**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 thequarterly period ended:        December31, 2001**

 

**or**

 

| **o** | **TRANSITION  REPORT PURSUANT TO SECTION 13 0R 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|-----------------------------------------------------------------------------------------------|

 

**For thetransition period from                               to                         **

** **

**CommissionFile 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  ýNo  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 February 14, 2002:  7,829,456

 

Transitional Small Business Disclosure Format: Yes  o  No  ý

 

Number of pages in this Form 10-QSB  17

 

 

**AML COMMUNICATIONS, INC.**

 

**INDEX**

 
| **PART I**  | **FINANCIAL INFORMATION**                                                                                                             |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                  |
| Item 1.     | Financial Statements                                                                                                                  |
|        |                                                                                                                                  |
|        | Balance Sheets (unaudited)  at December 31, 2001 and March 31, 2001                                                                   |
|        |                                                                                                                                  |
|        | Statements of  Operations  (unaudited) for the three  month and nine month periods ended December 31, 2001 and December 31, 2000 |
|        |
|        |                                                                                                                                  |
|        | Statements of  Cash Flows (unaudited) for the nine month periods ended December 31, 2001 and  December 31, 2000                       |
|        |                                                                                                                                  |
|        | Notes to the Financial  Statements                                                                                                    |
|        |                                                                                                                                  |
| Item  2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                           |
|        |
| **PART II** | **OTHER INFORMATION**                                                                                                                 |
|        |                                                                                                                                  |
| Item  2.    | Changes  in Securities and Use of Proceeds                                                                                            |
|        |                                                                                                                                  |
| 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)**

** **
|                                                                                                                                                                                          |   | **December  31,** |      | **March 31,** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|---------------|------------|
|                                                                                                                                                                                          |   | **2001**          |      | **2001**      | ** ** |
|                                                                                                                                                                                          |   | **(Unaudited)**   |      | **(Audited)** |       |
| **ASSETS**                                                                                                                                                                                    |   |              |      |          | ** ** |
| Current Assets:                                                                                                                                                                               |   |              |      |          |       |
| Cash and cash  equivalents                                                                                                                                                                    |   | $                 | 275,000   |          | $          | 860,000 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $57,150 at December 31,  2001 and March 31, 2001                                                                              |   | 846,000           |      | 740,000       |       |
| Inventories, net                                                                                                                                                                              |   | 1,391,000         |      | 1,138,000     |       |
| Other current  assets                                                                                                                                                                         |   | 160,000           |      | 345,000       |       |
| Total current  assets                                                                                                                                                                         |   | 2,672,000         |      | 3,083,000     |       |
|                                                                                                                                                                                          |   |              |      |          |       |
| Property and  Equipment, at cost:                                                                                                                                                             |   | 5,370,000         |      | 5,697,000     |       |
| Less -  Accumulated depreciation and amortization                                                                                                                                             |   | (3,889,000        | )         | (3,828,000    | )          |
|                                                                                                                                                                                          |   | 1,481,000         |      | 1,869,000     |       |
|                                                                                                                                                                                          |   |              |      |          |       |
| Other Assets                                                                                                                                                                                  |   | 109,000           |      | 118,000       |       |
|                                                                                                                                                                                          |   | $                 | 4,262,000 |          | $          | 5,070,000 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                                                |   |              |      |          |       |
| Current  Liabilities:                                                                                                                                                                         |   |              |      |          |       |
| Accounts payable                                                                                                                                                                              |   | $                 | 645,000   |          | $          | 1,438,000 |   |
| Line of credit                                                                                                                                                                                |   | 229,000           |      | 143,000       |       |
| Current portion  of capital lease obligations                                                                                                                                                 |   | 212,000           |      | 185,000       |       |
| Accrued  expenses:                                                                                                                                                                            |   |              |      |          |       |
| Accrued payroll  and payroll related expenses                                                                                                                                                 |   | 220,000           |      | 285,000       |       |
| Other accrued  liabilities                                                                                                                                                                    |   | 333,000           |      | 318,000       |       |
| Total current  liabilities                                                                                                                                                                    |   | 1,639,000         |      | 2,369,000     |       |
|                                                                                                                                                                                          |   |              |      |          |       |
| Note Payable-  Officer                                                                                                                                                                        |   | 50,000            |      | —        |       |
| Capital Lease  Obligations, net of current portion                                                                                                                                            |   | 392,000           |      | 412,000       |       |
|                                                                                                                                                                                          |   |              |      |          |       |
| 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; 7,530,623 shares issued and 7,416,123 shares outstanding  at December 31, 2001 and 7,046,889 shares issued and 6,932,389 shares  outstanding at March 31, 2001 |   | 71,000            |      | 69,000        |       |
|                                                                                                                                                                                          |   |              |      |          |       |
| Capital in  excess of par value                                                                                                                                                               |   | 10,294,000        |      | 10,036,000    |       |
| Treasury  stock-114,500 shares, at cost                                                                                                                                                       |   | (223,000          | )         | (223,000      | )          |
| Accumulated  deficit                                                                                                                                                                          |   | (7,961,000        | )         | (7,593,000    | )          |
|                                                                                                                                                                                          |   | 2,181,000         |      | 2,289,000     |       |
|                                                                                                                                                                                          |   | $                 | 4,262,000 |          | $          | 5,070,000 |   |

 

The accompanying notesare an integral part of these financial statements.

 

3

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**AML COMMUNICATIONS, INC.**

**STATEMENTSOF OPERATIONS**

**(Unaudited)**

 
|                                                                             |   | **Three Months Ended** |     | **Nine Months Ended** |   |
|----------------------------------------------------------------------------------|--------|------------------------|----------|-----------------------|--------|
|                                                                             |   | **December 31,**       |     | **December 31,**      |   | **December 31,** |   | **December 31,** |   |
|                                                                             |   | **2001**               |     | **2000**              |   | **2001** |   | **2000** |   |
|                                                                             |   |                   |     |                  |   |   |   |   |   |
| Net sales                                                                        |   | $                      | 972,000  |                  | $      | 1,179,000 |   | $ | 4,217,000 |   | $ | 3,905,000 |   |
| Cost of goods sold                                                               |   | 643,000                |     | 1,205,000             |   | 2,647,000 |   | 3,733,000 |   |
| Gross profit (loss)                                                              |   | 329,000                |     | (26,000               | )      | 1,570,000 |   | 172,000 |   |
|                                                                             |   |                   |     |                  |   |   |   |   |   |
| Operating expenses:                                                              |   |                   |     |                  |   |   |   |   |   |
| Selling, general & administrative                                            |   | 256,000                |     | 512,000               |   | 917,000 |   | 1,747,000 |   |
| Research and development                                                         |   | 311,000                |     | 638,000               |   | 1,044,000 |   | 2,014,000 |   |
|                                                                             |   | 567,000                |     | 1,150,000             |   | 1,961,000 |   | 3,761,000 |   |
| Loss from operations                                                             |   | (238,000               | )        | (1,176,000            | )      | (391,000 | ) | (3,589,000 | ) |
|                                                                             |   |                   |     |                  |   |   |   |   |   |
| Other income (expense), net                                                      |   | (11,000                | )        | —                |   | 23,000 |   | 64,000 |   |
| Loss before provision for income taxes                                           |   | (249,000               | )        | (1,176,000            | )      | (368,000 | ) | (3,525,000 | ) |
|                                                                             |   |                   |     |                  |   |   |   |   |   |
| Provision for income taxes                                                       |   | —                 |     | 288,000               |   | — |   | 288,000 |   |
|                                                                             |   |                   |     |                  |   |   |   |   |   |
| Net loss                                                                         |   | $                      | (249,000 | )                     | $      | (1,464,000 | ) | $ | (368,000 | ) | $ | (3,813,000 | ) |
|                                                                             |   |                   |     |                  |   |   |   |   |   |
| Basic and diluted loss per common share                                          |   | $                      | (0.03    | )                     | $      | (0.23 | ) | $ | (0.05 | ) | $ | (0.60 | ) |
| Basic and diluted weighted average number of shares of common  stock outstanding |   | 7,416,000              |     | 6,317,000             |   | 7,416,000 |   | 6,317,000 |   |

 

The accompanying notesare an integral part of these financial statements.

 

4

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**AML COMMUNICATIONS, INC.**

**STATEMENTSOF CASH FLOWS**

**(Unaudited)**

** **
|                                                                         |   | **Nine  Months Ended** |     |
|------------------------------------------------------------------------------|--------|------------------------|----------|
|                                                                         |   | **December  31,**      |     | **December  31,** | ** ** |
|                                                                         |   | **2001**               |     | **2000** | ** ** |
| Cash Flows from  Operating Activities:                                       |   |                   |     |   |   |
| Net profit  (loss)                                                           |   | $                      | (368,000 | ) | $ | (3,813,000 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                   |     |   |   |
| Depreciation and  amortization                                               |   | 599,000                |     | 692,000 |   |
| Changes in  assets and liabilities:                                          |   |                   |     |   |   |
| Decrease  (increase) in:                                                     |   |                   |     |   |   |
| Accounts  receivable                                                         |   | (105,000               | )        | 487,000 |   |
| Inventories                                                                  |   | (254,000               | )        | (666,000 | ) |
| Deferred taxes                                                               |   | —                 |     | 288,000 |   |
| Other current  assets                                                        |   | 185,000                |     | — |   |
| Other assets                                                                 |   | 10,000                 |     | 5,000 |   |
| Increase  (decrease) in:                                                     |   |                   |     |   |   |
| Accounts payable                                                             |   | (656,000               | )        | 357,000 |   |
| Accrued expenses                                                             |   | (50,000                | )        | (218,000 | ) |
| Income tax  payable                                                          |   | —                 |     | (190,000 | ) |
| Net cash used in  operating activities                                       |   | (639,000               | )        | (3,058,000 | ) |
|                                                                         |   |                   |     |   |   |
| Cash Flows from  Investing Activities:                                       |   |                   |     |   |   |
| Purchases of  property and equipment                                         |   | (158,000               | )        | (383,000 | ) |
| Net cash used in  investing activities                                       |   | (158,000               | )        | (383,000 | ) |
|                                                                         |   |                   |     |   |   |
| Cash Flows from  Financing Activities:                                       |   |                   |     |   |   |
| Exercise of  stock options                                                   |   | —                 |     | 3,000 |   |
| Proceeds from  private placement                                             |   | 260,000                |     | — |   |
| Proceeds from  line of credit                                                |   | 86,000                 |     | 214,000 |   |
| Proceeds from  note payable                                                  |   | 50,000                 |     | — |   |
| Principal  payments on capital lease obligations                             |   | (184,000               | )        | (122,000 | ) |
| Net cash from  (used in) financing activities                                |   | 212,000                |     | 95,000 |   |
| Net Decrease in  Cash and Cash Equivalents                                   |   | (585,000               | )        | (3,346,000 | ) |
| Cash and Cash  Equivalents, beginning of period                              |   | 860,000                |     | 4,659,000 |   |
| Cash and Cash Equivalents,  end of period                                    |   | $                      | 275,000  |   | $ | 1,313,000 |   |
|                                                                         |   |                   |     |   |   |
| Supplemental  disclosures of cash flow information:                          |   |                   |     |   |   |
| Cash paid during  the period for:                                            |   |                   |     |   |   |
| Interest                                                                     |   | $                      | 95,000   |   | $ | 34,000 |   |
| Non-cash  transactions:                                                      |   |                   |     |   |   |
| Debt incurred to  purchased property and equipment                           |   | $                      | 190,000  |   | $ | 425,000 |   |

 

The accompanying notesare an integral part of these financial statements.

 

5

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**AML COMMUNICATIONS, INC.**

**NOTESTO FINANCIAL STATEMENTS**

**DECEMBER 31, 2001**

 

**1.             Basis of Presentation**

 

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

 

                The accompanyingunaudited financial statements have been prepared in conformity with accountingprinciples generally accepted in the United States.  However, certain information and footnote disclosures normallyincluded in financial statements prepared in accordance with accounting principlesgenerally accepted in the United States have been omitted or condensed pursuantto the rules and regulations of the Securities and Exchange Commission(“SEC”).  In the opinion of management,all adjustments (consisting of normal recurring adjustments) necessary for afair presentation have been included. The results of operations and cash flows for the three-month periodspresented are not necessarily indicative of the results of operations for afull year.  These financial statementsshould be read in conjunction with the Company’s March 31, 2001 auditedfinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-KSB. 

 

Going Concern Issues

 

                In connection withthe audit for the year ended March 31, 2001, 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, 2001 audited financialstatements and notes thereto included in the Company’s Annual Report on Form10-KSB.

 

**2.             Earnings Per Share**

 

                Basic earnings pershare is computed by dividing net income or loss by the weighted average numberof shares outstanding for the year. “Diluted” earnings per share is computed by dividing net income or lossby the total of the weighted average number of shares outstanding plus, ifapplicable, the dilutive effect of outstanding stock options (applying thetreasury stock method).  Basic anddilutive earnings per share are the same as the effects of any outstandingstock options would be anti-dilutive.

 

**3.**             **Inventories**

 

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

 
|            |   | **December  31,** |      | **March 31,** |       |
|-----------------|--------|-------------------|-----------|---------------|------------|
|            |   | **2001**          |      | **2001**      |       |
|            |   | **(Unaudited)**   |      | **(Audited)** | ** ** |
| Raw materials   |   | $                 | 1,046,000 |          | $          | 865,000 |   |
| Work-in-process |   | 135,000           |      | 186,000       |       |
| Finished goods  |   | 210,000           |      | 87,000        |       |
|            |   | $                 | 1,391,000 |          | $          | 1,138,000 |   |

 

6

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**4.             Lineof Credit**

 

                In November 2001,we renewed 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 December31, 2001).  This line of credit issecured by substantially all of the Company’s assets and expires on November20, 2002. As of December 31, 2001, there was $229,000 in outstanding borrowingsunder the line of credit. Borrowings under the line of credit are subject to aborrowing base of accounts receivable, and there are no financial covenants.

 

**5.             CapitalLeases**

 

                In April 2001, theCompany entered into three non-cancelable capital leases to acquire testequipment valued in aggregate at $137,000. The terms of the leases are identical and call for 36 equal monthlyaggregate payments of $4,396 commencing in April 2001 and at an annual interestrate of 9.4%.

 

                In December 2001,the Company entered into a non-cancelable capital lease to acquire testequipment valued at $53,000.  The termsof the lease call for 48 equal monthly aggregate payments of $1503.89commencing in December 2001 and at an annual interest rate of 15.63%.

 

**6.             NotePayable - Officer**

 

                In December 2001,the Company entered into a promissory note with a principal value of $50,000with Mr. Tiberiu Mazilu, PhD, an officer and director of the Company.  The terms of the note call for quarterlyinterest payments to Dr. Mazilu commencing on September 30, 2002, with theinterest payment calculated quarterly based on the prime interest rate plus 1.25%.The principal amount of the note is due on January 2, 2005 but would become dueand payable by the Company immediately upon the consolidation or merger of theCompany with another entity, the death of Dr. Mazilu, or the Company’stermination of Dr. Mazilu’s employment with the Company.

 

**7.             Privateplacement**

 

                In December, 2001,the Company closed a private placement in the form of an equity investmentworth $160,000 to a group of investors led by Mr. Jacob Inbar, the Company’sPresident and Chief Executive Officer. Under the terms of the agreement, the common stock was priced at $0.56per share, which represents a discount of twenty-five percent of the averageclosing share price for the previous three days prior to the closing of theprivate placement.

 

**8.             RecentlyIssued Accounting Pronouncements**

 

                In July 2001, theFASB issued SFAS No. 141, “Business Combinations.”  This statement addresses financial accounting and reporting forbusiness combinations and supersedes Accounting Principles Bulletin (“APB”)Opinion 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. This statement is not applicable to theCompany.

 

                In July 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 alsoaddresses how goodwill and other intangible assets should be accounted forafter they have 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 

 

7

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is not 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 oflong-lived assets, except for certain obligations of lessees.  This statement is not applicable to theCompany.

 

                In October 2001,the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.” SFAS No. 144 replaces SFAS No. 121, “Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.”The primary objectives of SFAS No. 144 were to develop one accounting model,based on the framework established in SFAS No. 121, for long-lived assets to bedisposed of by sale and to address other significant implementation issues.While SFAS No. 144 supersedes SFAS No. 121, it retains many of the fundamentalprovisions of SFAS No. 121. SFAS No. 144 is effective for financial statementsissued for fiscal years beginning after December 15, 2001. This statement isnot expected to have a material impact on the Company.

 

**9.             SubsequentEvents**

 

                On October 4,2001, the Nasdaq Listing Qualifications Panel granted our request for transferto the NASDAQ SmallCap Market, conditioned upon the filing of our Form 10-QSBfor the period ended September 30, 2001 evidencing either net tangible assetsof $2 million or shareholders equity of $2.5 million, which we complied with on November 8, 2001. As calculatedfrom the financial statements above, our net tangible assets as of September30, 2001 were $2,270,000. 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-QSB 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 above, our net tangibleassets as of December 31, 2001 were $2,181,000. However, on September 27, 2001,Nasdaq implemented a moratorium on the minimum bid price and minimum marketvalue of public float requirements for continued listing on The Nasdaq StockMarket (encompassing both the Nasdaq National Market and the Nasdaq SmallCapMarket).  On January 2, 2002, The NasdaqStock Market 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 are unable to attain and maintain the minimum $1.00 bidprice, we would then be afforded an 180 calendar day grace period in which toregain compliance.  Our common stockbegan trading on the Nasdaq SmallCap Market effective October 8, 2001.

 

                In January, 2002,the Company closed a private placement in the form of an equity investmentworth approximately $240,000 to a group of outside individuals.  Under the terms of the agreement, the commonstock was priced at $0.5625 per share, which represents a discount of twenty-fivepercent of the average closing share price for the previous three days prior tothe closing of the private placement

 

8

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**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” and “estimates” and similarexpressions are intended to identify forward-looking statements. Factors thatcould cause actual results to differ materially from those expressed in anyforward-looking statement made by the Company include, but are not 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, or cancellationsin 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 in thefuture;

•      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 wireless and MICcommunications markets.

 

Please read the factors set forth in “Additional Factors That MayAffect Future Results” and other risks detailed in the Company’s Securities andExchange Commission filings.  AMLCommunications, Inc. undertakes no obligation to publicly release any revisionsto these forward-looking statements to reflect events or circumstances afterthe date this report is filed with the Securities and Exchange Commission or toreflect the occurrence of unanticipated events.

 

**Results of Operations**

 

**Three Months Ended December 31, 2001Compared to Three Months Ended December 31, 2000**

* *

*                Net sales. *Net sales for the threemonths ended December 31, 2001 were $972,000 compared to net sales of $1.2million in the three months ended December 31, 2000, a decrease of 17.6%.  The decrease in net sales is largelyattributable to decreased sales of our PCS and wireless messaging productsduring the three months ended December 31, 2001, and to the fulfillment of alarger order for PCS products during the same period of fiscal 2001. Overall,net sales for PCS and wireless messaging in the three months ended December 31,2001 were $237,000, or 24.4% of net sales, compared to $573,000, or 48.6% ofnet sales, for the three months ended December 31, 2000. Sales of our PCS and wirelessmessaging products decreased due the economic slow down in the wireless, PCSand two-way messaging markets. Sales of our MIC amplifier products (defensemicrowave and optical) increased to $576,000, or 59.3% of net sales for the three months ended December 31,2001, compared to $459,000, or 38.9% of net sales for the three months endedDecember 31, 2000.  The increase insales of MIC products is the result of our aggressive penetration of thefractured MIC market and to the commencement of shipments for our previouslyannounced $500,000 order for defense related products. Sales of our cellularproducts contributed $159,000, or 16.3% of net sales, for the three monthsended December 31, 2001, compared to $147,000, or 12.5% of net sales for thethree months ended December 31, 2000. This increase can be attributed to minorquarterly fluctuations in the sales of our legacy cellular products.

 

*                Gross profit(loss). *Gross profit for the threemonths ended December 31, 2001 was $329,000 or 33.8% of net sales, compared toa gross loss of ($26,000), or (2.2%) of net sales, for the three months endedDecember 31, 2000.  Gross profitincreased as a result of increased margins within our MIC product lines (whichaccount for 59.3% of sales for the quarter), and the effects of management’scost cutting policies. We expect pressure on selling prices in all markets tocontinue in fiscal 2002.

* *

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*                Selling, general andadministrative costs. *Selling,general and administrative costs for the three months ended December 31, 2001,were $256,000, or 26.4% of net sales, compared to $512,000, or 43.4% of netsales, for the three months ended December 31, 2000.  The decrease is attributable to lower labor and benefit relatedcosts resulting from the reduction in workforce in these departments, loweradvertising costs, lower commission expense due to the restructuring ofcommission rates we pay to third-party sales representatives and reduced travelcosts related to the aforementioned reduction in workforce.

* *

*                Research and developmentcosts. *Research anddevelopment costs for the three months ended December 31, 2001 were $311,000,or 32.0% of net sales, compared to $638,000, or 54.1% of net sales, for thethree months ended December 31, 2000. The decrease is primarily due to lower material and labor costs on fewerresearch and development projects during the current quarter ended December 31,2001. Expenses attributable to research and development projects were reducedby the completion of the development of products and by the reduction in new,customer-driven product research resulting from the current market conditionsfor wireless products. During the quarter ended December 31, 2001 the Companycontinued to invest in its development of a catalog of modules that will allowfor a rapid assembly of MIC amplifiers to enable a 10 day delivery on newdefense orders.

 

                *Otherincome(expense), net. *Otherexpense for the three months ended December 31, 2001 was $11,000, compared toother income on a net basis of zero for the three months ended December 31,2000.  The decrease in other income isdue mainly to a decrease in interest income as a result of decreased averageinvested funds and to an increase in interest expense related to the lease ofcapital equipment.

 

*                Provision for income taxes. *For the three months endedDecember 31, 2001, we recorded no provision for or benefit from income taxes,compared to a provision for income taxes of $288,000 for the three months endedDecember 31, 2000. Although we recorded a net loss for the three months endedDecember 31, 2001, we recorded no benefit from income taxes since we haveutilized all net operating loss carry-back benefits.  During the three month period ended December 31, 2000, we electedto increase our valuation allowance related to our $288,000 deferred tax assetdue to uncertainty as to when we would be able to realize tax benefits fromthat asset

 

                *Netloss. *For the reasons setforth above, we generated a net loss for the three months ended December 31,2001 of $249,000, compared to a net loss of $1.5 million for the three monthsended December 31, 2000.

 

**Nine Months Ended December 31, 2001Compared to Nine Months Ended December 31, 2000**

* *

*                Net sales. *Net sales for the ninemonths ended December 31, 2001 were $4.2 million, compared to net sales of $3.9million in the nine months ended December 31, 2000, an increase of 8%.  The increase in net sales is largelyattributable to greater shipments of our MIC amplifier products (defense microwaveand optical) which contributed $2.3 million, or 55.0% of net sales for the ninemonths ended December 31, 2001, compared to $794,000, or 20.3% of net sales forthe nine months ended December 31, 2000. The increase in sales of MIC productsis the result of our aggressive penetration of the fractured MIC market and anincrease in demand for defense related MIC products related to the procurementof upgrade, replacement, and spare parts for defense applications. As a resultof planned increase in defense spending, and in the wake of the terroristrelated events of September 11, 2001, the Company anticipates that MIC saleswill continue to be a significant portion of the Company’s revenue.  Net sales for PCS and two-way messaging inthe nine months ended December 31, 2001 were $1.3 million or 31.0% of netsales, compared to $2.1 million, or 55.0% of net sales, for the nine monthsended December 31, 2000. Sales of PCS and two-way messaging products decreaseddue to the current economic slow down in the wireless, PCS and two-waymessaging markets and due to the increased production of  newly developed  PCS and two-way messaging products during the nine months endedDecember 31, 2000. Sales of the Company’s cellular products were $590,000, or14.0% of net sales, for the nine months ended December 31, 2001, compared to$963,000, or 24.7% of net sales for the nine months ended December 31, 2000.This decrease can be attributed to our decision to focus future productdevelopment in other, non-cellular markets, such as PCS/two-way messaging, MICand electro-optical and the continued decrease in demand for our legacycellular products as wireless services providers replace their cellularequipment with newer non-cellular based equipment such as PCS.  Net sales from other products were $6,000and $40,000 for the nine-month periods ending December 31, 2001 and December31, 2000, respectively.

* *

*                Gross profit. *Gross profit for the ninemonths ended December 31, 2001 was $1.6 million, or 37.2% of net sales,compared to $172,000, or 4.4% of net sales, for the nine months ended December31, 2000. Gross profit 

 

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increased as a result of higher shipment levels, increased marginswithin our MIC product lines, and the effects of management’s cost cuttingpolicies. We expect pressure on selling prices in all markets to continue infiscal 2002.

* *

*                Selling, general andadministrative costs. *Selling,general and administrative costs for the nine months ended December 31, 2001,were $917,000, or 21.7% of net sales, compared to $1.7 million, or 44.7% of netsales, for the nine months ended December 31, 2000.  The decrease is attributable to lower labor and benefit relatedcosts resulting from the reduction in workforce in these departments, loweradvertising, travel, legal, and investor relations fees, and reduced commissionexpense due to the restructuring of commission rates we pay to third-partysales representatives. These decreases were offset by an increase in bad debtexpense related to an additional reserve for doubtful accounts receivable inthe second quarter of fiscal 2002.

* *

*                Research and developmentcosts. *Research anddevelopment costs for the nine months ended December 31, 2001 were $1.0million, or 24.8% of net sales, compared to $2.0 million, or 51.6% of netsales, for the nine months ended December 31, 2000.  The decrease is primarily due to lower material and labor costson fewer research and development projects related to the wireless market inthe current fiscal year. Expenses attributable to research and developmentprojects were reduced by the completion of the development of products, by thetermination of programs seen unprofitable during the first quarter of fiscal2002, and by the reduction in new, customer-driven product research resultingfrom the current economic conditions in the wireless market. We believeinvestment in the development of a broad-based product line will increaseresearch and development costs in future quarters.

 

                *Otherincome, net. *Other incomefor the nine months ended December 31, 2001 was $23,000, compared to otherincome of $64,000 for the nine months ended December 31, 2000.  The decrease is due mainly to an increase ininterest expense related to the addition of capital leases during fiscal 2001and to a decrease in interest income on lower average invested funds.

* *

*                Provision for income taxes.*Forthe nine months ended December 31, 2001 we recorded no provision for or benefitfrom income taxes compared to a provision for income taxes of $288,000 for thenine months ended December 31, 2000. Although we recorded a net loss for thenine month period ended December 31, 2001 we recorded no benefit from incometaxes since we have utilized all net operating loss carry-back benefits.  During the nine month period ended December31, 2000, we elected to increase our valuation allowance related to our$288,000 deferred tax asset due to uncertainty as to when we would be able torealize tax benefits from that asset.

 

                *Netloss. *For the reasons setforth above, we generated a net loss in the nine months ended December 31, 2001of $368,000, compared to a net loss of $3.8 million for the nine months endedDecember 31, 2000.

 

**Liquidity and Capital Resources**

 

                Historically, wehave financed our operations primarily from internally generated funds and, toa lesser 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 from certain stockholders and the remainderhas been used to expand manufacturing capability through the leasing andoutfitting of substantially larger facilities, the acquisition of equipmentsufficient to produce higher product quantities and the employment and trainingof additional employees capable of expanding production, new productdevelopment and sales.  The net proceedsof the initial public offering have also been used to maintain inventory andworking capital balances.

 

                On August 10,1998, we announced that our board of directors had authorized a stock buybackprogram of up to 400,000 shares of the Company’s outstanding common stock.  Shares repurchased pursuant to the buybackwill be purchased from time to time in the open market or in negotiatedtransactions and will be held for issuance in connection with the futureexercise of employee stock options.  Werepurchased 114,500 shares at an aggregate cost of $224,000 during fiscal 1999.We have not repurchased any additional shares subsequent to fiscal 1999.

 

                In November 2001,we renewed 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 December31, 2001).  This line of credit issecured by substantially all of the Company’s assets and expires on November20, 2002. As of 

 

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December 31, 2001, there was $229,000 in outstanding borrowings underthe line of credit. Borrowings under the line of credit are subject to aborrowing base of accounts receivable and there are no financial covenants.

 

                In April 2001, weentered into three non-cancelable capital leases to acquire test equipmentvalued in aggregate at $137,000.  Theterms of the leases are identical and call for 36 equal monthly aggregatepayments of $4,396, commencing in April 2001, and at an annual interest rate of9.4%.

 

                In December 2001,the Company entered into a non-cancelable capital lease to acquire testequipment valued at $53,000.  The termsof the lease call for 48 equal monthly aggregate payments of $1503.89commencing in December 2001 and at an annual interest rate of 15.63%.

 

                In December 2001,the Company entered into a promissory note with a principal value of $50,000with Mr. Tiberiu Mazilu, PhD, an officer and director of the Company.  The terms of the note call for quarterlyinterest payments to Dr. Mazilu commencing on September 30, 2002, with theinterest payment calculated quarterly based on the prime interest rate plus1.25%. The principal amount of the note is due on January 2, 2005 but wouldbecome due and payable by the Company immediately upon the consolidation ormerger of the Company with another entity, the death of Dr. Mazilu, or theCompany’s termination or Dr. Mazilu’s employment with the Company.

 

                At December 31,2001, we had $275,000 in cash and cash equivalents. Our operating activitiesused cash of approximately $639,000 in the nine months ended December 31, 2001,primarily as a result of the reduction of accounts payable balances. Ourcapital expenditures of $158,000 for the nine months ended December 31, 2001were primarily for manufacturing test equipment and leasehold improvementsrelated to the expansion of our MIC manufacturing floor.

 

                Our auditors haveincluded an explanatory paragraph in their Report of Certified PublicAccountants included in our audited financial statements contained in our Form10-KSB relating to our ability to continue as a going concern as of our fiscalyear ended March 31, 2001. For the year ended March 31, 2001, we incurred a netloss of $7.1 million, negative cash flows from operations of approximately $3.9million and an accumulated deficit of $7.6 million. The auditors consideredthat these factors raise substantial doubt about our ability to continue as agoing concern.

 

                Recovery of ourassets is dependent 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 ourproducts.  The financial statements donot include any adjustments relating to the recoverability and classificationof recorded asset amounts or amounts and classifications of liabilities thatmight be necessary should we be unable to continue in existence.

 

                In March, 2001,the Company closed a private placement in the form of an equity investmentworth $500,000 to a group of investors led by Mr. Jacob Inbar, the Company’sPresident and Chief Executive Officer. Under the terms of the agreement, the common stock was priced at $0.812per share, which represents a discount of twenty-five percent of the averageclosing share price for the previous three days prior to the closing of theprivate placement. In consideration for receiving unregistered shares of commonstock, the non-management members of the investor group received warrants to purchase40,000 shares at an exercise price of $1.125 per share, which represents theclosing price of our common stock on March 13, 2001. The Company has notrecorded a charge in connection to these warrants as the charge is consideredto be immaterial to our financial statements. These warrants expire in March2006.

 

                In September,2001, the Company closed a private placement in the form of an equityinvestment worth $100,000 to a group of investors led by Mr. Jacob Inbar.  Under the terms of the agreement, the commonstock was priced at $0.505 per share, which represents a discount oftwenty-five percent of the average closing share price for the previous threedays prior to the closing of the private placement. In consideration forreceiving unregistered shares of common stock, the non-management members ofthe investor group received warrants to purchase 8,000 shares of our commonstock at an exercise price of $0.65 per share, which represents the closingprice of our common stock on September 25, 2001. The Company has not recorded acharge in connection to these warrants as the charge is considered to beimmaterial to the financial statements. These warrants expire in September2006.

 

 

 

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                In December, 2001,the Company closed a private placement in the form of an equity investmentworth $160,000 to a group of investors led by Mr. Jacob Inbar.  Under the terms of the agreement, the commonstock was priced at $0.56 per share, which represents a discount of twenty-fivepercent of the average closing share price for the previous three days prior tothe closing of the private placement.

 

                In January, 2002,the Company closed a private placement in the form of an equity investmentworth approximately $240,000 to a group of outside individuals.  Under the terms of the agreement, the commonstock was priced at $0.5625 per share, which represents a discount oftwenty-five percent of the average closing share price for the previous threedays prior to the closing of the private placement.

 

                We believe thatfunds provided from the private placements and the borrowing capacity from ourline of credit may not be sufficient to finance us for the next 12 months. Weare attempting to procure additional sources of financing in the event that thecapital available as of December 31, 2001 is insufficient. Other sources mayinclude, but not be limited to, an equity investment in the Company by a thirdparty. There are, however, no assurances that we will be able successfully obtainadditional financing at terms acceptable to us.

 

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**Additional Factors That May AffectFuture Results**

 

                Future operatingresults may be impacted by a number of factors that could cause actual resultsto differ materially from those stated herein, which reflect management’scurrent expectations.  These factorsinclude:

 

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

•                          ourability to timely develop and produce commercially viable products atcompetitive prices;

•                          theability of our products to operate and be compatible with base stationequipment of various OEMs;

•                          ourability to produce products which meet the quality standards of both existingand potential new customers;

•                          ourability to accurately anticipate customer demand;

•                          ourability to manage expense levels, the availability and cost of components;

•                          ourability to finance our activities, maintain our financial liquidity; and

•                          theimpact of  worldwide economic andpolitical conditions on our business.

 

                On July 17, 2001,we received 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 from the financialstatements above, our net tangible assets as of September 30, 2001 were$2,270,000. On November 27, 2001, the Nasdaq Listing Qualifications Panelfurther conditioned the continued listing of our common stock on the NasdaqSmallCap Market upon the filing of our Form 10-Q for the period ended December31, 2001 evidencing either net tangible assets of $2 million or shareholdersequity of  $2.5 million and upon ourcompliance with all the requirements for continued listing on the NasdaqSmallCap Market, including maintaining a minimum bid price of $1.00. Ascalculated from the financial statements above, our net tangible assets as ofDecember 31, 2001 were $2,181,000. However, on September 27, 2001, Nasdaqimplemented a moratorium on the minimum bid price and minimum market value ofpublic float requirements for continued listing on The Nasdaq Stock Market(encompassing both the Nasdaq National Market and the Nasdaq SmallCapMarket).  On January 2, 2002, The NasdaqStock Market 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 are unable to attain and maintain the minimum $1.00 bidprice, we would then be afforded an 180 calendar day grace period in which toregain compliance.  Our common stockbegan trading on the Nasdaq SmallCap Market effective October 8, 2001.

 

                For the year endedMarch 31, 2001, we incurred a net loss of $7.1 million, negative cash flowsfrom operations of approximately $3.9 million and an accumulated deficit of$7.6 million. Our auditors considered these factors to raise substantial doubtabout our ability to continue as a going concern. Recovery of our assets isdependent upon future events, the outcome of which is indeterminable.Successful completion of our development program 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 ourproducts.  The financial statements donot include any adjustments relating to the recoverability and classificationof recorded asset 

 

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amounts or amounts and classifications of liabilities that might benecessary should we be unable to continue in existence.

 

                We believe thatfunds provided from the private placements and the borrowing capacity from ourline of credit may not be sufficient to finance us for the next 12 months. Weare attempting to procure additional sources of financing in the event that thecapital available as of December 31, 2001 is insufficient. Other sources mayinclude, but not be limited to, an equity investment in the Company by a thirdparty. We cannot assure you that we will be able successfully obtain additionalfinancing at terms acceptable to us. Failure to maintain or secure adequatefinancing could have a material impact on our liquidity and results fromoperations.

 

                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 exposureassociated with conducting business with foreign customers and have concludedthat 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 the Company’s products to foreign customers couldresult in decreased sales which could have a material adverse impact on ourbusiness, results of operations and financial condition.

 

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

 

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

 

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**PARTII - OTHER INFORMATION**

 

**Item 2.    Changes in Securities and Use of Proceeds**

 

                On December 27,2001, the Company sold 285,714 shares of its common stock to a group ofinvestors consisting of members of the Company’s Board of Directors and Seniormanagement including Mr. Jacob Inbar, the Company’s President and ChiefExecutive Officer, at a purchase price of $0.56 per share, for an aggregateoffering price of $160,000.

 

                On January 30,2002, the Company sold 413,333 shares of its common stock to a group ofindividual investors at a purchase price of $0.5625 per share, for an aggregateoffering price of $232,500.

 

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

 

(a)                         Exhibits

 

10.39                             AccountsReceivable Purchase Agreement dated November 20, 2001 between AMLCommunications Inc. and Silicon Valley Bank.

 

10.40          Promissory Note dated December 30,2001 between Tiberiu Mazilu and AML Communications Inc.

 

(b)                        Reportson Form 8-K

 

                             TheCompany filed no current Reports on Form 8-K during the quarter ended December31, 2001. 

 

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**SIGNATURES**

 

**               **In accordancewith 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:  | February 14, 2002 | /s/                 | David A. Swoish |   |
|--------|-------------------|---------------------|-----------------|--------|
|   |              | David A. Swoish     |
|   |              | Director of Finance |

 

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