AML COMMUNICATIONS INC - FORM 10-Q

Attached files

file	filename
EX-31.1 - AML COMMUNICATIONS INC	v173607_ex31-1.htm
EX-32.2 - AML COMMUNICATIONS INC	v173607_ex32-2.htm
EX-31.2 - AML COMMUNICATIONS INC	v173607_ex31-2.htm
EX-32.1 - AML COMMUNICATIONS INC	v173607_ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2009

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(-D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission File Number: 000-27250

AML COMMUNICATIONS, INC.

(Exact name of registrant 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

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period than the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


	Yes o No þ

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

Common Stock Outstanding as of February 8, 2010: 10,675,915 shares

AML Communications, Inc.

Index to Form 10-Q December 31, 2009

Part I	Financial Information	3

Item 1.	Financial Statements (Unaudited)	3

	Unaudited Consolidated Balance Sheet as of December 31, 2009 and Consolidated Balance Sheet as of March 31, 2009	3

	Unaudited Consolidated Income Statements for the three and nine month periods ended December 31, 2009 and December 31, 2008	4

	Unaudited Consolidated Statements of Cash flows for the nine month periods ended December 31, 2009 and December 31, 2008	5

	Notes to Unaudited Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23

Item 4.	Controls and Procedures	23

Part II	Other Information	24

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Submission of Matters to a Vote of Security Holders	24

Item 5.	Other Information	24

Item 6.	Exhibits	25

	SIGNATURES

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

AML COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	As on December 31, 2009			As on March 31, 2009
ASSETS
Current Assets:
Cash and cash equivalents	$	2,945,000		$	1,581,000
Accounts receivable, net		2,954,000			2,367,000
Inventories, net		3,360,000			3,290,000
Note receivable		5,000			7,000
Prepaid expenses		272,000			189,000
Deferred tax asset - current		1,144,000			867,000
Total current assets		10,680,000			8,301,000

Property and equipment, at cost		7,361,000			7,313,000
Less: Accumulated depreciation		(5,386,000	)		(5,229,000	)
Property and equipment, net		1,975,000			2,084,000

Deferred tax asset		2,972,000			3,916,000
Intangible Assets:
Technologies, net		1,632,000			1,778,000
Patents, net		57,000			75,000
Customer relationship, net		35,000			41,000
Trademarks and brand names		202,000			203,000
		1,926,000			2,097,000
Deposits		39,000			33,000
Total Assets	$	17,592,000		$	16,431,000
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities:
Line of credit	$	245,000		$	496,000
Accounts payable		954,000			854,000
Current portion of notes payable and capital lease obligation		77,000			58,000
Short term note payable		48,000			-
Accrued expenses:
Accrued payroll and payroll related expenses		697,000			659,000
Other accrued liabilities		235,000			242,000
Total current liabilities		2,256,000			2,309,000

Long term notes payable		584,000			594,000
Capital lease obligations, net of current portion		121,000			-
Commitments

Stockholders’ Equity:
Common stock, $0.01 par value: 15,000,000 shares authorized; 10,675,915 and 10,654,665 shares issued and outstanding at December 31, 2009 and March 31, 2009, respectively. 38,600 shares held in treasury as of December 31, 2009		107,000			106,000
Capital in excess of par value		14,162,000			14,034,000
Retained earnings (Accumulated deficit)		389,000			(612,000	)
Less: Treasury stock at cost		(27,000	)		-
Total stockholders equity		14,631,000			13,528,000
Total Liabilities and stockholders equity	$	17,592,000		$	16,431,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

AML COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Month Periods Ended						Nine Month Periods Ended
	December 31,			December 31,			December 31,			December 31,
	2009			2008			2009			2008

Net sales	$	4,265,000		$	3,332,000		$	12,073,000		$	10,029,000
Cost of goods sold		2,158,000			1,949,000			6,333,000			5,667,000
Gross profit		2,107,000			1,383,000			5,740,000			4,362,000

Operating expenses:
Selling, general & administrative		867,000			679,000			2,414,000			2,144,000
Research and development		515,000			484,000			1,617,000			1,465,000
Total operating expenses		1,382,000			1,163,000			4,031,000			3,609,000

Income from operations		725,000			220,000			1,709,000			753,000

Gain on settlement of debt		-			-			-			567,000
Gain on sale of fixed assets		-			-			20,000			-
Other income/(Interest & other expense), net		(20,000	)		(21,000	)		(60,000	)		(80,000	)
Total other income (expense)		(20,000	)		(21,000	)		(40,000	)		487,000
Income before provision for income taxes		705,000			199,000			1,669,000			1,240,000
Provision for income taxes		282,000			74,000			667,000			491,000
Net income	$	423,000		$	125,000		$	1,002,000		$	749,000

Basic earnings per common share	$	0.04		$	0.01		$	0.09		$	0.07

Basic weighted average number of shares of common stock outstanding		10,628,000			10,642,000			10,628,000			10,549,000

Diluted earnings per common share	$	0.04		$	0.01		$	0.09		$	0.07

Diluted weighted average number of shares of common stock outstanding		11,149,000			10,712,000			10,738,000			10,758,000

The accompanying notes are an integral part of these unaudited consolidated financial statements.

AML COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Month Periods Ended
	December 31, 2009			December 31, 2008
Cash Flows from Operating Activities:
Net income	$	1,002,000		$	749,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		478,000			523,000
Bad debt expense		1,000			4,000
Inventory reserves		25,000			(58,000	)
Stock options compensation		117,000			97,000
Amortization		171,000			204,000
Gain on settlement of debt		-			(567,000	)
Gain on sale of fixed assets		(20,000	)		-
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable		(586,000	)		387,000
Inventories		(95,000	)		(437,000	)
Other current assets		(89,000	)		(99,000	)
Deferred Tax Assets		667,000			490,000
Increase (decrease) in:
Accounts payable		99,000			(471,000	)
Accrued income taxes		-			(27,000	)
Accrued expenses		31,000			(315,000	)
Net cash provided by operating activities		1,801,000			480,000

Cash Flows from Investing Activities:
Acquisition of property and equipment		(130,000	)		(80,000	)
Net cash used in investing activities		(130,000	)		(80,000	)

Cash Flows from Financing Activities:
Acquistion of treasury stock		(27,000	)		-
Payments on line of credit		(252,000	)		(295,000	)
Payments on notes payable		(6,000	)		(19,000	)
Proceeds from exercise of stock options		12,000			75,000
Principle payments capital lease obligations		(34,000	)		-
Net cash used in financing activities		(307,000	)		(239,000	)

Net increase in Cash and Cash Equivalents		1,364,000			161,000
Cash and Cash Equivalents, beginning of period		1,581,000			1,205,000
Cash and Cash Equivalents, end of period	$	2,945,000		$	1,366,000
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	63,000		$	84,000
Income Taxes	$	105,000		$	85,000
Supplemental disclosure of non-cash flow investing and financing activity: Debt incurred to acquire property and equipment	$	219,000		$	-

The accompanying notes are an integral part of these unaudited consolidated financial statements.

AML COMMUNICATIONS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

1.	Basis of Presentation

AML Communications (the “Company” or “we”) currently design, manufacture, and market radio frequency (RF) and microwave, low noise, medium and high power amplifiers and subsystems serving primarily the Defense Electronic Warfare Market. Our business is comprised of two reportable segments. AML Communications, Inc. (AML) designs, manufactures, and markets amplifiers and related products for the defense microwave. AML also includes MPI and is now reported as part of AML. Our defense industry products are used primarily in electronic systems for tactical aircraft, ships, ground systems, and missile systems. These products are sold directly by us as well as through independent sales representatives. On April 11, 2007, we acquired a controlling interest of Mica-Tech, Inc. (Mica-Tech) and subsequently acquired the remaining interest on February 19, 2008. Our wholly owned subsidiary Mica-Tech designs, manufactures, and markets an intelligent communication system to provide Supervisory Control And Data Acquisition (SCADA) of the electric power grid. We had two reportable segments – AML and Mica-Tech – for the nine month periods ended December 31, 2009 and December 31, 2008.

We were incorporated in California in 1986 as Advanced Milliwave Laboratories, Inc. Early in 1994, we changed our name to AML Communications, Inc. In December 1995, in conjunction with the initial public offering of our common stock, we changed our state of incorporation from California to Delaware. In May 1996, we moved our principle office and manufacturing facility to our current location, 1000 Avenida Acaso, Camarillo, California 93012.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States. However, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted or condensed pursuant to 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 a fair presentation have been included. The results of operations and cash flows for the nine-month period presented are not necessarily indicative of the results of operations for a full year. These financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of AML including its MPI division and its wholly owned subsidiary Mica-Tech. All significant inter-company accounts and transactions have been eliminated in consolidation.

2.	Critical Accounting Policies

Our discussion and analysis of our financial conditions and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of financial statements requires managers to make estimates and disclosures on the date of the financial statements. On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition. We use authoritative pronouncements, historical experience, and other assumptions as the basis for making judgments. Actual results could differ from those estimates. We believe that the following critical accounting policies affect our more significant judgments and estimates in the preparation of our financial statements.

Revenue recognition. We generate our revenue through the sale of products. Our policy is to recognize revenue when the applicable revenue recognition criteria have been met, which generally include the following:

Persuasive evidence of an arrangement exists;

Delivery has occurred or services have been rendered;

Price is fixed or determinable; and

Collectibility is reasonably assured.

Revenue from the sale of products is generally recognized after both the goods are shipped to the customer and acceptance has been received, if required. Our products are custom made for our customers, who primarily consist of original engineer manufacturers (OEMs), and we do not accept returns. Our products are shipped complete and ready to be incorporated into higher level assemblies by our customers. The terms of the customer arrangements generally pass title and risk of ownership to the customer at the time of shipment.

Recording revenue from the sale of products involves the use of estimates and management judgment. We must make a determination at the time of sale whether the customer has the ability to make payments in accordance with arrangements. While we do utilize past payment history, and, to the extent available for new customers, public credit information in making our assessment, the determination of whether collectibility is reasonably assured is ultimately a judgment decision that must be made by management.

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts receivable based on customer-specific allowances, as well as a general allowance. Specific allowances are maintained for customers that are determined to have a high degree of collectibility risk based on such factors, among others, as: (i) the aging of the accounts receivable balance; (ii) the customer’s past payment experience; and (iii) a deterioration in the customer’s financial condition, evidenced by weak financial condition and/or continued poor operating results, reduced credit ratings, and/or a bankruptcy filing. In addition to the specific allowance, we maintain a general allowance for all our accounts receivables which are not covered by a specific allowance. The general allowance is established based on such factors, among others, as: (i) the total balance of the outstanding accounts receivable, including considerations of the aging categories of those accounts receivable; (ii) past history of uncollectible accounts receivable write-offs; and (iii) the overall creditworthiness of the customer base. A considerable amount of judgment is required in assessing the realizability of accounts receivables. Should any of the factors considered in determining the adequacy of the overall allowance change, an adjustment to the provision for doubtful accounts receivable may be necessary.

Inventory. Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method. Inventories are written down if the estimated net realizable value is less than the recorded value. We review the carrying cost of our inventories by product each quarter to determine the adequacy of our reserves for obsolescence. In accounting for inventories, we must make estimates regarding the estimated net realizable value of our inventory. This estimate is based, in part, on our forecasts of future sales and age of the inventory.

Intangible Assets. We test intangible assets with indefinite lives for impairment on an annual basis or more frequently if certain events occur. If the assets are considered to be impaired, the impairment to be recognized will be measured by the amount in which the carrying amount exceeds the fair value of the assets. For our intangible assets with finite lives, including our customer lists, existing technology, and patents, we amortize the costs of the assets over their useful lives and assess impairment at least annually or whenever events and circumstances suggest the carrying value of an asset may not be recoverable. Determining the life of the assets with finite lives is judgmental in nature and involves the use of estimates and assumptions. These estimates and assumptions involve a variety of factors, including future market growth and conditions, forecasted revenues and costs and a strategic review of our business and operations. We base our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. In the event we determine that an intangible asset is impaired in the future, an adjustment to the value of the asset would be charged to earnings in the period such determination is made.

Existing Technology. Our existing technology is based on a patent issued in 1990, which continues to be the main technology of MPI. It is a substrate deposition technology that is mature and with no replacement technology forecasted.

3.	Earnings Per Share

Statement of Financial Accounting Standards No. 128, “Earnings per share” (ASC 260) requires the presentation of basic earnings per share and diluted earnings per share. Basic and diluted earnings per share computations presented by the Company conform to the standard and are based on the weighted average number of shares of Common Stock outstanding during the year.

Basic earnings per share are computed by dividing net income or loss by the weighted average number of shares outstanding for the year. “Diluted” earnings per share is computed by dividing net income or loss by the total of the weighted average number of shares outstanding, and the dilutive effect of outstanding stock options and warrants (applying the treasury stock method).

The Company had approximately 1,902,000 of granted stock options that were exercisable as of December 31, 2009 and approximately 1,763,000 of granted stock options and warrants exercisable at December 31, 2008.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:

Three months ended December 31, 2009 (unaudited)	Net Income		Shares		Per Share
Basic earnings per shares:
Net income available to common stockholders	$	423,000		10,628,000	$	0.04
Effect of dilutive securities:
Stock options				521,000
Diluted earnings per share:	$	423,000		11,149,000	$	0.04

Three months ended December 31, 2008 (unaudited)	Net Income		Shares		Per Share
Basic earnings per shares:
Net income available to common stockholders	$	125,000		10,642,000	$	0.01
Effect of dilutive securities:
Stock options & warrants				70,000
Diluted earnings per share:	$	125,000		10,712,000	$	0.01

Nine months ended December 31, 2009 (unaudited)	Net Income		Shares		Per Share
Basic earnings per shares:
Net income available to common stockholders	$	1,002,000		10,628,000	$	0.09
Effect of dilutive securities:
Stock options				110,000
Diluted earnings per share:	$	1,002,000		10,738,000	$	0.09

Nine months ended December 31, 2008 (unaudited)	Net Income		Shares		Per Share
Basic earnings per shares:
Net income available to common stockholders	$	749,000		10,549,000	$	0.07
Effect of dilutive securities:
Stock options & warrants				209,000
Diluted earnings per share:	$	749,000		10,758,000	$	0.07

4.	Accounts Receivable

Accounts receivable as of December 31, 2009 and March 31, 2009 are as follows:

	December 31, 2009 (Unaudited)			March 31, 2009

Accounts receivable	$	3,054,000		$	2,466,000
Allowance for bad debts		(100,000	)		(99,000	)
	$	2,954,000		$	2,367,000

5.	Inventories

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

	December 31, 2009 (Unaudited)			March 31, 2009

Raw material	$	2,886,000		$	2,604,000
Work-in-process		589,000			873,000
Finished goods		234,000			137,000
Allowance for slow moving inventory		(349,000	)		(324,000	)
	$	3,360,000		$	3,290,000

6.	Property & equipment

Property and equipment are depreciated and amortized on the straight-line basis over the following estimated useful lives:

Machinery and equipment	3 to 5 years
Furniture and fixtures	5 years
Leasehold improvements	Shorter of life of lease or life of improvement
Building	30 years

Depreciation expense was $478,000 and $523,000 for the nine months ended December 31, 2009 and December 31, 2008, respectively.

The Company capitalizes expenditures that materially increase asset lives and charges ordinary repairs and maintenance to operations as incurred. When assets are sold or otherwise disposed of, the cost and related depreciation or amortization is removed from the accounts and any resulting gain or loss is included in other income (expense) in the accompanying statements of operations.

Property and equipment as of December 31, 2009 and March 31, 2009 consist of the following:

	December 31, 2009 (Unaudited)			March 31, 2009
Building	$	800,000		$	800,000
Machinery and equipment		5,656,000			5,631,000
Furniture and fixtures		209,000			192,000
Leasehold improvements		696,000			690,000
Accumulated depreciation		(5,386,000	)		(5,229,000	)
	$	1,975,000		$	2,084,000

7.	Intangible Assets

The Company accounts for its intangible assets under the applicable guidelines of SFAS 142 (ASC 350) “goodwill and other intangible assets” and SFAS 144 (ASC 360) “accounting for the impairment or disposal of long lived assets”. Where intangible assets have finite lives, they are amortized over their useful life unless factors exist to indicate that the asset has been impaired. The Company evaluates if the assets are impaired annually or on an interim basis if an event occurs or circumstances change to suggest that the asset’s value has diminished. Under SFAS 144 (ASC 350), when deemed necessary, the Company completes the evaluation of the recoverability of its long-lived assets by comparing the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. If such evaluations indicate that the future undiscounted cash flows of long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their estimated fair values. Under SFAS 142 (ASC 350) intangible assets with indefinite useful lives are required to be tested annually for impairment or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. During the nine months ended December 31, 2009, the Company recognized no impairment.

At December 31, 2009, intangibles consisted of the following:

Intangibles (unaudited)	Gross Carrying Amount		Accumulated Amortization			Net

Amortized intangibles:
Patents	$	189,000	$	(132,000	)	$	57,000
Existing Technology		2,504,000		(872,000	)		1,632,000
Customer Lists		339,000		(339,000	)		—
Customer Relationship		50,000		(15,000	)		35,000
Trademarks and Brand Names		24,000		(3,000	)		21,000

Unamortized intangibles:
Trademarks		181,000		—			181,000
	$	3,287,000	$	(1,361,000	)	$	1,926,000

At March 31, 2009, intangibles consisted of the following:

Intangibles	Gross Carrying Amount		Accumulated Amortization			Net

Amortized intangibles:
Patents	$	189,000	$	(114,000	)	$	75,000
Existing Technology		2,504,000		(726,000	)		1,778,000
Customer Lists		339,000		(339,000	)		—
Customer Relationship		50,000		(9,000	)		41,000
Trademarks and Brand Names		24,000		(2,000	)		22,000

Unamortized intangibles:
Trademarks		181,000		—			181,000
	$	3,287,000	$	(1,190,000	)	$	2,097,000

Due to the acquisition of MPI in the quarter ended June 30, 2004 and the acquisition of Mica-Tech on April 11, 2007 (51%) and February 19, 2008 (100%), we recorded the intangible assets above.

For the intangible assets we acquired from the MPI acquisition, we assigned an 8-year life to Patents, a 12-year life to Existing Technology, and a 3-year life to Customer Lists. All items are subject to amortization. The value assigned to Trademarks, which have an indefinite life, should not be amortized and is subject to an annual impairment testing. Since AML acquired the stock of MPI, the amortization of separately identified intangibles is not deductible for tax purposes. FAS 109 (ASC 740) requires the Company to set up a deferred tax liability for its separately identified intangibles and book the offset to goodwill. When the Company was reviewing the purchase price allocation related to the Mica Tech acquisition during our 2008 fiscal year, it realized that it should have recorded a goodwill adjustment related to the separately identified intangibles that were established at the MPI acquisition. As a result, we recorded a proper adjustment to increase the value of subject intangible asset by $697,000 and associated amortization expense of $58,000 for the twelve months ended March 31, 2008 during our 2008 fiscal year. Furthermore, as per the comments the Company received from the Securities and Exchange Commission in March 2009, MPI recorded a one time catch-up entry of $162,000 to book amortization expense associated with the subject intangible assets for the period of June 19, 2004 through March 31, 2007. This entry was recorded in March 2009.

For the intangible assets we acquired from the Mica-Tech acquisition, we initially assigned a 12-year life to Existing Technology, a 3-year life to Customer Relationship, a 1-year life to Backlog and an indefinite life to Trademarks and Brand Names. During the quarter ended September 30, 2007, Mica-Tech’s management thoroughly reevaluated the life span of Mica-Tech’s intangible asset and assigned a new life span to these intangible assets: a 15-year life to Existing Technology, a 6-year life to Customer Relationship, and a 15-year life to Trademarks and Brand Names. All items stated are subject to amortization. Backlog was amortized on fulfillment of orders.

Upon the acquisition of Mica-Tech’s remaining interest on February 19, 2008, Mica-Tech’s intangible assets were revalued by an appraiser to find out the fair value of minority interest on the date of 100% acquisition of Mica Tech. The new fair market values of Mica-Tech’s intangible assets, after any associated tax adjustments, are reflected on the financial statement. As per the comments the Company received from the Securities and Exchange Commission in March 2009, the balance of Mica-Tech’s intangibles and associated accumulated amortizations as of March 31, 2008 was reduced by $440,000 to reflect the true acquisition cost of Mica-Tech’s assets on February 19, 2008. There is no change in the net book value of the subject intangibles.

During the preparation of a Federal Income Tax return for the year ended March 31, 2008, the Company determined that Mica Tech had more attributes to be carried over into the Company’s tax return than were estimated in the FAS 109 (ASC 740) calculation for the year ended March 31, 2008. As such, this change in estimation increased the Company’s deferred taxes for the additional attributes, such as R&D credits and NOL credits, reflected on the Company’s Federal Income Tax return filed for the year ended March 31, 2008. This tax adjustment resulted in a reduction in Mica-Tech’s intangibles by $615,000.

Amortization expense from continuing operation for the nine months ended December 31, 2009 was $171,000. We expect amortization expense for the next five years to be as follows:

Twelve month period ending December 31:
2010	$	228,000
2011	$	228,000
2012	$	214,000
2013	$	205,000
2014	$	197,000

8.	Debt and lease commitments

Line of credit

At December 31, 2009, AML had a line of credit agreement with Bridge Bank. On September 16, 2008, we signed a Business Financing Modification Agreement (the “Modification Agreement”) with Bridge Bank to renew our line of credit, with a credit facility of $1.3 million. Of this $1.3 million, $1.0 million may be used for cash advances against accounts receivables and $0.3 million may be used for equipment advances. Our ability to borrow under this agreement varies based upon eligible accounts receivable and eligible equipment purchases. We are obligated to pay the bank a finance charge at a rate per year equal to the prime rate, which in no event shall be less than 5.00%, plus 0.25% with respect to cash advances, and a rate of such prime rate plus 1.0% with respect to equipment advances. We were obligated to pay a facility fee of $2,500 upon execution of the Modification Agreement and annually thereafter. We were also obligated to pay a one-time equipment loan facility fee of $2,500 upon execution of the Modification Agreement. We must maintain certain financial requirements, including a minimum Asset Coverage Ratio of 1.50 to 1.00. We are also required to stay within 80% of our planned quarterly revenue. We were in compliance with these requirements at December 31, 2009; however, there is no assurance that we will be in compliance at future dates. This agreement to provide cash advances against accounts receivables terminates on August 15, 2010 or upon a date that the bank or AML chooses to terminate the agreement. Any unpaid balance is due and payable pursuant to the agreement on the termination date. At December 31, 2009, we had an outstanding balance of $0 under the accounts receivable agreement and $198,000 under the equipment financing agreement, which includes amounts owed under prior lines of credit with Bridge Bank. Our remaining borrowing capacity is approximately $1,000,000 under the accounts receivable agreement and $0 under the equipment financing agreement as the availability period for the equipment term loan expired on December 31, 2008.

As of December 31, 2009, Mica-Tech had a line of credit with Santa Barbara Bank and Trust and Wells Fargo Bank. At December 31, 2009, the outstanding balance was $38,000 for the Santa Barbara Bank and Trust line and $9,000 for the Wells Fargo line. Our remaining borrowing capacity was $0 under the Santa Barbara Bank and Trust line and $0 under the Wells Fargo line as of December 31, 2009.

Notes Payable

On February 3, 2006, the Company purchased the building that houses MPI located at 3350 Scott Blvd. Bldg #25, Santa Clara, California for a purchase price of $800,000. The Company made a down payment of $160,000. The building is being financed by a bank promissory note in the amount of $640,000 with 6.760% interest, payable in 83 regular payments of $4,425.88 each which includes principal and interest and one final payment of $556,594.48. The Company’s final payment is due February 10, 2013 and will be for all principal and interest not yet paid. The note payable is secured by the deed of trust on the building. As of December 31, 2009 and March 31, 2009, the outstanding note amounted to $597,000 with $13,000 in current portion and $606,000 with $13,000 in current portion, respectively.

On December 20, 2006, Mica-Tech raised $200,000 from an outside investor in the form of short term note payable. The funds were used for working capital. The promissory note bears interest at the rate of 10%. Mica-Tech is required to make equal monthly payments of $25,000, which includes a principal and an accrued interest on the remaining principal balance. Mica-Tech defaulted on its payments for the last nine months ended December 31, 2009 due to a cash deficiency. The default was waived by the lender at no cost. The total amount remaining on the note at December 31, 2009 was $41,000. Mica-Tech defaulted on the January 2010 payment as well and the note is currently due on demand.

Mica-Tech was advanced working capital from its former president and a major shareholder, Steven Ow, over a period of time which totaled $685,000 as of April 10, 2007. On April 10, 2007, Mica-Tech converted these advancements in the form of a single note for the amount of $685,000, with an annual interest rate of 10%. Of the $685,000, $200,000 was converted into 200,000 shares of Mica-Tech’s common stock at the closing of the acquisition on April 11, 2007. In connection with the merger on February 19, 2008, Mica-Tech and Steven Ow entered into an amended and restated promissory note in the principal amount of $522,000. The interest rate on the note was reduced to 8% per annum and the maturity date was extended until April 4, 2010. On May 19, 2008, Mica-Tech and Steven Ow entered into an agreement that settles the promissory note in the amount of $531,000, including $9,000 in accrued interest, and deferred compensation of $128,000. The consideration for this settlement was $150,000 in cash, which would be paid by three equal payments of $40,000 and one last payment of $30,000. As part of settlement, the Company recorded gain on settlement of debt amounting to $521,000 during the period ended June 30, 2008. As of December 31, 2009, Mica-Tech paid $130,000 toward the settlement amount and the remaining amount due to Steven Ow was $20,000 which was part of the last payment. The amount was included under accounts payable as Mr. Ow was not associated with the Company at December 31, 2009.

Operating Lease Obligations

The lease for AML’s office space and manufacturing facility expired in April 2008, and we entered into a new lease, which will expire in April 2015. Until they moved into the AML facility in May 2008, Mica-Tech was leasing its office space and manufacturing facility under an operating lease expired in October 2008. Total rent expense under these operating leases was approximately $155,000 and $184,000 during the nine months ended December 31, 2009 and 2008, respectively.

Total minimum lease payments under the above leases are as follows:

	Operating Leases
Twelve month period ending December 31,
2010	$	210,000
2011		214,000
2012		218,000
2013		223,000
2014		227,000
Thereafter		76,000
	$	1,168,000

Capital Lease Obligations

In June 2009, the Company had entered into a non-cancelable capital lease agreement to acquire test equipment valued in the aggregate at approximately $245,000. The lease began in June 2009 and requires thirty-six equal monthly payments of $6,445, plus applicable sales tax.

Future minimum lease payments under the lease for the period
ended December 31, 2009	$	207,000
Less: approximate amount representing interest		(22,000	)
Present value of minimum lease payments		185,000
Less: current portion		(64,000	)
Non current portion	$	121,000

9.	Equity Transactions

Stock Options

The Company adopted SFAS No. 123 (Revised 2004), Share Based Payment (“SFAS No. 123R”) (ASC 718), under the modified-prospective transition method on April 1, 2006. SFAS No. 123R requires companies to measure and recognize the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value. Share-based compensation recognized under the modified-prospective transition method of SFAS No. 123R includes share-based compensation based on the grant-date fair value determined in accordance with the original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for all share-based payments granted prior to and not yet vested as of April 1, 2006 and share-based compensation based on the grant-date fair-value determined in accordance with SFAS No. 123R for all share-based payments granted after April 1, 2006. SFAS No. 123R eliminates the ability to account for the award of these instruments under the intrinsic value method proscribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and allowed under the original provisions of SFAS No. 123. Prior to the adoption of SFAS No. 123R, the Company accounted for our stock option plans using the intrinsic value method in accordance with the provisions of APB Opinion No. 25 and related interpretations.

Primarily as a result of adopting SFAS No. 123R, the Company recognized $117,000 or $0.01 per basic and diluted earnings per share in share-based compensation expense for the nine months ended December 31, 2009 and $97,000 or $0.01 per basic and diluted earnings per share in share-based compensation expense for the nine months ended December 31, 2008. The fair value of our stock options was estimated using the Black-Scholes option pricing model.

In 1995, the board of directors approved the creation of the 1995 Stock Option Plan. In November 2005, the board established the 2005 Equity Incentive Plan ("2005 Plan"). The number of shares reserved and available for grant and issuance shall be increased on the first day of January of each year so that the total of all Common Stock available for Awards shall be the maximum amount allowable under Regulation 260.140.45 of Title 10 of the California Code of Regulations. The total of all Common Stock available for grant and issuance under the 2005 Plan was 2,087,900 shares as of December 31, 2009. The number of shares initially approved for issuance under the 2005 Plan was 150,000 shares of our common stock. The Company filed a registration statement on Form S-8 with the SEC to register the unregistered shares under the Plan or 2,927,000 shares on May 20, 2008. Incentive stock option awards may be granted under the 2005 Plan only to employees (including officers and directors who are also employees) of the Company or of a parent or subsidiary of the Company. All other awards (including nonqualified stock options, restricted stock or stock awards) under the 2005 Plan may be granted to employees, officers, directors, consultants, independent contractors and advisors of the Company or any parent or subsidiary of the Company, provided such consultants, contractors and advisors render bona fide services not in connection with the offer and sale of securities in a capital-raising transaction.

Pursuant to the 2005 Plan, during the nine months ended December 31, 2009, the Company granted 168,500 stock options to the Company’s employees and two external directors of AML, as follows:

On September 10, 2009, the Company granted a total of 168,500 stock options to nineteen employees and two external directors as follows: 85,000 stock options to three AML’s officers as employee compensation, 53,500 stock options to sixteen employees as employee compensation and 30,000 non qualified stock options to two external directors.

Of the first 85,000 stock options granted, 35,000 stock options have a term of five (5) years and 50,000 stock options have a term of ten (10) years, measured from the grant date and shall accordingly expire at the close of business on the expiration date, unless sooner terminated in accordance with the 2005 Plan. All of the 85,000 stock options are vested at the rate of thirty three (33) percent per year over a three year period.

The second 53,500 stock options have a term of ten (10) years measured from the grant date and shall accordingly expire at the close of business on the expiration date, unless sooner terminated in accordance with the 2005 Plan. These options are vested at the rate of twenty (20) percent per year over a five year period.

The last 30,000 non qualified stock options granted have a term of ten (10) years measured from the grant date and shall accordingly expire at the close of business on the expiration date, unless sooner terminated in accordance with the 2005 Plan. The options are vested at the rate of twenty-five (25) percent per year over a four year period.

The option exercise price is $0.90 for all of the 168,500 stock options granted on September 10, 2009, which was the fair market value of our common stock at the time these options were granted.

The following is a summary of the stock option activity:

	Options outstanding		Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding, March 31, 2009		2,924,450	$	1.07
Granted		168,500		0.90
Forfeited		531,500		0.95
Exercised		21,250		0.56
Outstanding, December 31, 2009		2,540,200	$	0.97	$	1,199,000

The following is a summary of the status of options outstanding at December 31, 2009:

Range of Exercise Prices	Total Options Outstanding		Weighted Average Remaining Life (Years)		Total Weighted Average Exercise Price		Options Exercisable		Weighted Average Exercise Price

$0.11 - $0.50		74,950		4.41	$	0.15		74,950	$	0.15
$0.51 - $1.00		1,781,750		5.73	$	0.91		1,420,000	$	0.92
$1.01 - $2.00		667,500		6.90	$	1.16		391,416	$	1.19
$2.01 - $5.00		16,000		0.44	$	3.13		16,000	$	3.13
$0.11 - $5.00		2,540,200		6.03	$	0.97		1,902,366	$	0.96

For options granted during the nine months ended December 31, 2009, the weighted-average fair value of such options was $0.56.

The assumptions used in calculating the fair value of options granted using the Black-Scholes option- pricing model are as follows:

Stock Options Granted on September 10, 2009:

35,000 stock options with a term of 5 years and three year vesting periods:

Risk-free interest rate	2.28%
Expected life of the options	3.50 years
Expected volatility	73.41%
Expected dividend yield	0

50,000 stock options with a term of 10 years and three year vesting periods:

Risk-free interest rate	3.35%
Expected life of the options	6.00 years
Expected volatility	63.49%
Expected dividend yield	0

53,500 stock options with a term of 10 years and five year vesting periods:

Risk-free interest rate	3.35%
Expected life of the options	6.50 years
Expected volatility	72.59%
Expected dividend yield	0

30,000 stock options with a term of 10 years and four year vesting periods:

Risk-free interest rate	3.35%
Expected life of the options	6.25 years
Expected volatility	72.74%
Expected dividend yield	0

Details of the Company's non-vested options are as follows:

	Non-Vested Options			Weighted Average Exercise Price		Weighted Average Vesting Period	Grant Date Fair Value
Non-vested - March 31, 2009		1,143,019			1.20	1.84 Years
Granted		168,500			0.90
Forfeited		(460,500	)		1.49
Vested		(213,185	)		0.98
Exercised		-			-
Non-vested – December 31, 2009		637,834			0.99	1.82 Years

The total compensation cost relating to non-vested stock options that is not yet recognized is $304,000, which is expected to be recognized over a period of 2.29 years.

Warrants

No warrants were outstanding as of December 31, 2009.

10.

Segments

The Company has two reportable segments consisting of (1) AML and (2) Mica-Tech. Our AML segment includes the Camarillo operations which manufactures and sells low noise and high power amplifiers with frequencies that range from 10MHz to 40GHz and the Santa Clara operations which manufactures and sells solid state microwave amplifiers operating in the frequency range from 1 to 40 GHz with output power from 0.5W to 300W. Our Mica-Tech segment designs, manufactures and markets an intelligent satellite communication system that provides a highly reliable and secure communications link between remote sites and control centers, utilizing Supervisory Control And Data Acquisition (SCADA) technology. The Company evaluates performance based on sales, gross profit margins, and operating profit before income taxes.

The following is information for the Company’s two reportable segments for the nine month periods ended December 31, 2009 and December 31, 2008.

	Nine Month Periods Ended
(In thousands)	December 31, 2009 (Unaudited)			December 31, 2008 (Unaudited)
Revenue from unrelated entities
AML	$	11,699		$	9,558
Mica-tech		374			471
	$	12,073		$	10,029

Income (loss) from operations
AML	$	1,690		$	952
Mica-tech		19			(199	)
	$	1,709		$	753

Income tax benefit (expense)
AML	$	(662	)	$	(355	)
Mica-tech		(5	)		(136	)
	$	(667	)	$	(491	)

Net income
AML	$	995		$	532
Mica-tech		7			217
	$	1,002		$	749

Provision for depreciation and amortization
AML	$	583		$	623
Mica-tech		66			104
	$	649		$	727

Capital expenditures
AML	$	130		$	80
Mica-tech		-			-
	$	130		$	80

	December 31, 2009 (Unaudited)			March 31, 2009
Total Assets
AML	$	16,438		$	9,979
Mica-tech		1,154			1,423
	$	17,592		$	16,431

11.	Major customers and vendors

Three customers provided an aggregate 33.1% and 37.7% of the Company’s total net revenue for the nine months ended December 31, 2009 and 2008, respectively. Total accounts receivable due from these customers was approximately $1.3 million as of December 31, 2009.

The Company extends credit to its customers based upon its assessment of their credit worthiness and generally does not require collateral. Credit losses have not been significant.

Three vendors accounted for an aggregate 23.2% and 32.6% of the Company’s total net purchases for the nine months ended December 31, 2009 and 2008, respectively. Total accounts payable due to these vendors was $79,000 as of December 31, 2009.

12.	Repurchase of the Company Shares

On May 13, 2009, the Company announced that its Board of Directors authorized the repurchase of up to one million shares of the Company’s common stock. Purchases are being made in the open market as determined by AML management and in accordance with Securities and Exchange Commission requirements. As of the close of business on December 31, 2009, the Company repurchased 38,600 shares of common stock at the weighted average price of $0.71 per share.

13.	Reclassifications

Certain comparative amounts have been reclassified to conform to the current period’s presentation.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Some of the statements made by us in this Quarterly Report on Form 10-Q are forward-looking in nature, including but not limited to, statements relating to our future revenue, product development, demand, acceptance and market share, gross margins, levels of research and development, our management's plans and objectives for our current and future operations, and other statements that are not historical facts. Forward-looking statements include, but are not limited to, statements that are not historical facts, and statements including forms of the words "intend," "believe," "will," "may," "could," "expect," "anticipate," "plan," "possible," and similar terms. Actual results could differ materially from the results implied by the forward-looking statements due to a variety of factors, many of which are discussed throughout this Quarterly Report and particularly in the section titled “Additional Factors That May Affect Future Results” which is included in this section. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release any revisions to these forward-looking statements that may reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us include, but are not limited to:

· our ability to finance our activities and maintain our financial liquidity;

· our ability to attract and retain qualified, knowledgeable employees;

· the impact of general economic conditions on our business;

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

· the limited number of potential customers for our products;

· the variability in gross margins on our products;

· our ability to design and market new products successfully;

· our failure to acquire new customers in the future;

· deterioration of business and economic conditions in our markets;

· intensely competitive industry conditions with increasing price competition; and

· the rate of growth in the defense markets.

In this document, the words "we," "our," "ours," and "us" refer to AML Communications, Inc. and our wholly owned subsidiary, Mica-Tech, Inc.

Overview

Our business is comprised of two reportable segments, AML Communications, Inc. (“AML”) and Mica-Tech, Inc (“Mica-Tech”). AML designs, manufactures, and markets specialized RF and microwave amplifiers and subsystems serving, primarily, the Defense Electronic Warfare Market. AML represented 95.6% of our 2009 net revenue. Mica-Tech designs, manufactures, and markets an intelligent communication system to provide Supervisory Control and Data Acquisition (SCADA) of the electric power grid. Mica-Tech represented 4.4% of our 2009 net revenue.

AML segment includes our Camarillo operation which produces low noise amplifiers and integrated sub assemblies with frequencies that range from 10 MHz to 40 GHz and our Santa Clara operation which produces microwave high power amplifiers with frequencies that range from 1 to 40 GHz with output power from 0.5W to 300 W. In February 2001, we made a strategic decision to focus our resources on the defense markets. As such, we moved rapidly to utilize our knowledge base in defense microwave related design and manufacturing to offer new products, as well as variations of existing products. The results of this strategy have been an increase in revenues for defense related products, from $3.7 million in fiscal 2003 to $12.7 million in fiscal 2009.

We consider the AML segment to be our core business since it has a larger revenue base, and investments have been made in this segment that address long term growth. We devote most of our management time and other resources to improving the prospects for this segment. Most of our sales and marketing expenses are from the AML segment. The majority of our research and development spending is dedicated to this segment as well.

Our Mica-Tech segment designs and manufactures the UltraSatNet, an Intelligent Satellite Utility Communication Solution for the monitoring and control of power grid distribution. The operating software and hardware are designed in-house with support from outside consultants. Since completion of the acquisition of the remaining interest in Mica-Tech in February 2008, steps are being taken to bolster Mica-Tech’s financial structure while the company pursues the utility SCADA market.

Results of Operations

Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008

Net sales. Net sales for the three months ended December 31, 2009 were approximately $4.3 million, compared to approximately $3.3 million for the three months ended December 31, 2008, representing an increase of $1.0 million. Our revenue growth was mainly driven by $1.0 million of products delivered to the Unmanned Aerial Vehicles (UAV) market during this period and $560,000 of products delivered for the $1.5 million order we have previously received from an Italy company. Growth took place in both short and long term programs as well as through the addition of new customers. The Company has invested significant resources in diversifying the composition of orders by developing products that target large, multi-year programs. Large program orders we have previously announced have reached manufacturing maturity and are positively impacting our revenues. Mica-Tech’s revenues decreased by $37,000 as a result of a reduction in hardware sales. Sales of the UltraSatNet, Mica-Tech’s satellite based control and communication system that addresses efficient utilization of the electric power grid, currently has encountered slow penetration in the traditional utilities market, primarily due to the conservative nature of utilities

Gross profit. Gross profit for the three months ended December 31, 2009 was approximately $2.1 million, or 49.4% of net sales, compared to a gross profit for the three months ended December 31, 2008, of approximately $1.4 million, or 41.5% of net sales. Gross profit, as a percentage of net sales, increased by $724,000 or 52.3% between the two periods mainly due to benefits of investments made in manufacturing process automation and consequently a reduction of direct labor costs.

Selling, general, and administrative costs. Selling, general and administrative costs for the three months ended December 31, 2009 were $867,000, or 20.3% of net sales, compared to $679,000, or 20.4%of net sales, for the three months ended December 31, 2008, representing an increase of $188,000. Selling, general and administrative costs for AML increased by $224,000, compared to the same period of the prior year, due to increased spending in commission expenses, investor relations, and payroll related expenses. Mica-Tech’s administrative cost has been reduced by $36,000 mainly due to a reduction in payroll related expenses and building lease expenses as a result of cost management and reduced headcounts at Mica-Tech. To reduce operating costs, we relocated the Mica-Tech operation to the AML facility in May 2008.

Research and development costs. Research and development costs for the three months ended December 31, 2009 were $515,000, or 12.1% of net sales, compared to $484,000, or 14.5% of net sales, for the three months ended December 31, 2008, representing an increase of $31,000. AML’s R&D expenses increased by $31,000 as a result of increased payroll related expenses due to additional headcount and other benefits. We are committed to continue our investment in R&D projects to address customer needs for short and long term program orders.

Other net income. We recorded a net other expense of $20,000 and $21,000 for the three month periods ended December 31, 2009 and December 31, 2008, respectively, due to interest expense associated with notes payable and lines of credit.

Income before income tax. Income before income tax was $705,000 for the three months ended December 31, 2009, compared to income before income tax of $199,000 for the three months ended December 31, 2008. The significant increase in income before income tax, as compared to the same period of prior year, is mainly due to increased revenues and increased gross margins due to investments in automation.

Income before income tax in the AML segment was $704,000 for the three months ended December 31, 2009, compared to $262,000 for the three months ended December 31, 2008. This increase is mainly attributable to increased revenues and increased gross margins.

Income before income tax in the Mica-Tech segment was $1,000 for the three months ended December 31, 2009, compared to loss before income tax of $63,000 for the three months ended December 31, 2008. Mica-Tech’s income before income tax was improved, as compared to the same period of prior year, mainly due to reduction in selling and administrative expenses.

Provision for income taxes. During the three months ended December 31, 2009, the company utilized its deferred tax assets reserve to record income tax expenses of $282,000. The company has no tax liability as of December 31, 2009 due to the deferred tax benefits accounted for in the prior years. The company utilized its deferred tax assets reserve to record income tax expenses of $74,000 during the three months ended December 31, 2008.

Net income. Net income was $423,000 or $0.04 per share for the three months ended December 31, 2009, compared to net income of $125,000, or $0.01 per share for the three months ended December 31, 2008.

Net income from the AML segment was $422,000 for the three months ended December 31, 2009 and $163,000 for the three months ended December 31, 2008.

Net income from the Mica-Tech segment was $1,000 for the three months ended December 31, 2009, compared to net loss of $38,000 for the three months ended December 31, 2008.

Nine Months Ended December 31, 2009 Compared to Nine Months Ended December 31, 2008

Net sales. Net sales for the nine months ended December 31, 2009 were approximately $12.1 million, as compared to net sales of $10.0 million for the nine months ended December 31, 2008, an increase of $2.0 million or 20.4%. AML’s revenues increased by $2.1 million or 22.4% mainly due to products delivered to the Unmanned Aerial Vehicles (UAV) market during this period and a commencement of high level production for the $1.5 million order they have previously received from an Italy company. Growth took place in both short and long term programs as well as through the addition of new customers. The Company has invested significant resources in diversifying the composition of orders by developing products that target large, multi-year programs. Large program orders we have previously announced have reached manufacturing maturity and are positively impacting our revenues. Mica-Tech’s revenues decreased by $97,000 or 20.7% as a result of a reduction in hardware sales. Sales of the UltraSatNet, Mica-Tech’s satellite based control and communication system that addresses efficient utilization of the electric power grid, currently has encountered slow penetration in the traditional utilities market, primarily due to the conservative nature of utilities, and Mica-Tech received less orders for hardware sales from current and new customer compared to the same period last year.

Gross profit. Gross profit for the nine months ended December 31, 2009 was approximately $5.7 million, or 47.5% of net sales, as compared to a gross profit of $4.4 million, or 43.5% of net sales for the nine months ended December 31, 2008. Utilization of automated equipment, coupled with the reduction in manual operations, has enhanced our ability to increase shipments with reduced costs and improved manufacturing efficiencies.

Selling, general and administrative costs. Selling, general, and administrative costs were $2.4 million, or 20.0% of net sales, for the nine months ended December 31, 2009, as compared to $2.1 million, or 21.4% of net sales, for the nine months ended December 31, 2008. Selling, general and administrative costs for AML increased by $448,000, compared to the same period of the prior year, mainly due to increased spending in investor relations, salary and related benefits and commission expenses. Mica-Tech’s administrative cost has been reduced by $178,000, as compared to the same period of the last year, due to decrease in payroll related expenses, amortization expense on its intangible assets, and other operating expenses. To reduce operating costs, we have relocated the Mica-Tech operation to the AML facility in May 2008.

Research and development costs. Research and development costs were $1.6 million or 13.4% of net sales, for the nine months ended December 31, 2009, as compared to $1.5 million or 14.6% of net sales, for the nine months ended December 31, 2008. AML’s R&D expenses increased by $174,000 due to increased payroll related expenses and R&D supplies. Mica-Tech’s R&D expenses are reduced by $22,000, mainly due to a reduction in payroll related expenses and outside consulting expenses.

Other net income. We recorded a net other expense of $40,000 for the nine months ended December 31, 2009 and a net other income of $487,000 for the nine months ended December 31, 2008. During the nine months ended December 31, 2009, we incurred $60,000 in interest expenses that were associated with notes payable and lines of credit and realized a gain on sale of fixed assets of $20,000. During the nine months ended December 31, 2008, Mica-Tech realized a gain of $521,000 from the settlement of a promissory note and a gain of $45,000 from the settlement of royalties due to Southern California Edison. These are considered a one-time event.

Income before income tax. Income before income tax was $1.7 million for the nine months ended December 31, 2009, compared to income before income tax of $1.2 million for the nine months ended December 31, 2008. The increase in income before income tax, as compared to the same period of prior year, is mainly due to increased revenues and increased gross margins due to investments in automation.

Income before income tax in the AML segment was $1.7 million for the nine months ended December 31, 2009, compared to $886,000 for the nine months ended December 31, 2008. This increase is mainly attributable to increased revenues.

Income before income tax in the Mica-Tech segment was $12,000 for the nine months ended December 31, 2009, compared to income before income tax of $353,000 for the nine months ended December 31, 2008. The significant reduction in income before income tax, as compared to the same period of prior year, is mainly due to the gains of $566,000 recognized during the nine months ended December 31, 2008.

Provision for income taxes. During the nine months ended December 31, 2009, the company utilized its deferred tax assets reserve to record income tax expenses of $667,000. The company has no tax liability at the end of the period due to the deferred tax benefits accounted for in the prior years. The company utilized its deferred tax assets reserve to record income tax expenses of $491,000 for the nine months ended December 31, 2008.

Net income. Net income was $1.0 million or $0.09 per share, for the nine months ended December 31, 2009, compared to net income of $749,000 or $0.07 per share, for the nine months ended December 31, 2008.

Net income from the AML segment was $995,000 for the nine months ended December 31, 2009 and $532,000 for the nine months ended December 31, 2008.

Net income from the Mica-Tech segment was $7,000 for the nine months ended December 31, 2009 and $217,000 for the nine months ended December 31, 2008.

In 2010, we expect total operating expenses to increase as we continue to invest in infrastructure and new product development. We expect operating expenses generally will increase more slowly than increases in revenue.

Liquidity and Capital Resources

Historically, we have financed our operations primarily from internally generated funds and, to a lesser extent, loans from stockholders, and capital lease obligations.

At December 31, 2009, we had $2.9 million in cash and cash equivalents. For the nine months ended December 31, 2009, our operating activities provided cash of approximately $1.8 million as compared to $480,000 cash provided by our operating activities for the nine months ended December 31, 2008. Net cash used in investing activities, primarily for the acquisition of production equipment, amounted to $130,000 for the nine months ended December 31, 2009 and $80,000 for the nine months ended December 31, 2008. Net cash used in financing activities was $307,000 for the nine months ended December 31, 2009 and $239,000 for the nine months ended December 31, 2008 due to paying off $292,000 toward outstanding notes payable, capital lease obligation, and existing line of credit and paying $27,000 to repurchase 38,600 shares of common stock at the weighted average price of $0.71 per share during the nine months ended December 31, 2009.

We anticipate capital expenditures of approximately $500,000 in fiscal year 2010. We believe that funds for these expenditures will be provided by our operating activities. However, we may choose to finance some of these expenditures through our financing agreement with Bridge Bank. At December 31, 2009, our remaining borrowing capacity under this agreement was $1,000,000.

We may attempt to procure additional sources of financing in the event that the capital available as of December 31, 2009 is insufficient for our operating needs and capital expenditures. These sources may include, but are not limited to, additional sales of our securities. There are, however, no assurances that we will be able to successfully obtain additional financing at terms acceptable to us. Failure to obtain such financing could have a material adverse effect on our ability to operate as a going concern.

Successful completion of our development program and attaining profitable operations are dependent upon our maintaining a level of sales adequate to support our cost structure. In addition, realization of a major portion of the assets in the accompanying balance sheet is dependent upon our ability to meet our financing requirements and the success of our plans to sell our products. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should we be unable to continue in existence.

Critical Accounting Policies

Persuasive evidence of an arrangement exists;

Delivery has occurred or services have been rendered;

Price is fixed or determinable; and

Collectibility is reasonably assured.

Additional Factors That May Affect Future Results

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

•

industry-specific factors (including the reliance upon growth of the defense microwave market, significant competition characterized by rapid technological change, new product development, product obsolescence, and significant price erosion over the life of a product);

•

our ability to timely develop and produce commercially viable products at competitive prices;

•

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

•

our ability to accurately anticipate customer demand;

•

our ability to manage expense levels, in light of varying revenue streams;

•

the availability and cost of components;

•

the impact of worldwide economic and political conditions on our business; and

•

the ability to integrate potential future acquisitions into our existing operations.

We believe that, to the extent that foreign sales are recognized, we may face increased risks associated with political and economic instability, compliance with foreign regulatory rules governing export requirements, tariffs and other trade barriers, differences in intellectual property protections, longer accounts receivable cycles, currency fluctuations and general trade restrictions. If any of these risks materialize, they could have a material adverse effect on our business, results of operations, and financial condition.

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

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

We experience significant price competition and expect price competition in the sale of our products to remain intense. We cannot assure you that our competitors will not develop new technologies or enhancements to existing products or introduce new products that will offer superior price or performance features. We expect our competitors will offer new and existing products at prices necessary to gain or retain market share. Several of our competitors have substantial financial resources, which may enable them to withstand sustained price competition 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 and technologies.

The markets in which we compete are characterized by rapidly changing technology and continuous improvements in products and services. Our future success depends on our ability to enhance our current products and to develop and introduce, in a timely manner, new products that keep pace with technological developments that meet or exceed industry standards, which compete effectively on the basis of price, performance and quality, that adequately address OEM customer and end-user customer requirements, and that achieve market acceptance. We believe that to remain competitive in the future we will need to continue to develop new products, which will require the investment of significant financial resources in new product development. In the event our newly developed products are not timely developed or do not gain market acceptance, our business, results of operations and financial condition could be materially adversely affected.

Our quarterly and annual results have in the past been, and will continue to be, subject to significant fluctuations due to a number of factors, any of which could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that we will not experience such fluctuations in the future. We establish our expenditure levels for product development and other operating expenses based on expected revenues, and expenses are relatively fixed in the short term. As a result, variations in timing of revenues can cause significant variations in quarterly results of operations. There can be no assurances that we will be profitable on a quarter-to-quarter basis in the future. We believe that period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. Due to these factors, it is likely that in some future quarter or quarters our revenues or operating results will not meet the expectations of public stock market analysts or investors. In such event, the market price of our common stock would be materially adversely affected.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (Principal Executive Officer) and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Report (December 31, 2009). Based on such evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

There have been no material developments during the quarter ended December 31, 2009 in any material pending legal proceedings to which the Company is a party or of which any of our property is the subject.

Item 1A.

Risk Factors

Not Applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6.

Exhibits

The exhibits listed in the Exhibit Index are filed as part of this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AML Communications Inc.

	/s/: Jacob Inbar
	By: Jacob Inbar, President and Chief Executive Officer (Principal Executive Officer)	Dated: February 11, 2010



	/s/: Heera Lee
	By: Heera Lee, Principal Financial Officer	Dated: February 11, 2010

EXHIBIT INDEX

Exhibit Number		Description
2.1		Merger Agreement entered into as of May 25, 2004 by and among AML Communications Inc., a Delaware corporation, AML Holdings, LLC, a California limited liability company and Microwave Power, Inc., a California corporation(1)
3.1		Certificate of Incorporation(2)
3.2		Bylaws(2)
10.1		Form of Indemnity Agreement(2)
10.2		Lease, dated March 11, 1996, between the Company and Parr-Bohn Properties, Ltd. II, a California Limited Partnership(3)
10.3		Fourth Amended and Restated 1995 Stock Option Agreement at June 10, 2002(4)
10.4		Parr-Bohn Properties First Amendment to lease of 1000 Avenida Acaso, Camarillo, CA.(4)
10.5		Employment Agreement with Dr. Marina Bujatti, of MPI, dated June 18, 2004(4)
10.6		Employment Agreement with Dr. Franco Sechi, of MPI, dated June 18, 2004(4)
10.7		Interim Lease and Proposed Lease Terms(5)
10.8		Financing Agreement dated July 8, 2004 with Bridge Bank(6)
10.9		Enterprise Agreement Number 4627 dated August 26, 2004(7)
10.10		Business Financing Modification with Bridge Bank, dated December 23, 2005(8)
10.11		Business Financing Modification with Bridge Bank dated January 19,2006(8)
10.12		Fifth Amended and Restated 1995 Stock Option Agreement at July 12, 2005(9)
10.13		Loan Agreement with Bank of America for purchase of MPI building(8)
10.14		2005 Equity Incentive Plan(10)
10.15		Business Financing Agreement with Bridge Bank dated July 17, 2006(11)
10.16		Stock Purchase Agreement with Mica-Tech, dated April 11, 2007(12)
10.17		Option Agreement with shareholders and optionholders of Mica-Tech, dated April 11, 2007(12)
10.18		Agreement and Plan of Merger by and among AML Communications, Inc., Mica-Tech, Inc., Mica-Tech Acquisition, Inc. and the shareholders of Mica-Tech, Inc. dated as of February 19, 2008(13)
10.19		Option Agreement—Steven Ow, dated February 19, 2008(13)
10.20		Parr-Bohn Properties Second Amendment to lease of 1000 Avenida Acaso, Camarillo, CA, dated February 20, 2008(14)
10.21		Business Financing Modification with Bridge Bank, dated April 5, 2007(14)
10.22		Business Financing Modification with Bridge Bank, dated September 16, 2008(15)
31.1		Certification by the Chief Executive Officer(16)
31.2		Certification by the Principal Financial Officer(16)
32.1		Certification pursuant to Section 906 of the Sarbanes Oxley Act(16)
32.2		Certification pursuant to Section 906 of the Sarbanes Oxley Act(16)

(1)	Previously filed with the Securities and Exchange Commission as Exhibit 10.13 to the Company’s Form 10-KSB for the fiscal year ended March 31, 2004.

(2)	Previously filed with the Securities and Exchange Commission as an exhibit to the Registration Statement on Form SB-2 (No. 33-99102-LA) and incorporated herein by reference.

(3)	Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Form 10-KSB for fiscal year ended March 31, 1996 and incorporated herein by reference

(4)	Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Form 10-KSB for the fiscal year ended March 31, 2004 and incorporated herein by reference.

(5)	Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Form 8-K dated July 6, 2004 and incorporated herein by reference.

(6)	Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Form 10-QSB for the quarter ended June 30, 2004 and incorporated herein by reference.

(7)	Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Form 8-K/A dated May 4, 2007 (unredacted version) and incorporated herein by reference.

(8)	Previously filed with Securities and Exchange Commission as an exhibit to the Company’s Form 10-QSB for the quarter ended December 31, 2005 and incorporated herein by reference.

(9)	Previously filed with the Securities and Exchange Commission as an attachment to the Company’s Proxy Statement dated July 29, 2005.

(10)	Previously filed with Securities and Exchange Commission as an exhibit to the Company’s Form S-8 Registration Statement (no. 333-131588) dated February 6, 2006 and incorporated herein by reference.

(11)	Previously filed with Securities and Exchange Commission as an exhibit to the Company’s Form 10-QSB for the quarter ended June 30, 2006 and incorporated herein by reference.

(12)	Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Form 8-K dated April 20, 2007 and incorporated herein by reference.

(13)	Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Form 8-K dated March 3, 2008 and incorporated herein by reference.

(14)	Previously filed with the Securities and Exchange Commission as an exhibit to the Company’s Form 10-KSB for the fiscal year ended March 31, 2008 and incorporated herein by reference.

(15)	Previously filed with Securities and Exchange Commission as an exhibit to the Company’s Form 10-Q for the quarter ended September 30, 2008 and incorporated herein by reference.

(16)	Filed herewith

Attached files

AML COMMUNICATIONS INC Reports

Also read