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 29, 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 November 8, 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) 3 - 6
Balance Sheet at September 29, 2002 3 - 4
Statements of Operations for the three and six month periods ended
September 29, 2002 and September 23, 2001 5
Statements of Cash Flows for the six month periods ended
September 29, 2002 and September 23, 2001 6
Notes to Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis 10 - 13
Item 3. Controls and Procedures 14
PART II OTHER INFORMATION 15
SIGNATURES 16
CERTIFICATIONS 17 - 18
2
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET
AT SEPTEMBER 29, 2002
(UNAUDITED)
---------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,120,000
Short-term investments 1,002,000
Accounts receivable, less allowance of $37,000 1,359,000
Inventories 3,111,000
Prepaid expenses and other current assets 192,000
-----------------------------
Total Current Assets 6,784,000
-----------------------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 4,382,000
Less accumulated depreciation and amortization (3,127,000)
-----------------------------
Total Equipment and Leasehold Improvements 1,255,000
-----------------------------
OTHER ASSETS
Goodwill, net of accumulated amortization of $353,000 931,000
Patents, net of accumulated amortization of $42,000 21,000
Other 174,000
-----------------------------
Total Other Assets 1,126,000
-----------------------------
TOTAL ASSETS $ 9,165,000
=============================
See notes to consolidated financial statements.
3
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET - Continued
AT SEPTEMBER 29, 2002
(UNAUDITED)
---------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 539,000
Accrued expenses:
Salaries and employee benefits 218,000
Other 9,000
----------------------------
Total Current Liabilities 766,000
----------------------------
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
12,219,648 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 26,586,000
Accumulated Deficit (18,231,000)
----------------------------
Total Shareholders' Equity 8,399,000
----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,165,000
============================
See notes to consolidated financial statements.
4
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
---------------------------------------------- ---------------------------------------------
September 29, 2002 September 23, 2001 September 29, 2002 September 23, 2001
---------------------- ---------------------- ---------------------- ---------------------
SALES $1,838,000 $1,809,000 $3,386,000 $3,640,000
Cost of goods sold 1,307,000 1,100,000 2,224,000 2,018,000
---------------------- ---------------------- ---------------------- ---------------------
GROSS PROFIT 531,000 709,000 1,162,000 1,622,000
Research and development expenses 144,000 124,000 286,000 254,000
Marketing and sales expenses 224,000 214,000 457,000 470,000
General and administrative expenses 413,000 295,000 720,000 556,000
Acquisition investigation expenses -- 630,000 -- 630,000
---------------------- --------------------- ---------------------- ---------------------
LOSS FROM OPERATIONS (250,000) (554,000) (301,000) (288,000)
---------------------- ---------------------- ---------------------- ---------------------
OTHER INCOME
Interest income 20,000 48,000 48,000 137,000
Other, net (2,000) (2,000) (2,000) (2,000)
---------------------- ---------------------- ---------------------- ---------------------
TOTAL OTHER INCOME 18,000 46,000 46,000 135,000
---------------------- ---------------------- ---------------------- ---------------------
NET LOSS ($232,000) ($508,000) ($255,000) ($153,000)
====================== ====================== ====================== =====================
Basic and Diluted Loss Per Share ( $ .02) ( $ .04) ($ .02) ($ .01)
Weighted Average Shares Outstanding 12,251,000 12,242,000 12,249,000 12,240,000
See notes to consolidated financial statements.
5
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six month periods ended September 29, 2002 September 23, 2001
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 255,000) ($ 153,000)
Adjustments to reconcile net loss to net cash provided by (used by)
operating activities:
Depreciation 107,000 104,000
Amortization 2,000 17,000
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
Accounts receivable 252,000 44,000
Inventories 14,000 (504,000)
Prepaid expenses and other current assets 9,000 47,000
Other assets (192,000) (1,000)
Accounts payable and accrued expenses (54,000) 137,000
------------------------ ------------------------
Net cash provided by (used by) operating activities (117,000) 1,203,000
------------------------ ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (57,000) (320,000)
Purchase of selected net assets of Silicon Sensors, LLC (1,799,000) --
------------------------ ------------------------
Net cash used by investing activities (1,856,000) (320,000)
------------------------ ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock options 5,000 --
Proceeds from exercise of stock options 5,000 3,000
------------------------ ------------------------
Net cash provided by financing activities 10,000 3,000
------------------------ ------------------------
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS (1,963,000) 886,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,083,000 3,907,000
------------------------ ------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,120,000 $ 4,793,000
======================== ========================
See notes to consolidated financial statements.
6
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 29, 2002
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Advanced Photonix, Inc. ("the Company") and the Company's wholly
owned subsidiary, Silicon Sensors Inc. ("SSI") (See Note 2). These consolidated
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.
All significant inter-company accounts and transactions have been eliminated in
consolidation. 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 29, 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 - ACQUISITION
On August 21, 2002, SSI, a newly formed wholly owned subsidiary of API purchased
substantially all of the assets and selected liabilities of Silicon Sensors LLC,
a closely held manufacturer of opto-electronic semiconductor based components
located in Dodgeville, Wisconsin. The purchase price was $1,700,000 in cash plus
the assumption of the Seller's trade accounts payable and accrued liabilities,
amounting to approximately $282,000.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Income (Loss) Per Share: Net income (loss) per share is based on the
weighted average number of common shares outstanding. Such weighted average
shares were approximately 12,249,000 at September 29, 2002 and 12,240,000 at
September 23, 2001. Net income (loss) per share calculations are in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" (SFAS 128). Accordingly, "basic" net income (loss) per share is computed
by dividing net income (loss) by the weighted average number of shares
outstanding for the year. The impact of Statement 128 on the calculation of
earnings per share is as follows:
Six Months Ended Six Months Ended
BASIC September 29, 2002 September 23, 2001
----- ------------------ ------------------
Average Shares Outstanding 12,249,000 12,240,000
Net Loss (255,000) (153,000)
Basic Loss Per Share ($ 0.02) ($ 0.01)
DILUTED
-------
Average Shares Outstanding 12,249,000 12,240,000
Net Effect of Dilutive Stock Options
based on the treasury stock method
using average market price 292,000 55,700
Total Shares 12,541,000 12,295,700
Net Income (Loss) (255,000) (153,000)
Diluted Earnings Per Share anti-dilutive anti-dilutive
Average Market Price of Common Stock $ 0.983 $ 0.925
Ending Market Price of Common Stock $ 0.850 $ 0.700
7
NOTE 3 - 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:
Six Months Ended September 29, 2002 Six Months Ended September 23, 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
126,000 0.5630 88,000 0.5630
25,000 0.6100 - 0.6100
500 0.6250 500 0.6250
416,668 0.6700 - 0.6700
4,000 0.6875 3,000 0.6875
126,000 0.7500 88,000 0.7500
266,006 0.8000 - 0.8000
76,250 0.8600 - 0.8600
75,000 1.0000 50,000 1.0000
14,500 1.1875 13,900 1.1875
74,800 1.2500 59,200 1.2500
- 1.5000 4,000 1.5000
4,000 1.6250 4,000 1.6250
66,000 1.8750 44,000 1.8750
35,500 2.5000 35,600 2.5000
8,000 3.0000 8,000 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
------------------ ---------------- ------------------ ----------------
1,781,224 831,700
8
NOTE 3 - Continued
Inventories: Inventories consist of the following:
September 29, 2002
-------------------------
Raw materials $ 2,327,000
Work in progress 958,000
Finished products 285,000
-------------------------
Total inventories 3,570,000
=========================
Less reserve (459,000)
=========================
Inventories, net $ 3,111,000
=========================
NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No.142 , "Goodwill and Other
Intangible Assets" ("SFAS No. 142") was issued by the Financial Accounting
Standards Board 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.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 establishes accounting standards for recognition and
measurement of a liability for the costs of asset retirement obligations. Under
SFAS 143, the costs of retiring an asset will be recorded as a liability when
the retirement obligation arises, and will be amortized to expense over the life
of the asset. We do not expect any effect on our financial position or results
of operations from the adoption of this statement.
SFAS 144 establishes a single accounting model for the impairment or disposal of
long-lived assets, including discontinued operations. SFAS 144 superseded SFAS
121 and APB Opinion No. 30, "Reporting the Results of Operations--Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." The provisions of SFAS 144 are
effective in fiscal years beginning after December 15, 2001, with early adoption
permitted, and in general are to be applied prospectively. The Company adopted
SFAS 144 effective April 1, 2002, which did not have a material impact on its
consolidated results of operations or financial position.
In June of 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities," which nullifies EITF Issue 94-3. SFAS 146 is
effective for exit and disposal activities that are initiated after December 31,
2002 and requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, in contrast to
the date of an entity's commitment to an exit plan, as required by EITF Issue
94-3. The Company will adopt the provisions of SFAS 146 effective January 1,
2003.
9
Item 2. Management's Discussion and Analysis
Critical Accounting Policies
----------------------------
Application of our accounting policies requires management to make judgments and
estimates about the amounts reflected in the financial statements. Management
uses historical experience and all available information to make these estimates
and judgments, although differing amounts could be reported if there are changes
in the assumptions and estimates. Estimates are used for, but not limited to,
the accounting for the allowance for doubtful accounts, inventory allowances,
restructuring costs, impairment costs, depreciation and amortization, sales
discounts and returns, warranty costs, taxes and contingencies. Management has
identified the following accounting policies as critical to an understanding of
our financial statements and/or as areas most dependent on management's judgment
and estimates.
Revenue Recognition
-------------------
We generally recognize revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the price is fixed or readily determinable, and
collectibility is probable. Sales are recorded net of sales returns and
discounts. We recognize revenue in accordance with Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements."
Impairment of Long-Lived Assets
-------------------------------
We continually review the recoverability of the carrying value of long-lived
assets using the methodology prescribed in Statement of Financial Accounting
Standards (SFAS) 144, "Accounting for the Impairment and Disposal of Long-Lived
Assets." We also review long-lived assets and the related intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Upon such an occurrence,
recoverability of these assets is determined by comparing the forecasted
undiscounted net cash flows to which the assets relate, to the carrying amount.
If the asset is determined to be unable to recover its carrying value, then
intangible assets, if any, are written down first, followed by the other
long-lived assets to fair value. Fair value is determined based on discounted
cash flows, appraised values or management's estimates, depending on the nature
of the assets.
Deferred Tax Asset Valuation Allowance
--------------------------------------
We record a deferred tax asset in jurisdictions where we generate a loss for
income tax purposes. Due to our history of operating losses, we have recorded a
full valuation allowance against these deferred tax assets in accordance with
SFAS 109, "Accounting for Income Taxes," because, in management's judgment, the
deferred tax assets may not be realized in the foreseeable future.
Inventories
-----------
Our inventories are stated at the lower of cost (first-in, first-out method) or
market. Slow moving and obsolete inventory are written off quarterly. To
calculate the write-off amount, we compare the current on-hand quantities with
both the projected usages for a two-year period and the actual usage over the
past 12 months. On-hand quantities greater than projected usage are calculated
at the standard unit cost. The engineering and purchasing departments review the
initial list of slow-moving and obsolete items to identify items that have
alternative uses in new or existing products. These items are then excluded from
the analysis. The remaining amount of slow-moving and obsolete inventory is then
written off. Additionally, non-cancelable open purchase orders for parts we are
obligated to purchase where demand has been reduced may be reserved. Reserves
for open purchase orders where the market price is lower than the purchase order
price are also established.
10
Accounts Receivable and Allowance for Doubtful Accounts
-------------------------------------------------------
The Allowance for Doubtful Accounts is established by analyzing each account
that has a balance over 90 days past due. Each account is individually assigned
a probability of collection. The total amount determined to be uncollectible in
the 90-days-past-due category is then reserved fully. The percentage of this
reserve to the 90-days-past-due total is then established as a guideline and
applied to the rest of the non-current accounts receivable balance. When other
circumstances suggest that a receivable may not be collectible, it is
immediately reserved for, even if the receivable is not yet in the
90-days-past-due category.
RESULTS OF OPERATIONS
NET PRODUCT SALES
The Company's consolidated net product sales for the second quarter ("Q2 03")
and six month period ("YTD 03") ended September 29, 2002, were $1.838 million
and $3.386 million, respectively. Net sales increased by 2% as compared to the
second quarter of the prior year ("Q2 02") and decreased by 7% as compared to
the same six month period of the prior year ("YTD 02").
The increase in quarterly revenues was primarily due to increases in the
industrial sensing and medical markets, which were partially offset by a
decrease in the military aerospace market as compared to the prior year. Sales
to the industrial sensing and medical markets increased by 29% and 15%,
respectively, while sales to the military aerospace markets decreased by 23%, as
compared to Q2 02. Year to date, the decrease in revenues is attributable to an
overall reduction in military aerospace revenues, which have decreased by 17%
when compared to the same six month period in the prior year. Total revenues
from the industrial sensing and medical markets represent 61% of total revenues
for YTD 03, as compared to 59% for YTD 02. Revenues from the military aerospace
market represent 36% of total revenues for YTD 03 as compared to 40% for YTD 02.
On an ongoing basis, the Company has continued to compete for military aerospace
contracts, which are dependent on release and funding from the United States
government. The Company attributes its recent decrease in revenues, including
military aerospace, to customer-requested delayed shipment schedules and expects
to see sales improve during the upcoming quarters, as those shipments have been
re-scheduled and are expected to ship throughout the remainder of the year and
beyond.
COSTS AND EXPENSES
Cost of product sales increased by $207,000 (19%) during Q2 03 and by $206,000
(10%) during YTD 03 as compared to Q2 02 and YTD 02, respectively. Consequently,
due to decreased revenues in the current year, cost of product sales as a
percentage of net sales increased by 11% and gross profit margin on net product
sales decreased 11 percentage points to 34% as compared to 45% for YTD 02. In
the current quarter, lack of increased sales and variability in product mix
directly affected gross margin, as the material and direct labor costs
associated with the sales mix in Q2 03 were significantly higher as compared to
the same costs in Q2 02. In particular, deliveries on certain military
contracts, which typically yield higher margins, were pushed back and
re-scheduled to ship in the third quarter of fiscal year 2003 (at customer
request). The decrease in military revenues and corresponding increase in
lower-margin industrial sensing revenues accounted for approximately 40% of the
variance as compared to the prior year. In addition, the Company's fixed
overhead and indirect costs associated with the manufacturing process increased
as a result of the acquisition of Silicon Sensors, LLC. Increased manufacturing
costs attributable to the Dodgeville facility accounted for approximately 15% of
the year to year variance and the remainder was due to fixed overhead and
indirect costs which were not absorbed by increased revenues. The Company feels
the current gross margin as a percentage of net sales is lower than what can be
expected in the future, as it expects improved expense absorption from
increasing revenues during the remainder of the year, and is moving forward with
plans to maximize efficiencies of scale company-wide through consolidation of
manufacturing efforts including communization of enterprise wide resource
planning systems, purchasing contracts, elimination of redundant personnel and
overall sharing of resources.
11
Research and development costs increased by $20,000 (16%) to $144,000 in Q2 03
as compared to Q2 02, and by $32,000 (13%) year to date. The increase in R&D
costs continues to be attributable to variable expenditures associated with
current development projects, including the continual improvement of the
Company's current line of LAAPD and core business products. Although the Company
expects R&D costs to decrease slightly during the remainder of the year, R&D
costs can vary significantly, due to the level of activity associated with
customer-requested development contracts as well as product improvement and/or
new product development projects.
Marketing and sales expenses increased by $10,000 (5%) to $224,000 in Q2 03
compared to Q2 02 and decreased by $13,000 (3%) to $457,000 in YTD 03 compared
to YTD 02. The increase for the quarter is primarily due to expenses of the
newly acquired subsidiary, SSI (note 2). Excluding the impact of the SSI
expenses, marketing and sales expenses for Q2 03 were $10,000 lower than Q2 02,
as a result of decreased commissions paid to outside sales representatives.
Similarly, excluding the impact of the acquisition, year to date marketing and
sales expenses were $34,000 lower than YTD 02, a result of decreased
recruitment, travel and commission expenses. Due to corporate expansion and
consolidation plans, the Company anticipates marketing and sales expenses will
increase only slightly throughout the remainder of the year.
General and administrative expenses increased by $118,000 (40%) to $413,000 in
Q2 03 as compared to $295,000 in Q2 02. Year to date, general and administrative
expenses increased by $164,000 (29%) to $720,000 as compared to $556,000 for YTD
02. Approximately $59,000 of both the QTD and YTD increase is directly
attributable to general and administrative expenses incurred as a result of the
acquired SSI subsidiary. Excluding the impact of the acquisition, general and
administrative expenses increased $59,000 in Q2 03 and $105,000 for YTD 03, as
compared to the same periods of the prior year. The increases in general and
administrative expenses for both the QTD and YTD periods are primarily due to
increased insurance, depreciation, consultant and legal expenses over the same
periods in the prior year. In particular, the Company has experienced dramatic
increases in both liability and benefits-type insurances over the past two years
and expects that such increases will continue. 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 consultant
and legal fees, due to the development and implementation of a shareholder
rights agreement, which was implemented during Q2 03.
12
Interest income in Q2 03 was $20,000, or $28,000 lower than Q2 02. Interest
income for YTD 03 was $48,000, or $89,000 lower than the same period in the
prior year. 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.
The Company reported a net loss of ($232,000) and ($255,000) for Q2 03 and YTD
03, respectively, as compared to net losses of ($508,000) and ($153,000) for Q2
02 and YTD 02, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On August 21, 2002, the Company purchased the business and selected net assets
of Silicon Sensors, LLC, a privately owned manufacturer of optoelectronic
semiconductor based components, hybrid assemblies and other solid state light
and radiation detection devices, located in Dodgeville, Wisconsin. In addition,
the Company assumed certain liabilities of Silicon Sensors, LLC as part of the
transaction. The total amount of cash expended at closing totaled approximately
$1.8 million.
At September 29, 2002 , the Company had cash, cash equivalents and short term
investments of $2.1 million, working capital of $6.0 million, and an accumulated
deficit of $18.2 million. The Company's cash, cash equivalents and short-term
investments decreased by $1.963 million during the six months ended September
29, 2002. $10,000 was obtained through the exercise and issuance of stock
options and $117,000 was used by operating activities. $57,000 was used for
capital expenditures and $1.799 million was used for the acquisition of Silicon
Sensors, LLC. All capital expenditures during the current year have been due to
necessary equipment upgrades and/or replacements. Other than costs associated
with the installation of a wide-area network communication, the Company does not
anticipate any other significant cash outlays for capital items throughout the
remainder of the year, as there are no major 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 September 29, 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.
13
Item 3. Controls and Procedures
Our Chief Executive Officer, President, and Chief Financial Officer (the
"Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for the Company. The Certifying Officers have
designed such disclosure controls and procedures to ensure that material
information is made known to them, particularly during the period in which this
report was prepared. The Certifying Officers have evaluated the effectiveness of
the Company's disclosure controls and procedures within 90 days of the date of
this report and believe that the Company's disclosure controls and procedures
are effective based on the required evaluation. There have been no significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
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, fluctuations in the level of government spending for military programs,
customer delayed shipment schedules, delays and/or obstacles in implementing
consolidation and resource sharing plans, increases in fixed expenses which are
beyond the control of the Company, the availability of other competing
technologies and a decline in the general demand for optoelectronic products.
14
PART II OTHER INFORMATION
Item 1 Legal Proceedings
-----------------------------
None.
Item 2 Changes in Securities
---------------------------------
On September 19, 2002, the Board of Directors adopted a shareholder rights
plan and declared a dividend distribution of one preferred share purchase
right for each outstanding share of its Class A Common Stock. As evidenced
by the Rights Agreement, the rights shall trade with the Class A Common
shares only and shall provide for the holder of such right to purchase
additional shares of the Company's Common Stock in a quantity and price
specified in the agreement, subject to certain limitations, and in lieu of
Preferred Shares.
Item 3 Defaults Upon Senior Securities
-------------------------------------------
None.
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------------------
The Company's Annual Stockholders Meeting was held on August 23, 2002. 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 10,810,501 578,813
Brock Koren 10,981,801 407,513
M. Scott Farese 10,810,401 578,913
Stephen P. Soltwedel 10,810,201 579,113
------------------ -------------------
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 2003 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 17,
2003.
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
15
(b) Reports on Form 8-K
The following items were filed on Form 8-K during the current quarter as
specified:
i. Acquisition of Silicon Sensors, LLC, including audited and
unaudited financial statements of the acquired company, dated
August 21, 2002, as filed with the Securities and Exchange
Commission on September 5, 2002.
ii. Adoption of Shareholder Rights Agreement, dated September 19, 2002,
as filed with the Securities and Exchange Commission on
September 26, 2002.
iii. Amendment to Item 7. of Form 8-K filed on September 5, 2002, to
include unaudited proforma condensed consolidated financial
statements of Advanced Photonix, Inc. and Silicon Sensors, LLC,
as filed with the Securities and Exchange Commission on
November 1, 2002.
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 13, 2002 /s/ Brock Koren
----------------- --------------------------------
Brock Koren
President & Chief Executive Officer
/s/ Susan A. Schmidt
--------------------------------
Susan A. Schmidt
Chief Financial Officer and Secretary
16
CERTIFICATION
I, Brock Koren, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Advanced Photonix,
Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly Report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the Audit Committee of
registrant's Board of Directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial date and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 13, 2002 /s/ Brock Koren
----------------- --------------------------------
Brock Koren
President & Chief Executive Officer
17
CERTIFICATION
I, Susan A. Schmidt, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Advanced Photonix,
Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Quarterly
Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all material
respect the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Quarterly Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Quarterly Report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Quarterly Report (the "Evaluation Date"); and
(c) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the Audit Committee of
registrant's Board of Directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial date and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls.
6. The registrant's other certifying officers and I have indicated in this
Quarterly Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: November 13, 2002 /s/ Susan A. Schmidt
----------------- --------------------------------
Susan A. Schmidt
Chief Financial Officer & Secretary
18