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 December 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 February 1, 2002, 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)
Balance Sheet at December 23, 2001 3 - 4
Statements of Operations for the three and nine month
periods ended December 23, 2001 and December 24, 2000 5
Statements of Cash Flows for the nine month periods
ended December 23, 2001 and December 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 DECEMBER 23, 2001
(UNAUDITED)
---------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,509,000
Accounts receivable, less allowance of $6,000 1,128,000
Inventories 2,310,000
Prepaid expenses and other current assets 134,000
-----------------------------
Total Current Assets 8,081,000
-----------------------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,663,000
Less accumulated depreciation and amortization (2,971,000)
-----------------------------
Total Equipment and Leasehold Improvements 692,000
-----------------------------
OTHER ASSETS
Goodwill, net of accumulated amortization of $344,000 491,000
Patents, net of accumulated amortization of $40,000 24,000
Other 24,000
-----------------------------
Total Other Assets 539,000
-----------------------------
TOTAL ASSETS $ 9,312,000
=============================
See notes to financial statements.
-3-
ADVANCED PHOTONIX, INC.
BALANCE SHEET
AT DECEMBER 23, 2001
(UNAUDITED)
----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 219,000
Accrued expenses:
Salaries and employee benefits 198,000
Warranty 23,000
---------------------------
Total Current Liabilities 440,000
---------------------------
COMMITMENTS AND CONTINGENCIES
Class A redeemable convertible preferred stock, $.001 par value; 780,000 32,000
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 (17,748,000)
---------------------------
Total Shareholders' Equity 8,872,000
---------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,312,000
===========================
See notes to financial statements.
-4-
ADVANCED PHOTONIX, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
---------------------------------------------- ---------------------------------------------
December 23, 2001 December 24, 2000 December 23, 2001 December 24, 2000
---------------------- ---------------------- ---------------------- ---------------------
SALES $1,629,000 $1,788,000 $5,268,000 $5,219,000
Cost of goods sold 975,000 1,146,000 2,993,000 3,246,000
---------------------- ---------------------- ---------------------- ---------------------
GROSS PROFIT 654,000 642,000 2,275,000 1,973,000
Research and development expenses 102,000 168,000 356,000 403,000
Marketing and sales expenses 220,000 198,000 690,000 670,000
General and administrative expenses 282,000 251,000 837,000 798,000
Acquisition investigation expenses (14,000) -- 616,000 --
---------------------- ---------------------- ---------------------- ---------------------
INCOME (LOSS) FROM OPERATIONS 64,000 25,000 (224,000) 102,000
---------------------- ---------------------- ---------------------- ---------------------
OTHER INCOME
Interest income 34,000 100,000 171,000 246,000
Other, net -- -- (2,000) (4,000)
---------------------- ---------------------- ---------------------- ---------------------
TOTAL OTHER INCOME 34,000 100,000 169,000 242,000
---------------------- ---------------------- ---------------------- ---------------------
NET INCOME (LOSS) $ 98,000 $ 125,000 $ (55,000) $ 344,000
====================== ====================== ====================== =====================
Basic and Diluted Earnings (Loss) $ .01 $ .01 $ (.00) $ .03
Per Share
Weighted Average Number 12,243,000 12,231,000 12,241,000 12,180,000
of Common Shares Outstanding
See notes to financial statements.
-5-
ADVANCED PHOTONIX, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine month period ended December 23, 2001 December 24, 2000
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) ($ 55,000) $ 344,000
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 151,000 171,000
Amortization 25,000 30,000
Write off of prepaid acquisition costs, net of $200,000 cash expended 430,000 --
Changes in assets and liabilities:
Short-term investments 1,082,000 748,000
Accounts receivable 39,000 8,000
Inventories (583,000) (119,000)
Prepaid expenses and other current assets -- (496,000)
Accounts payable and accrued expenses (83,000) (306,000)
------------------------ -----------------------
Net cash provided by operating activities 1,006,000 380,000
------------------------ -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (407,000) (100,000)
------------------------ -----------------------
Net cash used by investing activities (407,000) (100,000)
------------------------ -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 3,000 146,000
------------------------ -----------------------
Net cash provided by financing activities 3,000 146,000
------------------------ -----------------------
NET INCREASE IN CASH & CASH EQUIVALENTS 602,000 426,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,907,000 3,309,000
------------------------ -----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,509,000 $ 3,735,000
======================== =======================
See notes to financial statements.
-6-
ADVANCED PHOTONIX, INC.
NOTES TO FINANCIAL STATEMENTS
December 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 nine month period ended December 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 12,241,000 at December 23, 2001 and 12,180,000 at
December 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.
-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
---------------------------------- ------------------------
4,000 .6875
88,000 .7500
238,673 .8000
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
---------------------------------- ------------------------
974,873
================================== ========================
Inventories: Inventories consist of the following:
December 23, 2001
----------------------------------
Raw materials $ 753,000
Work in progress 1,213,000
Finished products 344,000
----------------------------------
$ 2,310,000
==================================
-8-
Item 2. Management's Discussion and Analysis
RESULTS OF OPERATIONS
The Company's net sales for the third quarter ("Q3 02") and nine month period
("YTD 02") ended December 23, 2001, were $1.6 million and $5.3 million,
respectively. As compared to the third quarter of the prior year ("Q3 01"), net
sales decreased by 9%, while year to date net sales increased by 1% over the
same nine month period of the prior year ("YTD 01").
The decrease in net sales for the quarter was primarily due to lower volume in
military aerospace and industrial sensing revenues and was partially offset by
increases in the medical equipment and imaging markets, as compared to the same
period in the prior year. Although quarterly sales to the military and
industrial sensing markets declined by 22% and 5% respectively, sales to the
medical markets increased by 18% over Q3 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. Year to date, military revenues
have increased 8% over the prior year and represent 37% of total revenues.
Although military revenues have fluctuated significantly in the past, the
Company anticipates continued increases in military aerospace revenues as
government spending increases and additional government military programs are
approved.
For both the quarter and year to date, the Company has continued to recognize
increases in the medical equipment and imaging markets. As compared to the prior
year, sales to the medical markets have increased by 18% and 50% for the quarter
and year to date periods respectively. Total sales to the medical markets
accounted for 19% of total revenues for the third quarter of 2002 and for 18% of
total revenues for the first three quarters of 2002, as compared to 15% and 12%
for the same periods 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 expects to see
continued increases in sales to the medical markets as it realizes increased
demand for its custom designed products and its ability to respond to the
demands of the rapidly changing marketplace.
Cost of sales decreased by $171,000 (15%) in the third quarter of 2002 and by
$253,000 (8%) for the year to date period as compared to the same periods of the
prior year. Throughout the year, the Company has continued to realize improved
gross margins as a result of measures taken to cut costs and reduce production
overhead. The improved efficiencies have resulted in a gross profit margin of
40% for the third quarter of 2002, an increase of 4 percentage points over the
prior year and a gross profit margin of 43% for the year to date period, an
increase of 5 percentage points over the same period in the prior year.
Research and development costs decreased by $66,000, or 39%, in the third
quarter of 2002 as compared to the third quarter of 2001. Year to date, research
and development costs have decreased by $47,000, or 12%, as compared to the
prior year. The reduction in research and development expenses are primarily due
to variable expenditures associated with current development projects, including
reduced material costs and overhead rates as compared to the prior year. As
described in the past, research and development 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 increased by $22,000 (11%) to $220,000 in the third
quarter of 2002 compared to Q3 01 and by $20,000 (3%) to $690,000 year to date,
as compared to YTD 01. The increase in quarterly expenses is primarily
attributable to increased advertising and trade show expenses over the same
period in the prior year. Although the Company has maintained its advertising
budget for the year, the timing and placement of ads from year to year has
changed in an effort to broaden the potential customer base by targeting
specific publications and issues. Likewise, the timing of trade shows and
expenses has changed from year to year. Year to date, the overall increase in
marketing and sales expense is due to employment related expenses, including
increased commission expenses, resulting from the addition of a Director of
Sales during the year. The Company will attend one more trade show during the
remainder of the fiscal year and will continue to focus on its plan of increased
print media advertising. It is expected that overall marketing and sales
expenses will remain at the same level for the remainder of the fiscal year.
General and administrative expenses increased $31,000 (12%) to $282,000 for the
third quarter of 2002 as compared to Q3 01. Year to date general and
administrative expenses increased by $39,000 (5%) to $837,000 as compared to the
same nine month period in 2001. Both the quarterly and year to date increases
are mainly due to increased labor, insurance, and depreciation expenses. The
increased labor expenses are due to personnel promotions and transfers within
the company, whereby labor previously considered to be direct labor (cost of
sales) is now considered to be general and administrative (overhead) due to the
job duties involved. In addition, the company has seen dramatic increases in
corporate insurance expenses during the year, accounting for approximately 33%
of the year to date variance. Increased depreciation expenses are due to the
installation of a new computer system during the quarter. All of the increases
have been partially offset by reductions in other general and administrative
expenses, as management has been able to successfully cut costs and reduce year
to date expenditures for items such as travel and entertainment, office
supplies, temporary labor and outside services. The Company continues to expect
that G & A expenses will remain stable throughout the remainder of the year and
does not anticipate any notable fluctuations from the current level.
Acquisition investigation expenses of $630,000 were recognized in the previous
quarter in conjunction with the Company's termination of its planned merger with
Jenner Biotherapies, Inc. (Jenner). The amount previously recognized was
adjusted in the current quarter, as actual expenses realized were $14,000 less
than anticipated, bringing the year to date total expense to $616,000.
Approximately $448,000 of the total expense recognized was previously reported
as prepaid acquisition costs.
Interest income for the quarter was $34,000, or $66,000 less than Q3 01.
Interest income for the year to date period was $171,000, or $75,000 less than
the same period in the prior year. The decrease in interest income is primarily
due to continually declining interest rates seen during the current year,
resulting in a much lower return on capital as compared to the prior year.
Net income for the third quarter of 2002 was $98,000, or $27,000 lower than net
income of $125,000 reported in Q3 01. Year to date, the Company's net loss of
($55,000) is $399,000 lower than the net income of $344,000 reported for the
same period in the prior year. Excluding the impact of acquisition investigation
expenses, net income for YTD 02 would be $561,000, or $217,000 higher than net
income reported for YTD 01.
-10-
LIQUIDITY AND CAPITAL RESOURCES
At December 23, 2001, the Company had cash and cash equivalents of $4.5 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 December 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
$480,000 during the nine months ended December 23, 2001. $3,000 was obtained
through the exercise of stock options. $76,000 was used for 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 previous period as they represented costs incurred by the
Company in connection with the examination of a possible business combination
with Jenner Biotherapies, Inc.. The agreement was terminated in the second
quarter of FY 2002 and the corresponding total expenses to date of $616,000
(including $430,000 of prepaid acquisition costs) have been recognized.
Raw materials and work in process inventories increased a total of $583,000,
compared to $119,000 in the previous year, due to several contracts requiring
advance expenditures for materials, engineering and production charges which are
scheduled to ship throughout the remainder of the year and during the upcoming
year.
$407,000 was used for capital equipment, compared to $100,000 during the
comparable period of the prior year. Computer system upgrades (hardware and
software) accounted for $263,000 of the total 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
increase only slightly during the remainder of the year, as the computer system
upgrade is complete and there are no plans for any major machinery upgrades
throughout the remainder of FY 2002.
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.
-11-
PART II OTHER INFORMATION
Items 1-4
None.
Item 5 Other Information
(a) The Company reported the following open market purchases of stock by insiders during the current quarter and year to date:
Name Position Shares Purchased Date Purchased Purchase Price
------------------------------------------------------------------------------------------------------------------
Richard D. Kurtz Chairman 20,000 10/02/01 0.91
9,000 12/14/01 0.62
1,000 12/14/01 0.70
Brock Koren Director, 8,500 12/19/01 0.64
Chief Executive Officer 1,500 12/20/01 0.64
M. Scott Farese Director 5,000 10/24/01 0.65
5,000 11/02/01 0.60
5,000 11/16/01 0.65
Stephen P. Soltwedel Director 5,000 10/08/01 0.70
5,000 01/22/02 0.68
Paul Sharman Vice President - 5,000 12/28/01 0.69
Operations
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: February 5, 2002 /s/ Susan A. Schmidt
---------------- --------------------------------
Susan A. Schmidt
Chief Financial Officer and Secretary
/s/ Brock Koren
--------------------------------
Brock Koren
President & Chief Executive Officer
-13-