UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to
Commission file number 1-11056
-------
ADVANCED PHOTONIX, INC.(R)
(Exact name of registrant as specified in its charter)
Delaware 33-0325826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 Avenida Acaso, Camarillo, CA 93012
(Address of principal executive offices) (Zip Code)
(805) 987-0146
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 Par Value
Class A Common Stock
------------------------
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
Total revenues for registrant's fiscal year ended March 31, 2002 were
$6,931,091.
As of June 21, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $12,900,000.
As of June 21, 2002, there were 12,219,648 shares of Class A Common Stock
and 31,691 shares of Class B Common Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Business
General
-------
Advanced Photonix, Inc.(R) (the "Company"), was incorporated under the laws of
the State of Delaware on June 22, 1988. The Company is engaged in the
development and manufacture of optoelectronic semiconductor based components,
hybrid assemblies and other proprietary solid state light and radiation
detection devices, including proprietary advanced solid state silicon
photodetection devices that utilize avalanche photodiode ("APD") technology.
Photodetection devices sense light of varying intensity and convert that light
into electronic signals that cause the systems of which they are a part to
respond in pre-determined ways. The Company manufactures light detection devices
of varying complexity, from PIN (positive-intrinsic-negative) photodiodes to the
more sophisticated LAAPD (large area avalanche photodiode). The avalanche
photodiode is a specialized silicon photodiode capable of detecting very low
light levels due to an internal gain phenomenon known as avalanching. This
performance characteristic is not present in the common PIN photodiode.
Avalanche photodiode technology, developed in the late 1960's, gave promise of a
solid state replacement for the photomultiplier tube, which uses older vacuum
tube technology for sensing low levels of energy. The Company has developed and
patented various attributes of the LAAPD, most notably producing diameters of up
to 25mm with internal gains of 300:1. The Company was one of the first
manufacturers in the photonics industry to put the LAAPD into commercial
production.
The Company continues to do research on avalanche photodiodes. It is currently
pursuing ways to reduce the cost of manufacturing the LAAPD, and to improve its
performance, lending it increased adaptability for customers who currently use
photomultiplier tubes (PMTs). Other projects currently underway in research and
development include:
o LAAPD arrays - the Company's patented technology in which the rear
surface of an LAAPD is segmented to create isolated pixels, each with
a separate electronic lead to be accessed in parallel fashion for
imaging applications.
o VAPD (Vacuum avalanche photodiode) - another patented technology,
which combines a photocathode and an LAAPD in a vacuum tube,
functioning as a detector for high resolution, single photon counting
and low light detection.
o Silicon PIN diodes, which are being developed to perform at higher
speeds, targeting the fiber-optic communications and free space
communications markets.
o Infrared quad LAAPD - a product successfully developed by the Company
for use in military applications.
o Position Sensitive Devices - the Company is pursuing a broad line of
these devices with improved performance for the industrial sensing
markets.
In addition to the above, the Company continues to target established markets
for new LAAPD products including the medical diagnostics market, specifically
for use in wide field retinal visualization, and in scientific research, e.g. in
high-energy physics experimentation, including calorimetry and particle
detection.
2
Currently the bulk of the company's revenues are derived from the sale of
products based on PIN and other non-proprietary technologies, referred to as the
"core business". These products are highlighted in the following section.
Products
--------
The company designs and manufactures silicon-based electro-optical components,
assemblies, and design solutions for a global OEM customer base. Most notably,
the Company designs and manufactures:
o Military and commercial aerospace products
o Customer specific assemblies for medical/biological diagnosis,
particle measuring and counting, and fiber-optic data and
telecommunications
o PIN photodetectors - spectrally enhanced, both single and
multi-element
o Photodetector hybrids
o Custom optoelectronic assemblies incorporating light-emitting diodes
("LEDs") and LED displays
o FILTRODE(R) - patented technology integrating optical filters directly
on photodiode chips
o Small area avalanche photodiodes (SAAPDs)
o Large area avalanche photodiodes (LAAPDs) - discrete, with and without
thermoelectric coolers, and with integrated modules
The Company also supplies detectors for high reliability ("Hi-Rel")
applications, including military and commercial aerospace and other applications
requiring Hi-Rel specifications. Hi-Rel devices are designed, manufactured and
tested to function in severe environmental conditions. The Company has many
years of experience in supplying Hi-Rel devices that demand modern wafer
fabrication techniques, a dedicated assembly area, and a sophisticated test lab.
Hi-Rel products manufactured by the Company include:
o Multi-element hybrid assemblies used on the U.S. Navy's Rolling
Airframe Missile (RAM) developed by Raytheon
o Narrow and wide field of view detectors used in various Tube-
launched Optically-tracked Wire-guided (TOW) missile tracking systems
o LED arrays for use in thermal image displays in military night sight
applications
o Quadrant photodetectors used in the autocollimator for airborne
navigation/FLIR (Forward Looking Infrared) pods and "smart bombs"
o Opto assemblies for biological and blood analysis
o Assemblies used in automotive distance control systems
The Company's products are primarily sold as components or assemblies to
original equipment manufacturers for other component manufacturers. The Company
does not manufacture any end user products.
Raw Materials
-------------
The principal raw materials used by the Company in the manufacture of its
semiconductor chip components and assemblies are silicon wafers, chemicals and
gases used in processing wafers, gold wire, lead frames, and metal and plastic
packages that house the chip and the various custom assemblies. All of these raw
materials can be obtained from several suppliers. From time to time,
particularly during periods of increased industry-wide demand, silicon wafers
and other materials have been in short supply. However, the Company has not been
materially affected by such shortages. As is typical in the industry, the
Company allows for a significant lead-time between order and delivery of raw
materials.
3
Research and Development
------------------------
Since its inception in June 1988, the Company has incurred material amounts of
research and development expenses. As the Company has completed the initial
development and commercialization of its LAAPD technology, it has reduced
outlays for research and development. The Company has in the past, and may in
the future, undertake customer funded as well as internally funded, research and
development projects when they are in support of the Company's development
objectives.
During the fiscal years ended in 2002 and 2001, research and development
expenses amounted to $467,000 and $544,000. At present, the Company expects that
additional research and development funding will be required for new projects as
well as the continuing development of new derivatives of the Company's current
product line and for the commercialization of these products.
Environmental Regulations
-------------------------
The photonics industry, as well as the semiconductor industry in general, is
subject to governmental regulations for the protection of the environment,
including those relating to air and water quality, solid and hazardous waste
handling, and the promotion of occupational safety. Various federal, state and
local laws and regulations require that the Company maintain certain
environmental permits. The Company believes that it has obtained all necessary
environmental permits required to conduct its manufacturing processes. Changes
in the aforementioned laws and regulations or the enactment of new laws,
regulations or policies could require increases in operating costs and
additional capital expenditures and could possibly entail delays or
interruptions of operations.
Backlog and Customers
---------------------
The Company's sales are made primarily pursuant to standard purchase orders for
delivery of products. However, by industry practice, orders may be canceled or
modified at any time. In such cases the customer is responsible for all finished
goods, all costs, direct and indirect, incurred by the Company, as well as a
reasonable allowance for anticipated profits. No assurance can be given that the
Company will receive these amounts after cancellation. The Company had
approximately $10.5 million in backlog at the end of fiscal 2002 as compared
with a backlog of approximately $7.2 million at the end of fiscal 2001. The
Company expects that approximately $6.5 million of the current backlog orders
will be filled in fiscal 2003.
The Company currently supplies core business products to the military and
aerospace markets in support of satellites, aircraft and ground vehicle missile
guidance and tracking systems. Increases in military and aerospace spending
during fiscal 2002 increased the Company's revenues in these markets by $.2
million, or 9% over fiscal year 2001. Sales to the military and aerospace
markets represented 36% of total revenues for fiscal year 2002, as compared to
34% of total revenues for fiscal year 2001.
The Company also supplies core business products for use in various analytical
and diagnostic medical equipment. Sales of LED/detector modules used in
microbiological testing systems continued to generate strong revenues from the
medical market in fiscal year 2002. Sales to this market represented 17% of
total revenues for fiscal year 2002, as compared with 14% of total revenues for
fiscal year 2001.
Customers normally purchase the Company's products and incorporate them into
products that they in turn sell in their own markets on an ongoing basis. As a
result, the Company's sales are dependent upon the success of its customers'
products and its future performance is dependent upon its success in finding new
customers and receiving new orders from existing customers.
4
Marketing
---------
The Company markets its products in the United States and Canada through its own
technical sales staff and through independent sales representatives.
International sales, primarily to Europe and the Pacific Rim, are conducted
through foreign distributors (see Note 1 to the Financial Statements).
Competition
-----------
The Company competes with a range of companies for the custom optoelectronic and
silicon photodetector requirements of vendors of medical instruments, computer
peripherals, a variety of industrial products, and specialized military and
commercial aerospace applications. The Company believes that its principal
competitors for sales of custom devices are small to medium size companies.
Because the Company specializes in custom devices requiring a high degree of
engineering expertise to meet the requirements of specific applications, it
generally does not compete to any significant degree with other large United
States, European or Pacific Rim manufacturers of standard "off the shelf"
optoelectronic components or silicon photodetectors.
Proprietary Technology
----------------------
The Company owns the following patents:
US PATENT NO. DESCRIPTION DATE ISSUED
------------- ----------- -----------
6,111,299 Active Large Area Avalanche Photodiode Array August 2000
6,005,276 Solid State Photodetector with Light Responsive Rear Face December 1999
5,801,430 Solid State Photodetector with Light Responsive Rear Face September 1998
5,757,057 Large Area Avalanche Array May 1998
5,477,075 Solid State Photodetector with Light Responsive Rear Face December 1995
5,311,044 Avalanche Photomultiplier Tube May 1994
5,146,296 Devices for Detecting and/or Imaging Single Photoelectron September 1992
5.057,892 Light Responsive Avalanche Diode October 1991
5,021,854 Silicon Avalanche Photodiode Array June 1991
4,782,382 High Quantum Efficiency Photodiode Devices November 1988 (by Predecessor Co.)
4,717,946 Thin Line Junction Photodiode January 1988 (by Predecessor Co.)
There can be no assurance that any issued patents will provide the Company with
significant competitive advantages, or that challenges will not be instituted
against the validity or enforceability of any patent owned by the Company, or,
if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity and to prevent the infringement of a patent
could be substantial. Furthermore, there can be no assurance that the Company's
APD technology will not infringe on patents or rights owned by others, licenses
to which might not be available to the Company. Based on limited patent
searches, contacts with others knowledgeable in the field of APD technology, and
a review of the published materials, the Company believes that its competitors
hold no patents, licenses or other rights to the APD technology which would
preclude the Company from pursuing its intended operations.
5
In some cases, the Company may rely on trade secrets to protect its innovations.
There can be no assurance that trade secrets will be established, that secrecy
obligations will be honored or that others will not independently develop
similar or superior technology. To the extent that consultants, key employees or
other third parties apply technological information independently developed by
them or by others to Company projects, disputes might arise as to the
proprietary rights to such information which may not be resolved in favor of the
Company.
Employees
---------
As of March 31, 2002 the Company had 49 full time employees (including 3
officers) and 1 part time employee. Included were 8 engineering and development
personnel, 5 sales and marketing personnel, 28 operations personnel, and 9
general and administrative personnel (including 3 officers). The Company may,
from time to time, engage personnel to perform consulting services and to
perform research and development under third party funding. In certain cases,
the cost of such personnel may be included in the direct cost of the contract
rather than in payroll expense.
Item 2. Properties
The Company leases its executive offices, research, marketing and manufacturing
facility that consists of approximately 39,000 square feet in a building complex
located at 1240 Avenida Acaso in Camarillo, California. The lease expires in
February 2004. The Company believes that its existing facility is adequate to
meet its needs for the foreseeable future.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's Class A Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "API".
At June 21, 2002, the Company had 87 holders of record for the Class A Common
Stock (including shares held in street name), representing approximately 7,700
beneficial owners of the Class A Common Stock. On the same date, there were 6
holders of record of the Class B Common Stock (none of which were held in street
name).
6
The following table sets forth high and low closing prices by quarter for fiscal
years 2002 and 2001.
Quarterly Stock Market Data
---------------------------- -------------------- -------------------- -------------------- --------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2002 2001 2002 2001 2002 2001 2002 2001
---------------------------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
Common Stock(1)
High 1.35 7.00 1.09 4.19 .82 2.50 1.20 2.13
Low .61 1.50 .70 2.00 .60 .50 .66 .63
---------------------------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
(1) Price ranges on the American Stock Exchange
The Company has not paid any cash dividends on its capital stock. The Company
intends to retain earnings, if any, for use in its business and does not
anticipate that any funds will be available for the payment of cash dividends on
its outstanding shares in the foreseeable future. The holders of Common Stock
will not be entitled to receive dividends in any year until the holders of the
Class A Redeemable Convertible Preferred Stock receive an annual non-cumulative
dividend preference of $.072 per share. To date, a total of 740,000 shares of
Class A Redeemable Convertible Preferred Stock have been converted into 222,000
shares of Class A Common Stock, leaving outstanding 40,000 shares of Class A
Redeemable Convertible Preferred Stock. The aggregate non-cumulative annual
dividend preference of such Class A Redeemable Convertible Preferred Stock is
$2,880. There is no public market for the Company's Class A Redeemable
Convertible Preferred Stock or Class B Common Stock; however, such stock is
convertible into Class A Common Stock at the option of the holder and upon
transfer by the holder of the Class A Redeemable Convertible Preferred Stock.
Item 6. Management's Discussion and Analysis
RESULTS OF OPERATIONS
---------------------
Fiscal year 2002 Compared to Fiscal Year 2001
Revenues
--------
The Company's revenues for the fiscal year ended March 31, 2002 ("2002") were
$6.931 million, an increase of $125,000, or 2%, from revenues of $6.806 million
for the fiscal year ended March 25, 2001 ("2001").
The increase in net product sales reflects overall increases in shipments to
both military/aerospace customers as well as to customers in the medical
segments. Such increases were partially offset by declines in revenues from the
industrial sensing markets. During 2002, sales to the military/aerospace markets
increased 9% to $2.5 million and represented 36% of total revenues, as compared
to $2.3 million during fiscal 2001, which represented 34% of total revenues for
that year. Likewise, sales to the medical markets representing 17% of total
revenues for 2002, increased 20% to $1.2 million in the current year, as
compared to $1.0 million and 14% of total revenues in the prior year. In
addition, shipments of LAAPD products accounted for $623,000 of total net
product sales, an increase of $184,000 or 42% over LAAPD sales of $439,000 in
2001. Sales from LAAPDs represented 9% of total product sales during 2002 as
compared to 6% in 2001. Although the Company continues to expect gradually
increasing volume from sales of its proprietary LAAPD products, it anticipates
stronger growth in the near term to be seen in the sales of its core product
lines, as customer acceptance of this technology is more widespread and the
applicable market segments are more clearly defined.
The Company expects revenues to continue to increase during fiscal year 2003 and
estimates that the rate of growth will exceed that which was reached in 2002.
7
Costs and Expenses
------------------
Cost of product sales decreased to $4.17 million in 2002 from $4.26 million in
2001. Cost of product sales as a percent of net sales decreased by 3% and gross
profit margin on net product sales increased 3 percentage points to 40% as
compared to 37% in 2001. The improvements in gross margin were attributable to
decreased material and labor costs, as the Company has continued to focus on
improving gross profit by more effectively managing material costs and labor
efficiencies. Material and labor costs as a percentage of net sales decreased
to 21% and 5%, respectively, as compared to 22% and 6% in the prior year. The
Company expects to see continued improvements in gross profit margin as sales
volume increases and the Company continues its efforts to control both direct
and indirect costs of manufacturing.
Research and development ("R&D") costs decreased by $77,000 (14%) to $467,000
during 2002 compared to 2001. R & D costs have decreased over the past two years
as the Company implemented planned reductions in overall R&D expenditures. In
the past, the Company expended extensive amounts for R & D as it was developing
the base technology for its proprietary line of LAAPD products. As the primary
development phase of the LAAPD technology has been completed, the Company has
reduced its overall budget for R & D expenses. Current expenditures are now
focused on the development of new and improved derivatives of the Company's
existing product lines. During 2002, the Company's R&D efforts were focused on
improving the current line of LAAPD and LAAPD array products, as well as
developing value added enhancements and additional product offerings to its line
of PIN and core technology products. The Company expects that R & D costs will
remain flat for fiscal year 2003, as compared to 2002. However, the possibility
exists that R&D costs may fluctuate significantly, as they have in the past,
should the level of activity associated with development contracts and/or new
product development projects change.
Marketing and sales expenses increased by $40,000 (4%) to $968,000 in 2002. The
increase in marketing and sales expense was due in part to the hiring of a
Director of Sales at the beginning of the fiscal year, which resulted in
approximately $17,000 of additional salary and commission expenses over fiscal
year 2001. In addition, the Company experienced a greater percentage of
uncollectible accounts during 2002, resulting in an additional $23,000 of bad
debt expense over what had been realized in 2001. Excluding the impact of
unforeseen events such as uncollectible accounts, marketing and sales expenses
are expected to increase only slightly in 2003, as the Company expects to incur
higher advertising and commission expenses, based on anticipated increases in
revenue.
General and administrative expenses increased by $675,000 (59%) to $1,812,000 in
2002 compared to 2001, including a non-recurring charge of $616,000 relating to
the termination of the Company's planned merger with Jenner Biotherapies, Inc.
(Jenner). During 2002 the merger was abandoned by the mutual consent of both
parties as a result of adverse developments affecting a material license
agreement between Jenner and a third-party pharmaceutical company. Approximately
$448,000 of the total expense recognized had previously been reported as prepaid
acquisition costs.
The remaining increase in general and administrative expenses is primarily due
to increased labor, insurance, and software depreciation and maintenance
expenses. The increased labor expenses are due to personnel promotions and
transfers within the Company, whereby labor reported as direct labor (cost of
sales) in 2001 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 year variance. Increased software depreciation and
maintenance expenses are due to the installation of a new computer system during
the third quarter of 2002. 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 office supplies, administrative and temporary labor and other outside
services. As the impact of the acquisition investigation expense is considered
to be a one-time charge, the Company expects that general and administrative
expenses will be significantly lower for fiscal year 2003.
8
Interest income for 2002 totaled $203,000, a decrease of $73,000 over 2001. The
decrease in interest income is primarily due to lower cash reserves available
for investment along with continually declining interest rates seen during the
current year, resulting in a much lower return on capital as compared to the
prior year.
Net loss for fiscal year 2002 was ($284,000), or $496,000 lower than net income
of $212,000 reported in fiscal year 2001. Excluding the impact of the one-time
acquisition investigation expenses, net income for 2002 would be $332,000, or
$120,000 higher than net income reported for 2001.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 31, 2002, the Company had cash, cash equivalents and short-term
investments of $4.1 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 $904,000 during the twelve months ended March 31, 2002.
$3,000 was obtained through the exercise of stock options and $920,000 was used
by operating activities (before cash provided by short-term investments). Cash
expenditures were impacted by an increase in inventories of $844,000, due to the
purchasing requirements of several long-term production contracts scheduled to
ship during 2003 and beyond. Additionally, the Company recognized $430,000 of
cash flow, due to the write-off of expenses incurred in connection with the
proposed Jenner merger which had been reported as prepaid acquisition costs in
the prior year.
Capital spending during 2002 was $417,000 compared to $136,000 during 2001. The
increase in capital spending was primarily due to the purchase of a new
Enterprise Resource Planning (ERP) system, including both hardware and operating
software purchases. The Company anticipates that cash outlays for capital items
will decrease during 2003 and return to approximately the same level as in 2001,
as no major capital equipment purchases are scheduled at the present 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 year. At
March 31, 2002, the Company held one investment in a U.S. Government security
with a value of $1,000,000 which carries an interest rate of 5.0%. During 2003,
the Company will continue to monitor available interest rates and will attempt
to utilize the best possible avenues of investment for its excess liquid assets.
YEAR 2000 ISSUES
----------------
None.
FORWARD LOOKING STATEMENTS
--------------------------
This Annual Report 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, and a decline in the general demand for optoelectronic products.
9
Item 7. Financial Statements and Supplementary Data
The following financial statements of Advanced Photonix, Inc. are included in
Item 7:
Page
INDEPENDENT AUDITORS' REPORT 11
FINANCIAL STATEMENTS:
Balance Sheet,
March 31, 2002 12-13
Statements of Operations
for the Years Ended March 31, 2002
and March 25, 2001 14
Statements of Shareholders' Equity
for the Years Ended March 31, 2002 and
March 25, 2001 15
Statements of Cash Flows
for the Years Ended March 31, 2002 and
March 25, 2001 16-17
Notes to Financial Statements 18-25
10
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Advanced Photonix, Inc.:
We have audited the accompanying balance sheet of Advanced Photonix, Inc. (the
"Company") as of March 31, 2002 and the related statements of operations,
shareholders' equity and cash flows for the years ended March 31, 2002 and March
25, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of the Company at March 31, 2002 and
the results of its operations and its cash flows for the years ended March 31,
2002 and March 25, 2001 in conformity with accounting principles generally
accepted in the United States.
/s/ Farber & Hass LLP
Oxnard, California
May 20, 2002
11
ADVANCED PHOTONIX, INC.
BALANCE SHEET
MARCH 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,083,000
Short-term investments 1,002,000
Accounts receivable,
less allowance of $33,000 1,306,000
Inventories 2,571,000
Prepaid expenses and other current assets 111,000
------------
Total current assets 8,073,000
------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,673,000
Less accumulated depreciation and amortization (3,020,000)
------------
Equipment and leasehold improvements, net 653,000
------------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $353,000 483,000
Patents, net of accumulated amortization
of $40,000 23,000
Other 23,000
------------
Total other assets 529,000
------------
TOTAL ASSETS $ 9,255,000
============
(Continued)
12
ADVANCED PHOTONIX, INC.
BALANCE SHEET - Continued
MARCH 31, 2002
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 167,000
Accrued salaries, wages and benefits 177,000
Accrued commissions 20,000
Other accrued expenses 248,000
------------
Total current liabilities 612,000
------------
COMMITMENTS AND CONTINGENCIES
Class A Redeemable Convertible Preferred Stock,
$.001 par value; 780,000 shares authorized;
40,000 issued and outstanding 32,000
------------
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; 12,211,648 shares
issued and outstanding 12,000
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 (17,977,000)
------------
Total shareholders' equity 8,611,000
------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,255,000
============
See notes to financial statements.
13
ADVANCED PHOTONIX, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2002 AND MARCH 25, 2001
2002 2001
---------- ----------
SALES $6,931,000 $6,806,000
COST OF GOODS SOLD 4,170,000 4,262,000
---------- ----------
GROSS PROFIT 2,761,000 2,544,000
RESEARCH AND DEVELOPMENT EXPENSES 467,000 544,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,165,000 2,063,000
ACQUISITION INVESTIGATION EXPENSES 616,000
---------- ----------
LOSS FROM OPERATIONS (487,000) (63,000)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 203,000 276,000
Other, net 2,000 1,000
---------- ----------
Other income, net 205,000 277,000
---------- ----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (282,000) 214,000
PROVISION FOR INCOME TAXES 2,000 2,000
---------- ----------
NET INCOME (LOSS) $ (284,000) $ 212,000
========== ==========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE $ (0.02) $ 0.02
========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,209,000 12,204,000
========== ==========
See notes to financial statements.
14
ADVANCED PHOTONIX, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2002 AND MARCH 25, 2001
Additional Accumulated
Class A Class B Paid-in Other
Common Stock Common Stock Capital Accumulated Comprehensive
Shares Amount Shares Amount Amount Deficit Income Total
------ ------ ------ ------ ------ ------- ------ -----
BALANCE, MARCH 26, 2000 12,039,904 $12,000 36,135 $ -0- $26,420,000 $(17,905,000) $ -0- $8,527,000
CONVERSION OF CLASS B
COMMON 4,444 (4,444)
EXERCISE OF OPTIONS 163,300 153,000 153,000
UNREALIZED GAIN ON
INVESTMENTS 29,000 29,000
NET INCOME 212,000 212,000
---------- ------- ------ ------ ----------- ------------ ------- ----------
BALANCE, MARCH 25, 2001 12,207,648 12,000 31,691 -0- 26,573,000 (17,693,000) 29,000 8,921,000
EXERCISE OF OPTIONS 4,000 3,000 3,000
NET LOSS (284,000) (284,000)
NET COMPREHENSIVE LOSS (29,000) (29,000)
---------- ------- ------ ------ ----------- ------------ ------- ----------
BALANCE, MARCH 31, 2002 12,211,648 $12,000 31,691 $ -0- $26,576,000 $(17,977,000) $ -0- $8,611,000
========== ======= ====== ====== =========== ============ ======= ==========
See notes to financial statements.
15
ADVANCED PHOTONIX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2002 AND MARCH 25, 2001
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (284,000) $ 212,000
Adjustments to reconcile net income (loss)
to net cash provided by (used by)
operating activities:
Depreciation 201,000 223,000
Amortization 37,000 38,000
Patent valuation adjustment 40,000
Changes in operating assets and
liabilities:
Short-term investments 80,000 887,000
Accounts receivable (139,000) 9,000
Inventories (844,000) (210,000)
Prepaid expenses and other current assets 23,000 (25,000)
Accounts payable and accrued expenses 89,000 (163,000)
---------- ----------
Net cash provided by (used by) operating
activities (837,000) 1,011,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (417,000) (136,000)
Intangible assets acquired (3,000)
Prepaid acquisition costs 430,000 (430,000)
---------- ----------
Net cash provided by (used by)
investing activities 10,000 (566,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 3,000 153,000
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (824,000) 598,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,907,000 3,309,000
---------- ----------
CASH AND EQUIVALENTS, END OF YEAR $3,083,000 $3,907,000
========== ==========
(Continued)
16
ADVANCED PHOTONIX, INC.
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED MARCH 31, 2002 AND MARCH 25, 2001
2002 2001
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ -0- $ -0-
Cash paid for taxes $ 1,600 $ 1,600
See notes to financial statements.
17
ADVANCED PHOTONIX, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description - Advanced Photonix, Inc. (the "Company"), is engaged
in the development and manufacture of optoelectronic semiconductor based
components, hybrid assemblies and other proprietary solid state light and
radiation detection devices, including proprietary advanced solid state
silicon photodetection devices which utilize Avalanche Photodiode ("APD")
technology.
The Company's Large Area Avalanche Photodiode ("LAAPD") technology is still
considered to be a new technology and is subject to risks inherent in the
development of products based on new technologies. These risks include
getting the invention out of the laboratory and into actual use in the
field and stepping up production from the prototype (early) stages of
manufacturing.
Fiscal Year-End - The Company's fiscal year ends on the last Sunday in
March. Fiscal years in the two-year period ended March 31, 2002, contain
fifty-three weeks and fifty-two weeks, respectively.
Operating Segment Information - The Company predominantly operates in one
industry segment, light and radiation detection devices. Substantially all
of the Company's assets and employees are located at the Company's
headquarters in Camarillo, California.
In fiscal 2002 and 2001, the Company had export sales of approximately
$1,590,000 and $1,700,000, respectively, to customers in North America,
Asia, Australia and Europe.
Fair Value of Financial Instruments - The carrying value of all financial
instruments potentially subject to valuation risk (principally consisting
of cash equivalents, accounts receivable and accounts payable) also
approximates fair value.
Cash and Cash Equivalents - The Company considers all highly liquid
investments, with an original maturity of three months or less when
purchased, to be cash equivalents.
Short-Term and Long-Term Investments - SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", requires that all debt
and marketable equity securities be classified in one of three categories:
trading, available-for-sale, or held-to-maturity. It is the Company's
intent to maintain a diverse portfolio to take advantage of investment
opportunities. The Company has classified all investments as current
assets, which includes available-for-sale and held-to-maturity.
Available-for-sale investments are redeemable within one year.
Held-to-maturity securities are callable government issues; however, market
rates make the call remote and the Company has the intent and ability to
not redeem the issue.
18
Available-for-sale securities are recorded at market value. Unrealized
holding gains and losses, net of the related income tax effect, are
excluded from earnings and are reported as a separate component of
shareholders' equity until realized. The amortized cost of debt securities
is adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization and accretion are included in interest income.
At the time of sale, any realized gains or losses, calculated by the
specific identification method, are recognized as a component of operating
results.
Held-to-maturity securities are carried at amortized cost.
Short-term and long-term investments consist of the following as of March
31, 2002:
Unrealized
Fair Holding
Cost Value Gain/(Losses)
---- ----- -------------
Cash funds $ 10,000 $-0-
Mutual Funds $3,086,000 3,086,000 -0-
U.S. Government
Securities 1,000,000 1,000,000 -0-
---------- ----------- ---
Totals $4,086,000 $4,096,000 $-0-
========== ========== ====
All of the Company's short-term investments as of March 31, 2002 are due
within one year.
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash equivalents, short-term investments and accounts receivable. The
Company maintains cash balances at a financial institution that is insured
by the Federal Deposit Insurance Corporation up to $100,000. As of March
31, 2002, the Company had cash equivalents at a financial institution in
excess of Federally insured amounts. The Company invests in short-term and
long-term investments, primarily consisting of Mutual Funds and Government
Securities. Approximately 75% of the Company's investments are invested in
Mutual Funds. Accounts receivable are unsecured and the Company is at risk
to the extent such amount becomes uncollectible. The Company performs
periodic credit evaluations of its customers' financial condition and
generally does not require collateral. As of March 31, 2002, two customers
comprised 10% and 11%, respectively, of accounts receivable.
Significant Customer - During the fiscal year ended March 31, 2002, one
customer accounted for 15% of the Company's net sales.
Inventories - Inventories, which include material, labor and manufacturing
overhead are stated at standard cost (which approximates the first in,
first out method) or market.
19
Inventories consist of the following at March 31, 2002:
Raw material $2,021,000
Work-in-process 793,000
Finished products 179,000
----------
Total inventories 2,993,000
Less reserve (422,000)
----------
Inventories, net $2,571,000
==========
Equipment and Leasehold Improvements - Equipment and leasehold improvements
are stated at cost. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets or lease
term ranging from three to nine years.
Equipment and leasehold improvements consist of the following at March 31,
2002:
Machinery and equipment $2,742,000
Furniture and fixtures 102,000
Leasehold improvements 259,000
Data processing equipment 223,000
Capitalized software 233,000
Construction-in-process 114,000
----------
Total $3,673,000
==========
Patents - Patents represent costs incurred in connection with patent
applications. Such costs are amortized using the straight-line method over
the useful life of the patent once issued, or expensed immediately if any
specific application is unsuccessful. Amortization expense was
approximately $3,000 and $5,000 in fiscal 2002 and 2001, respectively.
Goodwill - The excess of cost over the purchase price of acquired net
assets is amortized on a straight-line basis over a 25-year period.
Amortization expense was $33,000 in fiscal 2002 and 2001. The Company
continually evaluates the recoverability of goodwill by assessing whether
the recorded value of the goodwill will be recovered through future
expected operating results. Statement of Financial Accounting Standard
No.142 , "Goodwill and Other Intangible Assets" ("SFAS No. 142") was issued
in July 2001. SFAS No. 142 was effective for financial statements for
fiscal years beginning after December 31, 2001. It requires that goodwill
no longer be amortized, but tested for impairment on an annual basis. The
Company will adopt the provisions of SFAS 142 in fiscal 2003.
Revenue Recognition - Revenues from research and development cost
reimbursement-type contracts are recorded as costs are incurred based upon
the relationship between actual costs incurred, total estimated costs, and
the amount of the contract or grant award. Estimation of costs are reviewed
periodically and any anticipated losses are recognized in the period in
which they first become determinable.
20
The Company uses the unit of delivery method for recognizing sales and cost
of sales under production contracts. Provision for estimated losses, if
any, is made in the period in which such losses are determined.
Advertising Expense - Advertising costs are expensed as incurred.
Advertising expense was approximately $122,000 and $154,000 in fiscal 2002
and 2001, respectively.
Warranties - The Company typically warrants its products against defects in
material and workmanship for a period of 90 days from the date of shipment.
A provision for estimated future warranty costs is recorded when products
are shipped. Warranty costs were approximately $13,000 and $11,000 in
fiscal 2002 and 2001, respectively.
Net Income (Loss) Per Share - 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 earnings (loss)
per share is computed by dividing net income (loss) by the weighted average
number of shares outstanding for each year. Diluted earnings (loss) per
share has not been presented in 2002 as the impact is anti-dilutive.
Research and Development Costs - The Company charges all research and
development costs, including costs associated with development contract
revenues, to expense when incurred. Manufacturing costs associated with the
development of a new fabrication process or a new product are expensed
until such times as these processes or products are proven through final
testing and initial acceptance by the customer. Costs related to revenues
on non-recurring engineering services billed to customers are generally
classified as cost of product sales.
Pervasiveness of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Accounting for Stock Option Based Compensation - SFAS No. 123, "Accounting
for Stock Based Compensation" ("SFAS 123"), sets forth accounting and
reporting standards for stock based employee compensation plans. As allowed
by SFAS 123, the Company continues to measure compensation cost under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25) and complies with the pro forma disclosure requirements
of the new standard (see Note 4).
New Accounting Pronouncements - Interpretation 44 of the Emerging Issues
Task Force of the Financial Accounting Standards Board ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation",
establishes standards for reporting certain equity transactions under APB
Opinion 25. This interpretation requires specific accounting treatment for
modifications made to outstanding stock options and warrants. Further, the
interpretation establishes a new model, "Variable Accounting", to account
for modifications to outstanding options and warrants. The Company adopted
the provisions of FIN 44 in July 2000.
21
Statement of Financial Standards No. 141 "Business Combinations" was
issued in July 2001. It was effective for business combinations after June
30, 2001. SFAS No. 141 requires the "purchase method" of accounting be used
to account for all business combinations. In addition, new criteria is to
be used to determine whether an acquired intangible asset should be
recognized separately from the amount recorded as goodwill. The Company
adopted the provisions of SFAS No. 141 in fiscal 2002.
2. CAPITALIZATION
The Company's Certificate of Incorporation provides for two classes of
common stock, a Class A for which 50,000,000 shares are authorized for
issuance and a Class B for which 4,420,113 shares are authorized for
issuance. The par value of each class is $.001. Subject to certain limited
exceptions, shares of Class B Common Stock are automatically converted into
an equivalent number of Class A shares upon the sale or transfer of the
Class B Common Stock by the original holder, or at which time the total
number of outstanding shares of Class B Common Stock falls below 5% of the
total aggregate number of issued and outstanding shares of Class A and
Class B Common Stock. The holder of each share of Class A and Class B
Common Stock is entitled to one vote per share.
The Company has authorized 10,000,000 shares of Preferred Stock, of which
780,000 shares have been designated Class A Redeemable Convertible
Preferred Stock with a par value of $.001 per share. 40,000 shares of Class
A Redeemable Convertible Preferred Stock ("Class A Preferred") were issued
and outstanding at March 31, 2002. The Class A Preferred Stock has a
liquidation preference equal to its issue price ($.80 per share) and is
convertible at any time, at the option of the holder, into .3 shares of
Class B Common Stock for each share of Class A Preferred Stock converted.
The Class A Preferred Stock is subject to redemption at the Company's
option for $.80 per share at any time. The Company would be required to pay
approximately $25,000 to redeem these shares. The holders of the Class A
Preferred Stock are entitled to an annual non-cumulative dividend
preference of $.072 per share when the Company's net earnings per share of
Class A Preferred Stock equals or exceeds $.072. The Class A Preferred
stockholders do not have voting rights except as required by applicable
law.
3. INCOME TAXES
At March 31, 2002, the Company had net operating loss carryforwards of
approximately $22.2 million for Federal income tax purposes and $3.7
million for state income tax purposes that expire at various dates through
fiscal year 2022. The tax laws related to the utilization of loss
carryforwards are complex and the amount of the Company's loss carryforward
that will ultimately be available to offset future taxable income may be
subject to annual limitations resulting from changes in the ownership of
the Company's common stock.
22
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 2002 are substantially
composed of the Company's net operating loss carryforwards, for which the
Company has made a full valuation allowance.
The valuation allowance increased approximately $1.7 million in the year
ended March 31, 2002, representing primarily the net taxable loss for tax
return purposes. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income and tax
planning strategies in making this assessment.
The tax provision for the year ended March 31, 2002 is composed of
California franchise tax.
4. STOCK OPTIONS
The Company has four stock option plans: The 1990 Incentive Stock Option
and Non-Qualified Stock Option Plan, the 1991 Directors' Stock Option Plan
("The Directors' Plan"), the 1997 Employee Stock Option Plan and the 2000
Stock Option Plan. The Company measures compensation for these plans under
APB Opinion No. 25. No compensation cost has been recognized as all options
were granted at the fair market value or the greater of the underlying
stock at the date of grant. Had compensation expense for these plans been
determined consistent with SFAS No. 123, the Company's net income (loss)
and net income (loss) per share would be as follows:
2002 2001
---- ----
Net income (loss), as reported $(284,000) $212,000
Net income (loss), pro forma $(310,000) $139,000
Basic income (loss) per share, as reported $ (0.02) $ 0.02
Basic income (loss) per share - pro forma $ (0.03) $ 0.01
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to April 3, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 2002 and 2001,
respectively: risk-free interest rates of 5% and 9%, expected volatility
of 5% and 4% and expected lives of 10 years in all periods. No dividends
were assumed in the calculations.
The Company's various stock option plans provide for the granting of
non-qualified and incentive stock options to purchase up to 3,700,000
shares of common stock for periods not to exceed 10 years. Options
typically vest at the rate of 25% per year over four years, except for
options granted under The Directors' Plan, which typically vest at the rate
of 50% per year over two years. Under these plans, the option exercise
price equals the stock's market price on the date of grant. Options may be
granted to employees, officers, directors and consultants.
23
Stock option transactions for 2002 are summarized as follows:
Weighted
Average
Shares Exercise
(000) Price
----- -----
Outstanding, beginning of year 1,296 $1.89
Granted 906 .74
Exercised (4) .66
Cancelled (108) .92
----- -----
Outstanding, end of year 2,090 $1.44
===== =====
Exercisable, end of year 1,156 $1.95
===== =====
Information regarding stock options outstanding as of March 31, 2002 is as
follows:
Options Outstanding
-------------------------------------
Weighted Weighted
Average Average
Price Range Shares Exercise Price Remaining Life
------------------------------------------------------------------------
$0.50 - $5.34 2,090,034 $1.44 7.4 years
Options Exercisable
-------------------------------------
Weighted Weighted
Average Average
Price Range Shares Exercise Price Remaining Life
------------------------------------------------------------------------
$0.50 - $5.34 1,155,573 $1.95 6.8 years
5. COMMITMENTS
The Company leases its manufacturing and office facility and certain office
equipment under non-cancelable operating leases. Minimum future lease
payments under all non-cancelable operating leases expiring at various
dates through fiscal 2007, are as follows:
2003 $376,973
2004 343,945
2005 8,324
2006 8,324
2007 8,324
--------
Total $745,890
========
Rent expense was approximately $349,000 and $345,000 in fiscal 2002 and
2001, respectively.
24
6. EMPLOYEES' RETIREMENT PLAN
The Company maintains a 401(k) Plan which is qualified under the Internal
Revenue Code. All full-time employees are eligible to participate in the
Plan. Employees may make voluntary contributions to the Plan which are
matched by the Company at the rate of $.50 for every $1.00 of employee
contribution, subject to certain limitations. The Company contributions and
administration costs recognized as expense were approximately $62,000 and
$64,000 in fiscal 2002 and 2001, respectively.
25
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors and Executive Officers
Set forth below is certain information relating to the directors and officers of
the Company.
Name Age Position
---- --- --------
Richard D. Kurtz 50 Chairman of the Board
Brock Koren 38 President and Chief Executive Officer
M. Scott Farese 45 Director
Stephen P. Soltwedel 55 Director
Susan A. Schmidt 36 Chief Financial Officer & Secretary
Paul Sharman 44 Vice President, Operations
Richard D. Kurtz, Chairman of the Board
---------------------------------------
Mr. Kurtz became a Director of the Company in February 2000 and was elected
Chairman of the Board in July 2000. He is currently an equity owner and Director
of Client Services and Strategic Planning for Quantum Compliance Systems Inc.
Mr. Kurtz joined Quantum, a privately owned software company specializing in the
development and installation of Environmental Health and Safety Management
systems, in July 2001. Prior to joining Quantum, Mr. Kurtz's career reflects 25
years in sales, marketing and strategic planning for various aerospace,
automotive, distribution and medical companies. Most recently, he was Vice
President of Sales and Marketing for Filtertek Inc. an ESCO Technology company
for over 13 years.
Brock Koren, President and Chief Executive Officer
--------------------------------------------------
Mr. Koren joined the Company in July 1998 and was promoted from Vice President,
Sales and Marketing to President and Chief Executive Officer in October 1999, at
which time he also became a Director of the Company. From 1992 until 1998, he
was employed by Hamamatsu, a leading manufacturer of devices for generation and
measurement of infrared, visible, and ultraviolet light, as a Regional Sales
Engineer. In addition to his position on the API Board of Directors, Mr. Koren
also serves as a Director for BioCal, a privately held company located in
Southern California, specializing in DNA Parentage testing and DNA Souvenir.
26
M. Scott Farese, Director
-------------------------
Mr. Farese became a director of the Company in August 1998. He is currently a
Business Unit Director for Filtertek Inc. Mr. Farese joined Filtertek in 1991.
Filtertek, a subsidiary of ESCO Technologies, is the largest worldwide producer
of custom filtration products and fluid control devices and the world's largest
manufacturer of custom molded filter elements.
Stephen P. Soltwedel, Director
------------------------------
Mr. Soltwedel became a director of the Company in February 2000. Since 1972, he
has been employed by Filtertek, Inc. and is currently Vice President and Chief
Financial Officer. Prior to joining Filtertek, Mr. Soltwedel was employed by the
public accounting firm of Baillies Denson Erickson & Smith in Lake Geneva, WI.
Susan A. Schmidt, Chief Financial Officer and Secretary
-------------------------------------------------------
Ms. Schmidt joined the Company in March 2000. From 1997 to 2000, she was
Director of Finance - Amphitheaters for SFX Entertainment, Inc. in Encino, CA.
SFX was a New York-based promoter and producer of live entertainment events.
From 1992 to 1997 she was Controller for Revchem Plastics, Inc., a privately
held distribution company serving the reinforced plastics industry, and Durall
Plastics,Inc., Revchem Plastics Inc.'s sister manufacturing company in Rialto,
CA.
Paul Sharman, Vice President Operations
---------------------------------------
Mr. Sharman joined API in June 1990. From 1995 to 1999, he was the Director of
Quality and Reliability. From 1999 to March 2000, he held the position of
Director of Operations and in March 2000, he was promoted to Vice President of
Operations.
Directors serve annual terms until the next annual meeting of stockholders and
until their successors are elected and qualified. Officers serve at the pleasure
of the Board of Directors.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
--------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and Directors and persons who own more than ten percent of a registered
class of the Company's equity securities (collectively the "Reporting Persons")
to file reports of beneficial ownership and changes in beneficial ownership of
the Company's equity securities with the Securities and Exchange Commission and
to furnish the Company with copies of these reports. Based solely on its review
of the copies of the forms received by it, the Company believes that all of its
officers and directors complied with all filing requirements applicable to them,
except with respect to the late filings of Form 4 by Richard Kurtz and Stephen
Soltwedel to report option grants made in April 2001 and August 2001, which were
reported in October 2001; the late filings of Form 4 by Brock Koren, Paul
Sharman and Susan Schmidt to report an April 2001 option grant, which was
reported in September 2001; and the late filings of Form 4 by M. Scott Farese to
report option grants made in April 2001 and August 2001, both of which were
reported in October 2001, and to report a stock purchase made in October 2001,
which was reported in December 2001.
27
Item 10. Executive Compensation
The following table sets forth compensation paid or accrued by the Company for
services rendered to the Company's Chief Executive Officer and to each of the
other executive officers of the Company whose cash compensation exceeded
$100,000 for services rendered during the last three fiscal years.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Other Securities
Annual Restricted Underlying LTIP All Other
Fiscal Salary Bonus Compensation Stock Awards Options Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) (#) ($) ($) (1)
--------------------------- ---- ---- ---- ---- ---- ---- ---- ----
Brock Koren 2002 175,000 - - - 100,000 - 16,300
President and Chief Executive 2001 175,000 - - - 50,000 - 9,400
Officer 2000 175,000 12,500 - - 200,000 - 8,600
------------------------------------------------------------------------------------------------------------------------
(1) Represents amounts paid by the Company on behalf of the named person in connection with the Company's 401(k)
Retirement Plan, vacation pay and car allowance.
Employment Agreements
---------------------
The Company currently has no employment agreements with any employee.
Stock Options
-------------
The following tables set forth certain information concerning stock options
granted to the persons named in the Summary Compensation Table during the last
fiscal year and unexercised stock options held by such persons at the end of
such fiscal year.
Option Grants in Fiscal 2002
Individual Grants
-----------------
Number of
Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name(1) Granted(#) Fiscal Year ($/Sh)(2) Date
------- ----------- --------------- ----------- ----------
Brock Koren 100,000 11% $.80, $.67 4/20/11, 2/20/12
--------------------------------------------------------------------------------
(1) See "Summary Compensation Table" and Item 9 "Directors and Executive
Officers" for principal position.
(2) Includes two option grants of 50,000 each.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Number of Securities Underlying Value of Unexercised
Shares Unexercised Options at In-the-Money Options
Acquired on Value Fiscal Year End(#) at Fiscal Year End($)
Name(1) Exercise(#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
------- ----------- -------- ------------------------- -------------------------
Brock Koren - - 196,667/228,333 $57,200/$105,500
-----------------------------------------------------------------------------------------------------------
(1) See "Summary Compensation Table" and Item 9 "Directors and Executive Officers" for principal position.
28
Compensation of Directors
-------------------------
During 2002, each independent member of the Board of Directors received a
directors' fee in the amount of $2,500 for each meeting attended, subject to a
maximum of $10,000 payable to each independent director. In addition, all
directors, including employee directors, are reimbursed for reasonable travel
expenses incurred in connection with their attending meetings of the Board of
Directors and committees. Each of the directors who is not an employee of the
Company is also eligible for grants of stock options upon their appointment to
the Board of Directors and all directors are eligible for stock option grants on
a discretionary basis so long as they remain on the Board under the Advanced
Photonix 2000 Stock Option Plan. Directors who are also officers of the Company
do not receive cash compensation in consideration for their services as
directors.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 21, 2002, certain information
concerning the holdings of each person who was known by the Company to be the
beneficial owner of more than five percent (5%) of the outstanding shares of
Class A or Class B Common Stock of the Company, by each director and executive
officers and by all directors and officers as a group.
Class A Common Stock
------------------------------------------
Shares Under
Shares Exercisable Percent
Owned Options/Warrants(1) Voting(2)
------ ------------------- ---------
Richard D. Kurtz(3) 45,000 270,000 2.5
Brock Koren(3) 10,000 253,334 2.1
Stephen P. Soltwedel(3) 10,000 200,000 1.7
M. Scott Farese(3) 15,000 189,000 1.6
Paul Sharman(3) 5,000 65,334 .6
Susan A. Schmidt(3) 500 43,334 .4
Directors & Officers as a Group 85,500 1,021,002 8.3
-------------------------------------------------------------------------------
(1) Includes shares under options exercisable on March 31, 2002 and options
which become exercisable within 60 days thereafter.
(2) Represents voting power assuming beneficial owner exercises all exercisable
options and warrants.
(3) The address of this shareholder is c/o Advanced Photonix, Inc.
1240 Avenida Acaso, Camarillo, CA 93012.
The following table sets forth, as of March 31, 2002, the aggregated information
pertaining to all securities authorized for issuance under the Company's equity
compensation plans:
Number of
Securities to be
issued upon Weighted-average
exercise of exercise price Number of
outstanding of outstanding securities
options, options, remaining
warrants and warrants and available for
Plan Category rights rights future issuance
------------- ------ ------ ---------------
Equity compensation plans 2,090,034 $1.44 684,889
approved by shareholders
Equity compensation plans
not approved by shareholders - - -
Total 2,090,034 $1.44 684,889
29
Item 12. Certain Relationships and Related Transactions
See Item 10. Executive Compensation.
PART IV
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following is a list of the financial statement schedules and
exhibits filed herewith.
(1) Financial Statements: No financial statements have been filed with
this Form 10-KSB other than those listed in Item 7.
(2) Financial Statement Schedules: Schedules for which provisions are made
in the applicable accounting regulations of the Securities and
Exchange Commission are not required under the related instructions,
or are disclosed in the accompanying consolidated financial
statements, or are inapplicable and, therefore, have been omitted.
(3) Reports on Form 8-K: None.
(4) Exhibits:
Exhibit
No. Description
------- -----------
3.1 Certificate of Incorporation of the Registrant, as amended -
incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on November 23, 1990
3.1.1 Amendment to Certificate of Incorporation of the Registrant,
dated October 29, 1992-incorporated by reference to the
Registrant's March 31, 1996 Annual Report on Form 10-K
3.1.2 Amendment to Certificate of Incorporation of the Registrant,
dated September 9, 1992-incorporated by reference to the
Registrant's March 31, 1996 Annual Report on Form 10-K
3.2 By-laws of the Registrant, as amended - incorporated by reference
to the Registrant's March 31, 1996 Annual Report on Form 10-K
10.1* Advanced Photonix, Inc. 1991 Special Directors Stock Option Plan
- incorporated by reference to Exhibit 10.9 to the Registrant's
March 31, 1991 Annual Report on Form 10-K
10.2* Advanced Photonix, Inc. 1990 Incentive Stock Option and
Non-Qualified Stock Option Plan - incorporated by reference to
Exhibit No. 10.11 to the Registrant's Registration Statement on
Form S-1, filed with the Securities and Exchange Commission on
November 23, 1990
30
10.3* Advanced Photonix, Inc. 1997 Employee Stock Option Plan -
incorporated by reference to Exhibit 10.13 to the Registrant's
March 30, 1997 Annual report on Form 10-K
10.4* Amendment No. 1 to 1997 Employee Stock Option Plan of Advanced
Photonix, Inc. - incorporated by reference to Exhibit 10.14 to
the Registrant's December 28, 1997 Quarterly report on Form 10-Q
10.5* Advanced Photonix, Inc. 2000 Stock Option Plan - incorporated by
reference to Exhibit 10.1 to the Registrant's Registration
Statement on Form S-8, filed with the Securities and Exchange
Commission on March 15, 2001
10.9 Lease Agreement dated February 23, 1998 between Advanced
Photonix, Inc. and High Tech No. 1, Ltd. - incorporated by
reference to Exhibit 10.9 to the Registrant's March 29, 1998
Annual Report on Form 10-K
10.10 Form of Indemnification Agreement provided to Directors and
Principal Officers of Advanced Photonix, Inc. - incorporated by
reference to Exhibit 10.15 to the Registrant's December 28, 1997
Quarterly report on Form 10-Q
21 List of Subsidiaries of Registrant - incorporated by reference to
Exhibit 22 to the Registrant's March 31, 1993 Annual Report on
Form 10-K
*Constitutes a compensation plan or arrangement required to be filed as
part of this report.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 27, 2002 By: /s/ Brock Koren
------------- ---------------------------------------
Brock Koren, President &
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Signature Title Date
/s/ Richard D. Kurtz Chairman of the Board June 27, 2002
------------------------ -------------
Richard D. Kurtz
/s/ Brock Koren President and June 27, 2002
------------------------ Chief Executive Officer -------------
Brock Koren
/s/ M. Scott Farese Director June 27, 2002
------------------------ -------------
M. Scott Farese
/s/ Stephen P. Soltwedel Director June 27, 2002
------------------------ -------------
Stephen P. Soltwedel
/s/ Susan A. Schmidt Chief Financial Officer June 27, 2002
------------------------ and Secretary -------------
Susan A. Schmidt (Principal Financial and
Accounting Officer)
32