UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file no. 1-11056
ADVANCED PHOTONIX, INC.
Incorporated pursuant to the Laws of Delaware
IRS Employer Identification No. 33-0325826
1240 Avenida Acaso, Camarillo, CA 93012
(805) 987-0146
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
On August 6, 2004, 13,399,059 shares of Class A Common Stock, $.001 par value,
and 31,691 shares of Class B Common Stock, $.001 par value, were outstanding.
ADVANCED PHOTONIX, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet at June 27, 2004 3 - 4
Consolidated Statements of Operations for the three 5
month periods ended June 27, 2004 and June 29, 2003
Consolidated Statements of Cash Flows for the three 6
month periods ended June 27, 2004 and June 29, 2003
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis 10 - 12
Item 3. Controls and Procedures 13
PART II OTHER INFORMATION 14
SIGNATURES 15
2
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET
AT JUNE 27, 2004
(UNAUDITED)
---------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 992,000
Short term investments 1,700,000
Accounts receivable, less allowance of $46,000 2,362,000
Inventories 2,654,000
Prepaid expenses and other current assets 256,000
-------------------------
Total Current Assets 7,964,000
-------------------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 4,786,000
Less accumulated depreciation and amortization (3,443,000)
-------------------------
Equipment and Leasehold Improvements, net 1,343,000
-------------------------
OTHER ASSETS
Goodwill, net of accumulated amortization of $353,000 2,421,000
Patents, net of accumulated amortization of $48,000 15,000
Non-Compete Agreement, net of current portion and 13,000
accumulated amortization of $137,000
Other 24,000
-------------------------
Total Other Assets 2,473,000
-------------------------
TOTAL ASSETS $ 11,780,000
=========================
3
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET - Continued
AT JUNE 27, 2004
(UNAUDITED)
--------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 400,000
Accounts payable 891,000
Accrued salaries, wages and benefits 352,000
Current portion of capital lease payable 13,000
Other accrued expenses 61,000
-------------------------
Total Current Liabilities 1,717,000
-------------------------
Capital lease payable, net of current portion 9,000
-------------------------
COMMITMENTS AND CONTINGENCIES
Class A redeemable convertible preferred stock, $.001 par value; 32,000
780,000 shares authorized; 40,000 shares issued and outstanding
-------------------------
SHAREHOLDERS' EQUITY
Preferred stock, $.001 par value; 10,000,000 shares authorized; 780,000
shares designated Class A redeemable convertible; no shares
issued and outstanding other than Class A redeemable convertible --
Class A common stock, $.001 par value; 50,000,000 shares authorized;
13,399,059 shares issued and outstanding 13,000
Class B common stock, $.001 par value; 4,420,113 shares authorized;
31,691 shares issued and outstanding --
Additional paid-in capital 27,647,000
Accumulated Deficit (17,638,000)
------------------------
Total Shareholders' Equity 10,022,000
------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,780,000
========================
See notes to consolidated financial statements.
4
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three month periods ended June 27, 2004 June 29, 2003
----------------------------------------------------- -------------------- ------------------
SALES $ 3,253,000 $ 2,647,000
Cost of Goods Sold 1,956,000 1,774,000
-------------------- ------------------
GROSS PROFIT 1,297,000 873,000
Research and development expenses 42,000 78,000
Sales and marketing expenses 283,000 241,000
General and administrative expenses 619,000 443,000
-------------------- ------------------
INCOME FROM OPERATIONS 353,000 111,000
-------------------- ------------------
OTHER INCOME (EXPENSE)
Interest income 5,000 5,000
Interest expense (5,000) (9,000)
Other, net (6,000) 6,000
-------------------- --------------------
Other Income, net (6,000) 2,000
-------------------- ------------------
NET INCOME $ 347,000 $ 113,000
==================== ==================
Basic Earnings Per Share $ 0.03 $ 0.01
Diluted Earnings Per Share $ 0.02 $ 0.01
Weighted Average Shares Outstanding 13,431,000 13,406,000
See notes to consolidated financial statements.
5
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the three month periods ended June 27, 2004 June 29, 2003
----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 347,000 $ 113,000
Adjustments to reconcile net income to net cash provided by
(used by) operating activities:
Depreciation 91,000 75,000
Amortization 20,000 20,000
Disposal of fixed assets 14,000 --
Changes in operating assets and liabilities:
Short-term investments -- (300,000)
Accounts receivable 79,000 81,000
Inventories (431,000) (119,000)
Prepaid expenses and other current assets 34,000 62,000
Other assets 17,000 (11,000)
Accounts payable and accrued expenses 63,000 (226,000)
--------------- ---------------
Net cash provided by (used by) operating activities 234,000 (305,000)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (44,000) (83,000)
--------------- ---------------
Net cash used by investing activities (44,000) (83,000)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of line of credit (500,000) --
Proceeds from exercise of stock options 1,000 9,000
Proceeds from sale of fixed assets 2,000 --
--------------- ---------------
Net cash provided by (used by) financing activities (497,000) 9,000
--------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (307,000) (379,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,299,000 902,000
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 992,000 $ 523,000
=============== ===============
See notes to consolidated financial statements.
6
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 27, 2004
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Advanced Photonix, Inc. ("the Company") and the Company's wholly
owned subsidiaries, Silicon Sensors Inc. ("SSI") and Texas Optoelectronics, Inc.
("TOI"). These consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X and Regulation S-B. All significant intercompany
accounts and transactions have been eliminated in consolidation. Accordingly,
they do not include all of the information and notes required by accounting
principles generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation have been included.
Operating results for the three month period ended June 27, 2004 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 27, 2005. For further information, refer to the financial
statements and notes thereto included in the Advanced Photonix, Inc. Annual
Report on Form 10-KSB for the fiscal year ended March 28, 2004.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Income (Loss) Per Share: Net income (loss) per share is based on the
weighted average number of common shares outstanding. Such weighted average
shares were approximately 13,431,000 at June 27, 2004 and 13,406,000 at June 29,
2003. Net income (loss) per share calculations are in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share" (SFAS
128). Accordingly, "basic" net income (loss) per share is computed by dividing
net income (loss) by the weighted average number of shares outstanding for the
year. The impact of Statement 128 on the calculation of earnings per share is as
follows:
Three Months Ended Three Months Ended
BASIC June 27, 2004 June 29, 2003
----- ------------- -------------
Average Shares Outstanding 13,431,000 13,406,000
Net Income 347,000 113,000
Basic Income Per Share $ 0.03 $ 0.01
7
NOTE 2 - Continued
Three Months Ended Three Months Ended
DILUTED June 27, 2004 June 29, 2003
------- ------------- -------------
Average Shares Outstanding 13,431,000 13,406,000
Net Effect of Dilutive Stock Options
based on the treasury stock method
using average market price 797,600 156,900
Total Shares 14,228,600 13,562,900
Net Income 347,000 113,000
Diluted Earnings Per Share $ 0.02 anti-dilutive
Average Market Price of Common Stock $ 2.36 $ 0.92
Ending Market Price of Common Stock $ 2.40 $ 0.90
The following stock options granted to Company employees, directors, and former
owners were excluded from the calculation of earnings per share in the financial
statements because they were anti-dilutive for the periods reported:
Three Months Ended June 27, 2004 Three Months Ended June 29, 2003
-------------------------------- --------------------------------
No. of Shares Exercise No. of Shares Exercise
Underlying Price Per Underlying Price Per
Options Share Options Share
-------------------------------- -------------------------------
27,700 2.5000 16,000 0.5000
1,000 3.0940 56,000 0.5630
350,000 3.1875 45,000 0.6100
50,000 5.3440 500 0.6250
--------------------------------
428,700 18,000 0.6500
================================
226,668 0.6700
5,000 0.6875
56,000 0.7500
238,000 0.8000
76,250 0.8600
14,500 1.1875
64,300 1.2500
4,000 1.6250
88,000 1.8750
30,500 2.5000
1,000 3.0940
350,000 3.1875
50,000 5.3440
--------------------------------
1,339,718
================================
8
NOTE 2 - Continued
Inventories: Inventories consist of the following:
June 27, 2004
------------------
Raw materials $ 2,548,000
Work in progress 1,496,000
Finished products 127,000
------------------
Total inventories $ 4,171,000
==================
Less reserve (934,000)
Progress bill and customer prepaid inventory (583,000)
------------------
Inventories, net $ 2,654,000
==================
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
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 this accounting pronouncement will have a
material impact on its financial position or results of operations.
9
Item 2. 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; which is generally the date of shipment. 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.
10
Accounts Receivable and Allowance for Doubtful Accounts
-------------------------------------------------------
The Allowance for Doubtful Accounts is established by analyzing each account
that has a balance over 90 days past due. Each account is individually assigned
a probability of collection. The total amount determined to be uncollectible in
the 90-days-past-due category is then reserved fully. The percentage of this
reserve to the 90-days-past-due total is then established as a guideline and
applied to the rest of the non-current accounts receivable balance 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.
RESULTS OF OPERATIONS
NET PRODUCT SALES
Sales for the first quarter of fiscal year 2005 ("Q1 05") were $3,253,000, an
increase of $606,000 or 23% from sales of $2,647,000 for the first quarter of
fiscal year 2004 ("Q1 04"). While the Company recorded increases in four of its
principal market segments, the most significant revenue increases came from its
military/aerospace and medical markets. Sales to the military aerospace markets
rose to $1.3 million in Q1 05, an increase of $440,000 or 50% over the prior
year, and represented 40% of total sales for the quarter (as compared to 33% of
total sales for Q1 04). Similarly, sales to the medical markets increased by
$140,000 or 35% over Q1 04, and represented 16% of total sales for the quarter
(as compared to 15% for Q1 04). While we continue to expect sales to increase in
fiscal 2005 as compared to fiscal 2004, the quarter to quarter comparisons can
vary significantly for both revenue and market analyses due to fluctuations in
customer delivery and production schedules which are beyond the control of the
Company.
COSTS AND EXPENSES
Cost of goods sold increased by $182,000 (10%) in Q1 05 as compared to Q1 04.
Stated as a percentage of net sales, cost of goods sold decreased by 7
percentage points to 60% as compared to 67% in Q1 04. Likewise, gross profit
margin on net sales increased 7 percentage points to 40% as compared to 33% in
Q1 04. The improvement in gross margin is directly attributable to increased
revenue allowing for greater absorption of fixed overhead expenses as well as
production efficiencies achieved through the integration of multiple
manufacturing facilities. As the closing of the Garland, Texas facility was not
completed until May 2003, the results for Q1 04 included additional overhead
expenses associated with that facility. As that business has now been fully
absorbed into the California and Wisconsin facilities, total overhead has
decreased significantly. In addition, Q1 05 margins were positively impacted by
variations in product mix, as customer delivery schedules allowed for a greater
percentage of products which typically carry higher gross margins to be shipped
during the quarter. As such, the Company expects that the current gross margin
may be slightly higher than what can be expected during the remainder of the
fiscal year and anticipates that year end margin levels will be reflective of
those realized in fiscal 2004.
11
Research and development ("R & D") costs decreased by $36,000 (48%) to $42,000
in Q1 05 as compared to Q1 04. The decrease in R & D costs is the result of the
Company's ongoing plan to focus the R & D department on those projects which
offer higher commercial potential per dollar spent. Thus, R&D expenses for any
given quarter are directly reflective of the specific projects currently
underway and the costs incurred during that period. During the remainder of the
fiscal year, we expect to see slight increases in R & D spending, based on
current revenue and project trends. However, R & D costs can vary, depending on
the level of activity associated with new product development projects or
customer-requested development contracts.
Marketing and sales expenses increased by $42,000 (17%) to $283,000 in Q1 05 as
compared to Q1 04. Stated as a percentage of sales, marketing and sales expenses
have remained at 9% for both Q1 05 and Q1 04. The slight increase in actual
expense was due to increased advertising and personnel-related expenses,
including travel and commission expenses. The Company believes that current
marketing and sales expenses are indicative of what can be expected for the
remainder of the fiscal year and anticipates they will continue to represent
approximately 9% of total sales.
General and administrative ("G & A") expenses increased by $176,000 (40%) to
$619,000 in Q1 05 as compared to Q1 04. As during fiscal 2004, the increase in
general and administrative expenses continues to be primarily due to increased
salary and related expenses as well as outside service/consultant expenses, most
of which are related to acquisition investigation activities. Expressed as a
percentage of net sales, general and administrative expenses represented 19% in
Q1 05 as compared to 17% in Q1 04. As the majority of general and administrative
expenses are fixed rather than variable, we expect that actual expenditures will
remain relatively stable for the remainder of the current fiscal year and, as
revenues increase, G & A expenses will decline as a percentage of sales.
The Company reported net income of $347,000 or $0.03 per share for Q1 05 as
compared to net income of $113,000 or $0.01 per share in Q1 04.
FINANCIAL CONDITION
At June 27, 2004, the Company had cash, cash equivalents and short term
investments of $2.7 million and working capital of $6.2 million. The Company's
cash and cash equivalents decreased by $307,000 during the three months ended
June 27, 2004. Cash generated by operating activities totaled $234,000 and was
impacted by cash inflows from reductions of accounts receivable, prepaid and
other assets as well as increases in accounts payable, which were partially
offset by cash outlays for inventories during the period. In addition, $500,000
was paid against the Company's credit line balance and $44,000 was used for
capital expenditures.
The Company is exposed to interest rate risk for marketable securities. Due to
continually declining 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 thus has held the majority of its
available cash reserves in such accounts during the past year. At June 27, 2004,
the Company held $1.7 million in a highly liquid equity fund account which
carries an average interest rate of 1.3%. During 2005, 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.
12
Item 3. Controls and Procedures
Our Chief Executive Officer, President, and Chief Financial Officer (the
"Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for the Company. The Certifying Officers have
designed such disclosure controls and procedures to ensure that material
information is made known to them, particularly during the period in which this
report was prepared. The Certifying Officers have evaluated the effectiveness of
the Company's disclosure controls and procedures within 90 days of the date of
this report and believe that the Company's disclosure controls and procedures
are effective based on the required evaluation. There have been no significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
FORWARD LOOKING STATEMENTS
The information contained herein includes forward looking statements that are
based on assumptions that management believes to be reasonable but are subject
to inherent uncertainties and risks including, but not limited to, 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.
13
PART II OTHER INFORMATION
Items 1 - 5
None
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
31.1 Certification of the Registrant's Chairman, Chief Executive
Officer, and Director pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of the Registrant's Chief Financial Officer and
Secretary pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.3 Certification of the Registrant's President pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The Company filed form 8-K on June 18, 2004 to report that it had issued a press
release the same day announcing financial results for the quarter and year ended
March 28, 2004.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Advanced Photonix, Inc.
(Registrant)
Date: August 11, 2004 /s/ Richard Kurtz
--------------- ---------------------------
Richard Kurtz
Chairman, Chief Executive Officer
and Director
/s/ Paul Ludwig
---------------------------
Paul Ludwig
President
/s/ Susan Schmidt
---------------------------
Susan Schmidt
Chief Financial Officer and Secretary
15