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 27, 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 February 8, 1999, 10,849,260 shares of Class A Common Stock, $.001 par value,
and 68,135 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
27,1998 and December 28, 1997 3
Consolidated Balance Sheets
at December 27,1998 and March 29, 1998 4 - 5
Consolidated Statements of Cash Flows for
the nine month periods ended December
27,1998 and December 28, 1997 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 10
SIGNATURES 10
2
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------------------------------- -------------------------------------------
December 27,1998 December 28, 1997 December 27,1998 December 28, 1997
---------------------- ---------------------- ---------------------- -------------------
REVENUES
Net product sales $ 1,866,000 $ 1,873,000 $ 5,785,000 $ 4,647,000
Development contracts - 100,000 - 311,000
------------- ------------- ------------- -------------
1,866,000 1,973,000 5,785,000 4,958,000
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Cost of product sales 1,115,000 995,000 3,530,000 2,810,000
Research and development 146,000 449,000 351,000 959,000
Marketing and sales 237,000 220,000 771,000 681,000
General and administrative 253,000 242,000 824,000 698,000
------------- ------------- ------------- -------------
1,751,000 1,906,000 5,476,000 5,148,000
------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS 115,000 67,000 309,000 (190,000)
------------- ------------- ------------- -------------
OTHER INCOME
Interest income 29,000 34,000 91,000 97,000
Other, net (1,000) - - 1,000
------------- ------------- ------------- -------------
28,000 34,000 91,000 98,000
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 143,000 $ 101,000 $ 400,000 $ (92,000)
============= ============= ============= =============
NET INCOME (LOSS) Per Share $ 0.01 $ 0.01 $ 0.04 $ (0.01)
============= ============= ============= =============
Weighted Average Number 10,917,000 10,913,000 10,917,000 10,876,000
of Common Shares Outstanding ============= ============= ============= =============
<FN>
See notes to consolidated financial statements.
</FN>
3
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
December 27, March 29,
1998 1998
(Unaudited) (Audited)
- ------------------------------------------------------------------------ ----------------- ---- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 681,000 $ 1,386,000
Short-term investments 1,875,000 977,000
Accounts receivable, less allowance of $83,000 in December 1998 and 1,223,000 966,000
March 1998
Inventories 1,359,000 1,573,000
Prepaid expenses and other current assets 77,000 84,000
------------- -------------
Total Current Assets 5,215,000 4,986,000
------------- -------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,506,000 3,387,000
Less accumulated depreciation and amortization (2,947,000) (2,689,000)
------------- -------------
558,000 698,000
OTHER ASSETS
Goodwill, net of accumulated amortization of $245,000 in December 1998 592,000 617,000
and $219,000 in March 1998
Patents, net of accumulated amortization of $27,000 in December 1998
and $25,000 in March 1998 52,000 40,000
Other
27,000 25,000
------------- -------------
671,000 682,000
------------- -------------
$ 6,444,000 $ 6,366,000
============= =============
<FN>
See notes to consolidated financial statements.
</FN>
4
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
December 27, March 29,
1998 1998
(Unaudited) (Audited)
- -------------------------------------------------------------------------- ------------------ --- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 255,000 $ 518,000
Accrued expenses:
Salaries and employee benefits 302,000 310,000
Warranty 95,000 95,000
Other 275,000 326,000
------------- -------------
Total Current Liabilities 927,000 1,249,000
------------- -------------
COMMITMENTS AND CONTINGENICES
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized 50,000,000
shares;
December 27, 1998 - 10,849,260 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;
December 27, 1998 - 68,135 shares issued and outstanding
March 29, 1998 - 76,135 shares issued and outstanding - -
Convertible Preferred Stock at redemption value; authorized 10,000,000
shares
December 27, 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 (17,262,000) (17,662,000)
------------- -------------
5,517,000 5,117,000
------------- -------------
$ 6,444,000 $ 6,366,000
============= =============
<FN>
See notes to consolidated financial statements.
</FN>
5
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
For the nine month period ended December 27, 1998 December 28, 1997
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 400,000 $ (92,000)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation 258,000 321,000
Amortization 28,000 28,000
Changes in assets and liabilities:
Accounts receivable (257,000) (78,000)
Inventories 214,000 (370,000)
Prepaid expenses and other current assets 7,000 (44,000)
Accounts payable, accrued expenses and other (338,000) (173,000)
------------ ------------
NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES 312,000 (408,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Short-term investments (898,000) (170,000)
Capital expenditures (119,000) (75,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (1,017,000) (245,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants - 78,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - 78,000
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (705,000) (575,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,386,000 1,217,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 681,000 $ 642,000
============ ============
<FN>
See notes to consolidated financial statements.
</FN>
6
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27,1998
(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 and nine month periods ended December
27,1998, 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 income (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 or insignificant.
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 99") and nine month periods
ended December 27, 1998 ("YTD 99"), were $1.9 million and $5.8 million,
respectively. Revenues for the Q3 99 and YTD 99 periods were down 5% and up 17%,
respectively, when compared to $2.0 million and $5.0 million in the comparable
periods of the prior year ("Q3 98" & "YTD 98"). Q3 99 revenues were $95K lower
than the second quarter of fiscal year 1999 ("the previous quarter"), while net
income improved by $8,000.
Net product sales for Q3 99 and YTD 99 were down $7,000 (0%) and up $1,138,000
(24%), respectively, when compared to the same periods of the prior year.
The increase in YTD 99 net product sales was primarily due to higher volume in
military aerospace products which increased by approximately 35% as compared to
the same period in the prior year. This increase was partially due to a large
military program under which production deliveries began in Q3 of fiscal 1998
and ended during Q2 99. The Company has been able to book additional military
and commercial business to offset the revenues lost due to the completion of
this program, but expects the volume of military business to decrease slightly
7
over the next few quarters. Shipments of commercial products increased by 12%
during YTD 99 when compared to the same period in the prior year. During YTD 99,
shipments of Large Area Avalanche Photodiode (LAAPD) products (included in net
product sales) rose by 251%, to $291,000, when compared to the same period in
the prior year. While sales from these products represented only 5% of total net
product sales during YTD 99, the Company anticipates increasing volume from
sales of its proprietary LAAPD products as markets begin to implement this
"enabling" technology.
Development contract revenues during Q3 99 and YTD 99 decreased by $100,000 and
$311,000, respectively. 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). Both contracts were completed during fiscal 1998, the DOE in Q3 and
ARPA/NAWC in Q4. The Company is currently not working on any government funded
development contracts.
COSTS AND EXPENSES
Cost of product sales increased by $120,000 (12%) during Q3 99 and by $720,000
(26%) during YTD 99 compared to Q3 98 and YTD 98. In Q3 99, the increase is due
to changes in product mix while the YTD 99 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 ~1 percentage point
in YTD 99 when compared to the same periods in the prior year.
Research and development ("R&D") costs decreased by $303,000 (67%) to $146,000
in Q3 99 compared to Q3 98 and decreased by $608,000 (63%) during YTD 99
compared to YTD 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 has commercialized its
discrete line of LAAPD products which in the previous year were still under
development. The Company continues development of its next generation line of
LAAPD array products. R&D costs have varied significantly in the past, and may
continue to do so, due to the level of activity associated with development
contracts as well as the number and complexity of new process and product
development projects, the qualification of new process developments and customer
evaluation and acceptance of new products.
Marketing and sales expenses increased by $17,000 (8%) to $237,000 in Q3 99
compared to Q3 98 and increased by $90,000 (13%) to $771,000 for YTD 99 compared
to YTD 98. The Company expects its marketing and sales expenses to continue to
increase as the Company pursues its plan to grow its core business revenues and
develop markets for its newly available family of LAAPD products.
General and administrative expenses increased by $11,000 (5%) to $253,000 in Q3
99 compared to Q3 98 and by $126,000 (18%) to $824,000 in YTD 99 compared to YTD
98. During Q2 97 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. General and administrative expenses,
before the impact of the one-time reversal of reorganization charges in Q2 98,
increased by $26,000 (3%) in YTD 99 compared to YTD 98. These increases were
primarily the result of higher compensation costs.
8
Other income decreased by $5,000 (15%) in Q3 99 compared to Q3 98 and decreased
by $6,000 (6%) in YTD 99 compared to YTD 98.
LIQUIDITY AND CAPITAL RESOURCES
At December 27, 1998, the Company had cash, cash equivalents and short-term
investments of $2.6 million and working capital of $4.3 million. The Company's
cash, cash equivalents and short-term investments increased by $193,000 during
the nine months ended December 27, 1998. Cash of $312,000 was generated from
operating activities. Cash of $119,000 was used for capital equipment, compared
to $75,000 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 which is renewed annually will expire on July 16,
1999, 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
December 27, 1998, no amounts were outstanding under any bank line of credit and
there were no stockholder loans to the Company.
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.
9
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: February 10, 1999 /s/ P. J. Holmes
----------------- ----------------
Patrick J. Holmes
Executive Vice President, Chief Financial
Officer and Secretary/Treasurer
10