U.S. 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 28, 2004
--------------
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
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-K contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]
Total revenues for registrant's fiscal year ended March 28,2004 were
$12,400,543.
As of June 15, 2004, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $30,500,000.
As of June 15, 2004 there were 13,399,059 shares of Class A Common Stock
and 31,691 shares of Class B Common Stock outstanding.
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 in June 1988. The Company is engaged in the development
and manufacture of custom optoelectronic solutions, serving a variety of global
Original Equipment Manufacturer (OEM) markets. While the Company specializes in
silicon-based custom photodiode assemblies, its product families range from
custom light detection assemblies, including its patented Avalanche Photodiode
technology, to light emitting diode (LED) assemblies. The Company supports the
customer from the initial concept and design phase of the product, through to
full-scale production and test. The Company has two manufacturing and wafer
fabricating facilities; one in Camarillo, CA and one in Dodgeville, WI.
Products & Technologies
-----------------------
The Company designs and manufactures silicon-based optoelectronic components and
assemblies for a global OEM customer base. The core technology used in the
majority of the Company's products is silicon-based photodiodes. Photodiodes
sense light of varying wavelengths and intensity and convert that light into
electrical signals. The Company manufactures photodiodes of varying complexity,
from basic PIN (positive-intrinsic-negative) photodiodes to the more
sophisticated avalanche photodiode (APD). The APD is a specialized silicon
photodiode capable of detecting very low light levels due to an internal gain
phenomenon known as avalanching. All devices are designed by the Company's
experienced engineering staff, and fabricated in two state-of-the-art clean
rooms. The Company's basic products and technologies include the following:
o PIN photodetectors - spectrally enhanced, both single and multi-element
o Silicon High Resistivity p-type Detectors
o Photodetector hybrids, which include signal amplification circuitry within the
detector package
o Custom LED assemblies and LED displays
o FILTRODE(R) - patented technology integrating optical filters directly on
photodiode chips
o APDs - discrete, with and without thermoelectric coolers, and with integrated
modules
Markets
-------
These products serve customers in a variety of global markets, typically North
America, Asia, Europe and Australia. The target markets and applications served
by the Company are as follows:
Military & Aerospace:
o Missile guidance
o Laser range finders
o Laser training systems
o Heads-up displays
o Satellite positioning
2
Industrial & Commercial:
o Optical encoders
o Laboratory Instrumentation
o Baggage/Cargo scanners
o Bar code scanners
o Laser positioning systems
Medical:
o Blood analysis, including pulse oximetry and glucometry
o Bacteriology
o Medical imaging
Automotive:
o Laser detection
o Adaptive cruise control
o Automatic power windows
o Drive-by-wire
Communications:
o VCSEL monitor
o Pump laser monitor
o Wireless communication
One of the key competitive advantages held by the Company is its ability to
supply detector assemblies for high reliability (Hi-Rel) applications, including
military and commercial aerospace. 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.
These assembly and test capabilities meet several military approvals, including
MIL-PRF-19500, MIL-STD-883 and MIL-STD-750. 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 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
Raw Materials
-------------
The principal raw materials used by the Company in the manufacture of its
semiconductor components and sensor assemblies are silicon wafers, chemicals and
gases used in processing wafers, gold wire, lead frames, and a variety of
packages and substrates, including metal, printed circuit board, flex circuits,
ceramic and plastic packages. 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 (2
months or greater) between order and delivery of raw materials.
3
Research and Development
------------------------
Since its inception in June 1988, the Company has incurred material research and
development expenses, with the intent of commercializing these investments into
profitable new standard and custom product offerings. During the fiscal years
ended in 2004 and 2003, research and development expenses amounted to $280,000
and $511,000 respectively. The Company expects that continued 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. The Company has in the past, and will
continue to pursue customer funded, as well as internally funded, research and
development projects when they are in support of the Company's development
objectives.
During the last fiscal year, the Company shifted its primary research and
development focus from overall APD development to those projects which have
strong existing markets and can be transitioned to full commercialization in a
relatively short period of time. As we begin the new fiscal year, the following
research and development projects are currently underway:
o APD performance enhancements - designed specifically for certain military and
medical imaging applications
o Silicon PIN diodes, which are being developed to meet unique customer
requirements, such as higher speeds, lower electrical noise, and unique
multi-element geometries.
o Additional applications leveraging the Company's patented Filtrode(TM)
family, integrating a variety of filters onto a detector chip
o Position Sensitive Devices - the Company is broadening its offering of
these devices with improved performance for industrial sensing markets
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.
4
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. When a customer cancels an order, they are 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
current backlog contains only those orders for which the Company has received a
confirmed purchase order and also includes contracts which have scheduled
shipping dates beyond the upcoming fiscal year. As such, the current backlog
represents only a portion of expected annual revenues for fiscal year 2004. At
the end of fiscal 2004, the Company had approximately $8.2 million in backlog as
compared to backlog of approximately $7.8 million at the end of fiscal 2003.
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.
Marketing
---------
The Company markets its products in the United States and Canada through its own
technical sales engineers and through independent sales representatives.
International sales, including Europe, the Middle East and Pacific Rim, are
conducted through foreign distributors (see Note 1 to the Financial Statements).
The Company's products are primarily sold as components or assemblies to
original equipment manufacturers (OEM's). The Company markets its products and
capabilities through industry specific channels, both on the internet and in
print through trade journals.
Competition
-----------
The Company competes with a range of companies for the custom optoelectronic and
silicon photodetector requirements of customers in its target markets. 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 utilizes proprietary design rules and processing steps in the
development and fabrication of its PIN photodiodes and avalanche photodiodes. In
addition, 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
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.
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
---------
At June 15, 2004 the Company had 96 employees, comprised of 88 full time
employees (including 3 officers) and 8 part time employees. Included are 7
engineering and development personnel, 8 sales and marketing personnel, 70
operations personnel, and 11 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
facilities that consist of approximately 45,000 square feet in two facilities.
The facility located at 1240 Avenida Acaso in Camarillo, California is leased
through February 2009. A second manufacturing facility is located at 305 County
YZ, Dodgeville, Wisconsin, and is leased through November 2007. For a portion of
the year, the Company also held a lease on the prior Texas Optoelectronics
facility in Garland, Texas, which was terminated effective September 2003. The
Company believes that its existing facilities are adequate to meet its needs for
the foreseeable future.
6
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 15, 2004, the Company had 108 holders of record for the Class A Common
Stock (including shares held in street name), representing approximately 6,500
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).
The following table sets forth high and low closing prices by quarter for fiscal
years 2004 and 2003.
Quarterly Stock Market Data
---------------------------- -------------------- -------------------- -------------------- --------------------
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2004 2003 2004 2003 2004 2003 2004 2003
---------------------------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
Common Stock (1)
High 1.05 1.66 1.89 1.00 2.51 .94 2.45 1.50
Low .87 .95 .88 .60 1.37 .66 1.66 .82
---------------------------- ---------- --------- ---------- --------- ---------- --------- ---------- ---------
(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.
7
Item 6. Management's Discussion and Analysis
Application of 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 standard cost (which approximates the first-in,
first-out method) or market. Slow moving and obsolete inventories are analyzed
quarterly. To calculate a reserve for obsolescence, 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 production, 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 reserved for. 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.
8
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 where
appropriate. 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.
TABLE OF CONTRACTUAL OBLIGATIONS
--------------------------------
The following table sets forth the contractual obligations of the Company at
March 28, 2004.
------------------------------------------- --------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS PAYMENTS DUE BY PERIOD
------------------------------------------- --------------------------------------------------------------------------
Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years
----- ---------------- ----------- ----------- -----------------
Long-term debt - - - - -
Capital lease obligations 27,000 16,000 11,000 - -
Operating lease 1,866,000 414,000 1,147,000 305,000 -
obligations
Purchase Obligations 1,881,000 1,881,000 - - -
Other long-term
liabilities reflected on
the registrant's balance
sheet under GAAP - - - - -
--------------------------- --------------- -------------------- ---------------- --------------- --------------------
Total 3,774,000 2,311,000 1,158,000 305,000 -
--------------------------- --------------- -------------------- ---------------- --------------- --------------------
RESULTS OF OPERATIONS
Fiscal year 2004 Compared to Fiscal Year 2003
REVENUES
--------
The Company's revenues for the fiscal year ended March 28, 2004 (2004) were
$12.401 million, an increase of $3.254 million, or 36%, from revenues of $9.147
million for the fiscal year ended March 30, 2003 (2003).
The increase was primarily attributable to the Company's acquisitions of Silicon
Sensors, Inc. and Texas Optoelectronics, Inc., both of which occurred during
fiscal 2003. The increase in net product sales reflects significant increases in
shipments to customers in each of the Company's major market segments, the most
notable coming from the military/aerospace segments, which increased 41% over
the prior year and represent 37% of total revenues, or $4.64 million. Similarly,
sales to the industrial sensing segments increased 28% over the prior year and
represent 41% of total revenues, or $5.13 million. Sales to the medical markets,
representing 15% of total revenues, increased 22% to $1.86 million, and sales to
the automotive segment, which are directly attributable to the Texas
Optoelectronics, Inc. acquisition, increased to $717,000 and represent 6% of
total revenues, as compared to $203,000 representing 2% of total revenues in
fiscal year 2003.
9
Revenues fell somewhat short of expectations because of changes in customer
delivery schedules and other manufacturing issues. Nonetheless, we are pleased
with the market stability and increased diversification that has been achieved
as a result of our acquisitions and consolidation of the three companies. In the
absence of any further acquisitions, we expect to see revenue growth of
approximately 8% - 12% overall for fiscal year 2005. The Company continues to
actively seek appropriate acquisition candidates, and to expose its growing
customer base to its expanded product line.
COSTS AND EXPENSES
------------------
Cost of product sales increased to $8.10 million in 2004 from $6.45 million in
2003. Stated as percent of net sales, cost of product sales decreased 5
percentage points to 65%, bringing gross profit margin to 35% in 2004 as
compared to 30% in fiscal year 2003. The improvement in gross margin is
primarily attributable to a reduction in material costs which decreased to 25%
as compared to 30% in the prior year. In addition, margins benefited from the
consolidation of the Company's acquired businesses and steps taken by the
Company to maximize production efficiencies between its two facilities,
including load and inventory sharing, inventory reduction plans, and other cost
management techniques. Direct labor as a percentage of net sales remained
relatively flat at 8% in 2004 as compared to 7% in 2003, as did other fixed and
variable overhead expenses, which amounted to 32% for 2004 compared to 33% in
2003. The Company continually seeks ways to improve gross margin, and expects
that the current margin of 35% is indicative of what can be expected in the
future, given the current operational structure.
Research and development (R&D) costs decreased by $231,000 (45%) to $280,000
during 2004 compared to $511,000 in 2003. R & D costs have fluctuated
significantly over the past two years as we have restructured and refocused our
efforts. During 2004, the Company discontinued projects which did not have a
clearly identified customer demand in our current market segments. We expect R&D
expenditures for fiscal year 2005 to be slightly higher than in 2004.
Marketing and sales expenses decreased slightly, by $59,000 (5%) to $1.026
million in 2004. During 2004, the Company focused on bringing more sales and
marketing functions in-house and improving the effectiveness and utilization of
its internal sales force, thereby decreasing the use of outside sales
representatives and advertising/marketing services. As a result, decreases in
bad debt expense ($78,000) and advertising and marketing expenses ($40,000) were
offset by increases in travel, salary and benefit expenses. To insure that we
can continue to provide excellent service to our consolidated customer base, we
will continue to build our sales department and expect that marketing and sales
expenses will increase in 2005, due primarily to planned additions to the sales
department staff.
Total general and administrative expenses increased by $174,000 (9%) to $2.148
million in 2004 as compared to $1.974 million in 2003. The net increase in
general and administrative expenses is primarily due to increased software
support and travel costs, representing approximately $105,000. In addition, the
Company posted increased consultant and non-compete expenses of $40,000 as well
as an increase to its Directors & Officers liability insurance of $24,000.
General and administrative expenses are expected to increase in fiscal year
2005, due to the addition of an in-house information technology specialist and
the continued strengthening of the administrative infrastructure necessary to
support the Company's growth.
10
Interest income for 2004 totaled $20,000, a decrease of $50,000 over 2003.
Interest expense for the year was $30,000 as compared to $13,000 in 2004. The
decrease in interest income is primarily due to consistently low interest rates
available throughout the past year and the increase in interest expense is due
to obligations assumed through the acquisition of Texas Optoelectronics, Inc. as
well as expenses associated with the Company's secured line of credit. In
addition, the Company reported a $40,000 net loss on sale of fixed assets, due
primarily to the disposal or sale of select assets acquired from Texas
Optoelectronics, Inc. for which the Company had no useful application.
Net income for fiscal year 2004 was $794,000, an improvement of $1.597 million,
or 199%, over the net loss of ($803,000) reported in 2003.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 28, 2004, the Company had cash, cash equivalents and short-term
investments of $3.0 million, working capital of $5.8 million and an accumulated
deficit of $18.0 million. The Company's cash and cash equivalents increased
$397,000 during the twelve months ended March 28, 2004. Operating activities
generated $916,000 (after giving effect to a $300,000 transfer of cash to short
term investments), and benefited from a $307,000 decrease in inventories, due to
the usage of materials purchased in prior periods as well as planned inventory
reduction measures taken by the Company.
Cash generated from operations was reduced by a $300,000 payment against the
Company's secured line of credit and by outlays for capital expenditures.
Capital spending during 2004 totaled $298,000 compared to $68,000 during 2003.
Capital expenditures during 2004 were primarily due to production equipment
purchases, upgrades and replacements, as well as enhancements made to the
computer network infrastructure and deployment of the Company's Enterprise
Resource Planning (ERP) system at the Dodgeville, WI facility. The Company
anticipates that cash outlays for capital items will be approximately $315,000
during fiscal year 2005, the largest portion of which will be for production
equipment upgrades and enhancements. The remainder is budgeted for office
equipment and computer upgrades.
The Company is exposed to interest rate risk for marketable securities. Due to
very low interest rates available to the Company pursuant to its investment
policy, the Company was able to achieve the best yields on liquid money market
and equity fund accounts and has held the majority of its available cash
reserves in such accounts. At March 28, 2004, the Company held $1.7 million in a
highly liquid equity fund account which carried an average interest rate of
1.2%.
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, risks
associated with the integration of newly acquired businesses, 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, the availability of other competing technologies and a decline in the
general demand for optoelectronic products.
11
Item 7. Financial Statements and Supplementary Data
The following financial statements of Advanced Photonix, Inc. are included in
Item 7:
Page
INDEPENDENT AUDITORS' REPORT 13
FINANCIAL STATEMENTS:
Balance Sheet,
March 28, 2004 14-15
Statements of Operations
for the Years Ended March 28, 2004
and March 30, 2003 16
Statements of Shareholders' Equity
for the Years Ended March 28, 2004 and
March 30, 2003 17
Statements of Cash Flows
for the Years Ended March 28, 2004 and
March 30, 2003 18-19
Notes to Financial Statements 20-29
12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Advanced Photonix, Inc.:
We have audited the accompanying consolidated balance sheet of Advanced
Photonix, Inc. (the "Company") as of March 28, 2004 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended March 28, 2004 and March 30, 2003. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated 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 consolidated
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the Company at March
28, 2004 and the results of its operations and its cash flows for the years
ended March 28, 2004 and March 30, 2003 in conformity with accounting principles
generally accepted in the United States.
/s/ Farber & Hass LLP
May 28, 2004
13
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET
MARCH 28, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,299,000
Investments 1,700,000
Accounts receivable, less allowance of $56,000 2,416,000
Inventories, less allowance of $925,000 2,249,000
Prepaid expenses and other current assets 290,000
----------------------
Total current assets 7,954,000
----------------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 4,905,000
Less accumulated depreciation and amortization (3,500,000)
----------------------
Equipment and leasehold improvements, net 1,405,000
----------------------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $353,000 2,421,000
Patents, net of accumulated amortization of $47,000 16,000
Non-Compete Agreement, net of accumulated amortization of $119,000 31,000
Security deposits and other assets 41,000
----------------------
Total other assets 2,509,000
----------------------
TOTAL ASSETS $ 11,868,000
======================
(Continued)
14
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET - Continued
MARCH 28, 2004
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit $ 900,000
Accounts payable 772,000
Accrued salaries, wages and benefits 398,000
Current portion of capital lease payable 16,000
Other accrued expenses 66,000
---------------------
Total current liabilities 2,152,000
---------------------
CAPITAL LEASE PAYABLE, Net of current portion 11,000
---------------------
COMMITMENTS AND CONTINGENCIES
Class A Redeemable Convertible Preferred Stock,
$.001 par value; 780,000 shares authorized;
40,000 shares 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; 13,397,059 shares issued and outstanding; 13,000
5,780,191 shares reserved for future issuance
Class B common stock, $.001 par value; 4,420,113 shares authorized; 31,691
shares issued and
outstanding --
Additional paid-in capital 27,646,000
Accumulated deficit ( 17,986,000)
---------------------
Total shareholders' equity 9,673,000
---------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,868,000
=====================
See notes to consolidated financial statements.
15
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 28, 2004 AND MARCH 30, 2003
2004 2003
---- ----
SALES $12,401,000 $9,147,000
COST OF GOODS SOLD 8,104,000 6,448,000
----------- ----------
GROSS PROFIT 4,297,000 2,699,000
RESEARCH AND DEVELOPMENT EXPENSES 280,000 511,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 3,174,000 3,058,000
----------- ----------
INCOME (LOSS) FROM OPERATIONS 843,000 (870,000)
----------- ----------
OTHER INCOME (EXPENSE):
Interest income 20,000 70,000
Interest expense (30,000) (13,000)
Other, net (34,000) 5,000
----------- ----------
Other income, net (44,000) 62,000
----------- ----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 799,000 (808,000)
PROVISION (BENEFIT) FOR INCOME TAXES 5,000 (5,000)
----------- ----------
NET INCOME (LOSS) $ 794,000 $ (803,000)
=========== ==========
BASIC AND DILUTED EARNINGS (LOSS)
PER SHARE $ 0.06 $ (0.06)
=========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 13,400,000 12,356,349
=========== ==========
See notes to consolidated financial statements.
16
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 28, 2004 AND MARCH 30, 2003
--------------------------------------------------------------------------------------------------------------------------
Additional
Class A Class B Paid-in
Common Stock Common Stock Capital Accumulated
Shares Amount Shares Amount Amount Deficit Total
------ ------ ------ ------ ------ ------- -----
BALANCE, MARCH 31, 2002 12,211,648 $12,000 31,691 $-0- $26,576,000 $(17,977,000) $8,611,000
OPTIONS ISSUED TO ACQUIRE
SSI (Below market price) 5,000 5,000
EXERCISE OF OPTIONS 98,500 71,000 71,000
SHARES ISSUED TO ACQUIRE
TOI ASSETS 1,059,110 1,000 973,000 974,000
NET LOSS (803,000) (803,000)
---------- ------- ------ ---- ----------- ------------ ----------
BALANCE, MARCH 30, 2003 13,369,258 13,000 31,691 -0- 27,625,000 (18,780,000) 8,858,000
EXERCISE OF OPTIONS 77,801 67,000 67,000
RETURN OF SHARES ISSUED TO
ACQUIRE TOI ASSETS (Final (50,000) (46,000) (46,000)
settlement of shares
held in escrow)
NET INCOME 794,000 794,000
---------- ------- ------ ---- ----------- ------------ ----------
BALANCE, MARCH 28, 2004 13,397,059 $13,000 31,691 $-0- $27,646,000 $(17,986,000) $9,673,000
========== ======= ====== ==== =========== ============ ==========
See notes to consolidated financial statements.
17
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 28, 2004 AND MARCH 30, 2003
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 794,000 $ (803,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used by) operating activities:
Depreciation 328,000 192,000
Amortization 78,000 48,000
Disposal of fixed assets 39,000 --
Provision for doubtful accounts (36,000) 40,000
Provision for obsolete inventory 70,000 (14,000)
Changes in operating assets and liabilities:
Short-term investments (300,000) (398,000)
Accounts receivable (176,000) (359,000)
Inventories 307,000 891,000
Prepaid expenses and other current assets 27,000 (79,000)
Other assets (17,000) (147,000)
Accounts payable (73,000) 146,000
Accrued expenses (125,000) 93,000
----------- -----------
Net cash provided by (used by) operating activities 916,000 (390,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (298,000) (68,000)
Intangible assets acquired (10,000) --
Purchase of selected net assets of Silicon Sensors, LLC -- (1,799,000)
----------- -----------
Net cash used by investing activities (308,000) (1,867,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of line of credit (300,000) --
Proceeds from sale of fixed assets 23,000 --
Proceeds from issuance of stock options -- 5,000
Proceeds from exercise of stock options 66,000 71,000
----------- -----------
Net cash provided by (used by) financing activities (211,000) 76,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 397,000 (2,181,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 902,000 3,083,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,299,000 $ 902,000
=========== ===========
(Continued)
18
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED MARCH 28, 2004 AND MARCH 30, 2003
2004 2003
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 30,000 $ 13,000
Cash paid for taxes $ 5,000 $ 1,600
NON-CASH FINANCING ACTIVITY:
In January 2003, the Company purchased all of the issued and outstanding shares
of common stock of Texas Optoelectronics Inc. (see Note 2). In connection with
the purchase, the Company incurred a secured debt of $1,200,000 with an
investment brokerage company, of which $300,000 was repaid during fiscal year
2004. At March 28, 2004, the outstanding balance of the secured debt was
$900,000.
See notes to consolidated financial statements.
19
ADVANCED PHOTONIX, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Description - Advanced Photonix, Inc. (the Company or API), 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. API is located in Camarillo, California.
The Company's wholly-owned subsidiary, Silicon Sensor, Inc. (SSI) (see Note
2 - Acquisitions), manufactures silicon photodiodes and optical
sub-assemblies in a manufacturing facility in Dodgeville, Wisconsin.
The Company's wholly-owned subsidiary, Texas Optoelectronics, Inc. (TOI)
(see Note 2 - Acquisitions), manufactured optical sub-assemblies in a
facility in Garland, Texas. The Company shut down the Garland facility in
May 2003 and relocated the TOI assets to the Company's facilities in
Dodgeville, Wisconsin and Camarillo, California.
Principles of Consolidation - The consolidated financial statements include
the financial statements of the Company and its wholly-owned subsidiaries.
All significant inter-company balances and transactions have been
eliminated in consolidation.
Fiscal Year-End - The Company's fiscal year ends on the last Sunday in
March. Fiscal years in the two-year period ended March 28, 2004 contain
fifty-two weeks each.
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
facilities in Camarillo, California and Dodgeville, Wisconsin.
In fiscal 2004 and 2003, the Company had export sales of approximately
$1,202,000 and $1,848,000, 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.
20
Short-Term and Long-Term Investments - Statement of Financial Accounting
Standards (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.
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
28, 2004:
Fair Holding
Cost Value Gain/(Losses)
---- ----- -------------
Cash $ $ 85,000 $-0-
Equity securities 1,700,000 1,700,000 $-0-
-------------- -------------- ----
Totals $ 1,700,000 $ 1,785,000 $-0-
============== ============== ====
All of the Company's short-term investments as of March 28, 2004 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
28, 2004, 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 Government Securities.
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 28, 2004, two customers comprised 14% and
13%, respectively, of accounts receivable.
Significant Customer - During the fiscal years ended March 28, 2004 and
March 30, 2003, no customer accounted for more than 10% of the Company's
net sales.
21
Inventories - Inventories, which include material, labor and manufacturing
overhead are stated at standard cost (which approximates the first in,
first out method) or market.
Inventories consist of the following at March 28, 2004:
Raw material $ 2,566,000
Work-in-process 878,000
Finished products 117,000
-----------------
Total inventories 3,561,000
Less reserve (925,000)
Progress bill and customer prepaid inventory (1,700,000)
Construction in progress 1,313,000
-----------------
Inventories, net $ 2,249,000
=================
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 28,
2004:
Machinery and equipment $ 3,611,000
Furniture and fixtures 145,000
Leasehold improvements 267,000
Data processing equipment 284,000
Vehicles 26,000
Capitalized software 368,000
Construction-in-process 93,000
Assets held for sale or disposal 111,000
-------------
Total $ 4,905,000
=============
Long-Lived Assets - The Company recognizes impairment losses on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. In such circumstances, those assets are
written down to estimated fair value. Long-lived assets consist primarily
of goodwill and fixed assets.
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 in fiscal 2004 and 2003, 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. In accordance with SFAS
142, Goodwill and other Intangible Assets, the Company ceased amortizing
goodwill on April 1, 2002. The Company annually evaluates the
recoverability of goodwill by assessing whether the recorded value of the
goodwill will be recovered through future expected operating results.
22
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.
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 $57,000 and $106,000 in fiscal 2004
and 2003, 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 ($7,000) and $15,000 in
fiscal 2004 and 2003, respectively.
Net Income (Loss) Per Share - Net income (loss) per share calculations are
in accordance with SFAS No. 128, "Earnings per Share". 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 2004 and 2003 as the
impact is immaterial.
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", 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 ("APB 25"), "Accounting for Stock Issued to
Employees" and complies with the pro forma disclosure requirements of the
standard (see Note 5).
23
New Accounting Pronouncements - In May 2003, the FASB issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity". This Statement establishes standards for how an
issuer of debt classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify certain financial instruments as a liability (or an asset in some
circumstances) instead of equity. The Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise was
effective at the beginning of the first interim period beginning after June
15, 2003. The Company adopted this Statement on July 1, 2003.
In December 2003, the FASB issued Interpretation 46(r), ("FIN 46(r)")
"Consolidation of Variable Interest Entities". The pronouncement amends
Accounting Research Bulletin 51 to set standards to require financial
statement consolidation of certain variable interest entities that meet
specific characteristics if the company has a controlling financial
interest. This interpretation shall be applied to all variable interest
entities by the end of the first reporting period ending after December 15,
2004, for enterprises that are small business issuers. The Company will
adopt this Interpretation on October 1, 2004.
The Company does not believe that any of these recent accounting
pronouncements will have a material impact on their financial position or
results of operations.
2. ACQUISITION
In August 2002, SSI, a newly formed wholly-owned subsidiary of the Company,
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
financial purchase price was $1,718,675 in cash, plus the assumption of the
Seller's trade accounts payable and accrued liabilities, amounting to
approximately $282,000. The Company incurred $79,000 of expenses in
connection with this acquisition. In addition, the Company entered into a 3
year $225,000 non-compete agreement with the majority member of Silicon
Sensors, LLC and is recording monthly amortization expense of $6,250.
In January 2003, the Company purchased all of the issued and outstanding
shares of common stock of TOI, a privately owned custom manufacturer of
opto-electric components and assemblies. The purchase price was 1,009,110
shares of API Class A Common Stock (issued at $0.92 per share) and
repayment of a debt of TOI in the amount of $1,200,000 representing
principal and interest.
3. 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. The holder of each share of
Class A and Class B Common Stock is entitled to one vote per share.
24
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 $.001 per share. 40,000 shares of Class
A Redeemable Convertible Preferred Stock ("Class A Preferred") were issued
and outstanding at March 28, 2004. The Class A Preferred Stock has a
liquidation preference equal to its issue price ($.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.
4. INCOME TAXES
At March 28, 2004, the Company had net operating loss carryforwards of
approximately $24 million for Federal income tax purposes and $4.2 million
for state income tax purposes that expire at various dates through fiscal
year 2023. 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.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 28, 2004 are substantially
composed of the Company's net operating loss carryforwards, for which the
Company has made a full valuation allowance.
The valuation allowance decreased approximately $801,000 in the year ended
March 28, 2004, representing primarily the net taxable income 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 28, 2004 is composed of the
California franchise tax and Wisconsin state income tax.
25
The Company's net operating loss carryforwards will expire on the following
dates:
Federal California
------------------------------ ------------------------------
Amount Expiration Amount Expiration
----------- -------------- ----------- --------------
$ 1,498,751 March 31, 2006 $ 2,693,809 March 31, 2005
3,171,670 March 31, 2007 82,141 March 31, 2011
2,226,072 March 31, 2008 973,927 March 31, 2014
3,816,200 March 31, 2009 471,220 March 31, 2015
1,947,320 March 31, 2010 -----------
30,267 March 31, 2011
1,548,581 March 31, 2012
599,421 March 31, 2013
250,133 March 31, 2014
6,096,005 March 31, 2015
82,471 March 31, 2016
1,868,504 March 31, 2022
846,957 March 31, 2023
-----------
$23,982,352 $ 4,221,097
=========== ===========
5. 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:
2004 2003
---- ----
Net income (loss), as reported $794,000 $(803,000)
Net income (loss), pro forma $723,000 $(942,910)
Basic income (loss) per share, as reported $ 0.06 $ (0.06)
Basic income (loss) per share, pro forma $ 0.05 $ (0.07)
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 2004 and 2003,
respectively: risk-free interest rates of 5% and 9.0%, expected volatility
of 5% and 4% and expected lives of 10 years in all periods. No dividends
were assumed in the calculations.
26
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. The Company has
also granted options, under similar terms as above, under no specific
shareholder approved plan.
Stock option transactions for 2004 are summarized as follows:
Weighted
Average
Shares Exercise
(000) Price
------ --------
Outstanding, beginning of year 1,804 $1.44
Granted 300 $0.92
Exercised (78) $0.86
Expired (65) $1.21
------
Outstanding, end of year 1,961 $1.39
====== =====
Exercisable, end of year 1,580 $1.52
====== =====
Information regarding stock options outstanding as of March 28, 2004 is as
follows:
Options Outstanding
----------------------------------------------
(in 000s) Weighted Average Weighted Average
Price Range Shares Exercise Price Remaining Life
-----------------------------------------------------------------------------------------------------
$0.50 - $1.25 1,452 $0.77 7.63
$1.88 - $2.50 108 $2.04 5.27
$3.09 - $5.34 401 $3.46 6.35
Options Exercisable
-----------------------------------------------
(in 000s) Weighted Average Weighted Average
Price Range Shares Exercise Price Remaining Life
-----------------------------------------------------------------------------------------------------
$0.50 - $1.25 1,087 $0.76 7.28
$1.88 - $2.50 92 $2.06 5.12
$3.09 - $5.34 401 $3.46 6.35
27
6. LINE OF CREDIT
The Company has a line of credit from an investment brokerage company which
provides for borrowings up to 90% of the amount on deposit with that
brokerage company ($1,785,000 at March 28, 2004). Minimum payments of a
variable interest rate of 2.70% which is 1.50% above "LIBOR" (London
Interbank Offered Rate). The line of credit is repayable upon demand and is
secured by brokerage account balance.
7. CAPITALIZED LEASE OBLIGATION
The Company has various capitalized lease obligations which provides for
monthly payments of $1,618. The leases mature at varying dates through
fiscal 2006 and are collateralized by certain equipment with a net book
amount of approximately $28,000. Future payments on the lease obligations
are as follows:
2005 $ 16,000
2006 10,000
--------
Total minimum lease payments $ 26,000
Less interest (7,000)
--------
Present value of net minimum lease payments $ 19,000
========
8. 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 2009, are as follows:
2005 $ 414,000
2006 416,000
2007 394,000
2008 337,000
2009 305,000
----------
Total $1,866,000
==========
Rent expense was approximately $441,000 and $362,000 in fiscal 2004 and
2003, respectively.
9. LEGAL
The Company is, from time to time, subject to legal and other matters in
the normal course of its business. While the results of such matters cannot
be predicted with certainty, management does not believe that the final
outcome of any pending matters will have a material effect on the financial
position and results of operations of the Company.
28
10. 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 $71,000 and
$64,000 in fiscal 2004 and 2003, respectively.
29
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 8A. 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.
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 52 Chairman of the Board and
Chief Executive Officer
M. Scott Farese 47 Director
Ward Harper 51 Director
Stephen P. Soltwedel 57 Director
Paul D. Ludwig 41 President
Susan A. Schmidt 38 Chief Financial Officer
and Secretary
Richard D. Kurtz, Chairman of the Board and Chief Executive Officer
-------------------------------------------------------------------
Mr. Kurtz became a Director of the Company in February 2000, was elected
Chairman of the Board in July 2000, and was appointed Chief Executive Officer in
February 2003. Prior to joining Advanced Photonix, he was Director of Client
Services and Strategic Planning for Quantum Compliance Systems Inc. a privately
owned software company specializing in the development and installation of
Environmental Health and Safety Management systems. Mr. Kurtz continues as an
equity owner in Quantum and was employed there from July 2001 through February
2003. Prior to joining Quantum, Mr. Kurtz had been Vice President of Sales and
Marketing for Filtertek Inc. an ESCO Technology company for more than 13 years.
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.
30
Ward Harper, Director
---------------------
Mr. Harper became a director of the Company in May 2003. He is currently an
attorney in private solo practice in Utah. Mr. Harper has been a practicing
attorney for the past 14 years before the U.S. Court and U.S. Court of Appeals,
Tenth Circuit. Prior to going into private practice, Mr. Harper was an
Attorney/Advisor for U.S. Administrative Law Judges and was also the Attorney in
charge of public benefits litigation for the Salt Lake City Office of Legal
Services Corporation.
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.
Paul D. Ludwig, President
-------------------------
Mr. Ludwig joined the Company in August 2002 through the acquisition of Silicon
Sensors, LLC, where he was President and co-owner since 1996. Mr. Ludwig became
the Chief Operating Officer of Advanced Photonix, Inc. at the time of
acquisition and was promoted to President in February 2003. Prior to joining
Silicon Sensors, Mr. Ludwig spent 11 years at Honeywell, Inc. holding sales,
marketing and management responsibilities in their Sensing and Control group.
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.
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.
The Board has determined that M. Scott Farese, Ward Harper and Stephen P.
Soltwedel are "independent" within the meaning of Securities Exchange Act Rule
10A-3 and within the applicable American Stock Exchange (AMEX) definition.
Audit Committee
---------------
For the fiscal year ended March 28, 2004, the Audit Committee consisted of
Mssrs. Farese, Harper and Soltwedel, all of whom are independent. The Board has
determined that Stephen P. Soltwedel qualifies as an Audit Committee financial
expert as defined by Item 401(e)(2) of Regulation S-B promulgated by the
Securities and Exchange Commission.
The Audit Committee's primary responsibilities are to: (1) oversee the Company's
financial reporting principles and policies including review of the financial
reports and other financial and related information released by the Company to
the public, or in certain circumstances governmental bodies; (2) review of the
Company's system of internal controls regarding finance, accounting, business
conduct and ethics and legal compliance that management and the Board have
established; (3) review of the Company's accounting and financial reporting
processes; (4) review and appraisal with management of the performance of the
Company's independent auditors; and (5) the provision of an open avenue of
communication between the independent auditors and the Board of Directors.
31
Nomination Procedures
---------------------
The Company has not made any changes to the procedures by which security holders
may recommend nominees to the Company's Board of Directors since the Company
last provided disclosure to security holders in response to the requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A of the Exchange Act.
Code of Ethics
--------------
The Company has adopted a Code of Ethics for Senior Financial Officers, pursuant
to the Sarbanes-Oxley Act of 2002. The Code of Ethics is published on the
Company's web site, www.advancedphotonix.com on the Investor Relations page.
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 filing of Form 5 in June 2004 by Richard Kurtz,
Ward Harper and Paul Ludwig to report a stock option grant occurring during the
fiscal year, which was not previously reported on Form 4.
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)
--------------------------- ---- ---- ---- --- ---- ---- ---- ----
Richard D. Kurtz 2004 160,000 32,000 - - 150,000 - 5,800
Chairman of the Board and 2003 22,000 - 11,500 - - - 100
Chief Executive Officer(2) 2002 n/a n/a 10,000 - 245,000 - n/a
------------------------------- ------ --------- -------- ------------ ------------- ----------- --------- --------------
Paul D. Ludwig 2004 160,000 32,000 - - 50,000 - 16,300
President 2003 97,000 - 4,000 - 100,000 - 7,000
2002 n/a n/a n/a n/a n/a n/a n/a
------------------------------- ------ --------- -------- ------------ ------------- ----------- --------- --------------
Susan A. Schmidt 2004 99,000 16,000 - - - - 14,100
Chief Financial Officer and 2003 n/a n/a n/a n/a n/a n/a n/a
Secretary(3) 2002 n/a n/a n/a n/a n/a n/a n/a
------------------------------- ------ --------- -------- ------------ ------------- ----------- --------- --------------
Brock Koren 2004 125,000 - - - - - -
President and Chief Executive 2003 155,000 - - - - - 86,000
Officer(4) 2002 175,000 - - - 100,000 - 16,300
------------------------------- ------ --------- -------- ------------ ------------- ----------- --------- --------------
(1) Represents amounts paid by the Company on behalf of the named person in
connection with the Company's benefits plans, 401(k) Retirement Plan,
vacation pay and car allowance.
(2) Mr. Kurtz was appointed to the office of Chief Executive Officer in February
2003, following the resignation of Mr. Koren. Other annual compensation and
securities underlying options reflect Director's fees and options granted as
part of plans provided to outside directors.
(3) Ms. Schmidt joined the Company in March 2000; however, total compensation is
not reported for fiscal years 2002 and 2003, as annual salary and bonus did
not exceed $100,000.
(4) Mr. Koren resigned from his position as President in February 2003.
Compensation continued through December 2003 under a severance agreement.
32
Employment Agreements
---------------------
The Company has employment and termination agreements with certain current
employees under which the employees may receive severance pay through the end of
the term of the contract. The contract terms vary from 2 to 3 years. Total
compensation under these agreements in the event of unemployment through the
full term would be approximately $336,000 in fiscal year 2005.
Stock Options
-------------
The following tables set forth certain information concerning stock options
granted to the persons named in the Summary Compensation Table during the last
fiscal year and unexercised stock options held by such persons at the end of
such fiscal year.
Option Grants in Fiscal 2004
Individual Grants
--------------------------------- ------------------- ------------------- --------------------- ----------------------
Number of Securities % of Total
Underlying Options Granted Exercise or
Options to Employees in Base Price Expiration
Name(1) Granted Fiscal Year ($/Sh) Date
--------------------------------- ------------------- ------------------- --------------------- ----------------------
Richard D. Kurtz 150,000 50% $.93 5/19/13
Paul D. Ludwig 50,000 17% $.93 5/19/13
Susan A. Schmidt - - - -
(1) See "Summary Compensation Table" and Item 9 "Directors and Executive Officers" for principal position.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
Shares Acquired Value at Fiscal Year End (#) at Fiscal Year End ($)
Name(1) on Exercise (#) Realized Exercisable/Unexercisable Exercisable/Unexercisable
------------------------------------------------------------------------------------------------------------------------
Richard D. Kurtz - - 450,000 / 120,000 $357,900 / 134,400
Paul D. Ludwig - - 50,000 / 100,000 $68,800 / $131,200
Susan A. Schmidt - - 88,000 / 22,000 $70,800 / $18,550
(1) See "Summary Compensation Table" and Item 9 "Directors and Executive Officers" for principal position.
Compensation of Directors
-------------------------
During 2004 each independent member of the Board of Directors received an annual
retainer in the amount of $4,000, plus directors' fees in the amount of $1,000
for each board meeting attended, plus $500 for each committee meeting attended.
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.
33
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 15, 2004, 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)
Burke, Mayborn Co., Ltd.(3) 831,245 -- 6.2
Richard D. Kurtz(4) 65,000 480,000 3.9
M. Scott Farese(4) 25,100 289,000 2.3
Stephen P. Soltwedel(4) 14,000 300,000 2.3
Ward Harper(4) - 25,000 .2
Paul D. Ludwig(4) 86,100 60,000 1.1
Susan A. Schmidt(4) 500 98,000 .7
Directors & Officers as a 190,700 1,252,000 9.8
Group
(1) Includes shares under options exercisable on March 28, 2004 and options
which become exercisable within 90 days thereafter.
(2) Represents voting power assuming beneficial owner exercises all exercisable
options and warrants.
(3) Includes shares beneficially owned by Burke, Mayborn Co., Ltd. and
Frank M. Burke, Jr. The address of this shareholder is 5500 Preston Road,
Suite 315, Dallas, TX 75205.
(4) 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 28, 2004, 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 1,580,200 $1.52 485,222
approved by shareholders
Equity compensation plans
not approved by - - -
shareholders
Total 1,580,200 $1.52 485,222
Item 12. Certain Relationships and Related Transactions
See Item 10. Executive Compensation.
34
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:
The Company filed form 8-K on February 11, 2004, to report its results
of operations for the third quarter and year to date periods ending
December 28, 2003. The filing included a copy of the press release
issued February 10, 2004.
(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 Exhibit 3.2 to the Registrant's March 30,
2003 Annual Report on Form 10-KSB
4.1 Rights Agreement, dated September 19, 2002 by and
between the Company and Continental Stock Transfer and
Trust Company, Certificate of Designations for the
Company's Series B Junior Preferred Stock - incorporated
by reference to Exhibits 4.1 and 4.2 to the Registrant's
Form 8-K filed with the Securities and Exchange
Commission on September 26, 2002
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
10.3* Advanced Photonix, Inc. 1997 Employee Stock Option Plan
- incorporated by reference to Exhibit 10.13 to the
35
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
10.11* Employment Agreement dated August 21, 2002 between
Advanced Photonix, Inc. and Paul D. Ludwig -
incorporated by reference to Exhibit 10.1 to the
Registrant's Form 8-K as filed with the
Securities and Exchange Commission on September 5, 2002
10.12* Employment Agreement dated February 10, 2003 between
Advanced Photonix, Inc. and Richard D. Kurtz
- incorporated by reference to Exhibit 10.12 to the
Registrant's March 30, 2003 Annual Report on
Form 10-KSB
21.1 List of Subsidiaries of Registrant - incorporated by
reference to Exhibit 21.1 to the Registrant's
March 30, 2003 Annual Report on Form 10-KSB
31 Additional Certifications of the Registrant's
Chief Executive Officer, President, and Chief
Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
*Constitutes a compensation plan or arrangement required to be filed as
part of this report.
36
Item 14. Principal Accountant Fees and Services.
The firm of Farber & Hass, LLP (F&H) has audited the financial statements
of the Company for each of the three fiscal years ended March 31, 2004. The
following table presents fees for professional audit services rendered by
F&H for the audit of the Company's annual financial statements and review
of financial statements included in the registrant's quarterly reports on
Form 10-QSB ("Audit Fees") for fiscal 2004 and 2003, and fees billed for
other services rendered by F&H.
2004 2003
---- ----
Audit Fees $58,840 $60,087
Audited Related Fees(1)(2) 9,275 39,700
Tax Fees(2)(3) 7,650 7,450
All Other Fees -- --
------------------------
Total $75,765 $107,237
(1) Audit related fees consisted principally of the audit of the
Company's benefit plan and consultations regarding
acquisitions.
(2) The Audit Committee has determined that the provision of all
non-audit services performed for the Company by F&H is
compatible with maintaining that firm's independence.
(3) Tax fees consisted primarily of tax return preparation, state
tax matters and tax advisory services.
The Audit Committee's policy is to pre-approve all audit services and all
non-audit services that the Company's independent auditor is permitted to
perform for the Company under applicable federal securities regulations.
While it is the general policy of the Audit Committee to make such
determinations at full Audit Committee Meetings, the Audit Committee may
delegate its pre-approval authority to one or more members of the Audit
Committee, provided that all such decisions are presented to the full Audit
Committee at its next regularly scheduled meeting.
37
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.
By: /s/ Paul D. Ludwig
---------------------------------
Paul D. Ludwig, President
Date: June 24, 2004
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 and Chief June 24, 2004
---------------------- Executive Officer -------------
Richard D. Kurtz
/s/ M. Scott Farese Director June 24, 2004
---------------------- -------------
M. Scott Farese
/s/ Ward Harper Director June 24, 2004
---------------------- -------------
Ward Harper
/s/ Stephen P. Soltwedel Director June 24, 2004
------------------------ -------------
Stephen P. Soltwedel
/s/ Susan A. Schmidt Chief Financial Officer June 24, 2004
----------------------- and Secretary -------------
Susan A. Schmidt (Principal Financial and Accounting Officer)
38