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 June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file no. 1-11056
ADVANCED PHOTONIX, INC.
Incorporated pursuant to the Laws of Delaware
IRS Employer Identification No. 33-0325826
1240 Avenida Acaso, Camarillo, CA 93012
(805) 987-0146
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
On August 2, 2002, 12,219,648 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)
Balance Sheet at June 30, 2002 3 - 4
Statements of Operations for the three month 5
periods ended June 30, 2002 and June 24, 2001
Statements of Cash Flows for the three month 6
periods ended June 30, 2002 and June 24, 2001
Notes to Financial Statements 7 - 8
Item 2. Management's Discussion and Analysis 9 - 10
PART II OTHER INFORMATION 11
SIGNATURES 11
2
ADVANCED PHOTONIX, INC.
BALANCE SHEET
AT JUNE 30, 2002
(UNAUDITED)
-----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,944,000
Short term investments 1,002,000
Accounts receivable, less allowance of $33,000 1,069,000
Inventories 2,813,000
Prepaid expenses and other current assets 133,000
-------------------------
Total Current Assets 7,961,000
-------------------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,692,000
Less accumulated depreciation and amortization (3,069,000)
-------------------------
Equipment and Leasehold Improvements, net 623,000
-------------------------
OTHER ASSETS
Goodwill, net of accumulated amortization of $353,000 483,000
Patents, net of accumulated amortization of $41,000 22,000
Other 24,000
-------------------------
Total Other Assets 529,000
-------------------------
TOTAL ASSETS $ 9,113,000
=========================
3
ADVANCED PHOTONIX, INC.
BALANCE SHEET - Continued
AT JUNE 30, 2002
(UNAUDITED)
----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 255,000
Accrued expenses:
Salaries and employee benefits 228,000
Other 5,000
------------------------
Total Current Liabilities 488,000
------------------------
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
12,219,648 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 26,581,000
Accumulated Deficit (18,000,000)
------------------------
Total Shareholders' Equity 8,625,000
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,113,000
========================
See notes to financial statements.
4
ADVANCED PHOTONIX, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three month periods ended June 30, 2002 June 24, 2001
----------------------------------------------------- ------------------ ------------------
SALES $ 1,548,000 $ 1,831,000
Cost of Goods Sold 916,000 918,000
------------------ ------------------
GROSS PROFIT 632,000 913,000
Research and development expenses 142,000 130,000
Sales and marketing expenses 234,000 256,000
General and administrative expenses 307,000 261,000
------------------ ------------------
INCOME (LOSS) FROM OPERATIONS (51,000) 266,000
------------------ ------------------
OTHER INCOME
Interest income 28,000 89,000
------------------ ------------------
NET INCOME (LOSS) ($ 23,000) $ 355,000
================== ==================
Basic and Diluted Earnings Per Share ($ 0.00) $ 0.03
Weighted Average Shares Outstanding 12,247,000 12,239,000
See notes to financial statements.
5
ADVANCED PHOTONIX, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three month periods ended June 30, 2002 June 24, 2001
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (23,000) $ 355,000
Adjustments to reconcile net income to net cash provided by
(used by) operating activities:
Depreciation 49,000 54,000
Amortization 1,000 10,000
Changes in assets and liabilities:
Short-term investments -- 1,082,000
Accounts receivable 236,000 124,000
Inventories (242,000) (492,000)
Prepaid expenses and other current assets (21,000) 40,000
Other assets -- (1,000)
Accounts payable and accrued expenses (124,000) (4,000)
------------------ -------------------
Net cash provided by (used by) operating activities (124,000) 1,168,000
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (20,000) (135,000)
Prepaid acquisition costs -- (18,000)
------------------ -------------------
Net cash used by investing activities (20,000) (153,000)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 5,000 --
------------------ -------------------
Net cash provided by financing activities 5,000 --
------------------ -------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (139,000) 1,015,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,083,000 3,907,000
------------------ -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,944,000 $ 4,922,000
================== ===================
See notes to financial statements.
6
ADVANCED PHOTONIX, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2002
(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 three month period ended June 30, 2002, are
not necessarily indicative of the results that may be expected for the fiscal
year ending March 30, 2003. 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 31, 2002.
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 12,247,000 at June 30, 2002 and 12,239,000 at June 24,
2001. 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. The impact of Statement 128 on the calculation of earnings per share is as
follows:
Three Months Ended Three Months Ended
June 30, 2002 June 24, 2001
------------- -------------
BASIC
Average Shares Outstanding 12,247,000 12,239,000
Net Income (Loss) (23,000) 355,000
Basic Earnings (Loss) Per Share ($ .00) $ 0.03
DILUTED
Average Shares Outstanding 12,247,000 12,239,000
Net Effect of Dilutive Stock Options
based on the treasury stock method
using average market price 236,800 66,500
Total Shares 12,483,800 12,305,500
Net Income (Loss) (23,000) 355,000
Diluted Earnings Per Share anti-dilutive $ 0.03
Average Market Price of Common Stock $ 1.168 $ 0.986
Ending Market Price of Common Stock $ 1.000 $ 0.920
7
NOTE 2 - Continued
------------------
Stock options granted to Company employees, directors, and former owners were
excluded from the calculation of earnings per share in the financial statements
because they were either anti-dilutive or immaterial for the periods reported:
Three Months Ended June 30, 2002 Three Months Ended June 24, 2001
----------------------------------- ------------------------------------
No. of Shares Exercise Price No. of Shares Exercise Price
Underlying Options Per Share Underlying Options Per Share
------------------ -------------- ------------------ --------------
12,000 0.5000 8,000 0.5000
130,000 0.5630 92,000 0.5630
500 0.6250 500 0.6250
4,000 0.6875 3,000 0.6875
130,000 0.7500 92,000 0.7500
266,006 0.8000 - 0.8000
75,000 0.8600 - 0.8600
75,000 1.0000 50,000 1.0000
13,900 1.1875 13,300 1.1875
78,800 1.2500 65,200 1.2500
4,000 1.5000 4,000 1.5000
4,000 1.6250 2,000 1.6250
66,000 1.8750 44,000 1.8750
35,500 2.5000 43,100 2.5000
8,000 3.0000 4,000 3.0000
1,000 3.0940 500 3.0940
400,000 3.1875 400,000 3.1875
50,000 5.3440 25,000 5.3440
------------------ -------------- ------------------ --------------
1,353,706 846,600
=================================== ===================================
Inventories: Inventories consist of the following:
June 30, 2002
---------------------
Raw materials $ 2,041,000
Work in progress 1,024,000
Finished products 170,000
---------------------
Total inventories 3,235,000
=====================
Less reserve (422,000)
---------------------
Inventories, net $ 2,813,000
=====================
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
--------------------------------------
Statement of Financial Accounting Standard No.142 , "Goodwill and Other
Intangible Assets" ("SFAS No. 142") was issued in July 2001. It requires that
goodwill no longer be amortized, but tested for impairment on an annual basis.
SFAS No. 142 was effective for financial statements for fiscal years beginning
after December 31, 2001. Accordingly, the Company adopted the provisions of SFAS
142 in the current fiscal year and has ceased monthly amortization of intangible
assets with an indefinite life.
8
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
NET PRODUCT SALES
-----------------
Net product sales for the first quarter of fiscal year 2003 ("Q1 03") were
$1,548,000, a decrease of $283,000 or 15% from revenues of $1,831,000 for the
first quarter of fiscal year 2002 ("Q1 02").
Compared to Q1 02, the decrease in net revenues for the period was primarily due
to decreased sales to companies in the medical equipment and medical imaging
markets. Sales to customers in these markets can fluctuate significantly between
quarters, due to variances in customer delivery schedules. The Company expects
that for the full year over year, it will continue to experience steadily
increasing sales to the medical markets. Sales to the medical markets in Q1 03
represented 10% of total net sales, as compared to 21% in Q1 02. Sales to the
military and aerospace markets remained stable for Q1 03, comprising 34% of
total net sales for the period, as compared to 31% for the same period of the
prior year. While the Company continues to anticipate increasing volume from
sales of its proprietary LAAPD products, it continues to expect more rapid
growth to be seen in the sales of its commercial and core product lines,
particularly to the medical and military segments, during the remainder of
fiscal year 2003.
COSTS AND EXPENSES
------------------
Cost of product sales decreased only slightly, by $2,000 in Q1 03 compared to Q1
02. Consequently, due to decreased revenues in the current quarter, cost of
product sales as a percentage of net sales increased by 9% and gross profit
margin on net product sales decreased 9 percentage points to 41% as compared to
50% in Q1 02. As the Company must maintain certain fixed overhead costs, the
current gross margin is indicative of what can be expected at the current sales
levels and expects the gross margin percentages to improve as revenues increase.
Research and development costs increased by $12,000 (9%) to $142,000 in Q1 03 as
compared to Q1 02. The increase in R&D costs 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 they have in the past, R&D costs may continue to vary
significantly, due to the level of activity associated with development
contracts as well as product improvement and/or new product development
projects.
Marketing and sales expenses decreased by $22,000 (9%) to $234,000 in Q1 03 as
compared to Q1 02. The decrease in marketing and sales expense is primarily due
to reductions in both recruitment and travel expenses as compared to the prior
year. The Company does not anticipate any major fluctuations in sales and
marketing expenses and expects that they will remain at approximately the same
levels for the remainder of the year.
General and administrative expenses increased by $46,000 (18%) to $307,000 in Q1
03 as compared to $261,000 in Q1 02. The increase in general and administrative
expenses is primarily due to increased insurance and depreciation expenses over
the same period in the prior year. The Company has continued to see increases in
both liability and benefits-type insurances and expects that such increases will
continue throughout the remainder of the year. The increase in depreciation
expense is the result of the purchase of a new enterprise resource planning
(ERP) software system which was installed during the third quarter of last year.
In addition, the Company reported increased expenses associated with legal fees
and Board of Directors' fees, which are primarily the result of timing
differences between the two periods.
9
Interest income in Q1 03 was $28,000, or $61,000 less than the $89,000 reported
in Q1 02. The decrease in interest income is due primarily to continually
declining interest rates seen during the past year in addition to lower cash
reserves available for investment.
Net loss for Q1 03 was ($23,000), as compared to net income of $355,000 for Q1
02.
FINANCIAL CONDITION
At June 30, 2002, the Company had cash, cash equivalents and short term
investments of $3.9 million, working capital of $7.5 million, and an accumulated
deficit of $18.0 million. The Company's cash, cash equivalents and short-term
investments decreased by $139,000 during the three months ended June 30, 2002.
$5,000 was obtained through the exercise of stock options and $124,000 was used
by operating activities. Operating expenditures were impacted by cash outlays
used to purchase inventory and reduce accounts payable, both of which were
partially offset by cash flow resulting from the collections of outstanding
accounts receivable.
Cash of $20,000 was used for capital equipment, compared to $135,000 during the
same period of the prior year. All capital expenditures during the current
quarter were due to necessary equipment upgrades and/or replacements. The
Company does not anticipate any major cash outlays for capital items during the
remainder of the year, as there are no significant capital equipment purchases
scheduled at this time.
The Company is exposed to interest rate risk for marketable securities. Due to
declining interest rates available to the Company pursuant to its investment
policy, the Company was able to achieve higher yields on more liquid money
market accounts and thus transferred the majority of its available cash reserves
from short term investment instruments to such accounts during the prior fiscal
year. At June 30, 2002, the Company continued to hold one investment in a U.S.
Government security with a value of $1,000,000 which carries an interest rate of
5.0%. The Company will continue to monitor available interest rates throughout
the remainder of the year and will attempt to utilize the best possible avenues
of investment for its excess liquid assets.
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
PART II OTHER INFORMATION
Items 1 - 5
-----------
None
Item 6 Exhibits and Reports on Form 8-K
----------------------------------------
(a) Exhibits
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(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: August 7, 2002 /s/ Susan A. Schmidt
-------------- ------------------------------------
Susan A. Schmidt
Chief Financial Officer and Secretary
Date: August 7, 2002 /s/ Brock Koren
-------------- ------------------------------------
Brock Koren
President & Chief Executive Officer
11