained price competition or a downturn in thepricing of their products in the future. Substantially all of our competitors have, and potential futurecompetitors 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.

 

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We receive periodic order forecasts from our majorcustomers who have no obligation to purchase the forecasted amounts.  Nevertheless, we maintain significant workin process and raw materials inventory, as well as increased levels oftechnical production staff to meet order forecasts and/or management’sprojections.  To the extent our majorcustomers purchase less than the forecasted amounts, we will have higher levelsof inventory than otherwise needed, increasing the risk of obsolescence, and wewill have increased levels of production staff to support such forecastedorders.  Such higher levels of inventoryand increased employee levels could reduce our liquidity and could have amaterial adverse effect on our business, results of operations and financialcondition.

 

The markets in which our customers and we compete arecharacterized by rapidly changing technology, evolving industry standards andcommunications protocols and continuous improvements in products and services.  Our future success depends on our ability toenhance our current products and to develop and introduce in a timely mannernew products that keep pace with technological developments, industry standardsand communications protocols, compete effectively on the basis of price,performance and quality, adequately address OEM customer and end-user customerrequirements and achieve market acceptance. We believe that to remain competitive in the future we will need tocontinue to develop new products, which will require the investment ofsignificant financial resources in new product development.  In the event our newly developed productsare not timely developed or do not gain market acceptance, our business, resultsof operations and financial condition could be materially adversely affected.

 

Our quarterly and annual results have in the pastbeen, and will continue to be, subject to significant fluctuations due to anumber of factors, any of which could have a material adverse effect on ourbusiness, financial condition and results of operations.  There can be no assurance that we will notexperience such fluctuations in the future. We establish our expenditure levelsfor product development and other operating expenses based on expectedrevenues, and expenses are relatively fixed in the short term. As a result,variations in timing of revenues can cause significant variations in quarterlyresults of operations. There can be no assurances that we will be profitable ona quarter-to-quarter basis in the future. We believe that period-to-periodcomparisons of our financial results are not necessarily meaningful and shouldnot be relied upon as an indication of future performance. Due to thesefactors, it is likely that in some future quarter or quarters our revenues oroperating results will not meet the expectations of public stock marketanalysts or investors. In such event, the market price of our common stockwould be materially adversely affected.

 

 

**Item 3.****   Controlsand Procedures**

 

(a)           Evaluationof disclosure controls and procedures. Within the 90 days prior to the date of this report, the Company carriedout an evaluation, under the supervision and with the participation of theCompany’s management, including the Company’s Chief Executive Officer and Directorof Finance, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures pursuant to Exchange ActRule 13a-14.  Based upon thatevaluation, the Chief Executive Officer and Director of Finance concluded thatthe Company’s disclosure controls and procedures are effective in timelyalerting them to material information relating to the Company required to beincluded in the Company’s periodic SEC filings.

 

(b)           Changesin internal controls.  No significantchanges were made in the Company’s internal controls or in other factors thatcould significantly affect these controls subsequent to the date of theirevaluation.

 

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**PARTII - OTHER INFORMATION**

 

 

**Item 4.****   Submissionof matters to a vote of Security Holders**

 

The Annual Meeting of Stockholders was heldon September 11, 2002. The following matters were submitted to a vote of theCompany’s stockholders:

 

Proposal No. 1 – Election of two (2) Class IDirectors

 

To elect Tiberiu Mazilu, Ph.D. and Richard W.Flatow as directors for the ensuing term. Dr. Mazilu and Mr. Flatow wereCompany directors immediately prior to the vote and were elected as a result ofthe following vote:

 

|                   |   | **Votes For** |   | **Votes  Against** |   | **Votes  Withheld** |   |
|------------------------|--------|---------------|--------|--------------------|--------|---------------------|--------|
| Tiberiu Mazilu,  Ph.D. |   | 7,191,388     |   | 301,640            |   | 0                   |   |
| Richard W.  Flatow     |   | 7,191,388     |   | 301,640            |   | 0                   |   |

 

Proposal No. 2 – Adoption of the Company’sFourth Amended and Restated 1995 Stock Incentive Plan

 

To adopt the Fourth Amended and Restated 1995Stock Incentive Plan reflecting an amendment to the Company’s 1995 Amended andRestated Stock Incentive Plan to increase the number of shares of common stockauthorized for issuance under the plan from 2,500,000 to 3,000,000. This Planwas adopted, as set forth in the Company’s proxy statement dated July 30, 2002,as a result of the following vote:

 

| **Votes For** |   | **Votes  Against** |   | **Votes  Withheld** |   | **Unvoted** |   |
|---------------|--------|--------------------|--------|---------------------|--------|-------------|--------|
| 3,609,277     |   | 374,909            |   | 17,620              |   | 3,348,296   |   |

 

There were no other matters submitted to avote of the Company’s stockholders at the Annual Meeting of Stockholders.

 
| **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 September 30, 2002. |

 

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**SIGNATURES**

 

In accordance with the requirements of the  Exchange Act, the registrant caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|   |              | AML Communications, Inc.                                       |
|--------|-------------------|----------------------------------------------------------------|
|   |              |                                                           |
|   |              |                                                           |
| Date:  | November 13, 2002 | /s/ Jacob Inbar                                                |   |
|   |              | Jacob Inbar                                                    |
|   |              | Chairman of the  Board, President  and Chief Executive Officer |
|   |              |                                                           |
|   |              |                                                           |
| Date:  | November 13, 2002 | /s/ David A. Swoish                                            |   |
|   |              | David A. Swoish                                                |
|   |              | Director of  Finance and  Chief Accounting Officer             |
|        |                   |                                                                |  |  |

 

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**CERTIFICATIONPURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIESEXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT**

 

I, Jacob Inbar, certify that:

 

1.                                       Ihave reviewed this quarterlyreport on Form 10-QSB of AML Communications, Inc.;

 

2.                                       Basedon my knowledge, this quarterlyreport does not contain any untrue statement of a material fact or omit tostate a material fact necessary to make the statements made, in light of thecircumstances under which such statements were made, not misleading withrespect to the period covered by this quarterly report;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrants other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

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| Date:   November 13, 2002 |                                              |
|--------------------------------|---------------------------------------------------|
|                           |                                              |
|                           | /s/  Jacob  Inbar                            |
|                           | Jacob Inbar                                       |
|                           | Chairman of the Board and Chief Executive Officer |

 

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**CERTIFICATIONPURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIESEXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT**

 

I, David A. Swoish, certify that:

 

1.                                       Ihave reviewed this quarterly report on Form 10-QSB of AML Communications, Inc.;

 

2.                                       Basedon my knowledge, this quarterly report does not contain any untrue statement ofa material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements weremade, not misleading with respect to the period covered by this quarterlyreport;

 

3.                                       Basedon my knowledge, the financial statements, and other financial informationincluded in this quarterly report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this quarterly report;

 

4.                                       Theregistrants other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have:

 

a)                                      designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b)                                     evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c)                                      presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                                       Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a)                                      allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b)                                     anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant’s internal controls; and

 

6.                                       Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

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| Date:   November 13, 2002 |                                             |
|--------------------------------|--------------------------------------------------|
|                           |                                             |
|                           | /s/  David A.  Swoish                       |   |
|                           | David Swoish                                     |
|                           | Director of Finance and Chief Accounting Officer |

 

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