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 September 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 November 3, 1997, 10,826,926 shares of Class A Common Stock, $.001 par value,
and 87,469 shares of Class B Common Stock, $.001 par value, were outstanding.
<PAGE>
ADVANCED PHOTONIX, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3 - 6
Consolidated Statements of Operations
for the three and six month periods ended
September 28, 1997 and September 29, 1996 3
Consolidated Balance Sheets
at September 28, 1997 and March 30, 1997 4 - 5
Consolidated Statements of Cash Flows
for the three and six month periods ended
September 28, 1997 and September 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
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<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
September 28, 1997 September 29, 1996 September 28, 1997 September 29, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
REVENUES
Net product sales $ 1,391,000 $ 1,420,000 $ 2,774,000 $ 3,053,000
Development contracts 111,000 297,000 211,000 430,000
------------------ ------------------ ------------------ ------------------
1,502,000 1,717,000 2,985,000 3,483,000
------------------ ------------------ ------------------ ------------------
COSTS AND EXPENSES
Cost of product sales 866,000 990,000 1,815,000 2,006,000
Research and development 281,000 512,000 510,000 1,088,000
Marketing and sales 213,000 239,000 461,000 449,000
General and administrative 162,000 615,000 456,000 940,000
------------------ ------------------ ------------------ ------------------
1,522,000 2,356,000 3,242,000 4,483,000
------------------ ------------------ ------------------ ------------------
LOSS FROM OPERATIONS (20,000) (639,000) (257,000) (1,000,000)
------------------ ------------------ ------------------ ------------------
OTHER INCOME
Interest income 30,000 42,000 63,000 87,000
Other, net - - 1,000 6,000
------------------ ------------------ ------------------ ------------------
30,000 42,000 64,000 93,000
------------------ ------------------ ------------------ ------------------
NET PROFIT (LOSS) $ 10,000 $ (597,000) $ (193,000) $ (907,000)
================== ================== ================== ==================
NET PROFIT (LOSS) Per Share $ 0.00 $ (0.06) $ (0.02) $ (0.08)
================== ================== ================== ==================
Weighted Average Number 10,861,000 10,823,000 10,858,000 10,817,000
of Common Shares Outstanding
================== ================== ================== ==================
See notes to consolidated financial statements.
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ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 28, 1997 March 30, 1997
(Unaudited) (Audited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 293,000 $ 1,217,000
Short-term investments 1,658,000 1,459,000
Accounts receivable, less allowance of $83,000 at September 28, 784,000 642,000
1997 and at March 30, 1997
Inventories 1,479,000 1,074,000
Prepaid expenses and other current assets 97,000 61,000
------------- -------------
Total Current Assets 4,311,000 4,453,000
------------- -------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,402,000 3,331,000
Less accumulated depreciation and amortization (2,576,000) (2,364,000)
------------- -------------
826,000 967,000
------------- -------------
OTHER ASSETS
Goodwill, net of accumulated amortization of
$202,000 at September 28, 1997 and $186,000 at March 30, 1997 634,000 650,000
Patents, net of accumulated amortization of
$23,000 at September 28, 1997 and $21,000 at March 30, 1997 38,000 40,000
Other 55,000 55,000
------------- -------------
727,000 745,000
------------- -------------
$ 5,864,000 $ 6,165,000
============= =============
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 28, 1997 March 30, 1997
(Unaudited) (Audited)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 230,000 $ 295,000
Accrued expenses:
Salaries and employee benefits 328,000 451,000
Warranty 95,000 95,000
Other 280,000 278,000
Total Current Liabilities 933,000 1,119,000
------------- -------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK AT
REDEMPTION VALUE 98,000 98,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized
50,000,000 shares;
September 28, 1997--10,767,493 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;
September 28, 1997--137,002 shares issued and - -
outstanding March 30, 1997 --159,225
shares issued and 137,002 outstanding
Additional paid-in capital 22,687,000 22,659,000
Less cost of 22,223 shares of Class B Common Stock in Treasury at
March 30, 1997 - (50,000)
Accumulated deficit (17,865,000) (17,672,000)
------------- -------------
4,833,000 4,948,000
------------- -------------
$ 5,864,000 $ 6,165,000
============= =============
<FN>
See notes to consolidated financial statements.
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</FN>
</TABLE>
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
For the six month period ended September 28, 1997 September 29, 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (193,000) $ (907,000)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation 212,000 271,000
Amortization 18,000 28,000
Changes in assets and liabilities:
Short-term investments (199,000) -
Accounts receivable (142,000) 78,000
Inventories (405,000) (163,000)
Prepaid expenses and other current assets (36,000) 14,000
Accounts payable and accrued expenses (186,000) 380,000
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (931,000) (299,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (71,000) (155,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (71,000) (155,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options and warrants 78,000 45,000
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 78,000 45,000
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (924,000) (409,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,217,000 4,042,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 293,000 $ 3,633,000
============ ============
<FN>
See notes to consolidated financial statements.
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</FN>
</TABLE>
<PAGE>
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 six month periods ended September
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 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 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 second quarter ("Q2 98") and six month period
("YTD 98") ended September 28, 1997, were $1.5 million and $3.0 million,
respectively. Revenues for the Q2 98 and YTD 98 period were down 13% and 14%,
respectively, when compared to $1.7 million and $3.5 million in the comparable
periods of the prior year ("Q2 97" & "YTD 97"). Q2 98 revenues increased $19,000
from the first quarter of fiscal year 1998 ("the previous quarter"), and net
profit (loss) improved by $213,000.
Net product sales for Q2 98 and YTD 98 were down $29,000 (2%) and $279,000 (9%),
respectively, when compared to the same periods of the prior 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 the first half of fiscal 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
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financing, the Company hired and replaced employees in the sales department and
otherwise increased marketing efforts including additional trade-show attendance
and advertising.
The decrease in net product sales was primarily due to lower shipments of
industrial sensing products which decreased by approximately 37% and 34%,
respectively, in Q2 98 and YTD 98 compared to the comparable periods in the
prior fiscal year. Volume in military aerospace products increased by
approximately 41% and 10%, respectively, in Q2 98 and YTD 98 compared to the
comparable periods in the prior fiscal year, and are expected to remain at or
slightly higher than Q2 98 levels for the remainder of fiscal 1998 as the
Company continues deliveries under a new military program. The Company was
awarded a contract for $1.3 million from a division of Hughes for the detector
fuse used on the Rolling Airframe Missile (RAM).
Q2 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, further refinements
in the manufacturing process will be required before full production and desired
reliability levels can be achieved. The Company recently consolidated its core
business and LAAPD manufacturing operations and continues its efforts to further
refine and optimize certain process steps in LAAPD products.
Development contract revenues decreased 63% during Q2 98, from $297,000 in Q2 97
to $111,000 in Q2 98; and decreased 51% during YTD 98, from $430,000 in YTD 97
to $211,000 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 Q3 98.
COSTS AND EXPENSES
Cost of product sales decreased by $124,000 (13%) during Q2 98 and by $191,000
(10%) during YTD 98 compared to Q2 97 and YTD 97. These decreases were primarily
due to lower product shipments. Cost of product sales as a percent of product
sales decreased by 8% in Q2 98 compared to Q2 97 and was the same on a YTD basis
despite lower 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 has spanned
the second half of fiscal 1997 through Q2 98, the Company reduced its workforce
from 86 to 69 during fiscal 1997 through attrition and a reduction in force in
February 1997.
Research and development ("R&D") costs decreased by $231,000 (45%) to $281,000
in Q2 98 compared to Q2 97 and decreased by $578,000 (53%) 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
-8-
<PAGE>
(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. 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 $26,000 (11%) to $213,000 in Q2 98
compared to Q2 97 and increased by $12,000 (3%) to $461,000 for YTD 98 compared
to YTD 97. The YTD 98 increase was expected, as the Company pursues its plan for
growth. 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 $453,000 (74%) to $162,000 in
Q2 98 compared to Q2 97 and by $484,000 (51%) to $456,000 in YTD 98 compared to
YTD 97. 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 reorganization charge in Q2 97 and the
reversal in Q2 98, decreased by $65,000 (20%) to $262,000 in Q2 98 compared to
Q2 97 and by $96,000 (15%) to $556,000 in YTD 98 compared to YTD 97. These
decreases were primarily the result of lower compensation and consulting costs
as well as a Q2 98 reversal of $28,000 in relocation accruals associated with a
terminated employee.
Other income decreased by $12,000 (29%) in Q2 98 compared to Q2 97 and by
$29,000 (31%) 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 September 28, 1997, the Company had cash, cash equivalents and short-term
investments of $2.0 million, working capital of $3.4 million and an accumulated
deficit of $17.9 million. The Company's cash and cash equivalents decreased by
$924,000 during the six months ended September 28, 1997. Cash expenditures were
primarily impacted by $405,000 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-
<PAGE>
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
September 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.
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<PAGE>
PART II. OTHER INFORMATION
Items 1 - 3 None
Item 4 Submission of Matters to a Vote of Security Holders:
The Company's Annual Stockholders Meeting was held on August 21, 1997.
1. The following persons were re-elected to the Company's Board of
Directors to serve until the next Annual Meeting of Stockholders and
until their respective successors have been duly elected and qualified.
FOR WITHHELD
-------- --------
Hayden Leason 7,745,323 187,308
Jon B. Victor 7,745,323 187,308
James A. Gordon 7,745,323 187,308
2. Proposal to approve the Advanced Photonix, Inc. 1997 Stock Option Plan
FOR: 5,435,151 AGAINST: 285,880 WITHHELD: 288,250 NOT VOTED: 1,923,350
Item 5
At the regular meeting of the Board of Directors held on October 22, 1997, Mr.
Hayden Leason, who was serving as Chairman of the Board and Chief Executive
Officer and who is a major shareholder in the Company, resigned from these
positions due to time constraints, his remoteness from the Company and his
comfort level with the successors. Mr. Leason remains on the Board of Directors.
Subsequently, Mr. Jon Victor, a Director of the Company, was elected Chairman of
the Board and Mr. Harry Melkonian, the President of the Company, was elected
Chief Executive Officer.
Item 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: November 10, 1997 /s/ Patrick J. Holmes
----------------- ---------------------
Patrick J. Holmes
Executive Vice President, Chief Financial
Officer and Secretary/Treasurer
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