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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Commission file no. 1-11056
ADVANCED PHOTONIX, INC.
Incorporated pursuant to the Laws of Delaware
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I.R.S. Employer identification No. 33-0325826
1240 Avenida Acaso, Camarillo, CA 93012
(805) 987-0146
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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 X No
On November 14, 1996, 10,678,064 shares of Class A Common Stock, $.001 par
value, and 145,002 shares of Class B Common Stock, $.001 par value, were
outstanding.
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ADVANCED PHOTONIX, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3 - 6
Consolidated Statements of Operations
for the three and six month periods ended
September 29, 1996 and October 1, 1995 3
Consolidated Balance Sheets
at September 29, 1996 and March 31, 1996 4 - 5
Consolidated Statements of Cash Flows
for the six month periods ended September 29, 1996
and October 1, 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION 11
SIGNATURES 11
2
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
------------------ ----------------
September 29, 1996 October 1, 1995 September 29, 1996 October 1, 1995
------------------ --------------- ------------------ ---------------
REVENUES
Net product sales $ 1,420,000 $ 1,881,000 $ 3,053,000 $ 3,726,000
Development contracts 297,000 160,000 430,000 217,000
--------- --------- --------- ---------
1,717,000 2,041,000 3,483,000 3,943,000
--------- --------- --------- ---------
COSTS AND EXPENSES
Cost of product sales 990,000 1,166,000 2,006,000 2,428,000
Research and development 512,000 462,000 1,088,000 915,000
Marketing and sales 239,000 172,000 449,000 320,000
General and administrative 615,000 381,000 940,000 720,000
--------- --------- --------- ---------
2,356,000 2,181,000 4,483,000 4,383,000
--------- --------- --------- ---------
LOSS FROM OPERATIONS (639,000) (140,000) (1,000,000) (440,000)
--------- --------- --------- ---------
OTHER INCOME
Interest expense - (1,000) - (1,000)
Interest income 42,000 26,000 87,000 35,000
Other, net - 1,000 6,000 5,000
--------- --------- --------- ---------
42,000 26,000 93,000 39,000
NET LOSS $ (597,000) $ (114,000) $ (907,000) $ (401,000)
========= ========= ========= =========
NET LOSS PER SHARE $ (0.06) $ (0.01) $ (0.08) $ (0.04)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,823,000 9,978,000 10,817,000 9,179,000
========== ========= ========== =========
<FN>
See notes to consolidated financial statements.
</FN>
3
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
September 29, March 31,
1996 1996
(Unaudited) (Audited)
-----------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,633,000 $4,042,000
Accounts receivable, less allowance of
$100,000 at September 29, 1996 and
$105,000 at March 31, 1996 714,000 792,000
Inventories 976,000 813,000
Prepaid expenses and other current assets 72,000 86,000
------------ ------------
Total Current Assets 5,395,000 5,733,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,353,000 3,198,000
Less accumulated depreciation and amortization (2,309,000) (2,038,000)
------------ -----------
1,044,000 1,160,000
------------ -----------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $169,000 at September 29, 1996 and
$152,000 at March 31, 1996 667,000 684,000
Patents, net of accumulated amortization of
$9,000 at September 29, 1996 and March 31, 1996 53,000 53,000
Other 65,000 76,000
------------ ------------
785,000 813,000
------------ ------------
$ 7,224,000 $ 7,706,000
============ ============
See notes to consolidated financial statements
4
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
September 29, March 31,
1996 1996
(Unaudited) (Audited)
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 190,000 $ 167,000
Accrued expenses:
Salaries and employee benefits 593,000 293,000
Warranty 95,000 95,000
Other 304,000 247,000
------------ -----------
Total Current Liabilities 1,182,000 802,000
------------ -----------
REDEEMABLE CONVERTIBLE PREFERRED
STOCK AT REDEMPTION VALUE 98,000 98,000
------------ -----------
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 11,000 10,000
per share; authorized 50,000,000 shares;
September 29, 1996--10,678,064 shares issued
and outstanding; March 31, 1996--10,631,186
shares issued and outstanding
Class B Common Stock, par value $.001 - -
per share; authorized 4,420,113 shares;
September 29, 1996--167,225 shares issued
and 145,002 outstanding; March 31, 1996--
193,003 shares issued and 170,780 outstanding
Additional paid-in capital 22,676,000 22,632,000
Less cost of 22,223 shares of Class B Common
Stock in Treasury at September 29, 1996
and March 31, 1996 (50,000) (50,000)
Accumulated deficit (16,693,000) (15,786,000)
------------ ------------
5,944,000 6,806,000
------------ ------------
$ 7,224,000 $ 7,706,000
============ ============
See notes to consolidated financial statements
5
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
------------------------------------
September 29, 1996 October 1, 1995
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (907,000) $ (401,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 271,000 266,000
Amortization 28,000 27,000
Changes in assets and liabilities:
Accounts receivable 78,000 (17,000)
Inventories (163,000) 164,000
Prepaid expenses and other assets 14,000 (1,000)
Accounts payable and accrued expenses 380,000 (74,000)
Other current liabilities - (100,000)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (299,000) (136,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (155,000) (46,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (155,000) (46,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common and preferred stock,
net of issuance costs 45,000 2,994,000
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 45,000 2,994,000
--------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (409,000) 2,812,000
CASH AND CASH EQUIVALENTS AT BEG. OF PERIOD 4,042,000 903,000
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,633,000 $ 3,715,000
========== ==========
See notes to consolidated financial statements
6
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 29, 1996
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation have been
included. Operating results for the three and six month periods ended September
29, 1996, are not necessarily indicative of the results that may be expected for
the fiscal year ending March 30, 1997. For further information, refer to the
consolidated financial statements and notes thereto included in the Advanced
Photonix, Inc. (together with its subsidiary, the "Company") Annual Report on
Form 10-K for the fiscal year ended March 31, 1996.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss Per Share: Net loss per share is based on the weighted average number
of common and common equivalent shares outstanding, computed in accordance with
Accounting Principles Board (APB) Opinion No. 15. Common stock equivalents were
not considered in the calculation as their effect would be antidilutive.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
REVENUES
The Company's revenues for the second quarter ("Q2 97") and six month period
("YTD 97") ended September 29, 1996, were $1.7 million and $3.5 million,
respectively. Revenues for the Q2 97 and YTD 97 period were down 16% and 12%,
respectively, when compared to $2.0 million and $3.9 million in the comparable
periods of the prior year ("Q2 96" & "YTD 96"). Q2 97 revenues decreased $49,000
from the first quarter of fiscal year 1997, a decrease of $213,000 in net
product shipments partially offset by an increase of $164,000 in development
contract revenue.
Net product sales for Q2 97 and YTD 97 were down $461,000 (25%) and $673,000
(18%), respectively, when compared to the same periods of the prior year. These
decreases are primarily a result of a lower level of shipments related to
military aerospace business with the Company's largest customer. The Company
anticipates that total sales to that customer for fiscal 1997 should improve
during the second half in comparison to the first half.
Q2 97 and YTD 97 net product sales of Large Area Avalanche Photodiode (LAAPD)
products were relatively low and flat to the prior year. During fiscal year
1995, the Company suspended most shipments of its proprietary LAAPD products and
curtailed LAAPD production because of low reliability and yields it was
obtaining in the manufacturing process. Thereafter, the Company focused its
research and development resources on the baseline LAAPD manufacturing process.
As a result of these efforts, the Company developed a new manufacturing process
which it anticipates will significantly improve both reliability and process
yields. In July 1996, the Company filed for a patent seeking protection of the
new manufacturing process, and has begun to aggressively market LAAPD products
to original equipment manufacturers. The Company anticipates increasing volume
in the second half of the fiscal year from sales of LAAPD products made with its
newly developed manufacturing process.
Development contract revenues increased 86% during Q2 97, from $160,000 in Q2 96
to $297,000 in Q2 97; and increased 98% during YTD 97, from $217,000 in YTD 96
to $430,000 in YTD 97. This is primarily due to two development contracts for
which work did not build up until the second and third quarters of fiscal 1996.
The Company was awarded a Phase II Department of Energy grant of approximately
$750,000 in June 1995 based upon the success of a Phase I effort, and in
September 1995, was awarded a $1.1 million contract from the Advanced Research
Projects Agency of the Pentagon and the Aircraft Division of the Naval Air
Warfare Center. These types of government development contracts are typically
multi-year awards and are subject to periodic review and cancellation by the
government due to a variety of reasons including a lack of funding. If not
rescheduled or canceled, revenues from existing contracts should continue
through the third quarter of fiscal 1998. However, revenues from the DOE
contract should wind down at the beginning of the fourth quarter, January 1997.
8
COSTS AND EXPENSES
Cost of product sales decreased by $176,000 during Q2 97 and by $422,000 during
YTD 97 compared to Q2 96 and YTD 96. These decreases were primarily due to lower
product shipments. Cost of product sales as a percent of product sales increased
by 8% in Q2 97 compared to Q2 96 due to a lower absorption of fixed costs as a
result of lower volume and to inventory adjustments associated with a canceled
program.
Research and development ("R&D") costs increased by $50,000 (11%) to $512,000 in
Q2 97 compared to Q2 96 and increased by $173,000 (19%) during YTD 97 compared
to YTD 96. The increase in R&D costs is primarily due to the higher level of R&D
effort on government contracts and efforts expended on LAAPD process
improvements for which the above mentioned manufacturing process patent was
applied for during the period. During the past fiscal year, the Company has
better controlled internal R&D activities and has been successful in obtaining
government funded development contracts complementary to its internal R&D
efforts. These costs might otherwise be partially incurred as internal R&D
without any additional funding. R&D costs have varied significantly in the past,
and may continue to do so, due to the level of activity associated with
development contracts as well as the number and complexity of new process and
product development projects, the qualification of new process developments and
customer evaluation and acceptance of new products.
Marketing and sales expenses increased by $67,000 (39%) to $239,000 in Q2 97
compared to Q2 96 and by $129,000 (40%) to $449,000 for YTD 97 compared to YTD
96. The increases from both periods were primarily due to expenses incurred in
the Core Business where the Company has increased manpower compared to Q1 96 and
incurred higher marketing costs. This increase was expected, as the Company
pursues its plan to grow the Core Business. In addition, sales and marketing
expenditures had been deferred back in the first half of fiscal 1996 awaiting
the successful completion of a private placement offering. (See Liquidity and
Capital Resources.) Marketing and sales expenses associated with the LAAPD
Business increased slightly due to increased advertising and should begin to
increase more significantly as the Company begins to commercialize the LAAPD
family of products.
General and administrative expenses increased by $234,000 (61%) to $615,000 in
Q2 97 compared to Q2 96 and by $220,000 (31%) to $940,000 in YTD 97 compared to
YTD 96. This increase is primarily due to a one-time reorganization charge of
approximately $288,000 related to management changes. Other general and
administrative expenses decreased by $54,000 (14%) in Q2 97 compared to Q2 96
and by $68,000 (9%) for YTD 97 compared to YTD 96. The decrease between Q2
periods is primarily due to lower personnel and insurance costs. In addition to
the Q2 factors, expenses decreased for YTD 97 compared to YTD 96 as a result of
a reduction in fees paid to outside members of the Company's Board of Directors.
In October 1995, the Company's Board of Directors unanimously agreed to
eliminate all fees for its outside directors except for reasonable travel
expenses in conjunction with regular or committee meetings.
Other income increased by $16,000 (62%) in Q2 97 compared to Q2 96 and by
$54,000 (138%) in YTD 97 compared to YTD 96 due to higher interest income. The
Company has maintained a higher average cash balance since the third quarter of
fiscal 1996 when it completed a private placement. (See Liquidity and Capital
Resources.)
9
LIQUIDITY AND CAPITAL RESOURCES
At September 29, 1996, the Company had cash and cash equivalents of $3.6
million, working capital of $4.2 million and an accumulated deficit of $16.7
million. The Company's cash and cash equivalents decreased by $409,000 during
the six months ended September 29, 1996. Cash of $299,000 was used for operating
activities. Cash of $155,000 was used for purchases of capital equipment,
compared to $46,000 during the comparable period of the prior year. Capital
spending was lower during the first half of fiscal 1996 as the Company conserved
its resources pending receipt of additional equity financing.
To enable the Company to meet its capital commitment needs, the Company
historically has supplemented cash provided by operations with proceeds from
private placement equity financing, bank lines of credit and loans from
stockholders. At September 29, 1996, no amounts were outstanding under any bank
line-of-credit and there were no stockholder loans to the Company. On August 15,
1995, the Company completed a $3,000,000 private placement offering in which it
issued 2,400,000 shares of Class A Common Stock.
The Company believes that the proceeds of its private placement offering will
permit it to implement its strategic business plan, which focuses on achieving
profitable operating results while maintaining its commitment to develop the
LAAPD based products. The Company's plan focuses on growing the Core Business,
bringing initial LAAPD products to market and developing proof-of-concept
demonstration LAAPD Arrays which are expected to prove helpful in securing
future financing and strategic partners.
The Company will utilize its available funds to continue development of the
LAAPD business and for other working capital purposes including, but not limited
to, capital equipment and working capital to expand the Core Business and bring
the initial LAAPD products to market; and capital equipment, salaries, wages and
other development costs to further develop the LAAPD manufacturing process and
develop proof-of-concept demonstration LAAPD Arrays. The continued development
of LAAPD Arrays beyond the proof-of-concept phase may require additional funds.
The Company believes that the moderate rate of inflation over the past few years
has not had a significant impact on the Company's sales or operating results.
FORWARD LOOKING STATEMENTS
The information contained herein includes forward looking statements that are
based on assumptions that management believes to be reasonable but are subject
to inherent uncertainties and risks including, but not limited to, unforseen
technological obstacles which may prevent or slow the development and/or
manufacture of new products, limited (or slower than anticipated) customer
acceptance of new products which have been and are being developed by the
Company (particularly its LAAPD product line), and a decline in the general
demand for optoelectronic products.
10
PART II. OTHER INFORMATION
Items 1.- 3. None
Item 4. Submission of Matters to a Vote of Security Holders:
The Company's Annual Stockholders' Meeting was held on October 16, 1996.
The following persons were re-elected to the Company's Board of Directors to
serve until the next Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified.
FOR WITHHELD TOTAL
-------------------- -------------------- -----------------
James W. Ward 8,436,246 11,000 8,447,246
James A. Gordon 8,248,846 198,400 8,447,246
Hayden Leason 8,436,246 11,000 8,447,246
Jon B. Victor 8,436,246 11,000 8,447,246
Item 5.
After the Annual Meeting of Stockholders on October 16, 1996, Mr. Ward resigned
as the Chairman, Chief Executive Officer and President of the Company (remaining
as a director) and the Board elected Hayden Leason as Chairman and Mr. Robert G.
Allison as a Director to fill one of three vacancies, and Mr. Allison was
elected as Interim Chief Executive Officer and President. On November 5, 1996,
Mr. Allison resigned as Interim CEO and President and the Board of Directors
elected Hayden Leason to serve as Chief Executive Officer, Mr. Harry Melkonian
to serve as President and Mr. Patrick Holmes to serve as Executive Vice
President & Chief Financial Officer. Mr. Allison remains on the Board of
Directors.
Item 6. None
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.
ADVANCED PHOTONIX, INC.
By /s/ Patrick J. Holmes
Patrick J. Holmes
Executive Vice President and Chief Financial Officer
Dated: November 14, 1996
11