SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 28,1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file no. 1-11056
ADVANCED PHOTONIX, INC.
Incorporated pursuant to the Laws of Delaware
IRS Employer Identification No. 33-0325826
1240 Avenida Acaso, Camarillo, CA 93012
(805) 987-0146
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
On February 8, 1998, 10,838,260 shares of Class A Common Stock, $.001 par value,
and 76,135 shares of Class B Common Stock, $.001 par value, were outstanding.
ADVANCED PHOTONIX, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3 - 6
Consolidated Statements of Operations for the
three and nine month periods ended December 28,
1997 and December 29, 1996 3
Consolidated Balance Sheets
at December 28, 1997 and March 30, 1997 4 - 5
Consolidated Statements of Cash Flows for the
three and nine month periods ended December 28,
1997 and December 29, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7 - 10
PART II OTHER INFORMATION 11
SIGNATURES 11
2
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------------------------------- ---------------------------------------------
December 28, 1997 December 29, 1996 December 28, 1997 December 29, 1996
---------------------- ---------------------- ---------------------- ---------------------
REVENUES
Net product sales $ 1,873,000 $ 1,380,000 $ 4,647,000 $ 4,433,000
Development contracts 100,000 64,000 311,000 494,000
---------------------- ---------------------- ---------------------- ---------------------
1,973,000 1,444,000 4,958,000 4,927,000
---------------------- ---------------------- ---------------------- ---------------------
COSTS AND EXPENSES
Cost of product sales 995,000 955,000 2,810,000 2,961,000
Research and development 449,000 408,000 959,000 1,496,000
Marketing and sales 220,000 237,000 681,000 686,000
General and administrative 242,000 276,000 698,000 1,216,000
---------------------- ---------------------- ---------------------- ---------------------
1,906,000 1,876,000 5,148,000 6,359,000
---------------------- ---------------------- ---------------------- ---------------------
PROFIT (LOSS) FROM OPERATIONS 67,000 (432,000) (190,000) (1,432,000)
---------------------- ---------------------- ---------------------- ---------------------
OTHER INCOME
Interest income 34,000 45,000 97,000 132,000
Other, net - 1,000 1,000 7,000
---------------------- ---------------------- ---------------------- ---------------------
34,000 46,000 98,000 139,000
---------------------- ---------------------- ---------------------- ---------------------
NET PROFIT (LOSS) $ 101,000 $ (386,000) $ (92,000) $ (1,293,000)
====================== ====================== ====================== =====================
NET PROFIT (LOSS) Per Share $ 0.01 $ (0.04) $ (0.01) $ (0.12)
====================== ====================== ====================== =====================
Weighted Average Number 10,913,000 10,835,000 10,876,000 10,823,000
of Common Shares Outstanding
====================== ====================== ====================== =====================
See notes to consolidated financial statements.
3
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
December 28, 1997 March 30, 1997
(Unaudited) (Audited)
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 642,000 $ 1,217,000
Short-term investments 1,629,000 1,459,000
Accounts receivable, less allowance of $83,000 at December 28, 1997 720,000 642,000
and at March 30, 1997
Inventories 1,444,000 1,074,000
Prepaid expenses and other current assets 101,000 61,000
------------- -------------
Total Current Assets 4,536,000 4,453,000
------------- -------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,406,000 3,331,000
Less accumulated depreciation and amortization (2,685,000) (2,364,000)
------------- -------------
721,000 967,000
------------- -------------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$211,000 at December 28, 1997 and $186,000 at March 30, 1997 625,000 650,000
Patents, net of accumulated amortization of
$24,000 at December 28, 1997 and $21,000 at March 30, 1997 41,000 40,000
Other 55,000 55,000
------------- -------------
721,000 745,000
------------- -------------
$ 5,978,000 $ 6,165,000
============= =============
See notes to consolidated financial statements.
4
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
December 28, 1997 March 30, 1997
(Unaudited) (Audited)
------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 327,000 $ 295,000
Accrued expenses:
Salaries and employee benefits 212,000 451,000
Warranty 95,000 95,000
Other 312,000 278,000
------------- -------------
Total Current Liabilities 946,000 1,119,000
------------- -------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK AT
REDEMPTION VALUE 90,000 98,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized
50,000,000 shares;
December 28, 1997--10,827,149 shares issued and outstanding
March 30, 1997 --10,717,493 shares issued and outstanding 11,000 11,000
Class B Common Stock, par value $.001 per share; authorized 4,420,113
shares;
December 28, 1997--87,246 shares issued and - -
outstanding March 30, 1997 --159,225
shares issued and 137,002 outstanding
Additional paid-in capital 22,695,000 22,659,000
Less cost of 22,223 shares of Class B Common Stock in Treasury at
March 30, 1997 - (50,000)
Accumulated deficit (17,764,000) (17,672,000)
------------- -------------
4,942,000 4,948,000
------------- -------------
$ 5,978,000 $ 6,165,000
============= =============
See notes to consolidated financial statements.
5
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine month period ended December 28, 1997 December 29, 1996
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (92,000) $ (1,293,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 321,000 398,000
Amortization 28,000 42,000
Changes in assets and liabilities:
Short-term investments (170,000) -
Accounts receivable (78,000) 87,000
Inventories (370,000) (310,000)
Prepaid expenses and other current assets (44,000) (31,000)
Accounts payable and accrued expenses (173,000) 400,000
------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (578,000) (707,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (75,000) (240,000)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (75,000) (240,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 78,000 27,000
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 78,000 27,000
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (575,000) (920,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,217,000 4,042,000
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 642,000 $ 3,122,000
============= =============
See notes to consolidated financial statements.
6
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 28, 1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended December
28, 1997, are not necessarily indicative of the results that may be expected for
the fiscal year ending March 29, 1998. For further information, refer to the
consolidated financial statements and notes thereto included in the Advanced
Photonix, Inc. (together with its subsidiary, the "Company") Annual Report on
Form 10-K for the fiscal year ended March 30, 1997.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Profit (Loss) Per Share: Net profit (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 loss periods, as their
effect would be antidilutive.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
REVENUES
The Company's revenues for the third quarter ("Q3 98") and nine month period
("YTD 98") ended December 28, 1997, were $2.0 million and $5.0 million,
respectively. Revenues for the Q3 98 and YTD 98 period improved by 37% and 1%,
respectively, when compared to $1.4 million and $4.9 million in the comparable
periods of the prior year ("Q3 97" & "YTD 97"). Q3 98 revenues increased
$471,000 from the second quarter of fiscal year 1998 ("the previous quarter"),
and net profit (loss) improved by $91,000.
Net product sales for Q3 98 and YTD 98 were up $493,000 (36%) and $214,000 (5%),
respectively, when compared to the same periods of the prior year. As detailed
below, these increases reflect higher shipments of military aerospace products,
partially offset by lower shipments of commercial products. Volume in military
aerospace products increased by approximately 171% and 48%, respectively, in Q3
98 and YTD 98 compared to the comparable periods in the prior fiscal year, and
are expected to remain at or slightly lower than Q3 98 levels for the remainder
of fiscal 1998 as the
7
Company continues deliveries under a new military program. The Company was
awarded contracts totaling $1.9 million for this program from a division of
Hughes. The increase in military aerospace products was partially offset by
lower shipments of commercial products which decreased by approximately 24% and
30%, respectively, in Q3 98 and YTD 98 compared to the comparable periods in the
prior fiscal year. 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 the second half of fiscal 1997 and YTD 1998. 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. These efforts have resulted in an
increase in commercial backlog which the Company believes should result in
higher commercial sales in future periods.
Q3 98 and YTD 98 net product sales of Large Area Avalanche Photodiode (LAAPD)
products were relatively low and flat to the prior year. While the Company
anticipates increasing volume from sales of LAAPD products, independent studies
indicate that the Company's LAAPD technology might take a number of years from
time of introduction for markets to complete the shift associated with
implementing this "enabling" technology. Available markets and sales in the
first years are projected to be a fraction of future markets and sales. While
the Company continues its efforts to further refine and optimize LAAPD
manufacturing process steps, it believes that it has refined its processes to a
point where it can safely ramp-up production to support current customer
requirements as well as sales and marketing efforts to promote this new
technology.
Development contract revenues increased 56% during Q3 98, from $64,000 in Q3 97
to $100,000 in Q3 98; and decreased 37% during YTD 98, from $494,000 in YTD 97
to $311,000 in YTD 98. The decrease in development contract revenues was
primarily due to the completion of a Department of Energy ("DOE") contract
during the third quarter of fiscal 1997 and delays in funding for the Advanced
Research Projects Agency of the Pentagon and the Aircraft Division of the Naval
Air Warfare Center ("ARPA/NAWC") contract. 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 second half of 1997, revenues from the ARPA/NAWC contract were
impacted by a delay in funding from the customer. While funding has been awarded
to complete the current phase of the ARPA/NAWC contract, the Company has been
informed that there will be no additional funding beyond the $737,000 previously
funded ($326,000 short of the original contract value). The customer indicated
that it had successfully achieved its objective with the reduced funding. The
remaining effort including a final report on this contract should be completed
during Q4 98.
COSTS AND EXPENSES
Cost of product sales increased by $40,000 (4%) during Q3 98 and decreased by
$151,000 (5%) during YTD 98 compared to Q3 97 and YTD 97. Cost of product sales
as a percent of product sales decreased by 16% in Q3 98 compared to Q3 97 and by
7% on a YTD basis despite higher product shipments. This was attributable to a
number of factors including improvements in operating efficiencies as well as
improved margins on product mix. In line with the reduction in product shipments
which spanned the second half of fiscal 1997 through the first half of fiscal
1998, the Company reduced its workforce from 86 to 69 during fiscal 1997 through
attrition and a reduction in force in February 1997.
8
Research and development ("R&D") costs increased by $41,000 (10%) to $449,000 in
Q3 98 compared to Q3 97 and decreased by $537,000 (36%) during YTD 98 compared
to YTD 97. 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
commercialization/manufacture of the LAAPD. In conjunction with its
commercialization efforts, the Company has consolidated its core business and
LAAPD manufacturing operations which previously had been managed as separate
operational centers. 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.
Marketing and sales expenses decreased by $17,000 (7%) to $220,000 in Q3 98
compared to Q3 97 and was constant at $681,000 for YTD 98 compared to YTD 97.
Marketing and sales expenses are expected to increase as the Company pursues its
plan for growth including commercialization of the LAAPD family of products.
General and administrative expenses decreased by $34,000 (12%) to $242,000 in Q3
98 compared to Q3 97 and by $518,000 (43%) to $698,000 in YTD 98 compared to YTD
97. During the second quarter of fiscal 1997 the Company recorded a one-time
reorganization charge of approximately $288,000 related to management changes
and during Q2 98 reversed approximately $100,000 of this accrual. YTD general
and administrative expenses, before the impact of the one-time reorganization
charge in Q2 97 and the reversal in the previous quarter, decreased by $130,000
(14%) to $798,000 in YTD 98. These decreases were primarily the result of lower
compensation, training, management systems and consulting costs.
Other income decreased by $12,000 (26%) in Q3 98 compared to Q3 97 and by
$41,000 (30%) in YTD 98 compared to YTD 97 due to lower interest income
associated with lower average cash balances. (See Liquidity and Capital
Resources.)
LIQUIDITY AND CAPITAL RESOURCES
At December 28, 1997, the Company had cash, cash equivalents and short-term
investments of $2.3 million, working capital of $3.6 million and an accumulated
deficit of $17.8 million. The Company's cash, cash equivalents and short-term
investments increased by $321,000 during the three months ended December 28,
1997 and decreased by $405,000 during the nine months ended December 28, 1997.
Cash expenditures were primarily impacted by $370,000 used to finance inventory
growth related to higher levels of LAAPD inventory as the Company begins to
commercialize the product line and higher material requirements associated with
a change in the Company's product mix.
To enable the Company to meet its capital commitment needs, the Company
historically has supplemented cash provided by operations with proceeds from
private placement equity financing, bank lines of credit and loans from
stockholders. On August 15, 1995, the Company completed a $3,000,000 private
placement in which it issued 2,400,000 shares of Class A Common Stock.
9
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 was renewed on July 15, 1997, expires in one year
and provides for interest to be paid monthly at prime plus 1.25 percent. 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. At
December 28, 1997, no amounts were outstanding under any bank line of credit and
there were no stockholder loans to the Company.
The Company has used the proceeds of its 1995 private placement 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. Development of LAAPD Arrays beyond the proof-of-concept
phase may require additional funds.
The Company believes that the moderate rate of inflation over the past few years
has not had a significant impact on the Company's sales or operating results.
FORWARD LOOKING STATEMENTS
The information contained herein includes forward looking statements that are
based on assumptions that management believes to be reasonable but are subject
to inherent uncertainties and risks including, but not limited to, unforeseen
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), the availability of other
competing technologies and a decline in the general demand for optoelectronic
products.
10
PART II. OTHER INFORMATION
Items 1 - 4 None
Item 5
On January 21, 1998, Mr. Robert G. Allison and Mr. Harry Melkonian were elected
to serve on the Board of Directors. Mr. Melkonian also serves as the Company's
President and Chief Executive Officer.
Item 6
(a) Exhibits
Exhibit No. Description
- -----------------------------
10.14 Amendment No. 1 to 1997 Employee Stock Option Plan
of Advanced Photonix, Inc.
10.15 Form of Indemnification Agreement provided to Directors
and Principal Officers of Advanced Photonix, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Advanced Photonix, Inc.
(Registrant)
Date: February 13, 1998 /s/ Patrick J. Holmes
----------------- ---------------------
Patrick J. Holmes
Executive Vice President, Chief Financial
Officer and Secretary/Treasurer
11