For AML, best offense is focus on defense industry. (Corporate Focus).

ONE year after reengineering its business to focus on the defense industry, AML Communications Inc. of Camarillo has yet to turn a profit.

Although the company's year-to-year comparisons show improvement, AML's losses continued in the most recent quarter.

AML, which makes amplifiers for use in communications systems and products, has found that the cost of shifting its marketing strategy has been too high, and revenues from its new business segments too low to return the company to profitability, at least so far.

"We had to do a lot of retraining and spend a lot on research and development, which we believe will pay off," said Jacob Inbar, the company's CEO.

For the most recent quarter ending Dec. 31, AML reported a loss of $200,000 or $0.03 per share on revenues of $1.3 million. That compares with a loss of $249,000 or $0.03 per share on sales of $973,000 in same quarter a year earlier.

Inbar said much of the most recent loss can be traced to the continuing drop in business in wireless products while it expands into the military market. Since the company began targeting defense related uses and companies, the percentage of business done in that sector has been steadily increasing but not enough to offset lost revenue in the wireless market, he added.

As of the company's third quarter, defense-related products accounted for about 90 percent of the company's sales, up from 38 percent for the same period last year.

As the wireless sector continues to shrink, officials at the company expect defense sales to continue to grow.

"For fiscal 2003, we hope to continue to capitalize on our growth in the defense market," Inbar said.

AML, founded in 1986, built its business marketing its products to manufacturers of telecommunications equipment for business and general consumer market use, but as those areas of telecommunications dried up, so too did AML's customer base.

AT&T Wireless and Transcent Inc., at one time AML's biggest customers accounting for 45 percent of the company's total business, cut their orders by half in fall 2001. That was even before the Sept. 11 terrorist attacks heralded a near-halt to all business for the company.

In 2001, the company's losses exceeded $7 million.

"For us in wireless, the market basically left," Inbar said. "We completed the infrastructure of the country and world and, once you set up the roads and the telephone poles, you're done. There's nothing more you can do except maintenance."

AML wasn't alone in its decision to switch its marketing to the defense industry.

Sensor Systems Inc. of Chatsworth has modified its antenna systems into guidance systems for bombs, sparking a 25-percent increase in its military business so far this year.

Sabeus Photonics Inc., a fiber optics maker in Chatsworth, has reworked its technology for domestic defense purposes. It recently signed a deal with the U.S. Defense Department to do underwater surveillance in many of the nation's ports.

Jon Kutler, an analyst with Quarterdeck Investment Partners in Los Angeles, who covers the defense industry, said few Los Angeles firms have managed to see much benefit in turning to the defense market.

"It's very competitive out there, so it's never going to be easy for a struggling firm to get into that segment," he said.

The cost of redesigning equipment for military specifications and of reengineering the manufacturing process is enough to keep many out of the market, Kutler added.

Nor has Wall Street been impressed by the changes.

AML stock, traded over-the-counter, is stalled at around $0.12 per share. Its 52-week high was a mere $0.90 per share. On 'Friday, January, 31, AML was trading at $0.13.

Inbar says the financial losses are to be expected until AML fully ramps up its defense-related business.

The company is focused on building amplifiers that enhance volume on satellite communications systems, he added.

With more orders expected to come in the current quarter, Inbar said, the company's momentum continues to build toward profitability sometime in 2003.

[GRAPH OMITTED]

[GRAPH OMITTED]

AML Communications Inc.

YEAR (March 31)                   2002     2001

Revenue (millions)                $5.9     $5.1
Cost at Sales (millions)           3.4      5.6
Operating Expenses (millions)      3.3      6.2
Operating Income (millions)      (0.8)    (6.7)
Net Income (millions)            (0.7)    (7.1)
Earnings Per Share             ($0.09)  ($1.02)

SUMMARY

Business: Communications equipment mfg.

Headquarters: Camarillo

CEO: Jacob Inbar

Market Cap: $939480

Dividend Yield: NIA *

Total Liabilities: $1.8 million

P/E: N/A Long-Term Debt: $416000

* AML does not pay dividends.