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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 December 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 February 13, 1997, 10,709,493 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. Condensed Financial Statements (Unaudited) 3 - 6
Condensed Consolidated Statements of Operations
for the three and nine month periods ended
December 29, 1996 and December 31, 1995 3
Condensed Consolidated Balance Sheets
at December 29, 1996 and March 31, 1996 4 - 5
Condensed Consolidated Statements of Cash Flows
for the nine month periods ended December 29, 1996
and December 31, 1995 6
Notes to Condensed 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.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------ -----------------
December 29, 1996 December 31, 1995 December 29, 1996 December 31, 1995
------------------ --------------- ------------------ ---------------
REVENUES
Net product sales $ 1,380,000 $ 1,765,000 $ 4,433,000 $ 5,491,000
Development contracts 64,000 317,000 494,000 534,000
--------- --------- --------- ---------
1,444,000 2,082,000 4,927,000 6,025,000
--------- --------- --------- ---------
COSTS AND EXPENSES
Cost of product sales 955,000 1,135,000 2,961,000 3,563,000
Research and development 408,000 598,000 1,496,000 1,513,000
Marketing and sales 237,000 162,000 686,000 482,000
General and administrative 276,000 354,000 1,216,000 1,074,000
--------- --------- --------- ---------
1,876,000 2,249,000 6,359,000 6,632,000
--------- --------- --------- ---------
LOSS FROM OPERATIONS (432,000) (167,000) (1,432,000) (607,000)
--------- --------- --------- ---------
OTHER INCOME
Interest expense - (1,000) - (2,000)
Interest income 45,000 57,000 132,000 92,000
Other, net 1,000 7,000 7,000 12,000
--------- --------- --------- ---------
46,000 63,000 139,000 102,000
NET LOSS $ (386,000) $ (104,000) $ (1,293,000) $ (505,000)
========= ========= ========= =========
NET LOSS PER SHARE $ (0.04) $ (0.01) $ (0.12) $ (0.05)
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,835,000 10,789,000 10,823,000 9,718,000
========== ========== ========== =========
<FN>
See notes to condensed consolidated financial statements.
</FN>
3
ADVANCED PHOTONIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, March 31,
1996 1996
(Unaudited) (Audited)
-----------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,122,000 $4,042,000
Accounts receivable, less allowance of
$84,000 at December 29, 1996 and
$105,000 at March 31, 1996 705,000 792,000
Inventories 1,123,000 813,000
Prepaid expenses and other current assets 117,000 86,000
------------ ------------
Total Current Assets 5,067,000 5,733,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,438,000 3,198,000
Less accumulated depreciation and amortization (2,436,000) (2,038,000)
------------ -----------
1,002,000 1,160,000
------------ -----------
OTHER ASSETS
Goodwill, net of accumulated amortization
of $177,000 at December 29, 1996 and
$152,000 at March 31, 1996 659,000 684,000
Patents, net of accumulated amortization of
$10,000 at December 29, 1996 and
$9,000 at March 31, 1996 52,000 53,000
Other 60,000 76,000
------------ ------------
771,000 813,000
------------ ------------
$ 6,840,000 $ 7,706,000
============ ============
See notes to condensed consolidated financial statements
4
ADVANCED PHOTONIX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 29, March 31,
1996 1996
(Unaudited) (Audited)
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 353,000 $ 167,000
Accrued expenses:
Salaries and employee benefits 272,000 293,000
Warranty 95,000 95,000
Other 482,000 247,000
------------ -----------
Total Current Liabilities 1,202,000 802,000
------------ -----------
REDEEMABLE CONVERTIBLE PREFERRED
STOCK AT REDEMPTION VALUE 98,000 98,000
------------ -----------
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 10,000 10,000
per share; authorized 50,000,000 shares;
December 29, 1996--10,709,493 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;
December 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 22,659,000 22,632,000
Less cost of 22,223 shares of Class B Common
Stock in Treasury at December 29, 1996
and March 31, 1996 (50,000) (50,000)
Accumulated deficit (17,079,000) (15,786,000)
------------ ------------
5,540,000 6,806,000
------------ ------------
$ 6,840,000 $ 7,706,000
============ ============
See notes to condensed consolidated financial statements
5
ADVANCED PHOTONIX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
------------------------------------
December 29, 1996 December 31, 1995
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,293,000) $ (505,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 398,000 399,000
Amortization 42,000 41,000
Gain on Sale of equipment - (4,000)
Changes in assets and liabilities:
Accounts receivable 87,000 (115,000)
Inventories (310,000) 357,000
Prepaid expenses and other assets (31,000) (48,000)
Accounts payable and accrued expenses 400,000 (75,000)
Amounts due to/from affiliate - 4,000
Other current liabilities - (84,000)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (707,000) (30,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (240,000) (69,000)
Proceeds from sale of equipment - 9,000
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (240,000) (60,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock, net of issuance costs 27,000 2,994,000
Decrease in long-term debt - (16,000)
--------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,000 2,978,000
--------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (920,000) 2,888,000
CASH AND CASH EQUIVALENTS AT BEG. OF PERIOD 4,042,000 903,000
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,122,000 $ 3,791,000
========== ==========
See notes to condensed consolidated financial statements
6
ADVANCED PHOTONIX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 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 nine month periods ended December
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 third quarter ("Q3 97") and nine month period
("YTD 97") ended December 29, 1996, were $1.4 million and $4.9 million,
respectively. Revenues for the Q3 97 and YTD 97 period were down 31% and 18%,
respectively, when compared to $2.1 million and $6.0 million in the comparable
periods of the prior year ("Q3 96" & "YTD 96"). Q3 97 revenues decreased
$273,000 from the second quarter of fiscal year 1997, a decrease of $40,000 in
net product sales and a decrease of $233,000 in development contract revenue.
Net product sales for Q3 97 and YTD 97 were down $385,000 (22%) and $1,058,000
(19%), respectively, when compared to the same periods of the prior year. These
decreases are primarily a result of a lower level of shipments of military
aerospace products resulting from the wind down of a missile guidance system
program which is at the end of its life cycle. Volume in this business should
increase in the early part of fiscal 1998 (April '97 - October '97) as the
Company begins deliveries under a new, longer term military program. The Company
was awarded a contract for in excess of $1.0 million under this program which
should provide a solid base to grow revenues over the next few years.
Q3 97 and YTD 97 net product sales of Large Area Avalanche Photodiode (LAAPD)
products were relatively low but slightly higher than the prior year ($37,000
higher for Q3 97 and $20,000 higher for YTD 97). 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 from
sales of LAAPD products made with its newly developed manufacturing process. The
Company has a number of customers who are early adopters and evaluators of the
technology and believes that demonstration of these applications and evaluations
will help to develop the marketplace.
Development contract revenues decreased 80% during Q3 97, from $317,000 in Q3 96
to $64,000 in Q3 97; and decreased 7% during YTD 97, from $534,000 in YTD 96 to
$494,000 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 (DOE) grant of approximately
$750,000 in June 1995 based upon the success of a Phase I effort, and in
December 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 (ARPA/NAWC). 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.
During Q3 97 revenues from
8
the DOE contract began to wind down as the contract approached completion.
Revenues from the ARPA/NAWC contract were impacted by a delay in funding from
the customer. Funding was awarded in January 1997 to complete option one of the
contract. Revenues from work on the DOE contract will conclude during Q4 97 as
the contract will be completed. Revenues from work on ARPA/NAWC option one
should resume later in Q4 97 and continue through fiscal 1998.
COSTS AND EXPENSES
Cost of product sales decreased by $180,000 during Q3 97 and by $602,000 during
YTD 97 compared to Q3 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 5% in Q3 97 compared to Q3 96 and by 2% in YTD 97 compared to YTD 96 due to a
lower absorption of fixed costs as a result of lower volume.
Research and development ("R&D") costs decreased by $190,000 (32%) to $408,000
in Q3 97 compared to Q3 96 and decreased by $17,000 (1%) during YTD 97 compared
to YTD 96. The decrease in R&D costs is primarily due to the lower level of R&D
effort on government contracts (see "Revenues" above) and the Company's success
in improving manufacturing processes for LAAPD devices (see patent filing in
"Revenues" above). In addition, the Company has better controlled internal R&D
activities. 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. The Company is currently developing LAAPD
imaging arrays which the Company believes will have the greatest future market
potential within the line of LAAPD products. An acceleration in development
and/or efforts to bring this technology into production could substantially
impact R&D costs.
Marketing and sales expenses increased by $75,000 (46%) to $237,000 in Q3 97
compared to Q3 96 and by $204,000 (42%) to $686,000 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 and incurred higher
marketing costs compared to the prior year. 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 decreased by $78,000 (22%) to $276,000 in Q3
97 compared to Q3 96 and increased by $142,000 (13%) to $1,216,000 in YTD 97
compared to YTD 96. The YTD increase is primarily due to a one-time
reorganization charge of approximately $288,000 related to management changes
accrued in Q2 97. Other YTD general and administrative expenses decreased by
$146,000 (14%) in YTD 97 compared to YTD 96. The decrease between Q3 periods is
primarily due to lower personnel costs. The decrease between YTD periods before
impact of the one-time reorganization charge is primarily due to lower personnel
and insurance costs.
Other income decreased by $17,000 (27%) in Q3 97 compared to Q3 96 and increased
by $37,000 (36%) in YTD 97 compared to YTD 96 due to interest income associated
with the Company's cash balances. The Company completed a private placement in
Q3 96 (See Liquidity and Capital Resources).
9
LIQUIDITY AND CAPITAL RESOURCES
At December 29, 1996, the Company had cash and cash equivalents of $3.1 million,
working capital of $3.9 million and an accumulated deficit of $17.1 million. The
Company's cash and cash equivalents decreased by $920,000 during the nine months
ended December 29, 1996. Cash of $707,000 was used for operating activities.
Cash of $240,000 was used for purchases of capital equipment, compared to
$69,000 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 relied upon proceeds from private placement equity financing,
bank lines of credit and loans from stockholders. At December 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), a decline in the general demand
for optoelectronic products and the cancellation of certain U.S. Government
contracts due to a variety of reasons including a lack of funding.
10
PART II. OTHER INFORMATION
Items 1.- 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: February 13, 1997
11