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 June 28, 1998
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 August 6, 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 month periods ended June 28, 1998
and June 29, 1997 3
Consolidated Balance Sheets
at June 28, 1998 and March 29, 1998 4 - 5
Consolidated Statements of Cash Flows
for the three month periods ended June 28, 1998
and June 29, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8 - 10
PART II OTHER INFORMATION 10
SIGNATURES 10
2
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three month period ended June 28, 1998 June 29, 1997
----------------------------------------------------------------------------
REVENUES
Net product sales $ 1,958,000 $ 1,383,000
Development contracts - 100,000
----------------- ----------------
1,958,000 1,483,000
----------------- ----------------
COSTS AND EXPENSES
Cost of product sales 1,255,000 949,000
Research and development 90,000 229,000
Marketing and sales 250,000 248,000
General and administrative 270,000 294,000
----------------- ----------------
1,865,000 1,720,000
----------------- ----------------
PROFIT (LOSS) FROM OPERATIONS 93,000 (237,000)
----------------- ----------------
OTHER INCOME
Interest income 28,000 33,000
Other, net 1,000 1,000
----------------- ----------------
29,000 34,000
----------------- ----------------
NET INCOME (LOSS) - $ 122,000 $ (203,000)
$.01, $(.02) per share ================= ================
See notes to consolidated financial statements.
3
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
June 28, March 29,
1998 1998
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 259,000 $ 1,386,000
Short-term investments 2,069,000 977,000
Accounts receivable, less allowance
of $83,000 in June 1998 and March 1998 982,000 966,000
Inventories 1,497,000 1,573,000
Prepaid expenses and other current assets 67,000 84,000
--------------- ----------------
Total Current Assets 4,874,000 4,986,000
--------------- ----------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
at cost 3,420,000 3,387,000
Less accumulated depreciation
and amortization (2,778,000) (2,689,000)
--------------- ----------------
642,000 698,000
OTHER ASSETS
Goodwill, net of accumulated amortization
of $226,000 in June 1998 and
$219,000 in March 1998 611,000 617,000
Patents, net of accumulated amortization
of $25,000 in June 1998 and
$25,000 in March 1998 40,000 40,000
Other 23,000 25,000
--------------- ----------------
674,000 682,000
--------------- ----------------
$ 6,190,000 $ 6,366,000
=============== ================
See notes to consolidated financial statements.
4
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
June 28, March 29,
1998 1998
- -------------------------------------------------------------------- ---------------- ------ ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 277,000 $ 518,000
Accrued expenses:
Salaries and employee benefits 279,000 310,000
Warranty 95,000 95,000
Other 300,000 326,000
---------------- ---------------
Total Current Liabilities 951,000 1,249,000
---------------- ---------------
COMMITMENTS AND CONTINGENICES
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized
50,000,000 shares;
June 28, 1998 - 10,838,260 shares issued and outstanding
March 29, 1998 - 10,838,260 shares issued and outstanding 11,000 11,000
Class B Common Stock, par value $.001 per share; authorized
4,420,113 shares;
June 28, 1998 - 76,135 shares issued and outstanding
March 29, 1998 - 76,135 shares issued and outstanding - -
Convertible Preferred Stock at redemption value; authorized
10,000,000 shares
June 28, 1998 - 90,000 shares issued and outstanding
March 29, 1998 - 90,000 shares issued and outstanding 72,000 72,000
Additional paid-in capital 22,696,000 22,696,000
Accumulated Deficit (17,540,000) (17,662,000)
---------------- ---------------
5,239,000 5,117,000
---------------- ---------------
$ 6,190,000 $ 6,366,000
================ ===============
<FN>
See notes to consolidated financial statements.
5
</FN>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the three month period ended June 28, 1998 June 29, 1997
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 122,000 $ (203,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation 89,000 106,000
Amortization 6,000 9,000
Changes in assets and liabilities:
Accounts receivable (15,000) (149,000)
Inventories 76,000 (129,000)
Prepaid expenses and other current assets 17,000 (24,000)
Accounts payable and accrued expenses (298,000) (15,000)
-------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (3,000) (405,000)
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Short-term investments (1,092,000) (21,000)
Capital expenditures (32,000) (30,000)
-------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (1,124,000) (51,000)
-------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,127,000) (456,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,386,000 1,217,000
-------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 259,000 $ 761,000
============== =============
<FN>
See notes to consolidated financial statements.
6
</FN>
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 28, 1998
(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 month period ended June 28, 1998, are
not necessarily indicative of the results that may be expected for the fiscal
year ending March 28, 1999. 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 29, 1998.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Income (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 10,914,000 at June
28, 1998 and 10,854,000 at June 29, 1997. Net income (loss) per share
calculations are in accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share" (SFAS 128). Accordingly, "basic" net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares outstanding for the year. "Diluted" net income
(loss) per share has not been presented as the impact is either not material or
anti-dilutive.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
REVENUES
The Company's revenues for the first quarter of fiscal year 1999 ("Q1 99") were
$1,958,000, an increase of $475,000 or 32% from revenues of $1,483,000 for the
first quarter of fiscal year 1998 ("Q1 98") and a decrease of $92,000 (4%) from
revenues of $2,050,000 in the fourth quarter of fiscal year 1998 ("the previous
quarter"). 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 Q1 98. 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.
The increase in net product sales was primarily due to higher volume in military
aerospace products which increased by approximately 79% in Q1 99 compared to Q1
98, and are expected to remain at or slightly lower than Q1 99 levels through Q2
99 as the Company continues deliveries under a military program. The Company was
awarded contracts totaling $1.9 million for this program. Shipments of
commercial products in Q1 99 were level to those in Q1 98. During Q1 99 and the
previous quarter, shipments of Large Area Avalanche Photodiode (LAAPD) products
(included in net product sales) were the highest in Company history as the
Company begins higher volume deliveries to early adopters. While sales from
these products represented only 5% and 3% of total net product sales during Q1
99 and the previous quarter, respectively, the Company anticipates increasing
volume from sales of LAAPD products as markets begin to implement this
"enabling" technology and as the Company continues its efforts to further refine
and optimize LAAPD manufacturing process steps and ramp up its sales and
marketing efforts to promote this new technology.
Development contract revenues during Q1 99 decreased by $100,000 as the Company
is currently not working on any government funded development contracts. The
Company was awarded a Phase II Department of Energy (DOE) grant of approximately
$750,000 in June 1995, 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 1998, revenues from the
DOE contract began to wind down and the contract was completed. The ARPA/NAWC
contract was completed during the fourth quarter of fiscal 1998.
COSTS AND EXPENSES
Cost of product sales increased by $306,000 in Q1 99 compared to Q1 98. The
increase is primarily attributable to the incremental cost associated with
increased product shipments. Cost of product sales as a percent of net product
sales decreased by 5% in Q1 99 compared to Q1 98 due to a number of factors
including improvements in operating efficiencies as well as improved margins on
product mix.
8
Research and development costs decreased by $139,000 (61%) to $90,000 in Q1 99
as compared to Q1 98. 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 consolidated its core business and LAAPD
manufacturing operations during FY 1997 and FY 1998. These operations were
previously 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 in Q1 99 were flat compared to Q1 98. The Company
believes its marketing and sales expenses will increase during the remainder of
the year as the Company pursues its plan for growth including commercialization
of the LAAPD family of products.
General and administrative expenses decreased by $24,000 (8%) to $270,000 in Q1
99 compared to Q1 98 primarily due to general cutbacks and efforts to reduce
costs.
Interest income in Q1 99 of $28,000 was $5,000 lower than Q1 98 as a result of
lower average cash balances.
LIQUIDITY AND CAPITAL RESOURCES
At June 28, 1998, the Company had cash, cash equivalents and short-term
investments of $2.3 million, working capital of $3.9 million and an accumulated
deficit of $17.5 million. The Company's cash, cash equivalents and short-term
investments decreased by $35,000 during the three months ended June 28, 1998.
Cash of $3,000 was used for operating activities. Cash of $32,000 was used for
capital equipment, compared to $30,000 during the comparable period of the prior
year.
To enable the Company to meet its capital commitment needs, the Company has
historically supplemented cash provided by operations with proceeds from private
and public sales of capital stock and borrowings. These funds have been used to
grow the core business and finance the development and initial commercialization
of the Company's LAAPD technology. While the Company believes that initial
commercialization has been completed and has reduced its expenditures for
research and development, it continues development of proof-of-concept, LAAPD
pixelized arrays as well as other derivatives of the base technology. The
continued development of LAAPD arrays beyond the proof-of-concept phase may
require additional funds.
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 has been approved for renewal effective July 15,
1998, will expire in one year and provides for interest to be paid monthly at
prime plus .5 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 June 28, 1998, no amounts were outstanding under any
bank line of credit and there were no stockholder loans to the Company.
9
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.
YEAR 2000 ISSUES
The Company uses computer software programs purchased from various independent
vendors who may have written their programs using a two digit date field rather
than a four digit field to define the applicable year. Such computer programs
utilizing a two digit date field may recognize a date using "00" as the year
1900 rather than the year 2000 (the "Year 2000 Issue"). The Year 2000 Issue
could potentially result in a system failure or in miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in other similar normal
business activities. The Company has identified Year 2000 Issues in certain
software applications and is in the process of upgrading or replacing such
applications with software which recognizes dates beyond December 31, 1999, thus
addressing a substantial portion of the Year 2000 Issue that may impact the
Company. The cost of this project, as it relates to the Year 2000 Issue, is not
expected to have a material effect on the operations of the Company and will be
funded through operating cash flows.
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.
PART II. OTHER INFORMATION
Items 1. - 6. None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Advanced Photonix, Inc.
(Registrant)
Date: August 12, 1998 /s/ Patrick J. Holmes
--------------- ---------------------
Patrick J. Holmes
Executive Vice President, Chief Financial
Officer and Secretary/Treasurer
10