SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 30, 1997
OR
( ) 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 1-11056
ADVANCED PHOTONIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0325826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 Avenida Acaso, Camarillo, CA 93012
(Address of principal executive offices) (Zip Code)
(805) 987-0146
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 Par Value
Class A Common Stock
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
As of June 2, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $8,900,000.
As of June 2, 1997, there were 10,717,493 shares of Class A Common Stock and
137,002 shares of Class B Common Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
-----
DOCUMENTS INCORPORATED BY REFERENCE
Part I, Item 9 - The Current Report on Form 8-K, amended by
8-K/A, Dated January 26, 1995, is
incorporated herein by reference.
Item 1. BUSINESS
General
- -------
Advanced Photonix, Inc.(R) (with its subsidiary, Silicon Detector Corporation, a
California corporation ("SDC"), hereafter referred to together as the
"Company") is engaged in the development and manufacture of proprietary and
other solid state light and radiation detection devices. The Company believes
that its proprietary Avalanche Photodiode ("APD") technology represents a
leading-edge advancement in photodetection and imaging.
The Company was incorporated under the laws of the State of Delaware on June 22,
1988 as a wholly- owned subsidiary of Xsirius, Inc. ("Xsirius") under the name
Xsirius Photonics, Inc. The Company changed its name to Advanced Photonix, Inc.
on November 13, 1990. Xsirius changed its name to Advanced Detectors, Inc.
("ADI") on December 27, 1995.
The Company's proprietary technology extends the capability of the traditional
APD by introducing a large surface area silicon device or Large Area Avalanche
Photodiode (the "LAAPD"). The Company believes that the LAAPD is an alternative
to photomultiplier vacuum tubes ("PMTs"), which have been used for many years as
the primary technological solution for highly sensitive light detection in
certain measurement, control and monitoring applications used in industrial,
medical, military, scientific and commercial settings.
The LAAPD and PMT are at the highly complex and engineered end of the spectrum
of activities in the photonics industry, which encompasses all light detection
devices and associated electronic components. Fundamentally, photodetection
devices sense light of varying intensity and convert the light detected to
electronic signals that cause the systems of which they are a part to respond in
programmed ways. The photonics industry includes other custom-engineered devices
of less complexity than the LAAPD and the PMT such as PIN
(Positive-Intrinsic-Negative) photodiodes.
The Company early-on saw advantages of being able to offer both the existing PIN
photodiode technology and the LAAPD, thereby having a full line of solid state
photodetectors. In addition, the Company needed a manufacturing facility with
semiconductor production capability for its LAAPD device similar to that
required for PIN photodiodes. After an Initial Public Offering in February 1991,
the Company acquired SDC in September 1991 to provide a sales base of
photodetector products and a manufacturing facility and capability which could
be used for its LAAPD devices. SDC manufactured and marketed custom-engineered
and other photodetection devices and had sales of approximately $4 million in
the twelve months ended July 31, 1991. In March 1992, the Company acquired from
Applied Solar Energy Corporation ("ASEC") the inventory, equipment, intellectual
property rights and customer order board of ASEC relating exclusively to the
production, development, sales and maintenance of ASEC's solid state
photodetector products. By June 1992, these assets had been integrated with the
existing SDC business in the Company's facility in Camarillo, CA. In addition to
using the SDC facility as a development and manufacturing site for the LAAPD,
the Company has continued the photodetector business of both SDC and ASEC under
the Company name. This complementary, non-LAAPD "core business" is profitable
and, together with equity financing, has provided the funds to enable the
Company to continue development of the LAAPD technology.
Products
- --------
The Company designs and manufactures optoelectronic semiconductor based
components and hybrid assemblies. While the Company was founded in 1988, the
acquired business base of SDC can be traced to 1977 and for the photo sensor
business of ASEC (a business formerly known as Advanced
2
Optoelectronics) to the early 1960's. Therefore, even though the Company was
formed in 1988, it draws upon over 30 years of optoelectronic, product
manufacturing experience. The Company's product line includes:
o Spectrally enhanced single and multi-element PIN photodetectors
o Photodetector/preamplifier hybrids
o Military/commercial aerospace products
o Custom optoelectronic products, including visible and non visible
(infrared) light-emitting diodes ("LEDs"), LED displays and indium gallium
arsenide ("InGaAs") photodetectors
o Patented technology integrating spectrally enhanced filters with silicon
photodiode applications (Spectrode(TM))
o Small Area Avalanche photodiodes
o Large Area Avalanche photodiodes
The Company supplies detectors for military/commercial aerospace and other High
Reliability ("Hi-Rel") applications. Hi-Rel devices are those which are
designed, manufactured, screened and qualified to function under exceptionally
severe levels of environmental stress. The Company has many years of experience
in supplying Hi-Rel devices which require modern wafer fabrication techniques,
dedicated assembly area, and a well equipped test lab. Hi-Rel products
manufactured by the Company include:
o Multi-Element Detector Pre-Amplifier assembly employed on the optical fuse
used on the Rolling Airframe Missile (RAM)
o Narrow and Wide Field of View detectors used in various TOW Missile
Trackers
o Common Module LED Array qualified with the Center for Night Vision Electro
Optics for use in displaying thermal images in various night sights
o Quadrant Photodetector used in the autocollimator for airborne
navigation/FLIR PODs
o Multi-Element Detector Arrays used in space-based optical encoders for
Space Shuttle Arm Control
The Company's patented Spectrode(TM) technology integrates optical coatings
directly on photodiode chips, replacing previous conventional technology that
requires a separate filter glass or pigmented epoxy be assembled to the top of a
detector. While the technology offers a simpler design and lower cost,
reliability and performance are improved because the integrated design is
resistant to moisture, shock and vibration. Special packaging of this technology
allows for unique applications whereby both front and back detector surfaces can
be utilized for light detection.
The Company's Small Area Avalanche Photodiodes ("SAAPDs" -- see description of
avalanche photodiode below) utilize a chip fabricated with a silicon epiplanar
reach-through structure. SAAPDs have been designed for a variety of very
low-light level applications and cover the wavelength from 500 nm to 1000 nm.
Applications include optical communication, high-sensitivity bar code reading
and laser range finding including applications used in golf.
Large Area Avalanche Photodiode Technology
- ------------------------------------------
An Avalanche Photodiode is a specialized silicon photodiode capable of sensing
very low levels of light through an internal gain phenomenon known as
"avalanching". This fundamental performance characteristic is not present in the
more conventional PIN photodiode technology.
The first APD was developed in the late 1960's and gave promise as a solid state
replacement for the photomultiplier vacuum tube for sensing extremely low levels
of electromagnetic radiation. However, design and manufacturing limitations have
generally restricted APDs to small diameters (5mm or less) that can only be
practically used with optical fiber, thus sharply limiting the range of useful
applications.
3
The Company has developed and patented various aspects of an LAAPD with
dimensions of up to 25 mm and active surfaces comparable to those of the PMT.
The LAAPD is a fast pulse detector of low light levels spanning the near UV
(ultraviolet), visible, and near IR (infrared) spectra, and, when coupled to a
scintillator, of x-rays and gamma-rays. It is also sensitive to electrons
accelerated to potentials greater than a few thousand electron-volts. The LAAPD
offers capabilities well beyond those of the existing primary photodetection
devices -- the PIN photodiode, the small area APD and the PMT. Its advantages
over PIN photodiodes include higher sensitivity at higher bandwidths. Its
advantages over small area APDs include larger active areas to collect more
light when the source is diffused and greater sensitivity up to about an order
of magnitude. Its advantages over PMTs include greater counting sensitivity to
pulses above 500 photons in the visible and near IR spectra, higher dynamic
range by two orders of magnitude, a more rugged structure suitable for operation
in harsh environments, and immunity in high level magnetic fields. Its
advantages over PMTs were greatly extended during fiscal year 1995 when the
Company demonstrated that LAAPDs could be made to be 4 to 7 times more sensitive
than PMTs to ultra-violet light. Ultra-violet sensitivity is crucial for some
experiments in high energy and particle physics known as calorimeters. The
improvement in ultra-violet sensitivity will also facilitate the design of more
powerful imaging and analytical instruments for the medical, chemical, and
biological markets.
The Company suspended most shipments of LAAPD products during the fiscal year
ended April 2, 1995 when it realized that its devices had significant
performance and reliability problems. Since that time, the Company has focused
its research and development resources on improving upon its baseline LAAPD
manufacturing process to produce devices with both good performance and improved
reliability as well as with reasonable process yields. As a result of
improvements in its baseline manufacturing process, the Company resumed shipping
LAAPD based products during fiscal 1996. The Company continues to focus its
efforts on optimizing the manufacturing process, reducing costs and further
enhancing reliability with respect to these products.
The Company expects, but there is no assurance, that its proprietary APD
technology, employed in the development of the LAAPD, will form the basis for
continuing the investigation and potential commercial development of other lines
of advanced silicon avalanche photonics products which will have a broader range
of commercial and military applications than the PMT and PIN arrays. For
example:
o LAAPD Arrays -- the Company's patented technology where the rear surface
of an LAAPD is segmented to create isolated pixels, each with a separate
electronic lead to be accessed in parallel fashion for imaging
applications.
o Vacuum Avalanche Photodiode (VAPD) -- another patented technology which
combines a photo cathode and an LAAPD in a vacuum tube and functions as a
detector for high resolution, single photon-counting and low light level
detection.
The Company has identified target markets for its LAAPD products based on
customer evaluations and in-house tests over the past four years, and has sold
over 500 prototypes of LAAPD products to third parties for testing and
evaluation of possible integration into applications. Evaluation detectors
continue to be sold to original equipment manufacturers ("OEMs"), engineers and
scientists who report information to the Company concerning potential
applications and markets, as well as suggesting improvements and pricing
objectives. It is expected, but there is no assurance, that original equipment
manufacturers who can take advantage of the performance capabilities of LAAPDs
will be the source of repeat business for production quantities. Targeted
markets which have been identified include:
o Ranging, Tracking & Imaging -- Night vision glasses, smart image
surveillance/security cameras, 3D collision avoidance cameras, missile
guidance, threat warning, underwater mine detection, and mapping &
salvaging.
4
o Medical Imaging -- Detectors which image human physiology in slices, and
look for pathology. Included in this category are PET scanners, CT
scanners, bone densitometers and gamma cameras.
o Industrial Scanning/Process Control -- Industrial CT inspection, aerospace
ice inspection, drum/flat bed scanning and semiconductor wafer defect
scanning and film to video conversion.
o Analytical Chemistry -- Analyzing the chemical "recipe" of samples, from
glucose levels in the blood to pesticides in ground water.
o Medical Diagnostics -- Human fluids are analyzed to diagnose a medical
pathology or condition. A partial list of conditions which are diagnosed
every day using photonics technology include diabetes, lipid metabolism
disorders, myocardial infarction, gout, liver diseases, renal diseases,
pancreatitis, anemia, and electrolyte disturbances. It is expected that
this list will grow dramatically in the coming years with the explosion of
methods now available to perform immunodiagnostics. Examples of forthcoming
diagnostics include those targeting thyroid and sexually transmitted
disease conditions.
o Environmental Monitoring -- Atmospheric meteorology LIDAR (light detection
and ranging), radiation dose monitors, airborne and liquid particle
measurement, optical air data systems, airport wind shear, atmospheric
pollution monitoring.
o Scientific Research -- The CERN Large Hadron Calorimeter, high energy
physics fiber tracking, space particle experiments and Neutrino
experiments.
The Company's products are primarily sold as components or assemblies to
original equipment manufacturers or other component manufacturers and the
Company does not manufacture any end-user products within the above or any other
markets.
Raw Materials
- -------------
The principal raw materials used by the Company in the manufacture of its
semiconductor chip components and assemblies are silicon wafers, chemicals and
gases used in processing wafers, gold wire, lead frames, metal and plastic
packages that house the chip and the various custom assemblies. All of these raw
materials can be obtained from several suppliers. From time to time,
particularly during periods of increased industry-wide demand, silicon wafers
and other materials have been in short supply. However, the Company has not been
materially affected by such shortages. As is typical in the industry, the
Company allows for a significant lead time between order and delivery of raw
materials.
Research and Development
- ------------------------
The Company undertakes both internally funded and customer funded research and
development programs when they are in support of the Company's development
objectives. The Company has obtained federal government research and development
funding supporting the next generation LAAPD products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more detail on these contracts. Since its inception in June 1988, the Company
has incurred material amounts of research and development expenses. Although the
Company believes, but cannot assure, that its research and development efforts
will yield commercial results, significant additional research and development
funding will still be required. During the fiscal year ended in 1997, 1996 and
1995, such expenses amounted to $1.9 million, $2.1 million and $1.9 million,
respectively.
Manufacturing
- -------------
Located in Camarillo, CA, the Company has an approximately 39,000 sq.ft.
manufacturing facility which includes various fully equipped clean room areas
from Class 100 to Class 100,000 for fabrication,
5
processing, handling and characterizing a number of semiconductor compounds.
In-house processes include photolithography, diffusion, metallization, lapping,
oxide growth and parametric testing and analysis. An extensive library of
different shapes and sizes is maintained to provide the customer with many
options when a custom device is required. The Company estimates that these
facilities, with some modifications, will be sufficient to accommodate the
expected growth in both the core and LAAPD businesses for the foreseeable
future.
The Company has made a significant investment in the area of production
automation for its core business, which has enhanced manufacturing repeatability
and reliability, leading to higher quality and lower cost for finished products.
The automation techniques are employed on many different package configurations,
including PC boards, ceramic substrates, dual in-line and TO style packages.
For high volume/low cost manufacturing, the Company maintains a strategic
alliance with an optoassembly facility in the Pacific Rim. That facility uses
the latest in assembly and test equipment, and employs a Company approved
quality program which includes Statistical Process Control (SPC) and a
preventive maintenance program. The Facility is UL, FDA and ISO 9002 approved.
All Pacific Rim manufactured products are assembled in a Class 100,000 clean
room.
Environmental Regulations
- -------------------------
The photonics industry, similar to the semiconductor industry, is subject to
governmental regulations for the protection of the environment, including those
that relate to air and water quality, solid and hazardous waste handling and the
promotion of occupational safety.
Various federal, state and local laws and regulations require the Company to
maintain certain environmental permits. The Company believes that it has
obtained all necessary environmental permits to conduct its manufacturing.
Changes in the aforementioned federal and state environmental laws and
regulations or enactment or promulgation of new laws and regulations could
require increases in operating costs and delays or interruptions of operations
and may require additional capital expenditures.
Backlog and Customers
- ---------------------
The Company's sales are made primarily pursuant to standard purchase orders for
delivery of products. However, by industry practice, orders may be canceled or
modified at any time, with the customer being responsible for all finished
goods, all costs, direct and indirect, incurred by the Company and a reasonable
allowance for anticipated profits. No assurance can be given that such amounts
will be received by the Company after cancellation. The Company had
approximately $5.2 million of backlog at the end of fiscal 1997 compared with a
backlog of approximately $4.7 million at the end of fiscal 1996. The Company
expects that approximately $3.9 million of the backlog orders will be filled in
the current fiscal year.
The Company currently supplies core business products in support of satellites,
aircraft and ground vehicle missile guidance and tracking systems. Product sales
to affiliates and divisions of Hughes Aircraft Company, in the aggregate over
several programs, represent approximately 19% of the Company's revenues for the
year ended March 30, 1997.
Customers normally purchase the Company's products and incorporate them in
products that they in turn sell into their own markets on an ongoing basis. As a
result, the Company's sales are dependent upon the success of its customers'
products, and its future performance is dependent upon its success in finding
new customers and receiving new orders from existing customers.
6
Marketing
- ---------
The Company markets its products in the United States and Canada through its own
technical sales staff and through independent sales representatives.
International sales, principally Western Europe and Japan, are conducted through
foreign distributors.
In marketing LAAPD products, the Company has recognized that it must compete
with producers of PMTs, which have dominated low light level detection markets
for many years. Even if the Company can establish that its LAAPDs are a
potential alternative to PMTs for certain commercial applications, and assuming
that testing of the LAAPD currently being conducted by OEMs and other third
parties proves successful, the ability to successfully market its LAAPD devices
on a volume basis will be substantially dependent upon the willingness of
potential customers who currently use PMTs to incur the substantial expense and
expend the time and effort necessary for the redesign of their products to
accommodate the LAAPD devices.
The Company pursues marketing efforts related to securing government contracts
and subcontracts to fund continued research and product development based on its
APD technology. Such efforts encompass subcontracts with industrial partners as
well as contracts directly with agencies of the federal government. During
fiscal 1997, revenues from these efforts represented approximately 9% of total
revenue.
Competition
- -----------
The Company competes with a range of companies for the custom optoelectronic and
silicon photodetector requirements of vendors of medical instruments, computer
peripherals, a variety of industrial products and specialized military and
commercial aerospace applications. The Company believes its principal
competitors for sales of custom devices are small to medium size companies.
Because the Company specializes in custom devices requiring a high degree of
engineering expertise to meet the requirements of specific applications, it
generally does not compete to any significant degree with other large United
States, European or Far Eastern manufacturers of standard "off-the-shelf"
optoelectronic components or silicon photodetectors.
The Company believes that the principal competition for its silicon LAAPD
photodetection devices lies with producers of PMTs, the only product currently
available for many of the applications for which the Company's LAAPD products
are designed. The Company believes that there are a number of manufacturers of
PMTs, most of which have significantly greater financial, technological,
marketing and personnel resources than the Company. In addition, several
companies produce solid state detectors based on small area APD technology.
Although a few additional photodetector companies are engaged in developing
APDs, the Company believes that most of these companies are limited by their
technology to small area APD devices which the Company believes are considerably
less useful than the Company's LAAPD devices in broadening the applicability of
APD technology to imaging and the sensing of extremely low light levels. The
Company's LAAPD products have an electronic signal gain approaching 1,000, while
typical small area APD devices have a gain of about 100 and, therefore, are not
competitive with the Company's LAAPD devices in certain applications.
PMTs were first invented in the 1940's. It is possible that existing PMT
manufacturers or other photodetector manufacturers will begin APD development
and eventually manufacture competitive APD devices. Additionally, RMD
Corporation ("RMD"), a research and development company, has produced Large Area
APD devices similar to devices under development by the Company, and the Company
believes RMD has delivered several devices to customers for testing and possible
application.
7
Proprietary Technology
- ----------------------
The Company has been issued patents as follows:
US PATENT NO. DESCRIPTION DATE ISSUED
- --------------------------------------------------------------------------------
5,021,854 Silicon Avalanche Photodiode Array June 1991
5,057,892 Light Responsive Avalanche Diode October 1991
5,146,296 Devices for Detecting and/or September 1992
Imaging Single Photoelectron
5,477,075 Solid State Photodetector With December 1995
Light-Responsive Rear Face
5,311,044 Avalanche Photomultiplier Tube May 1994
4,717,946 Thin Line Junction Photodiode Acquired in ASEC Acquisition
4,782,382 High Quantum Efficiency Acquired in ASEC Acquisition
Photodiode Devices
Other patent submissions are currently under review by the U.S. Patent and
Trademark Office. There can be no assurance that the pending patent applications
will issue as patents, that any issued patents will provide the Company with
significant competitive advantages, or that challenges will not be instituted
against the validity or enforceability of any patent owned by the Company or, if
instituted, that such challenges will not be successful. The cost of litigation
to uphold the validity and prevent infringement of a patent would be
substantial. If the Company is unable to obtain patents for its proposed
applications, other entities may exploit the Company's developments in APD
technology. Furthermore, there can be no assurance the Company's APD technology
will not infringe patents or other rights owned by others, licenses to which may
not be available to the Company. Based on limited patent searches, contacts with
others knowledgeable in the field of APD technology and a review of pertinent
published materials, to the Company's knowledge, its competitors hold no
patents, licenses or other rights to the APD technology which would preclude the
Company from pursuing its intended operations or from obtaining patent
protection for its proposed applications.
In some cases, the Company may rely on trade secrets to protect its innovations.
There can be no assurance that trade secrets will be established, that secrecy
obligations will be honored or that others will not independently develop
similar or superior technology. To the extent that consultants, key employees or
other third parties apply technological information independently developed by
them or by others to Company projects, disputes may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company.
Employees
- ---------
At June 2, 1997 the Company employed 66 full-time employees, including 3
officers, 5 LAAPD engineering and development personnel, 48 operations
personnel, 7 sales and marketing personnel (including 1 officer), and 6 general
administrative personnel (including 2 officers). The Company may, from time to
time, engage personnel to perform consulting services and to perform research
and development under third party funding. In certain cases, the cost of such
personnel may be included in the direct cost of the contract rather than as
payroll expense.
Item 2. Properties
----------
The Company leases its executive offices, research, marketing and manufacturing
facility which consists of approximately 39,000 square feet in a building
complex located at 1240 Avenida Acaso, Camarillo, California. The lease expires
in September 1998. The Company believes that its existing facility is adequate
to meet its needs for the foreseeable future. See "Business - Manufacturing."
Item 3. Legal Proceedings None
8
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 elected to the Company's Board of Directors to serve
until the next Annual Meeting of the 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
PART II
Item 5. Market for the Registrant's Securities and Related Stockholder Matters
The Company's Class A Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "API". The Company's Class B stock is not publicly
traded.
At June 2, 1997, the Company had 95 holders of record for the Class A Common
Stock, representing approximately 1,000 holders owning shares of Class A Common
Stock in street name. On the same date, there were 21 holders of the Class B
Common Stock.
The following table sets forth high and low closing prices by quarter for fiscal
years 1997 and 1996.
Quarterly Stock Market Data
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1997 1996 1997 1996 1997 1996 1997 1996
- ------------ ------------- ---------------- --------------- ----------------
Common Stock(1)
High 4 1/4 1 7/8 4 1/8 2 15/16 3 7/8 3 2 11/16 3 1/8
Low 2 5/8 7/8 2 1/2 1 1/2 2 2 1 3/4 2 3/8
- ------------ ------------- ---------------- --------------- ----------------
1 Price ranges on the American Stock Exchange
The Company has not paid any cash dividends on its capital stock. The Company
intends to retain earnings, if any, for use in its business and does not
anticipate that any funds will be available for the payment of cash dividends on
its outstanding shares in the foreseeable future. The holders of Common Stock
will not be entitled to receive dividends in any year until the holders of the
Class A Redeemable Convertible Preferred Stock receive an annual non-cumulative
dividend preference of $.072 per share. As of June 2, 1997, 657,000 shares of
Class A Redeemable Convertible Preferred Stock had been converted into 197,000
shares of Class B Common Stock, leaving outstanding 123,000 shares of Class A
Redeemable Convertible Preferred Stock. The aggregate non-cumulative annual
dividend preference of such Class A Redeemable Convertible Preferred Stock is
$8,856. There is no public market for the Company's Class A Redeemable
Convertible Preferred Stock or Class B Common Stock; however, such stock is
convertible into Class A Common Stock at the option of the holder and upon
transfer by the holder of the Class A Redeemable Convertible Preferred Stock or
Class B Common Stock.
9
Item 6. Selected Financial Data
1997 1996 1995 1994 1993
- ------------------------------------------- ---------------- ---------------- ----------------- ----------------- ----------------
Selected Statement of Operations Data:
- --------------------------------------
Revenues $ 6,375,000 $ 7,863,000 $ 6,775,000 $ 6,267,000 $ 7,160,000
Loss from operations (2,061,000) (807,000) (2,448,000) (3,944,000) (2,253,000)
Net Loss (1,886,000) (654,000) (2,368,000) (3,897,000) (2,302,000)
Net Loss per share (1) $(0.17) $(0.07) $(0.28) $(0.55) $(0.42)
Weighted average shares outstanding (1) 10,831,000 9,988,000 8,383,000 7,075,000 5,483,000
Selected Balance Sheet Data:
- ----------------------------
Working capital $ 3,334,000 $ 4,931,000 $ 2,083,000 $ 4,182,000 $ 3,473,000
Total assets 6,165,000 7,706,000 5,580,000 7,835,000 7,834,000
Long-term debt, net - - 26,000 42,000 58,000
Redeemable convertible preferred stock 98,000 98,000 98,000 120,000 148,000
Accumulated deficit (17,672,000) (15,786,000) (15,132,000) (12,764,000) (8,867,000)
Stockholders' equity 4,948,000 6,806,000 4,438,000 6,785,000 6,104,000
<FN>
1 See Note 2 to Financial Statements.
</FN>
Item 7. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
RESULTS OF OPERATIONS
Fiscal year 1997 Compared to Fiscal Year 1996
REVENUES
The Company's revenues for the fiscal year ended March 30, 1997 ("1997") were
$6.4 million, a decrease of 19% from revenues of $7.9 million for the fiscal
year ended March 31, 1996 ("1996"). The Company believes that cutbacks in its
sales and marketing efforts during fiscal 1996 impacted its ability to book new
orders and resulted in lower sales during 1997. These cutbacks were a result of
cash conservation measures put in place prior to the Company completing a
private placement in August 1995. After receiving the additional equity
financing, the Company hired and replaced employees in the sales department and
otherwise increased marketing efforts including additional trade-show attendance
and advertising. As a result of this refocus, bookings for the fourth quarter of
1997 were the highest in Company history ($3.5 million).
Net product sales of $5.8 million decreased $1.3 million (18%) in 1997 primarily
due to a lower level of shipments of military aerospace products. Military
shipments were impacted by the winding down of a missile guidance system program
which is approaching the end of its life cycle. Volume in military aerospace
products should increase in fiscal 1998 as the Company begins deliveries under a
new, longer term military program. The Company was awarded a contract for $1.3
million under this program which, along with follow-on orders, should
10
provide a solid base to grow revenues over the next few years. During 1997, net
product sales of Large Area Avalanche Photodiode (LAAPD) products increased by
$53,000 to $154,000. During 1996, the Company curtailed LAAPD production because
of low reliability and yields it was obtaining in the manufacturing process.
After considerable research 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. While the Company anticipates
increasing volume from sales of LAAPD products made with its newly developed
manufacturing process, further refinements in the manufacturing process will be
required before full production can be achieved. While current demand exceeds
the Company's ability to deliver, the Company expects but cannot insure that the
remaining manufacturing issues can be corrected in the near-term. 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 by $233,000 (29%). 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 the
third quarter of 1997, revenues from the DOE contract began to wind down and the
contract was completed. During the second half of 1997, 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 and
work should resume in Q1 1998.
COSTS AND EXPENSES
Cost of product sales decreased by $566,000 (13%) in 1997 and gross profit
margin on net product sales decreased by 4 percentage points compared to 1996 to
33%. The decreases are attributable to lower product shipments and a related
decrease in manufacturing volume efficiencies. In line with the reduction in
product shipments, the Company has reduced its workforce (permanent and
temporary employees from 86 to 69 during 1997) through attrition and a reduction
in force in February 1997.
Research and development costs decreased by $187,000 (9%) to $1.9 million in
1997. The decrease in R&D costs is primarily due to the lower level of R&D
effort on government contracts (see "Revenues" above) as well as a general
reduction in internal R&D efforts as the Company focuses more on the production
of the LAAPD. 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 $296,000 (42%) to $997,000 in 1997.
The increases were primarily due to increased manpower and higher marketing
costs. This increase was expected, as the Company pursues its plan for growth.
In addition, sales and marketing expenditures had been deferred during 1996
awaiting the successful completion of a private placement offering (See
Liquidity and Capital Resources). Marketing and sales expenses should continue
to increase as the Company continues to pursue its plan for growth and
commercialization of the LAAPD family of products.
11
General and administrative expenses increased by $223,000 (16%) to $1.6 million
in 1997 primarily due to a one-time reorganization charge of approximately
$323,000 related to management changes which occurred in October 1996. Other
general and administrative expenses decreased by $111,000 (8%) in 1997 compared
to 1996. The decline was primarily due to lower personnel and insurance costs
(coverages remained constant or were improved).
Interest income in 1997 of $167,000 was $24,000 higher than 1996 as a result of
higher average cash balances. In August 1995, the Company completed a private
placement which increased its average cash balances during Q3 and Q4 of 1996 and
all of 1997 (see Liquidity and Capital Resources).
Fiscal year 1996 Compared to Fiscal Year 1995
REVENUES
The Company's revenues for 1996 were $7.9 million, an increase of 16% from
revenues of $6.8 million for the fiscal year ended April 2, 1995 ("1995"). Net
product sales of $7.0 million increased $540,000 (8%) in 1996. Development
contract revenues increased by $548,000 (204%) primarily due to two development
contracts which were awarded during 1996 (see Revenue discussion in "Fiscal Year
1997 Compared to Fiscal Year 1996" above).
1996 net product sales increased by 8% principally from increased volume in
military and commercial aerospace products. Included in these products are
shipments to the Company's largest customer where the Company has been able to
expand it's product offering and provide additional value added to it's product
line. Higher volume in military and commercial aerospace products was partially
offset by lower volume in industrial and medical products. 1996 shipments of
LAAPD products were nominal and slightly lower than for 1995. During 1995, the
Company suspended most shipments of its proprietary LAAPD products and curtailed
LAAPD production because of a high rate of field failures and low manufacturing
yields. During 1996, the Company focused essentially all research and
development resources on the baseline LAAPD manufacturing process to produce
devices with both good performance and improved reliability as well as with
improved process yields. The Company believed these efforts were successful and
resumed shipment of evaluation products during the third quarter of fiscal year
1996.
COSTS AND EXPENSES
Cost of product sales decreased by $304,000 (6%) in 1996 despite the increase in
net product sales. The gross profit margin on net product sales strengthened to
37%, an increase of 10 percentage points compared to 1995. This increase in
gross margin on net product sales was attributable to a number of factors
including improved pricing, cost containment programs, productivity improvements
and product mix improvements.
A 12% reduction in personnel at the end of fiscal year 1994 (12 people out of
103) improved results of operations in each of the quarters of fiscal 1995 and
1996 by approximately $100,000, or $400,000 on a fiscal year basis. The Company
again took action to reduce costs in March 1995 through another reduction in
personnel and other adjustments, including consolidation of certain
administrative functions.
Research and development costs increased by $247,000 (13%) to $2.1 million in
1996. The increase in R&D costs is primarily due to the higher level of R&D
effort on government contracts. The portion of R&D costs not related to
government contracts decreased in 1996 as compared to 1995. The Company has
better controlled its internal R&D activities and has been able to obtain
government funded development contracts to support its internal R&D efforts.
These costs might otherwise be incurred as internal R&D without any additional
funding.
Marketing and sales expenses decreased by $206,000 (23%) to $701,000 in 1996.
Expenses in the core product lines decreased by $113,000 (17%) due to reductions
in salary expense, advertising and commissions to outside sales representatives.
The Company made a decision in fiscal year 1995 to reduce the number of
independent
12
representatives who are paid on a commission basis and increase the focus on a
direct sales force. In addition, replacement of a senior level employee who
resigned in March 1995 was deferred until December 1995. Marketing and sales
expenses in the LAAPD product lines decreased by $93,000 (41%) due to reductions
in headcount, advertising and other marketing expenses. Marketing efforts have
been curtailed as the Company focused on improving the reliability of its LAAPD
products. The Company has combined its sales and marketing efforts for all
product lines during 1997.
General and administrative expenses decreased by $290,000 (17%) to $1.4 million
in 1996. These decreases are primarily due to reductions in salaries and wages
and to a reduction in fees paid to outside members of the Company's Board of
Directors. The Company appointed a new President and Chief Executive Officer in
May 1994 while continuing to pay the salary of the prior executive through March
1995, resulting in higher salaries and wages during 1995. Changes in the make-up
of the Board of Directors during 1996 have resulted in a reduction in fees. 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. The decrease in 1996 versus 1995
expenses was somewhat offset by higher legal fees due to a higher level of
patent reviews and general corporate matters.
Interest income in 1996 of $143,000 was $41,000 higher than 1995 as a result of
higher average cash balances. In August 1995, the Company completed a private
placement which increased its average cash balances for 1996 (see Liquidity and
Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At March 30, 1997, the Company had cash, cash equivalents and short-term
investments of $2.7 million, working capital of $3.3 million and an accumulated
deficit of $17.7 million. The Company's cash, cash equivalents and short-term
investments decreased $1.4 million during the twelve months ended March 30,
1997. Cash of $1.1 million was used for operating activities, including an
increase in net inventories of $288,000. Capital spending during 1997 was
$331,000 compared to $82,000 during 1996. Capital spending was lower during 1996
as the Company conserved its resources pending receipt of additional equity
financing.
The Company's LAAPD technology is still considered to be in the development
stage and subject to risks inherent in the development of products based on new
technologies. These risks include getting the invention out of the laboratory
and into actual use in the field and stepping up production from the prototype
(early) stages of manufacturing. To enable the Company to meet its capital
commitment needs, the Company historically has supplemented cash operating needs
with proceeds from private placement equity financing, bank lines of credit and
loans from stockholders. At March 30, 1997, 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 has used the proceeds of its private placement offering to implement
its strategic business plan, which 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 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.
13
FORWARD LOOKING STATEMENTS
This Annual Report 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.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of Advanced Photonix, Inc.
are included in Item 8.
Page
Report of Independent Public Accountant 15
Consolidated Statements of Operations
for each of the three years in the period ended March 30, 1997 16
Consolidated Balance Sheets at March 30, 1997 and March 31, 1996 17-18
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended March 30, 1997 19
Consolidated Statements of Cash Flows
for each of the three years in the period ended March 30, 1997 20
Notes to Consolidated Financial Statements 21-28
All other schedules for which provisions are made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, or are disclosed in the consolidated financial statements,
or are inapplicable and, therefore, have been omitted.
14
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Advanced Photonix, Inc.:
We have audited the accompanying consolidated balance sheets of Advanced
Photonix, Inc. (a Delaware Corporation) and Subsidiary as of March 30, 1997 and
March 31, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Photonix, Inc. and
Subsidiary as of March 30, 1997 and March 31, 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 23, 1997
15
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the three years
in the period ended March 30, 1997 1997 1996 1995
- ---------------------------------------------------- --- ------------------ -- ------------------ -- ------------------
REVENUES
Net product sales $ 5,792,000 $ 7,047,000 $ 6,507,000
Development contracts 583,000 816,000 268,000
------------------ ------------------ ------------------
6,375,000 7,863,000 6,775,000
------------------ ------------------ ------------------
COSTS AND EXPENSES
Cost of product sales 3,900,000 4,466,000 4,770,000
Research and development 1,912,000 2,099,000 1,852,000
Marketing and sales 997,000 701,000 907,000
General and administrative 1,627,000 1,404,000 1,694,000
------------------ ------------------ ------------------
8,436,000 8,670,000 9,223,000
------------------ ------------------ ------------------
LOSS FROM OPERATIONS (2,061,000) (807,000) (2,448,000)
------------------ ------------------ ------------------
OTHER INCOME (EXPENSE)
Interest expense - (3,000) (4,000)
Interest income 167,000 143,000 102,000
Other, net 8,000 13,000 (18,000)
------------------ ------------------ ------------------
175,000 153,000 80,000
------------------ ------------------ ------------------
NET LOSS - $(.17), $(.07), $(.28) per share $ (1,886,000) $ (654,000) $ (2,368,000)
================== ================== ==================
<FN>
See notes to consolidated financial statements.
</FN>
16
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
March 30, March 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,217,000 $ 4,042,000
Short-term investments 1,459,000 -
Accounts receivable, less allowance of $83,000 in 1997 and
$105,000 in 1996 642,000 792,000
Inventories 1,074,000 813,000
Prepaid expenses and other current assets 61,000 86,000
------------ ------------
Total Current Assets 4,453,000 5,733,000
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,331,000 3,198,000
Less accumulated depreciation and amortization (2,364,000) (2,038,000)
------------ ------------
967,000 1,160,000
------------ ------------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$186,000 in 1997 and $152,000 in 1996 650,000 684,000
Patents, net of accumulated amortization of
$21,000 in 1997 and $9,000 in 1996 40,000 53,000
Other 55,000 76,000
------------ ------------
745,000 813,000
------------ ------------
$ 6,165,000 $ 7,706,000
============ ============
<FN>
See notes to consolidated financial statements.
</FN>
17
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
March 30, March 31,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 295,000 $ 167,000
Accrued expenses:
Salaries and employee benefits 451,000 293,000
Warranty 95,000 95,000
Other 278,000 247,000
------------ ------------
Total Current Liabilities 1,119,000 802,000
------------ ------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK AT REDEMPTION VALUE 98,000 98,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized
50,000,000 shares;
1997--10,717,493 shares issued and outstanding
1996--10,631,186 shares issued and outstanding 11,000 10,000
Class B Common Stock, par value $.001 per share; authorized
4,420,113 shares;
1997--159,225 shares issued and 137,002 outstanding
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 in 1997 and 1996 (50,000) (50,000)
Accumulated deficit (17,672,000) (15,786,000)
------------ ------------
4,948,000 6,806,000
------------ ------------
$ 6,165,000 $ 7,706,000
============ ============
<FN>
See notes to consolidated financial statements.
</FN>
18
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Class A Class B Class B Common
For each of the three years Common Stock Common Stock Additional Treasury Stock
in the period ended ------------ ------------ Paid-in --------------- Accumulated
March 30, 1997 Shares Amount Shares Amount Capital Shares Amount Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 3, 1994 6,775,225 $ 7,000 1,605,741 $ 2,000 $19,590,000 22,223 $(50,000) $(12,764,000) $ 6,785,000
Conversion of Redeemable
Convertible Preferred Stock - - 8,100 - 22,000 - - - 22,000
Conversion of Class B Common
Stock 281,413 - (281,413) (1,000) - - - - (1,000)
Net loss for the year - - - - - - - (2,368,000) (2,368,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT APRIL 2,1995 7,056,638 7,000 1,332,428 1,000 9,612,000 22,223 (50,000) (15,132,000) 4,438,000
Issuance of Class A
Common Stock 2,400,000 2,000 - - 2,992,000 - - - 2,994,000
Conversion of Class B
Common Stock 1,161,648 1,000 (1,161,648) (1,000) - - - - -
Exercise of Warrants
and Options 12,900 - - - 28,000 - - - 28,000
Net loss for the year - - - - - - - (654,000) (654,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 10,631,186 10,000 170,780 - 22,632,000 22,223 (50,000) (15,786,000) 6,806,000
Issuance Costs on Sale of
Class A Common Stock - - - - (18,000) - - - (18,000)
Conversion of Class B
Common Stock 33,778 - (33,778) - - - - - -
Exercise of Warrants
and Options 52,529 1,000 - - 45,000 - - - 46,000
Net loss for the year - - - - - - - (1,886,000) (1,886,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 30, 1997 10,717,493 $11,000 137,002 $ - $22,659,000 22,223 $(50,000) $(17,672,000) $ 4,948,000
====================================================================================================================================
<FN>
See notes to consolidated financial statements.
</FN>
19
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three years in the period ended March 30, 1997 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(1,886,000) $ (654,000) $(2,368,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 524,000 539,000 539,000
Amortization 66,000 55,000 56,000
Decrease in market value of investments - - 26,000
(Gain) loss on disposal of fixed assets - (4,000) 2,000
Changes in assets and liabilities:
Short-term investments (1,459,000) - -
Accounts receivable 150,000 328,000 (177,000)
Inventories (288,000) 219,000 66,000
Prepaid expenses and other current assets 25,000 (40,000) 69,000
Other assets 2,000 (2,000) 7,000
Accounts payable and other accrued expenses 317,000 (116,000) 86,000
Advances 27,000 (84,000) 76,000
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,522,000) 241,000 (1,618,000)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (331,000) (82,000) (319,000)
Purchase and maturity of investments, net - - 2,140,000
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (331,000) (82,000) 1,821,000
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common and/or preferred stock, net of issuance costs (17,000) 2,994,000 -
Proceeds from exercise of stock options and warrants 45,000 28,000 -
Repayment of long-term debt - (42,000) (48,000)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 28,000 2,980,000 (48,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,825,000) 3,139,000 155,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,042,000 903,000 748,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,217,000 $ 4,042,000 $ 903,000
=========== =========== ===========
<FN>
See notes to consolidated financial statements.
</FN>
20
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 30, 1997
NOTE 1 - LINE OF BUSINESS AND BUSINESS RISKS
Advanced Photonix, Inc. (together with its subsidiary Silicon Detector
Corporation ("SDC"), the "Company"), founded in 1988 as a research and
development company, designs and manufactures optoelectronic semiconductor based
components and hybrid assemblies (the "core business") and is engaged in the
development and manufacture of proprietary and other solid state light and
radiation detection devices, including proprietary advanced solid state silicon
photodetection devices which utilize Large Area Avalanche Photodetection
("LAAPD") technology.
The Company has an accumulated deficit of $17,672,000 as of March 30, 1997, and
has incurred losses since inception. The Company's LAAPD technology is still
considered to be in the development stage and subject to risks inherent in the
development of products based on new technologies. These risks include getting
the invention out of the laboratory and into actual use in the field and
stepping up production from the prototype (early) stages of manufacturing. In
order to fund these development efforts, the Company historically has relied
upon proceeds from equity financings, bank lines-of-credit and loans from
stockholders. At March 30, 1997, no amounts were outstanding under any bank
line-of-credit and there were no stockholder loans to the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year: The Company's fiscal year ends on the last Sunday in March. Fiscal
years in the three-year period ended March 30, 1997, each contain fifty-two
weeks.
Principles of consolidation: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, SDC. All significant
intercompany accounts and transactions have been eliminated.
Cash, cash equivalents and short-term investments: The Company considers all
highly liquid investments, with an original maturity of three months or less
when purchased, to be cash equivalents. Short-term investments are comprised of
readily marketable debt securities with remaining maturities of more than 90
days at date of purchase. The short-term investments are all considered trading
securities and are bought and held principally for the purpose of selling in the
near term. Cash flows from purchases and sales of trading securities are
classified as cash flows from operating activities.
The Company maintains cash balances at a financial institution that is insured
by the Federal Deposit Insurance Corporation up to $100,000. The Company places
its cash equivalents and short-term investments in investment grade, short-term
debt instruments and limits the amount of credit exposure to any one commercial
issuer. As of March 30, 1997, the Company had cash, cash equivalents and
short-term investment balances of $2,576,000 at various financial institutions
and in various highly liquid investments which were in excess of federally
insured amounts.
Credit risk: Accounts receivable are unsecured and the Company is at risk to the
extent such amount becomes uncollectible. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not require
collateral. Receivables generally are due within 60 days. A
21
significant portion of revenues and accounts receivable are with U.S. Government
contractors, including approximately 19%, 16% and 17% of revenues from a major
customer for the fiscal years ending 1997, 1996 and 1995, respectively. In
fiscal 1997, the Company had export sales of approximately $800,000 to customers
in Canada, Germany, Great Britain and Sweden (none of which was individually
greater than 10% of total revenues).
Inventories: Inventories, which include material, labor and manufacturing
overhead are stated at the lower of cost (first in, first out) or market.
Inventories consist of the following:
March 30, 1997 March 31, 1996
-------------- --------------
Raw materials $ 336,000 $ 245,000
Work in progress 586,000 448,000
Finished products 152,000 120,000
--------------- --------------
$ 1,074,000 $ 813,000
=============== ==============
Equipment and leasehold improvements: Equipment and leasehold improvements are
stated on the basis of cost or estimated fair market value on the date acquired.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets or lease term ranging from five years
to eleven years. 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 are removed from the accounts and any resulting
gain or loss is included in other income (expense) in the accompanying
statements of operations. Equipment and leasehold improvements consist of the
following:
March 30, 1997 March 31, 1996
-------------- --------------
Laboratory equipment $2,570,000 $2,411,000
Furniture, fixtures and office equipment 365,000 448,000
Leasehold improvements 315,000 309,000
Construction in progress 81,000 30,000
--------------- --------------
$3,331,000 $3,198,000
=============== ==============
Patents: Patents represent costs incurred in connection with patent
applications. Such costs are amortized using the straight-line method over the
useful life of the patent once issued, or expensed immediately if any specific
application is unsuccessful. Amortization expense was $12,000; $2,000 and $2,000
for the fiscal years 1997, 1996 and 1995, respectively.
Goodwill: The excess of cost over the purchase price of acquired net assets is
amortized on a straight-line basis over a 25 year period. Amortization expense
was $34,000; $33,000 and $34,000 for the fiscal years 1997, 1996 and 1995,
respectively.
Revenue recognition:
Development contracts - Revenues from research and development cost
reimbursement-type contracts are recorded as costs are incurred based upon the
relationship between actual costs incurred, total estimated costs, and the
amount of the contract or grant award. Estimation of costs are reviewed
periodically and any anticipated losses are recognized in the period in which
they first become determinable.
22
Production contracts - The Company uses the unit of delivery method for
recognizing sales and cost of sales under production contracts. Provision for
estimated losses, if any, is made in the period in which such losses are
determined.
Net Loss Per Share: Net loss per share is based on the weighted average number
of common and common equivalent shares outstanding. Common stock equivalents
were not considered in the calculation as their effect would be antidilutive.
Such weighted average shares were approximately 10,831,000 in 1997; 9,988,000 in
1996; and 8,383,000 in 1995.
Research and Development Costs: The Company charges all research and development
costs, including costs associated with development contract revenues, to expense
when incurred. Manufacturing costs associated with the development of a new
fabrication process or a new product are expensed until such times as these
processes or products are proven through final testing and initial acceptance by
the customer. Costs related to revenues on non-recurring engineering services
billed to customers are generally classified as cost of product sales.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Authoritative Pronouncements: In October 1995, the FASB issued FAS No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123 encourages, but
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), but requires pro
forma disclosure of net income and earnings per share as if the fair value based
method had been applied. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in APB 25
and comply with the pro forma disclosure requirements (see Note 7).
In March 1997, the FASB issued FAS No. 128, "Earnings per Share" ("FAS 128") and
FAS No. 129, "Disclosure of Information about Capital Structure" ("FAS 129").
FAS 128 revises and simplifies the computation for earnings per share and
requires certain additional disclosures. FAS 129 requires additional disclosures
regarding the Company's capital structure. Both standards will be adopted in
fiscal 1998. Management does not expect the adoption of these standards to have
a material effect on the Company's financial position or the results of
operations.
NOTE 3 - CAPITALIZATION AND STOCK PURCHASE WARRANTS
The Company's Certificate of Incorporation provides for two classes of common
stock, a Class A for which 50,000,000 shares are authorized for issuance and a
Class B for which 4,420,113 shares are authorized for issuance. The par value of
each class is $.001. Subject to certain limited exceptions, shares of Class B
Common Stock are automatically converted into an equivalent number of Class A
shares upon the sale or transfer of the Class B Common Stock by the original
holder. The holder of each share of Class A and Class B Common Stock is entitled
to one vote per share.
23
Pursuant to a Private Offering Memorandum dated June 15, 1995, the Company
completed a private placement of 2,400,000 shares, from which the Company
received gross proceeds of $3,000,000. The first closing was completed in July
and the final closing in August 1995.
In June 1992, the Company granted a warrant to purchase 500,000 shares of Class
A Common Stock at $3.00 per share which expire in December 1997 to a consultant
in conjunction with the Company's 1992 private placement. None of these warrants
have been exercised.
In August 1992, the Company granted a five year unit purchase option to the
placement agent and certain of its officers in connection with the Company's
1992 private placement. The unit purchase option consisted of options to
purchase 375,008 shares of Class A Common Stock at $3.00 per share and 375,008
Class A Warrants to purchase the Company's Class A Common Stock at $3.00 per
share. Options to purchase 25,000 shares have been exercised at March 30, 1997.
None of the warrants have been exercised.
NOTE 4 - REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has authorized 10,000,000 shares of Preferred Stock, of which
780,000 shares have been designated Class A Redeemable Convertible Preferred
Stock with a par value of $.001 per share. The number of shares of Class A
Preferred Stock issued and outstanding was 123,000 at March 30, 1997 and March
31, 1996, respectively. The Class A Preferred Stock has a liquidation preference
equal to its issue price ($.80 per share).The Class A Preferred Stock is
convertible at any time, at the option of the holder, into .3 share of Class B
Common Stock for each share of Preferred Stock converted. As of March 30, 1997,
there were 37,000 shares of Class B Common Stock reserved for the potential
conversion of the Class A Preferred Stock. The Class A Preferred Stock is
subject to redemption at the Company's option for $.80 per share at any time.
The Company would be required to pay approximately $98,000 to redeem these
shares. The holders of the Class A Preferred Stock are entitled to an annual
non-cumulative dividend preference of $.072 per share when the Company's net
earnings per share of Class A Preferred Stock equals or exceeds $.072. The Class
A Preferred stockholders do not have voting rights except as required by
applicable law.
NOTE 5 - LINE OF CREDIT
The Company has a revolving line of credit agreement with a bank for the lesser
of $1,000,000 or 75 percent of eligible trade accounts receivable, as defined by
the agreement. The agreement expires in September 1997 and provides for interest
to be paid monthly at prime plus 1.25 percent (9.75 percent at March 30, 1997).
The Company must adhere to certain requirements and provisions to be in
compliance with the terms of the agreement. Borrowings under the line of credit
are secured by accounts receivable, inventory, equipment and general
intangibles. There was no outstanding balance under the line of credit agreement
as of March 30, 1997.
NOTE 6 - INCOME TAXES
At March 30, 1997, the Company had net operating loss carry forwards of
approximately $16.2 million for federal tax purposes that expire at various
dates through fiscal year 2012. The tax laws related to the utilization of loss
carryforwards are complex and the amount of the Company's loss carry forward
that will ultimately be available to offset future taxable income may be subject
to annual limitations resulting from changes in the ownership of the Company's
common stock. The Company also has approximately $462,000 in research and
development credit carryovers available for federal tax purposes that expire in
the fiscal years 2004 through 2012.
24
Under FAS 109, deferred tax assets may be recognized for temporary differences
that will result in deductible amounts in future periods and for loss
carryforwards. A valuation allowance is recognized if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realized. A detail of the Company's net deferred
tax asset as of March 30, 1997 and March 31, 1996 follows:
March 30, 1997 March 31, 1996
-------------- --------------
NOL Carryforwards $ 6,273,000 $ 5,596,000
Inventory obsolescence 541,000 511,000
Warranty 37,000 37,000
Depreciation (3,000) (75,000)
Other 105,000 97,000
------------- --------------
6,953,000 6,166,000
Less valuation allowance (6,953,000) (6,166,000)
-------------- --------------
Net deferred tax asset $ -0- $ -0-
============== ==============
Due to the uncertainty surrounding the realization of the favorable tax
attributes of such net operating loss carry forwards in future tax returns, the
Company has recorded a valuation allowance against its otherwise recognizable
deferred tax assets. Accordingly, no deferred tax asset has been reported in the
accompanying balance sheet.
As the Company incurred losses in fiscal years 1997, 1996 and 1995, the Company
has recorded minimum state taxes of $1,600 in other expense each year in the
accompanying statements of operations.
NOTE 7 - STOCK OPTIONS
The Company has three stock option plans, the 1990 Incentive Stock Option and
Non-Qualified Stock Option Plan ("The 1990 Plan"), the 1991 Directors' Stock
Option Plan ("The Directors' Plan") and the 1997 Employee Stock Option Plan
("The 1997 Plan"). The Company accounts for these plans under APB Opinion No.
25, under which no compensation cost has been recognized. Had compensation
expense for these plans been determined consistent with FAS 123, the Company's
net loss and net loss per share would have increased to the following pro forma
amounts:
1997 1996
------------- -------------
Net Loss - as reported $ (1,886,000) $ (654,000)
Net Loss - pro forma (2,108,000) (1,410,000)
Net Loss per share - as reported (0.17) (0.07)
Net Loss per share - pro forma (0.19) (0.14)
------------- -------------
25
Because the FAS 123 method of accounting has not been applied to options granted
prior to April 3, 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in future years. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
1997 and 1996, respectively: risk free interest rates of 6.53 percent and 6.56
percent, expected volatility of 63.33 percent and 66.84 percent, and expected
lives of 10 years in both periods. No dividends were assumed in the
calculations.
The Company's various stock option plans provide for the granting of
non-qualified and incentive stock options to purchase up to 2,200,000 shares of
common stock for periods not to exceed 10 years. As of March, 30, 1997, there
were 1,077,500 shares available for future grant under such plans. Options
typically vest at the rate of 25 percent per year over four years, except for
options granted under The Directors' Plan, which typically vest at the rate of
50 percent per year over two years. Under these plans, the option exercise price
equals the stock's market price on the date of grant. Options may be granted to
employees, officers, directors and consultants. The Company has also granted
options, under similar terms as above, under no specific shareholder approved
plan.
Stock option transactions for 1997, 1996 and 1995 are summarized as follows:
1997 1996 1995
------------------------- -------------------------- -------------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
- -------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 2,191 $ 3.52 2,247 $ 4.16 2,131 $ 4.78
- -------------------------------------------------------------------------------------------------------------------
Granted 530 2.58 550 2.18 744 2.20
Exercised (101) 2.13 (13) 2.16 - -
Canceled (108) 2.74 (593) 4.74 (628) 3.94
- -------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 2,512 $ 3.41 2,191 $ 3.52 2,247 $ 4.16
- -------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,905 $ 3.76 1,825 $ 3.83 1,838 $ 4.66
- -------------------------------------------------------------------------------------------------------------------
Weighted average fair value
of options granted $2.010 $1.755 -
- -------------------------------------------------------------------------------------------------------------------
The following table summarizes information about fixed-price stock options
outstanding at March 30, 1997:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------
Wtd Avg Remaining Wtd Avg Exercise Wtd Avg Exercise
Option Price Range Shares (000) Contractual Life Price Shares (000) Price
- ----------------------------------------------------------------------------------------------------------------------
$ 6.00 750,000 3.87 years $ 6.00 750,000 $ 6.00
$ 4.00-5.75 87,000 4.41 years $ 4.86 85,000 $ 4.86
$ 2.25-3.31 1,074,500 7.00 years $ 2.42 595,400 $ 2.35
$ 2.13 199,800 .17 years $ 2.13 199,800 $ 2.13
$ 1.5-1.75 401,000 7.66 years $ 1.57 274,500 $ 1.57
- ----------------------------------------------------------------------------------------------------------------------
26
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company leases its manufacturing and office facility under a noncancellable
operating lease. Future minimum lease payments are subject to annual adjustment
upward for increases in the Consumer Price Index. Approximate minimum future
lease payments under all noncancellable operating leases expiring at various
dates through fiscal 2001, are as follows:
Fiscal year ending:
1998 $364,000
1999 165,000
2000 24,000
2001 12,000
--------
$565,000
========
Rent expense for the fiscal years ending 1997, 1996 and 1995 was approximately
$346,000; $323,000 and $310,000, respectively.
The Company has employment and termination agreements with certain employees
under which the employees may receive severance pay through the end of the term
of the contract or up to six months. Total compensation under these agreements
in the event of employment through the full term would be approximately $275,000
for each of the fiscal years ending 1998, 1999 and 2000, respectively.
NOTE 9 - LEGAL
The Company is, from time to time, subject to legal and other matters in the
normal course of its business. While the results of such matters cannot be
predicted with certainty, management does not believe that the final outcome of
any pending matters will have a material effect on the financial position and
results of operations of the Company.
NOTE 10 - EMPLOYEES' RETIREMENT PLAN
The Company maintains a 401(k) Plan which is qualified under the Internal
Revenue Code. All full-time employees are eligible to participate in the Plan.
Employees may make voluntary contributions to the Plan which are matched by the
Company at the rate of $.50 for every $1.00 of employee contribution, subject to
certain limitations. The Company contributions recognized as expense were
approximately $69,000, $68,000, and $84,000 for the fiscal years ending 1997,
1996 and 1995, respectively.
NOTE 11 - SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
March 3, March 31, April 2,
1997 1996 1995
---- ---- ----
Cash paid during the year for:
Interest (net of amount capitalized) $ - $ 2,600 $ 4,000
Income taxes 1,600 5,407 -
Noncash Transactions:
Issuance of common stock upon the
conversion of Redeemable Convertible
Preferred Stock - - 22,000
27
NOTE 12 - VALUATION AND QUALIFYING ACCOUNTS
Balance at Charged to Balance at
Beginning of Cost and End of
(Dollars in thousands) Period Expenses Deductions Period
------------ ---------- ---------- ----------
Year end March 30, 1997
Reserve for obsolescence $1,323 $ 77 $ - $1,400
Allowance for bad debt 105 - 22 83
Warranty 95 39 39 95
Year end March 31, 1996
Reserve for obsolescence 956 367 - 1,323
Allowance for bad debt 105 - - 105
Warranty 95 - - 95
Year end April 2, 1995
Reserve for obsolescence 894 215 153 956
Allowance for bad debt 87 50 32 105
Warranty 95 10 10 95
28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The information contained in the Current Report on Form 8-K amended by Form
8-K/A, dated January 26, 1995, is incorporated herein by reference.
PART III
Item 10. Directors and Executive Officers
Set forth below is certain information relating to the directors and officers of
the Company.
Name Age Position
Hayden Leason 66 Chairman of the Board and Chief Executive Officer
James A. Gordon 47 Director
Jon B. Victor 44 Director
James W. Ward 58 Director
Harry Melkonian 47 President
Patrick J. Holmes 51 Executive Vice President, Chief Financial Officer,
Secretary & Treasurer
Robert C. King 53 Vice President of Sales & Marketing
Hayden Leason, Chairman of the Board and Chief Executive Officer
- ----------------------------------------------------------------
Mr. Leason became a director of the Company in July 1995 and was elected
Chairman of the Board in October 1996 and elected Chief Executive Officer in
November 1996. In 1965 Mr. Leason founded Filtertek Inc., a designer and
manufacturer of specialty filtration elements, which subsequently became a New
York Stock Exchange listed company. He served as Chairman and Chief Executive
Officer until 1992 when he sold his interest to Schawk Inc. Since 1992, Mr.
Leason has managed various private investments. Mr. Leason is a 1954 graduate of
Northwestern University where he received his Bachelor of Science degree in
Business Administration.
James A. Gordon, Director
- -------------------------
Mr. Gordon became a director of the Company in August 1992. Since January 1992,
Mr. Gordon has been President of Gordon Management, Inc., which is the general
partner of Edgewater Private Equity Fund L.P., a limited partnership formed for
investment purposes. In addition, Mr. Gordon has managed Focused Value Equity
portfolios since 1985. Since 1986, Mr. Gordon has been a member of the Board of
Directors of Bankers Trust Company (Iowa), and has served as Chairman of its
Trust and Investment Committee, as well as a member of both its Audit and Loan
Committees. He presently serves as a member of the Boards of Directors of the
following organizations: Grinnell College (also serving as Chairman of the
Investment Committee); IMNET, Inc.; SoftNet Systems, Inc.; HealthDesk, Inc.;
Cellular World Corp.; DAC Vision, Inc.; Microware Systems Corporation; Pride
Industries, Inc.; and Pangea, Inc. He is currently a Board member of the
National Committee for the Performing Arts of the Kennedy Center. Mr. Gordon
served as a member of the Board of Directors for Des Moines Art Center; Des
Moines Ballet; Des Moines Metro Opera; Governor's United Nations Board; Iowa
Society to Prevent Blindness; Des Moines Parent Teacher Association; Young
President's Organization; and Northwestern University Alumni Board.
29
Jon B. Victor, Director
- -----------------------
Mr. Victor became a director of the Company in June 1995. Mr. Victor is the
Manager of Greenwich Ventures, LLC, which is the general partner of Greenwich
Ventures, LP and Vantage Ventures, CV, Investment Partnerships which he
organized in 1996. He began his career in the equity research and trust
departments of the Bank of New York. From 1978 through 1982 he worked for J. &
W. Seligman & Co., where he was responsible for offshore advisory relationships,
and was President of the firm's broker/dealer subsidiary. Mr. Victor founded
Security Capital Management, Inc., an investment advisory firm, in 1983, and
served as its President or Co-President until 1996. In 1992, Mr. Victor
co-founded Gordon Management, Inc., the general partner of Edgewater Private
Equity Fund, LP, and Edgewater Private Equity Fund II, LP. Mr. Victor is a 1973
magna cum laude graduate of Washington University and a 1977 graduate of the
George Washington University School of Law where he earned his J.D. cum laude
and completed his M.B.A. course work. Mr. Victor serves on the Board of
Directors of several private investment firms and acts as an independent
arbitrator for the National Futures Association.
James W. Ward, Director
- -----------------------
Mr. Ward has been a director of the Company since May 1994. He served as
President and Chief Executive Officer from May 1994 until October 1996 and as
Chairman of the Board from February 1995 until October 1996. Prior to joining
the Company, he was President and CEO of Boss Golf Company, Inc., a company that
he co-founded in September 1992. From 1990 to 1992, Mr. Ward was President of
Ling Electronics, Inc. a manufacturer of electrodynamic vibration test systems
worldwide. From 1980 through 1989, he was President of two Gulton Industries,
Inc. companies, Engineered Magnetics and Transrex. Mr. Ward experienced a
distinguished career with General Electric Company over a period of 18 years,
holding various management responsibilities in marketing, engineering,
manufacturing and quality assurance, primarily for the commercial nuclear power
generating plant business. He also served on the IEEE Standards Committee that
generated the IEEE Standard on Nuclear Quality Assurance. Mr. Ward is a
Registered Professional Engineer in California and past-recipient of The
Missouri Honor Award for Distinguished Service in Engineering from the
University of Missouri, Columbia. He holds a Bachelor of Science Degree and a
Master of Science Degree in electrical engineering from the University of
Missouri.
Harry Melkonian, President
- --------------------------
Mr. Melkonian joined the Company in June 1992 and was elected President in
November 1996. He served as General Manager of the Company's PIN photodiode
business from 1993 until November 1996. From 1989 until joining the Company, Mr.
Melkonian operated Melkonian Associates, a consulting firm that assisted the
Company in the acquisition of its subsidiary, Silicon Detector Corporation. From
1987 until 1989, he was Director of Operations at Simulaser Corporation; and for
six years previously, he held various operations level positions at Sensor
Technology, Inc. Mr. Melkonian holds a Bachelor of Science degree in Business
Administration from Northeastern University.
Patrick J. Holmes, Executive Vice President, Chief Financial Officer, Corporate
Secretary and Treasurer
- ---------------------------
Mr. Holmes joined the Company in August 1993 and was named Executive Vice
President in November 1996. From 1989 until joining the Company, Mr. Holmes was
a Division Controller for Textron, Inc. From 1985 until 1989, he was Chief
Accountant and Financial Operations Manager for two start-up companies of
Lockheed Corporation in Sunnyvale, CA. Previously, Mr. Holmes held senior
financial posts with General Dynamics and Datapoint Corporation. Mr. Holmes, who
is a Certified Public Accountant, received his degree in accounting, magna cum
laude, from the University of Missouri in St. Louis and is a past recipient of
the Missouri Society of CPAs Silver Medal.
Robert C. King, Vice President of Sales & Marketing
- ---------------------------------------------------
Mr. King joined the Company in December 1995. From 1992 until joining the
Company, Mr. King was Vice President, Sales and Marketing of Medical Materials
Corporation. From 1989 until 1992, he was Vice President, Market and Business
Development of PCO, a subsidiary of Corning Incorporated and an affiliate
30
of IBM. From 1986 until 1989, he was Executive Vice President, Sales and
Marketing of Wangtek. Prior to 1986, Mr. King held sales and executive level
positions for Granger Associates, Q.T. Wiles and Associates, TRW Semiconductor
and North American Aviation. Mr. King holds a Bachelor of Science degree in
Mechanical Engineering, cum laude, from Ohio University in Athens, Ohio.
Directors serve annual terms until the next annual meeting of stockholders and
until their successors are elected and qualified. Officers serve at the pleasure
of the Board of Directors. Pursuant to an agreement between the Company and D.H.
Blair, entered into in connection with a private placement offering of the
Company's capital in 1992, D.H. Blair has the right, at its option through
August 10, 1997, to designate one director to the Board of Directors of the
Company. To date, it has not exercised its option.
Item 11. Executive Compensation
The following table sets forth compensation paid or accrued by the Company for
services rendered to the Company's Chief Executive Officer and to each of the
other executive officers of the Company whose cash compensation exceeded
$100,000 for services rendered during the last three fiscal years.
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
---------------------------- -------------------------- -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Fiscal Salary Bonus Compensation Awards Options Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)(1)
- --------------------------------------------------------------------------------------------------------------------
Hayden Leason 1997 - - - - - - -
Chairman of the Board and 1996 - - - - 25,000 - -
Chief Executive Officer(2) 1995 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------
James W. Ward 1997 109,000 - - - - - 55,700(3)
Chairman of the Board, 1996 173,000 25,000 - - - - 4,700
President and Chief 1995 142,000 - - - 150,000(4) - 3,600
Executiv Officer(3)
- ---------------------------------------------------------------------------------------------------------------------
Harry Melkonian, 1997 135,000 - - - 140,000 - 3,900
President(5) 1996 110,000 15,000 - - - - 3,300
1995 110,000 15,000 - - 60,000 - 3,300
- ---------------------------------------------------------------------------------------------------------------------
Patrick J. Holmes 1997 125,000 - - - 70,000 - 3,300
Executive Vice President, 1996 125,000 15,000 - - - - 3,800
CFO, Secretary & Treasurer 1995 125,000 - - - 80,000 - 3,800
- ---------------------------------------------------------------------------------------------------------------------
Robert King 1997 125,000 18,000 - - 20,000 - 4,500
Vice President of Sales 1996 42,000 8,000 - - 60,000 - 900
1995 - - - - - - -
- ---------------------------------------------------------------------------------------------------------------------
<FN>
1 Represents amounts paid by the Company on behalf of the named person in connection with the Company's 401(k) Retirement Plan
accept for $51,000 paid to Mr. Ward (see note 3 below).
2 Mr. Leason became Chairman of the Board in October 1996 and Chief Executive Officer in November 1996.
3 Mr. Ward terminated his employment in October 1996. Pursuant to an arrangement with the Company, amounts paid to him subsequent
to the termination of his employment are included in All Other Compensation.
4 Does not include 150,000 option shares granted in May 1994 which were canceled in January 1995.See "Ten-Year Option Repricings."
5 Mr. Melkonian became President in November 1996.
</FN>
Employment Agreements
The Company has employment and termination agreements with certain employees,
including Messrs. Melkonian and Holmes under which the employees may receive
severance pay through the end of the term of the contract or up to twelve
months. See Notes to Consolidated Financial Statements - Note 8.
31
James W. Ward terminated his employment on October 16, 1996 and remained as a
Director. Pursuant to an agreement with the Company, Mr. Ward will continue to
be paid his salary through September 16, 1996, subject to certain reductions for
his other earnings.
Stock Options
The following tables set forth certain information concerning stock options
granted to and exercised by the persons named in the Summary Compensation Table
during the last fiscal year and unexercised stock options held by such persons
at the end of such fiscal year. No options were exercised during the last fiscal
year.
Option Grants in Fiscal 1997
Individual Grants
----------------------------
Number of Securities %of Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name(1) Granted (#) Fiscal Year ($/Sh) Date
- --------------------------------------------------------------------------------
Hayden Leason - - - -
Harry Melkonian 140,000 28% $2.50 1/14/07
Patrick J. Holmes 70,000 14% $2.50 1/14/07
Robert C. King 20,000 4% $2.50 1/14/07
1 See "Summary Compensation Table" and Item 10 "Directors and Executive
Officers" for principal position.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Value of Unexercised
Number of Securities Underlying In-the-Money Options at
Shares Acquired Unexercised Options at Fiscal Year End(#) Fiscal Year End ($)
Name1 on Exercise (#) Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------------- -------------- ------------------------- -------------------------
Hayden Leason - - 25,000/0 -
James W. Ward - - 90,000/60,000 33,750/22,500
Harry Melkonian - - 88,000/112,000 22,500/0
Patrick J. Holmes - - 74,000/76,000 18,000/4,500
Robert C. King - - 28,000/52,000 -
- ------------------------ ---------------- ---------------- ------------------------------------- --------------------------
<FN>
1 See "Summary Compensation Table" and Item 10 "Directors and Executive Officers" for principal position.
</FN>
On January 18, 1995 the Board of Directors canceled outstanding options to
purchase an aggregate of 365,000 shares of the Company's Class A Common Stock
and granted to the holders of such options new options to purchase an equivalent
number of shares. These options were the only options of the Company which have
been issued coincident with the cancellation of outstanding options or otherwise
repriced since the Company's inception through April 2, 1995. The Board of
Directors concluded that the subsequent decrease in the market price for the
Company's Class A Common Stock below the exercise price for the canceled options
was due to factors which were principally not all within the realm of
responsibility of the option holders and that the options no longer provided the
incentive to such option holders to perform on behalf of the Company in the
manner contemplated by the Board when the canceled options were initially
granted. On the date of the issuance of the new options and the cancellation of
the outstanding options, the closing sale price for the Company's Class A Common
Stock as reported on the American Stock Exchange was $1.56. The following table
sets forth certain information regarding the aforementioned canceled and new
options:
32
Ten-Year Option Repricings
Number of Securities Market Price of Exercise Price at Length of Original
Underlying Options Stock at Time of Time of New Option Term Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Name1 Date Amended (#) Amendment ($) Amendment ($) Price ($) Repricing or Amendment
- ---- ---- ----------- ------------- ------------- --------- ----------------------
James W. Ward 1/18/95 150,000 1.56 3.25 1.56 9 years
Harry Melkonian 1/18/95 60,000 1.56 3.62 1.56 7 years
Patrick J. Holmes 1/18/95 30,000 1.56 4.87 1.56 9 years
30,000 1.56 4.50 1.56 9 years
- -------------------- ---------- -------------------- ----------------- ---------------- ---------- -------------------------
<FN>
1 See "Summary Compensation Table" and Item 10 "Directors and Executive Officers" for principal position.
</FN>
Compensation of Directors
Prior to October 1995, each director who is not an employee of the Company or an
affiliate received an annual fee of $10,000, payable in quarterly increments,
and a fee of $1,000 for each meeting attended. Each of the directors who is not
an employee of the Company is eligible for grants of stock options upon their
appointment to the Board of Directors under the 1991 Special Directors Stock
Option Plan and on an annual basis so long as they remain on the Board.
Directors who are also officers of the Company or its affiliates do not receive
cash compensation in consideration for their services as directors. All
directors, however, including employee directors, are reimbursed for reasonable
travel expenses incurred in connection with their attending meetings of the
Board of Directors and committees. In October 1995, the Board of Directors
eliminated the accrual or payment of all fees including all annual fees, meeting
fees and any payment for services as the Chairman or Member of any Committee of
the Board of Directors except for reasonable travel expenses. In addition,
participation in the 1991 Special Directors Stock Option Plan other than initial
grants for new directors was suspended.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively, the "Reporting Persons")
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of these reports. New
rules governing these reports were adopted in February 1991 and generally became
effective in May 1991. Based upon the Company's review of copies of these
reports received by it, the Company believes that all filings required to be
made by the Reporting Persons during the fiscal year ended March 30, 1997 were
made on a timely basis.
33
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 2, 1997, certain information
concerning the holdings of each person who was known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding shares of
Class A or Class B Common Stock of the Company, by each director and executive
officers and by all directors and officers as a group.
Class A Common Stock Class B Common Stock
-------------------------------------------- ------------------------------------------
Shares Under Shares Under
Shares Exercisable Percent of Shares Exercisable Percent of Percent
Owned Options/Warrants(1) Class Owned Options/Warrants Class Voting(2)
The Dreyfus Corporation(3) 1,521,000 - 14.2 - - - 14.0
Hayden Leason(4) 1,304,100 25,500 12.4 - - - 12.2
J. Morton Davis(5) 656,045 333,340 9.0 - - - 8.9
The Townsend Group 758,900 - 7.1 - - - 7.0
Advanced Detectors, Inc.(6) - 750,000 6.5 - - - 6.5
John Pappajohn(7) 186,668 500,000 6.1 - - - 6.0
James A. Gordon(8) 593,640 28,000 5.8 - - - 5.7
Edgewater Private Equity Fund(9) 593,640 28,000 5.8 - - - 5.7
Jon Victor(10) 237,400 25,000 2.4 - - - 2.4
James W. Ward 13,850 120,000 1.2 - - - 1.2
Patrick J. Holmes 50,000 64,000 1.1 - - - 1.0
Harry Melkonian 10,000 60,000 0.6 - - - 0.6
Robert C. King 30,000 24,000 0.5 - - - 0.5
Directors & Officers as a Group 2,238,990 346,000 23.4 - - - 23.1
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
1 Includes shares under options/warrants exercisable on March 30, 1997 and options which become exercisable within 60 days
thereafter.
2 Represents combined voting power of both Class A and Class B Common Stock, assuming beneficial owner exercises all exercisable
options and warrants.
3 Shareholder is a subsidiary of Mellon Bank, N. A., One Mellon Bank Center, Pittsburgh, PA 15258-0001.
4 The address of this shareholder is Palmas Del Mar, 10 Monte Sol, Humacao, Puerto Rico 00791.
5 The address of this shareholder is D.H. Blair, 44 Wall Street, New York, NY 10005. Includes 617,760 shares and 333,340 shares
underlying a unit purchase option owned by D. H. Blair Investment Banking Corp. and 38,285 shares owned by Parliament
Hill Corporation.
6 Formerly Xsirius, Inc., the last address known for this beneficial owner was 1220 Avenida Acaso, Camarillo, CA 93012.
7 The address of this shareholder is c/o Equity Dynamics, 2116 Financial Center, Des Moines, IA 50309.
8 The address of this shareholder is c/o Edgewater Private Equity Fund, 666 Grand Avenue, Suite 200, Des Moines, IA 50309.
Includes 593,640 shares owned by Edgewater Private Equity Fund, L.P. ("Edgewater"). Mr. Gordon is the President of Gordon
Management, Inc. which is the general partner of Edgewater.
9 The address of this shareholder is c/o Edgewater Private Equity Fund, 666 Grand Avenue, Suite 200, Des Moines, IA 50309.
Includes 28,000 options granted to Mr. Gordon ( see footnote 8).
10 The address of this shareholder is c/o Greenwich Ventures, LLC, 2 Soundview Drive, Greenwich, CT 06830.
</FN>
34
Item 13. Certain Relationships and Related Transactions
On May 16, 1995, the Company issued Bernhardt Denmark an option to purchase
400,000 shares of Class A Common Stock at an exercise price of $2.25 a share.
The option, which has a five-year term, was issued in connection with Mr.
Denmark's resignation from the Board of Directors, and in exchange for the
cancellation of options to purchase 400,000 shares of the Company's Class A
Common Stock at exercise prices ranging from $4.625 to $5.00 a share which were
originally granted to Mr. Denmark in 1992 and 1993 and which would have expired
by their terms three months after his resignation as a director.
See Item 11. Executive Compensation for employment agreements.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following is a list of the financial statement schedules and exhibits filed
herewith.
(a) (2) Financial Statement Schedules:
Schedules for which provisions are made in the applicable accounting regulations
of the Securities and Exchange Commission are not required under the related
instructions, or are disclosed in the accompanying consolidated financial
statements, or are inapplicable and, therefore, have been omitted.
(a) (3) Exhibits:
Exhibit
No. Description
3.1 Certificate of Incorporation of the Registrant, as amended. -
incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on November 23, 1990.
3.1.1 Amendment to Certificate of Incorporation of the Registrant, dated
October 29, 1992-incorporated by reference to the Registrant's March 31,
1996 Annual Report on Form 10-K.
3.2 By-laws of the Registrant, as amended - incorporated by reference to the
Registrant's March 31, 1996 Annual Report on Form 10-K.
10.1* Advanced Photonix, Inc. 1991 Special Directors Stock Option Plan -
incorporated by reference to Exhibit 10.9 to the Registrant's March 31,
1991 Annual Report on Form 10-K.
10.2* Advanced Photonix, Inc. 1990 Incentive Stock Option and Non-Qualified
Stock Option Plan - incorporated by reference to Exhibit No. 10.11 to
the Registrant's Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on November 23, 1990.
10.3 Form of Non-Qualified Stock Option granted to Advanced Detectors, Inc.,
formerly Xsirius, Inc. - incorporated by reference to Exhibit 10.13 to
Amendment No. 3 to the Registrant's Registration Statement on Form S-1,
filed with the Securities and Exchange Commission on February 11, 1991.
35
10.4 Lease Agreement dated October 26, 1987 between Silicon Detector
Corporation and High Tech No. 1, Ltd. - incorporated by reference to
Exhibit 10.17 to the Registrant's March 31, 1992 Annual Report on Form
10-K.
10.5 Second Amendment to Lease dated September 9, 1991 between Silicon
Detector Corporation and High Tech No. 1, Ltd. - incorporated by
reference to Exhibit 10.18 to the Registrant's March 31, 1992 Annual
Report on Form 10-K.
10.6 Form of Non-Qualified Stock Option granted to Bernhardt Denmark -
incorporated by reference to the Registrant's March 31, 1996 Annual
Report on Form 10-K.
10.7 Form of Non-Qualified Stock Option granted to James W. Ward -
incorporated by reference to the Registrant's March 31, 1996 Annual
Report on Form 10-K.
10.8 Employment Agreement between Advanced Photonix, Inc. and James W. Ward -
incorporated by reference to the Registrant's March 31, 1996 Annual
Report on Form 10-K.
10.9 Employment Agreement between Advanced Photonix, Inc. and Patrick J.
Holmes.
10.10 Employment Agreement between Advanced Photonix, Inc. and Harry
Melkonian.
10.11 Loan and Security Agreement dated September 6, 1995 between Silicon
Valley Bank and Registrant - incorporated by reference to the
Registrant's March 31, 1996 Annual Report on Form 10-K.
10.12 Termination agreement between Advanced Photonix, Inc. and James W. Ward.
10.13 Advanced Photonix, Inc. 1997 Employee Stock Option Plan.
16 Letter from Certifying Accountant, dated January 30, 1993 - incorporated
by reference to Current Report on Form 8-K, dated January 30, 1993
21 List of Subsidiaries of Registrant - incorporated by reference to
Exhibit 22 to the Registrant's March 31, 1993 Annual Report on Form
10-K.
23.1 Consent of Arthur Andersen LLP, independent auditors.
(b) Reports on Form 8-K: On January 26, 1995, the Company filed a Current
Report on Form 8-K, amended by a Current Report on Form 8-K/A dated
January 26, 1995, relating to a change in the Company's certifying
accountant.
*Constitutes a compensation plan or arrangement required to be filed as part of
this report.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 23, 1997 By: /s/ Harry Melkonian
--------------- -------------------------
Harry Melkonian, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Signature Title Date
/s/ Hayden Leason Director, Chairman of the Board June 23, 1997
- --------------------- and Chief Executive Officer
(Principal Executive Officer)
Hayden Leason
/s/ James A. Gordon Director June 23, 1997
- ---------------------
James A. Gordon
/s/ Jon B. Victor Director June 23, 1997
- ---------------------
Jon B. Victor
/s/ James W. Ward Director June 23, 1997
- ---------------------
James W. Ward
/s/ Patrick J. Holmes Vice President, Chief Financial Officer, June 23, 1997
- --------------------- Corporate Secretary/Treasurer,
Patrick J. Holmes (Principal Financial and Accounting Officer)
37