UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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 23, 2001
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 5, 2001, 12,211,648 shares of Class A Common Stock, $.001 par value,
and 31,691 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
Balance Sheet at September 23, 2001 3 - 4
Statements of Operations for the three and six month
periods ended September 23, 2001 and September 24, 2000 5
Statements of Cash Flows for the six month periods
ended September 23, 2001 and September 24, 2000 6
Notes to Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis 9 - 11
PART II OTHER INFORMATION 12
SIGNATURES 13
-2-
ADVANCED PHOTONIX, INC.
BALANCE SHEET
AT SEPTEMBER 23, 2001
(UNAUDITED)
-----------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,793,000
Accounts receivable, less allowance of $6,000 1,123,000
Inventories 2,231,000
Prepaid expenses and other current assets 86,000
-------------
Total Current Assets 8,233,000
-------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,575,000
Less accumulated depreciation and amortization (2,923,000)
-------------
Total Equipment and Leasehold Improvements 652,000
-------------
OTHER ASSETS
Goodwill, net of accumulated amortization of $336,000 500,000
Patents, net of accumulated amortization of $39,000 25,000
Other 24,000
-------------
Total Other Assets 549,000
-------------
TOTAL ASSETS $ 9,434,000
=============
-3-
ADVANCED PHOTONIX, INC.
BALANCE SHEET - Continued
AT SEPTEMBER 23, 2001
(UNAUDITED)
-----------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 246,000
Accrued expenses:
Salaries and employee benefits 208,000
Other 207,000
-------------
Total Current Liabilities 661,000
-------------
COMMITMENTS AND CONTINGENCIES
Class A redeemable convertible preferred stock, $.001 par value; 32,000
780,000 shares authorized; 40,000 shares issued and outstanding
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value; 10,000,000 shares authorized;
780,000 shares designated Class a redeemable convertible; --
no shares issued and outstanding
Class A common stock, $.001 par value; 50,000,000 shares authorized; 12,000
12,211,648 shares issued and outstanding
Class B common stock, $.001 par value; 4,420,113 shares authorized; --
31,691 shares issued and outstanding
Additional paid-in capital 26,576,000
Accumulated Deficit (17,847,000)
-------------
Total Shareholders' Equity 8,773,000
-------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,434,000
=============
See notes to financial statements.
-4-
ADVANCED PHOTONIX, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
-------------------------------------------- --------------------------------------------
September 23, 2001 September 24, 2000 September 23, 2001 September 24, 2000
--------------------- --------------------- --------------------- ---------------------
SALES $1,809,000 $1,768,000 $3,640,000 $3,431,000
Cost of goods sold 1,100,000 1,138,000 2,018,000 2,100,000
--------------------- --------------------- ---------------------- --------------------
GROSS PROFIT 709,000 630,000 1,622,000 1,331,000
Research and development expenses 124,000 126,000 254,000 235,000
Marketing and sales expenses 214,000 246,000 470,000 472,000
General and administrative expenses 295,000 301,000 556,000 547,000
Acquisition investigation expenses 630,000 -- 630,000 --
--------------------- --------------------- ---------------------- --------------------
INCOME (LOSS) FROM OPERATIONS (554,000) (43,000) (288,000) 77,000
--------------------- --------------------- ---------------------- --------------------
OTHER INCOME
Interest income 48,000 72,000 137,000 146,000
Other, net (2,000) (4,000) (2,000) (4,000)
--------------------- --------------------- ---------------------- --------------------
TOTAL OTHER INCOME 46,000 68,000 135,000 142,000
--------------------- --------------------- ---------------------- --------------------
NET INCOME (LOSS) ($ 508,000) $ 25,000 ($ 153,000) $ 219,000
===================== ===================== ====================== ====================
Basic and Diluted Earnings (Loss) ( $ .04) $ .00 ($ .01) $ .02
Per Share
Weighted Average Shares Outstanding 12,242,000 12,223,000 12,240,000 12,154,000
See notes to financial statements.
-5-
ADVANCED PHOTONIX, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six month periods ended September 23, 2001 September 24, 2000
-------------------------------------------------------------------------------------------------------- ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($ 153,000) $ 219,000
Adjustments to reconcile net income to net cash provided by
(used by) operating activities:
Depreciation 104,000 113,000
Amortization 17,000 21,000
Write off of prepaid acquisition costs, net of $200,000 cash expended 430,000 --
Changes in assets and liabilities:
Short-term investments 1,082,000 (1,581,000)
Accounts receivable 44,000 157,000
Inventories (504,000) (165,000)
Prepaid expenses and other current assets 47,000 38,000
Other assets (1,000) --
Accounts payable and accrued expenses 137,000 (267,000)
---------------------- ------------------------
Net cash provided by (used by) operating activities 1,203,000 (1,465,000)
---------------------- ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (320,000) (38,000)
Prepaid acquisition costs -- (430,000)
---------------------- ------------------------
Net cash provided by (used by) investing activities (320,000) (468,000)
---------------------- ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 3,000 148,000
---------------------- ------------------------
Net cash provided by financing activities 3,000 148,000
---------------------- ------------------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS 886,000 (1,785,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,907,000 3,309,000
---------------------- ------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,793,000 $ 1,524,000
====================== ========================
See notes to financial statements.
-6-
ADVANCED PHOTONIX, INC.
NOTES TO FINANCIAL STATEMENTS
September 23, 2001
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Article 10 of Regulation S-X and
Regulation S-B. 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 six month period ended September 23, 2001,
are not necessarily indicative of the results that may be expected for the
fiscal year ending March 24, 2002. For further information, refer to the
financial statements and notes thereto included in the Advanced Photonix, Inc.
Annual Report on Form 10-KSB for the fiscal year ended March 25, 2001.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Income (Loss) Per Share: Net income (loss) per share is based on the
weighted average number of common shares outstanding. Such weighted average
shares were approximately 12,240,000 at September 23, 2001 and 12,154,000 at
September 24, 2000. 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 in the financial statements as the impact is either not material or
anti-dilutive. The impact of Statement 128 on the calculation of earnings per
share is as follows:
Six Months Ended
BASIC September 23, 2001
--------------------------- ------------------
Average Shares Outstanding 12,240,000
Net Loss (153,000)
Basic Loss Per Share ($ 0.01)
-7-
NOTE 2 - Continued
The following stock options granted to Company employees and directors were
excluded from the calculation of earnings per share in the financial statements
because they were anti-dilutive:
No. of Shares Exercise Price
Underlying Options Per Share
------------------------ ---------------------
8,000 .5000
88,000 .5630
500 .6250
3,000 .6875
88,000 .7500
50,000 1.0000
13,900 1.1875
59,200 1.2500
4,000 1.5000
4,000 1.6250
44,000 1.8750
35,600 2.5000
8,000 3.0000
500 3.0940
400,000 3.1875
25,000 5.3440
------------------------ ---------------------
831,700
======================== =====================
Inventories: Inventories consist of the following:
September 23, 2001
---------------------
Raw materials $ 610,000
Work in progress 1,301,000
Finished products 320,000
---------------------
$ 2,231,000
=====================
-8-
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
-----------------------
NET PRODUCT SALES
The Company's net product sales for the second quarter ("Q2 02") and six month
period ("YTD 02") ended September 23, 2001, were $1.8 million and $3.6 million,
respectively. As compared to the second quarter and six month period of the
prior year ("Q2 01" and "YTD 01"), net sales increased by 2% and 6%,
respectively.
The increase in net revenues for the quarter was primarily due to higher volume
in the military aerospace market, which was partially offset by a reduction in
revenues from the industrial sensing market. Sales to the military aerospace
markets increased by approximately 47% for Q2 02 and 25% for YTD 02 when
compared to the same periods in the prior year. Total revenues from the military
aerospace market accounted for 48% of total revenues for Q2 02 and 39% of total
revenues for YTD 02, as compared to 33% for both Q2 01 and YTD 01. On an ongoing
basis, the Company has continued to compete for military aerospace contracts,
which are dependent on funding from the United States government. The Company
attributes its recent increases in military aerospace revenues to improved
competitiveness and overall increases in government spending. Although military
revenues have fluctuated significantly in the past, the Company anticipates
continued increases in military aerospace revenues as additional government
military programs are approved.
In addition to the military aerospace market, the Company has seen continued
increases in the medical equipment and imaging markets. As compared to YTD 01,
sales to the medical markets increased by 73% for YTD 02 and accounted for 18%
of total revenues, as compared to 11% of total revenues in the prior year.
Continuous improvements made by medical equipment manufacturers in technology
and design have resulted in increased demand for the Company's products in those
markets. The Company attributes the increased demand to its custom design
capabilities and the ability to design components which can be easily adapted to
the rapidly changing requirements of the marketplace.
COSTS AND EXPENSES
Cost of product sales decreased by $38,000 (3%) during Q2 02 and by $82,000 (4%)
during YTD 02 as compared to Q2 01 and YTD 01, respectively. As a result, gross
profit margin increased by 3 percentage points to 39% in Q2 02 as compared to Q2
01 and by 6 percentage points to 45% for YTD 02 as compared to YTD 01. A number
of factors are responsible for the improved margins, including greater
efficiencies of scale associated with higher sales volume and the effects of
several cost cutting measures implemented by the Company in an effort to
streamline the manufacturing process and reduce production overhead.
Research and development costs decreased only slightly (2%) in Q2 02 as compared
to Q2 01. Year to date, research and development costs have increased by $19,000
(8%) compared to the prior year. The increase year to date is primarily due to
variable expenditures associated with current development projects, including
the continual improvement of the Company's current line of LAAPD and core
business products. As described in the past, R&D costs may continue to vary
significantly, 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.
-9-
Marketing and sales expenses decreased by $32,000 (13%) to $214,000 in Q2 02
compared to Q2 01 and by $2,000 (<1%) to $470,000 in YTD 02 compared to YTD 01.
The decrease for the period is due to decreased staffing and advertising
expenses, as compared to the prior year. Although the Company has not reduced
its advertising budget for the year, the timing and placement of ads has changed
from last year in an effort to broaden the potential customer base by targeting
specific publications and issues. The Company continues to focus on its plan of
increased print media advertising and trade show attendance and does not
anticipate any notable fluctuations in overall marketing and sales expenses for
the remainder of the year.
General and administrative expenses remained relatively consistent with the
prior year, decreasing only slightly, by $6,000 (2%) to $295,000 in Q2 02
compared to Q2 01 and increasing by $9,000 (2%) to $556,000 in YTD 02 compared
to YTD 01. While the Company has implemented several overall cost cutting
efforts and continues to monitor G & A costs very closely, the savings to date
have been offset by increases in employee benefit and utility costs. The Company
expects G & A expenses to remain stable throughout the remainder of the year and
does not anticipate any material fluctuations, except for those expenses which
may arise as a result of the Company's investigation of potential acquisitions.
Acquisition investigation expenses of $630,000 were recognized in the current
quarter in conjunction with the Company's termination of its planned merger with
Jenner Biotherapies, Inc. (Jenner). The merger was terminated by the mutual
consent of both parties as a result of developments affecting a license
agreement between Jenner and a third-party pharmaceutical company. The
third-party licensee, a Japanese pharmaceutical company, announced that it was
reevaluating its commitment to the original license agreement, which was an
integral element in the merger agreement between Jenner and the Company.
Consequently, the Company abandoned the merger transaction, as it was determined
that changes in the third-party license agreement would adversely affect the
ultimate prospects of the merger. Approximately $448,000 of the total expense
recognized was previously reported as prepaid acquisition costs.
Interest income in Q2 02 was $48,000, or $24,000 lower than Q2 01. Interest
income for YTD 02 was $137,000, or $9,000 lower than the same period in the
prior year. The decrease in interest income is primarily due to lower interest
rates available during the current year, as compared to the prior year.
The Company reported a net loss of ($508,000) and ($153,000) for Q2 02 and YTD
02, respectively. Excluding the impact of acquisition investigation expenses,
net income for Q2 02 was $122,000 or $97,000 higher than net income of $25,000
in Q2 01 and net income for YTD 02 was $477,000 or $258,000 higher than net
income of $219,000 reported for the same period in the prior year.
-10-
LIQUIDITY AND CAPITAL RESOURCES
---------------------------------
At September 23, 2001, the Company had cash and cash equivalents of $4.8
million, no short-term investments, and working capital of $7.6 million. Due to
declining interest rates available on securities available to the Company
pursuant to its investment policy, the Company held no short-term investments at
September 23, 2001. Rather, the Company was able to achieve higher yields on
more liquid money market accounts and thus transferred excess available cash to
such instruments.
The Company's cash, cash equivalents and short-term investments decreased by
$196,000 during the six months ended September 23, 2001. $3,000 was obtained
through the exercise of stock options. $121,000 was obtained through operating
activities (before cash provided by short-term investments and including the
write off of prepaid acquisition costs). Operating expenditures were affected
mainly by the impact of acquisition investigation expenses and increased
inventories.
Expenses of $430,000, previously reported as prepaid acquisition costs, were
expensed during the current period as they represented costs incurred by the
Company in connection with the examination of a possible business combination
with Jenner Biotherapies, Inc.. Based on material changes to the proposed
merger, the agreement was terminated and the corresponding total expenses to
date of $630,000 (including $430,000 of prepaid acquisition costs) were
recognized in the current quarter.
Raw materials and work in process inventories increased a total of $504,000, due
to several contracts requiring advance expenditures for materials, engineering
and production charges which are scheduled to ship throughout the remainder of
the year.
Cash of $320,000 was used for capital equipment, compared to $38,000 during the
same period of the prior year. Computer hardware and software purchases
accounted for $259,000 of the increase in capital spending; the remainder was
due to expenditures required for manufacturing equipment upgrades and
replacements. The Company expects that cash outlays for capital items will
continue to increase slightly during 2002, as plans to purchase additional
machinery and the completion of the computer system upgrades are scheduled
throughout the remainder of the year.
In the past, the Company has maintained a revolving line of credit agreement
when needed. Based on current projections and available cash reserves, the
Company does not foresee an immediate need for borrowing and has therefore
elected to forego the costs for maintaining a line of credit at this time. The
Company believes that it would be most efficient to establish a line when the
situation warrants.
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), fluctuations in the level of
government spending for military programs, the availability of other competing
technologies and a decline in the general demand for optoelectronic products.
-11-
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 17, 2001. 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
------------------ -------------------
Richard D. Kurtz 10,668,291 263,278
Brock Koren 10,739,836 191,733
M. Scott Farese 10,671,561 260,008
Stephen P. Soltwedel 10,678,961 252,608
Item 5 Other Information
(a) In accordance with the requirements of Rule 14a-4(c) of the Securities
Exchange Act of 1934, in order for shareholder proposals submitted outside
Rule 14a-8 to be timely for purposes of the Company's 2002 Annual Meeting
of Shareholders within the meaning of Rule 14a-4(c), such proposals must be
received by the Company no later than the close of business on March 18,
2002.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
-12-
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 6, 2001 /s/ Susan A. Schmidt
----------------- ---------------------------------
Susan A. Schmidt
Chief Financial Officer and Secretary
/s/ Brock Koren
---------------------------------
Brock Koren
President & Chief Executive Officer
-13-