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 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 November 1, 1998, 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.
<PAGE>
ADVANCED PHOTONIX, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 3 - 6
Consolidated Statements of Operations for
the six month period ended September
27,1998 and September 28, 1997 3
Consolidated Balance Sheets
at September 27,1998 and March 29, 1998 4 - 5
Consolidated Statements of Cash Flows for
the three and six month periods ended September
27,1998 and September 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 - 11
SIGNATURES 11
2
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------------- ---------------------------------------------
September 27,1998 September 28, 1997 September 27,1998 September 28, 1997
---------------------- ---------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
REVENUES
Net product sales $ 1,961,000 $ 1,391,000 $ 3,919,000 $ 2,774,000
Development contracts - 111,000 - 211,000
---------------------- ---------------------- ---------------------- ---------------------
1,961,000 1,502,000 3,919,000 2,985,000
---------------------- ---------------------- ---------------------- ---------------------
COSTS AND EXPENSES
Cost of product sales 1,160,000 866,000 2,415,000 1,815,000
Research and development 115,000 281,000 205,000 510,000
Marketing and sales 284,000 213,000 534,000 461,000
General and administrative 301,000 162,000 571,000 456,000
---------------------- ---------------------- ---------------------- ---------------------
1,860,000 1,522,000 3,725,000 3,242,000
---------------------- ---------------------- ---------------------- ---------------------
NET INCOME (LOSS) FROM OPERATIONS 101,000 (20,000) 194,000 (257,000)
---------------------- ---------------------- ---------------------- ---------------------
OTHER INCOME
Interest income 33,000 30,000 62,000 63,000
Other, net 1,000 - 1,000 1,000
---------------------- ---------------------- ---------------------- ---------------------
34,000 30,000 63,000 64,000
---------------------- ---------------------- ---------------------- ---------------------
NET INCOME (LOSS) $ 135,000 $ 10,000 $ 257,000 $ (193,000)
====================== ====================== ====================== =====================
NET PROFIT (LOSS) Per Share $ 0.01 $ 0.00 $ 0.02 $ (0.02)
====================== ====================== ====================== =====================
Weighted Average Number 10,914,000 10,861,000 10,914,000 10,858,000
of Common Shares Outstanding
====================== ====================== ====================== =====================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
September 27, March 29,
1998 1998
(Uaudited) (Audited)
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 434,000 $ 1,386,000
Short-term investments 2,075,000 977,000
Accounts receivable, less allowance of
$83,000 in September 1998 and March 1998 1,020,000 966,000
Inventories 1,407,000 1,573,000
Prepaid expenses and other current assets 81,000 84,000
--------------- ----------------
Total Current Assets 5,017,000 4,986,000
--------------- ----------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS,
at cost 3,441,000 3,387,000
Less accumulated depreciation
and amortization (2,873,000) (2,689,000)
--------------- ----------------
568,000 698,000
OTHER ASSETS
Goodwill, net of accumulated amortization
of $234,000 in September 1998 and
$219,000 in March 1998 603,000 617,000
Patents, net of accumulated amortization
of $26,000 in September 1998 and
$25,000 in March 1998 39,000 40,000
Other 26,000 25,000
--------------- ----------------
668,000 682,000
--------------- ----------------
$ 6,253,000 $ 6,366,000
=============== ================
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 27, March 29,
1998 1998
(Unaudited) (Audited)
- -------------------------------------------------------------------- ---------------- ------ ---------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 228,000 $ 518,000
Accrued expenses:
Salaries and employee benefits 301,000 310,000
Warranty 95,000 95,000
Other 256,000 326,000
---------------- ---------------
Total Current Liabilities 880,000 1,249,000
---------------- ---------------
COMMITMENTS AND CONTINGENICES
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized
50,000,000 shares;
September 27, 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;
September 27, 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
September 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 (17,406,000) (17,662,000)
---------------- ---------------
5,373,000 5,117,000
---------------- ---------------
$ 6,253,000 $ 6,366,000
================ ===============
<FN>
See notes to consolidated financial statements.
5
</FN>
</TABLE>
<PAGE>
<TABLE>
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<CAPTION>
For the six month period ended September 27,1998 September 28, 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 257,000 $ (193,000)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation 184,000 212,000
Amortization 15,000 18,000
Changes in assets and liabilities:
Accounts receivable (54,000) (142,000)
Inventories 166,000 (405,000)
Prepaid expenses and other current assets 3,000 (36,000)
Accounts payable, accrued expenses and other (371,000) (186,000)
---------------- ----------------
NET CASH GENERATED BY (USED IN) OPERATING ACTIVITIES 200,000 (732,000)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Short-term investments (1,098,000) (199,000)
Capital expenditures (54,000) (71,000)
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (1,152,000) (270,000)
---------------- ----------------
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 (952,000) (924,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,386,000 1,217,000
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 434,000 $ 293,000
================ ================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 six month periods ended September
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 second quarter ("Q2 99") and six month period
("YTD 99") ended September 27, 1998, were $2.0 million and $3.9 million,
respectively. Revenues for the Q2 99 and YTD 99 period were up 31%,
respectively, when compared to $1.5 million and $3.0 million in the comparable
periods of the prior year ("Q2 98" & "YTD 98"). Q2 99 revenues were the same as
the first quarter of fiscal year 1999 ("the previous quarter"), while net profit
improved by $13,000.
Net product sales for Q2 99 and YTD 99 were up $570,000 (41%) and $1,145,000
(41%), 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 financing, the Company hired and replaced employees in the sales
department and otherwise increased marketing efforts including additional
trade-show attendance and advertising.
7
<PAGE>
The increase in net product sales was primarily due to higher volume in military
aerospace products which increased by approximately 58% and 68% during Q2 99 and
YTD 99, respectively, when compared to the same periods 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 does expect the
percentage of military business to decrease slightly over the next few quarters.
Shipments of commercial products increased by 26% and 20%, respectively, in Q2
99 and YTD 99 when compared to the same periods in the previous year. During Q2
99 and YTD 99, shipments of Large Area Avalanche Photodiode (LAAPD) products
(included in net product sales) rose by 29% and 629%, respectively, to $45,000
in Q299 and $153,000 in YTD 99, when compared to the same periods in the prior
year. While sales from these products represented only 2% and 4% of total net
product sales during Q2 99 and YTD 99, respectively, the Company anticipates
increasing volume from sales of its proprietary LAAPD products as markets begin
to implement this "enabling" technology.
Development contract revenues during Q2 99 and YTD 99 decreased by $111,000 and
$211,000, respectively, 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). Both contracts were completed during fiscal 1998,
the DOE in Q3 and ARPA/NAWC in Q4.
COSTS AND EXPENSES
Cost of product sales increased by $294,000 (34%) during Q2 99 and by $600,000
(33%) during YTD 99 compared to Q2 98 and YTD 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
~3% in both Q1 99 and YTD 99 when compared to the same periods in the prior year
due to a number of factors including improvements in operating efficiencies as
well as improved margins on product mix.
Research and development ("R&D") costs decreased by $166,000 (59%) to $115,000
in Q2 99 compared to Q2 98 and decreased by $305,000 (60%) 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. 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.
8
<PAGE>
Marketing and sales expenses increased by $71,000 (33%) to $284,000 in Q2 99
compared to Q2 98 and increased by $73,000 (16%) to $534,000 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 revenues of the LAAPD family of
products.
General and administrative expenses increased by $139,000 (86%) to $301,000 in
Q2 99 compared to Q2 98 and by $115,000 (25%) to $571,000 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 $39,000 (15%) in Q2 99 compared to Q2 98 and by $15,000 (3%) in YTD
99 compared to YTD 98. These increases were primarily the result of higher
compensation costs.
Other income increased by $4,000 (13%) in Q2 99 compared to Q2 98 and decreased
by $1,000 (2%) in YTD 99 compared to YTD 98.
LIQUIDITY AND CAPITAL RESOURCES
At September 27, 1998, the Company had cash, cash equivalents and short-term
investments of $2.5 million and working capital of $4.1 million. The Company's
cash, cash equivalents and short-term investments increased by $146,000 during
the six months ended September 27, 1998. Cash of $199,000 was generated from
operating activities. Cash of $53,000 was used for capital equipment, compared
to $71,000 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 16,
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 September 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
<PAGE>
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.
10
<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 19, 1998. 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
- ------------------------------------- ------------------ -------------------
Robert G. Allison 8,970,250 99,017
- ------------------------------------- ------------------ -------------------
Hayden Leason 8,970,250 99,017
- ------------------------------------- ------------------ -------------------
Jon B. Victor 8,970,250 99,017
- ------------------------------------- ------------------ -------------------
Harry Melkonian 8,970,267 99,000
- ------------------------------------- ------------------ -------------------
Item 5 Other Information
- ---------------------------
(a) At the regular meeting of the Board of Directors held on August 19,
1998, Mr. Harold A. Blomquist and Mr. M. Scott Farese were elected to
the Board of Directors.
(b) In accordance with the requirements of Rule 14a-4(c) promulgated under
the Securities Exchange Act of 1934 (the "Exchange Act"), in order for
shareholder proposals submitted outside Rule 14a-8 (which includes
proposals that the regulations under the Exchange Act generally do not
require to be included in the Company's definitive proxy statement for
its annual meeting of shareholders) to be timely for purposes of the
Company's 1999 Annual Meeting of Shareholders within the meaning of
Rule 14a-4(c) under the Exchange Act, such proposals must be received
by the Company no later than the close of business on June 4, 1999.
Item 6 Exhibits and Reports on Form 8-k
- -----------------------------------------
(a) Exhibits
10.8 Loan and Security Agreement dated July 15, 1997 between Silicon Valley
Bank and Registrant - incorporated by reference to Exhibit 10.14 to
the Registrant's June 29, 1997 Quarterly Report on Form 10-Q.
10.15 Amendment to Loan Agreement and Schedule to Loan and Security
Agreement dated July 16, 1998 between Silicon Valley Bank and
Registrant.
(b) Reports on Form 8-k
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 4, 1998 /s/ P. J. Holmes
---------------- ----------------
Patrick J. Holmes
Executive Vice President, Chief Financial
Officer and Secretary/Treasurer
11
[GRAPHIC OMITTED] Silicon Valley Bank
Amendment to Loan Agreement
Borrower: Advanced Photonix, Inc.
Address: 1240 Avenida Acaso
Camarillo, California 93012
Dated as of: July 16, 1998
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend the Loan and Security Agreement between them dated
September 6, 1995, as amended by that Amendment to Loan Agreement dated
September 6, 1996 and as amended by that Amendment to Loan Agreement dated as of
July 15, 1997 (and as otherwise amended from time to time, the "Loan Agreement")
as follows, effective as of the date hereof. (Capitalized terms used but not
defined in this Agreement, shall have the meanings set forth in the Loan
Agreement.)
1. Amended Schedule. The Schedule to Loan and Security Agreement is
hereby amended in its entirety and replaced with the Amended Schedule
to Loan and Security Agreement attached hereto.
2. Fee. Borrower shall concurrently herewith pay a fee to Silicon in the
amount of $2,500, which shall be in addition to all interest and all
other amounts payable hereunder, and which shall not be refundable.
3. Representations True. Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
4. General Provisions. This Extension Agreement, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and
the Borrower, and the other written documents and agreements between
Silicon and the Borrower set forth in full all of the representations
and agreements of the parties with respect to the subject matter
hereof and supersede all prior discussions, representations,
agreements and understandings between the parties with respect to the
subject hereof. Except as herein expressly amended, all of the terms
and provisions of the Loan Agreement, as so amended, and all other
documents and agreements between Silicon and the Borrower shall
continue in full force and effect and the same are hereby ratified and
confirmed.
Borrower: Silicon:
ADVANCED PHOTONIX, INC. SILICON VALLEY BANK
By /s/Harry Melkonian By Karl R. Brier
------------------ -------------
President or Vice President
Title Vice President
--------------
By /s/P. J. Holmes
-------------------
Secretary or Ass't Secretary
<PAGE>
[GRAPHIC OMITTED] SILICON VALLEY BANK
Schedule to
Loan and Security Agreement
Borrower: Advanced Photonix, Inc.
Address: 1240 Avenida Acaso
Camarillo, California 93012
Dated: July 16, 1998
THIS SCHEDULE is an integral part of the Loan and Security Agreement
between Silicon Valley Bank ("Silicon") and the above-named borrower
("Borrower") of even date.
Credit Limit
(Section 1.1): An amount not to exceed the lesser of: (i) $1,000,000 at any
one time outstanding; or (ii) 75% * of the Net Amount of Borrower's
accounts, which Silicon in its discretion deems eligible for
borrowing. "Net Amount" of an account means the gross amount of the
account, minus all applicable sales, use, excise and other similar
taxes and minus all discounts, credits and allowances of any nature
granted or claimed.
* (provided that on and after a Borrowing Audit (as defined in Section
4.5 of the Loan Agreement), this percentage may be modified in the
reasonable discretion of Silicon based on the results of any such
audit)
Without limiting the fact that the determination of which accounts are
eligible for borrowing is a matter of Silicon's discretion, the
following will not be deemed eligible for borrowing: accounts
outstanding for more than 90 days from the invoice date, accounts
subject to any contingencies, accounts owing from the United States or
any department, agency or instrumentality of the United States or any
state, city or municipality, accounts owing from an account debtor
outside the United States (unless pre- approved by Silicon in its
discretion, or backed by a letter of credit satisfactory to Silicon,
or FCIA insured satisfactory to Silicon), accounts owing from one
account debtor to the extent they exceed 25% of the total eligible
accounts outstanding, accounts owing from an affiliate of Borrower,
and accounts owing from an account debtor to whom Borrower is or may
be liable for goods purchased from such account debtor or otherwise.
In addition, if more than 50% of the accounts owing from an account
debtor are outstanding more than 90 days from the invoice date or are
otherwise not eligible accounts, then all accounts owing from that
account debtor will be deemed ineligible for borrowing.
Letter of Credit Sublimit
Silicon, in its reasonable discretion, will from time to time during
the term of this Agreement issue letters of credit for the account of
the Borrower ("Letters of Credit"), in an aggregate amount at any one
time outstanding not to exceed $100,000, upon the request of the
Borrower, provided that, on the date the Letters of Credit are to be
issued, Borrower has available to it Loans in an amount equal to or
greater than the face amount of the Letters of Credit to be issued.
1
<PAGE>
Prior to the issuance of any Letters of Credit, Borrower shall execute
and deliver to Silicon Applications for Letters of Credit and such
other documentation as Silicon shall specify (the "Letter of Credit
Documentation"). Fees for the Letters of Credit shall be as provided
in the Letter of Credit Documentation. Letters of Credit may have a
maturity date up to twelve months beyond the Maturity Date in effect
from time to time, provided that if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding
letters of credit issued by Silicon or issued by another institution
based upon an application, guarantee, indemnity or similar agreement
on the part of Silicon, then on such date Borrower shall provide to
Silicon cash collateral in an amount equal to the face amount of all
such letters of credit plus all interest, fees and costs due or to
become due in connection therewith, to secure all of the Obligations
relating to said letters of credit, pursuant to Silicon's then
standard form cash pledge agreement.
The Credit Limit set forth above and the Loans available under this
Agreement at any time shall be reduced by the face amount of Letters
of Credit from time to time outstanding.
Interest Rate (Section 1.2):
A rate equal to the "Prime Rate" in effect from time to time, plus
0.50% per annum. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. "Prime Rate" means
the rate announced from time to time by Silicon as its "prime rate;"
it is a base rate upon which other rates charged by Silicon are based,
and it is not necessarily the best rate available at Silicon. The
interest rate applicable to the Obligations shall change on each date
there is a change in the Prime Rate.
Loan Origination Fee
(Section 1.3): See Amendment to Loan Agreement.
Maturity Date
(Section 5.1): July 15, 1999
Prior Names of Borrower
(Section 3.2): Xsirius Photonix, Inc.
Trade Names of Borrower
(Section 3.2): None
Other Locations and Addresses
(Section 3.3): None
Material Adverse Litigation
(Section 3.10): None
Negative Covenants-Exceptions
(Section 4.6):
Without Silicon's prior written consent, Borrower may do the
following, provided that, after giving effect thereto, no Event of
Default has occurred and no event has occurred which, with notice or
passage of time or both, would constitute an Event of Default, and
provided that the following are done in compliance with all applicable
laws, rules and regulations: (i) repurchase shares of Borrower's stock
pursuant to any employee stock purchase or benefit plan, provided that
the total amount paid by Borrower for such stock does not exceed
$100,000 in any fiscal year.
2
<PAGE>
Financial Covenants
(Section 4.1):
Borrower shall comply with all of the following covenants. Compliance
shall be determined as of the end of each fiscal month, except as
otherwise specifically provided below:
Quick Asset Ratio:
Borrower shall maintain a ratio of "Quick Assets" to current
liabilities of not less than 2.00 to 1.
Tangible Net Worth:
Borrower shall maintain a tangible net worth of not less than
$3,000,000.
Definitions:
"Current assets," and "current liabilities" shall have the meanings
ascribed to them in accordance with generally accepted accounting
principles.
"Tangible net worth" means the excess of total assets over total
liabilities, determined in accordance with generally accepted
accounting principles, excluding however all assets which would be
classified as intangible assets under generally accepted accounting
principles, including without limitation goodwill, licenses, patents,
trademarks, trade names, copyrights, capitalized software and
organizational costs, licences and franchises.
"Quick Assets" means cash on hand or on deposit in banks, readily
marketable securities issued by the United States, readily marketable
commercial paper rated "A-1" by Standard & Poor's Corporation (or a
similar rating by a similar rating organization), certificates of
deposit and banker's acceptances, and accounts receivable (net of
allowance for doubtful accounts).
Subordinated Debt:
"Liabilities" for purposes of the foregoing covenants do not include
indebtedness which is subordinated to the indebtedness to Silicon
under a subordination agreement in form specified by Silicon or by
language in the instrument evidencing the indebtedness which is
acceptable to Silicon.
Other Covenants
(Section 4.1):
Borrower shall at all times comply with all of the following
additional covenants:
1. Banking Relationship. Borrower shall at all times maintain its
primary banking relationship with Silicon.
2. Monthly Borrowing Base Certificate and Listing. When any Loans or
Obligations relating thereto are outstanding, within 20 days after the
end of each month, Borrower shall provide Silicon with a Borrowing
Base Certificate in such form as Silicon shall specify, and
an aged listing of Borrower's accounts receivable and accounts
payable. At all other times, within 20 days after the end of each
quarter, Borrower shall provide Silicon with a Borrowing Base
Certificate in such form as Silicon shall specify, and an aged listing
of Borrower's accounts receivable and accounts payable
3. Indebtedness. Without limiting any of the foregoing terms or
provisions of this Agreement, Borrower shall not in the future incur
indebtedness for borrowed money, except for (i) indebtedness to
Silicon, and (ii) indebtedness incurred in the future for the purchase
price of or lease of equipment in an aggregate amount not exceeding
$750,000 at any time outstanding.
3
<PAGE>
4. Update. At such time that the Borrower requests Loans such that the
Obligations outstanding hereunder shall exceed $200,000, Borrower
shall supply an update to Silicon of the intellectual property portion
of the representations and warranties form Borrower has previously
supplied to Silicon in order to allow Silicon to prepare such
supplemental security agreements and take such additional actions as
Silicon deems necessary or advisable in order to perfect its security
interest in such items of Borrower's intellectual property not already
subject to Silicon's perfected security interest.
Borrower:
ADVANCED PHOTONIX, INC.
By /s/Harry Melkonian
President or Vice President
By /s/P. J. Holmes
Secretary or Ass't Secretary
Silicon:
SILICON VALLEY BANK
By /s/Karl R. Brier
Title Vice President
4
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<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> SEP-27-1998
<EXCHANGE-RATE> 1
<CASH> 434
<SECURITIES> 2,075
<RECEIVABLES> 1,020
<ALLOWANCES> 83
<INVENTORY> 1,407
<CURRENT-ASSETS> 5,017
<PP&E> 3,441
<DEPRECIATION> 2,873
<TOTAL-ASSETS> 6,253
<CURRENT-LIABILITIES> 880
<BONDS> 0
0
72
<COMMON> 11
<OTHER-SE> 5,290
<TOTAL-LIABILITY-AND-EQUITY> 6,253
<SALES> 3,919
<TOTAL-REVENUES> 3,919
<CGS> 2,415
<TOTAL-COSTS> 3,725
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 257
<INCOME-TAX> 0
<INCOME-CONTINUING> 257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
