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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(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 29, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-11056
ADVANCED PHOTONIX, INC.(R)
(Exact name of registrant as specified in its charter)
Delaware 33-0325826
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 Avenida Acaso, Camarillo, CA 93012
(Address of principal executive offices) (Zip Code)
(805) 987-0146
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 Par Value
Class A Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of June 5, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $8,100,000.
As of June 5, 1998, there were 10,838,260 shares of Class A Common Stock and
76,135 shares of Class B Common Stock outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
DOCUMENTS INCORPORATED BY REFERENCE
None
Item 1. Business
General
Advanced Photonix, Inc.(R) (with its subsidiary, Silicon Detector Corporation, a
California corporation ("SDC"), hereafter referred to together as the
"Company"), is engaged in the development and manufacture of proprietary and
other solid state light and radiation detection devices. The Company was
incorporated under the laws of the State of Delaware on June 22, 1988. The
Company believes that its proprietary Avalanche Photodiode ("APD") technology
represents a leading-edge advancement in photodetection and imaging, and will
become an increasingly important part of its business.
The Company's proprietary technology extends the capability of the traditional
APD by introducing a large surface area silicon device or Large Area Avalanche
Photodiode (the "LAAPD"). The Company believes that the LAAPD is an alternative
to photomultiplier vacuum tubes ("PMT's"), which have been used for many years
as the primary technological solution for highly sensitive light detection in
certain measurement, control and monitoring applications used in industrial,
medical, military, scientific and commercial settings.
The LAAPD and PMT are at the highly complex and engineered end of the spectrum
of activities in the photonics industry, which encompasses all light detection
devices and associated electronic components. Fundamentally, photodetection
devices sense light of varying intensity and convert the light detected to
electronic signals that cause the systems of which they are a part, to respond
in programmed ways. The photonics industry includes other custom-engineered
devices of less complexity than the LAAPD and the PMT such as PIN
(Positive-Intrinsic-Negative) photodiodes. The bulk of the Company's revenues
continue to be derived from the sale of products based on PIN and other
non-proprietary technologies (the "core business").
Products
The Company designs and manufactures optoelectronic semiconductor based
components and hybrid assemblies. The Company's product line includes:
o Spectrally enhanced single and multi-element PIN photodetectors
o Photodetector/preamplifier hybrids
o Military/commercial aerospace products
o Custom optoelectronic products, including visible and non visible
(infrared) light-emitting diodes ("LED's") and LED displays
o FILTRODE(TM) - patented technology integrating spectrally enhanced filters
directly onto photodiode wafers
o Small Area Avalanche photodiodes
o Large Area Avalanche photodiodes (LAAPD's, LAAPD Modules and Cooled Heads)
The Company supplies detectors for military/commercial aerospace and other High
Reliability ("Hi-Rel") applications. Hi-Rel devices are those which are
designed, manufactured, screened and qualified to function under exceptionally
severe levels of environmental stress. The Company has many years of experience
in supplying Hi-Rel devices which require modern wafer fabrication techniques,
dedicated assembly area, and a well equipped test lab. Hi-Rel products
manufactured by the Company include:
o Multi-Element Detector Pre-Amplifier assembly employed on the optical fuse
used on the Rolling Airframe Missile (RAM)
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o Narrow and Wide Field of View detectors used in various TOW Missile
Trackers Common Module LED Arrays qualified with the Center for Night
Vision Electro Optics for use in displaying thermal images in various night
sights
o Quadrant Photodetectors used in the autocollimator for airborne
navigation/FLIR POD's Multi-Element Detector Arrays used in space-based
optical encoders for Space Shuttle Arm Control
The Company's patented FILTRODE(TM) technology integrates optical coatings
directly on photodiode chips, replacing conventional technology that requires a
separate filter glass or pigmented epoxy to be assembled to the top of a
detector. While the technology offers a simpler design and lower cost,
reliability and performance are improved because the integrated design is
resistant to moisture, shock and vibration. Special packaging of this technology
allows for unique applications whereby both front and back detector surfaces can
be utilized for light detection.
The Company's Small Area Avalanche Photodiodes ("SAAPD's" -- see description of
avalanche photodiode below) utilize a chip fabricated with a silicon epiplanar
structure. SAAPD's have been designed for a variety of very low-light level
applications and cover the wavelength from 400 nm to 1000 nm. Typical
applications include optical communication, high-sensitivity bar code reading
and laser range finding.
Large Area Avalanche Photodiode Technology
- ------------------------------------------
An Avalanche Photodiode is a specialized silicon photodiode capable of sensing
very low levels of light through an internal gain phenomenon known as
"avalanching". This fundamental performance characteristic is not present in the
more conventional PIN photodiode technology.
The first APD was developed in the late 1960's and gave promise as a solid state
replacement for the photomultiplier vacuum tube for sensing extremely low levels
of electromagnetic radiation. However, design and manufacturing limitations have
generally restricted APD's to small diameters (5mm or less) that can only be
practically used with optical fiber, thus sharply limiting the range of useful
applications.
The Company has developed and patented various aspects of an LAAPD with
dimensions of up to 25 mm. The LAAPD is a fast pulse detector of low light
levels spanning the near UV (ultraviolet), visible, and near IR (infrared)
spectra, and, when coupled to a scintillator, of x-rays and gamma-rays. It is
also sensitive to electrons accelerated to potentials greater than a few
thousand electron-volts. The LAAPD offers capabilities well beyond those of the
existing primary photodetection devices - the PIN photodiode, the small area APD
and the PMT. Its advantages over PIN photodiodes include higher sensitivity at
higher bandwidths. Its advantages over small area APD's include larger active
areas to collect more light when the source is diffused and greater sensitivity
up to about an order of magnitude. Its advantages over PMT's include greater
counting sensitivity to pulses above 500 photons in the visible and near IR
spectra, higher dynamic range by two orders of magnitude, and a more rugged
structure suitable for operation in harsh environments. LAAPD's feature superior
quantum efficiency in both visible and UV regions that cannot be matched by any
PMT photocathode. Other features which differentiate LAAPD's from PMT's include
greater dynamic range (by two orders of magnitude), open face design for direct
low energy x-ray detection, immunity to higher magnetic fields and ease of
thermal stabilization allowing much more stable operation. In addition, a more
rugged and compact design, and operation requiring far less power, make LAAPD's
more advantageous in many portable applications.
The LAAPD sensitivity in the UV region was greatly enhanced in 1995 when the
Company developed new processing techniques to improve UV quantum efficiency.
This capability is crucial for many applications in high energy and particle
physics (calorimetry). The improvement in the UV sensitivity will also
facilitate
3
the design of more powerful imaging and analytical instruments for
medical, chemical and biotechnology markets.
The Company expects, but there is no assurance, that its proprietary APD
technology, employed in the development of the LAAPD, will form the basis for
continuing the investigation and potential commercial development of other lines
of advanced silicon avalanche photonics products which will have a broader range
of commercial and military applications than the PMT and PIN arrays. For
example:
o LAAPD Arrays - the Company's patented technology where the rear surface
of an LAAPD is segmented to create isolated pixels, each with a separate
electronic lead to be accessed in parallel fashion for imaging
applications.
o Vacuum Avalanche Photodiode (VAPD) - another patented technology which
combines a photo cathode and an LAAPD in a vacuum tube and functions as a
detector for high resolution, single photon-counting and low light level
detection.
The Company has identified target markets for its LAAPD products based on
customer evaluations and in-house tests. Evaluation detectors are sold to
original equipment manufacturers ("OEM's"), engineers and scientists who report
information to the Company concerning potential applications and markets, as
well as suggesting improvements and pricing objectives. It is expected, but
there is no assurance, that original equipment manufacturers who can take
advantage of the performance capabilities of LAAPD's will be the source of
repeat business for production quantities. Targeted markets which have been
identified include:
o Ranging, Tracking & Imaging - Smart image surveillance/security cameras,
3D collision avoidance cameras, missile guidance, threat warning,
underwater mine detection, and mapping & salvaging.
o Medical Imaging - Detectors which image human physiology in slices, and
look for pathology. Included in this category are PET scanners, CT
scanners, bone densitometers and gamma cameras.
o Industrial Scanning/Process Control - Industrial CT inspection, aerospace
ice inspection, drum/flat bed scanning, semiconductor wafer defect scanning
and film to video conversion.
o Analytical Chemistry - Analyzing the chemical "recipe" of samples, from
glucose levels in the blood to pesticides in ground water.
o Medical Diagnostics - Human fluids are analyzed to diagnose a medical
pathology or condition. A partial list of conditions which are diagnosed
every day using photonics technology include diabetes, lipid metabolism
disorders, myocardial infarction, gout, liver diseases, renal diseases,
pancreatitis, anemia, and electrolyte disturbances. It is expected that
this list will grow dramatically in the coming years with the explosion of
methods now available to perform immunodiagnostics. Examples of forthcoming
diagnostics include those targeting thyroid and sexually transmitted
disease conditions and wide field retinal visualization.
o Environmental Monitoring - Atmospheric meteorology LIDAR (light detection
and ranging), radiation dose monitors, airborne and liquid particle
measurement, optical air data systems, airport wind shear, atmospheric
pollution monitoring.
o Scientific Research - High energy physics fiber tracking, space particle
experiments and Neutrino experiments.
4
The Company's products are primarily sold as components or assemblies to
original equipment manufacturers or other component manufacturers and the
Company does not manufacture any end-user products within the above or any other
markets.
Raw Materials
- -------------
The principal raw materials used by the Company in the manufacture of its
semiconductor chip components and assemblies are silicon wafers, chemicals and
gases used in processing wafers, gold wire, lead frames, metal and plastic
packages that house the chip and the various custom assemblies. All of these raw
materials can be obtained from several suppliers. From time to time,
particularly during periods of increased industry-wide demand, silicon wafers
and other materials have been in short supply. However, the Company has not been
materially affected by such shortages. As is typical in the industry, the
Company allows for a significant lead time between order and delivery of raw
materials.
Research and Development
- ------------------------
The Company undertakes both internally funded and customer funded research and
development programs when they are in support of the Company's development
objectives. The Company has obtained federal government research and development
funding supporting the next generation LAAPD products. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
more detail on these contracts. Since its inception in June 1988, the Company
has incurred material amounts of research and development expenses. During the
fiscal years ended in 1998, 1997 and 1996, research and development expenses
amounted to $1.2 million, $1.9 million and $2.1 million, respectively.
Additional research and development funding will be required for LAAPD arrays
and VAPD's if the Company decides to commercialize these products.
Manufacturing
- -------------
Located in Camarillo, CA, the Company has an approximately 39,000 sq. ft.
manufacturing facility which includes various fully equipped clean room areas
from Class 100 to Class 100,000 for fabrication, processing, handling and
characterizing a number of semiconductor compounds. In-house processes include
photolithography, diffusion, metalization, lapping, oxide growth and parametric
testing and analysis. An extensive library of different photodiode shapes and
sizes is maintained to provide the customer with many options when a custom
device is required. The Company estimates that these facilities, with some
modifications, will be sufficient to accommodate the expected growth in both the
core and LAAPD businesses for the foreseeable future.
The Company has made a significant investment in the area of production
automation for its core business, which has enhanced manufacturing repeatability
and reliability, leading to higher quality and lower cost for finished products.
The automation techniques are employed on many different package configurations,
including PC boards, ceramic substrates, dual in-line and TO style packages.
For high volume/low cost manufacturing, the Company maintains a strategic
alliance with an optoassembly facility in the Pacific Rim. That facility uses
the latest in assembly and test equipment, and employs a Company approved
quality program which includes Statistical Process Control (SPC) and a
preventive maintenance program. The Facility is UL, FDA and ISO 9002 approved.
All Pacific Rim manufactured products are assembled in a Class 100,000 clean
room.
5
Environmental Regulations
- -------------------------
The photonics industry, similar to the semiconductor industry, is subject to
governmental regulations for the protection of the environment, including those
that relate 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 the Company to
maintain certain environmental permits. The Company believes that it has
obtained all necessary environmental permits to conduct its manufacturing.
Changes in the aforementioned federal and state environmental laws and
regulations or enactment or promulgation of new laws and regulations could
require increases in operating costs and delays or interruptions of operations
and may require additional capital expenditures.
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, with the customer being responsible for all finished
goods, all costs, direct and indirect, incurred by the Company and a reasonable
allowance for anticipated profits. No assurance can be given that such amounts
will be received by the Company after cancellation. The Company had
approximately $5.8 million of backlog at the end of fiscal 1998 compared with a
backlog of approximately $5.2 million at the end of fiscal 1997. The Company
expects that approximately $3.8 million of the backlog orders will be filled in
the current fiscal year.
The Company currently supplies core business products in support of satellites,
aircraft and ground vehicle missile guidance and tracking systems. Product sales
to affiliates and divisions of Raytheon, in the aggregate over several programs,
represent approximately 26% of the Company's revenues for the year ended March
29, 1998.
Customers normally purchase the Company's products and incorporate them in
products that they in turn sell into 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 staff and through independent sales representatives.
International sales, principally Western Europe and Canada, are conducted
through foreign distributors (see Note 2 to Consolidated Financial Statements).
In marketing LAAPD products, the Company has recognized that it must compete
with producers of PMT's, which have dominated low light level detection markets
for many years. Even if the Company can establish that its LAAPD's are a
potential alternative to PMT's for certain commercial applications, and assuming
that testing of the LAAPD currently being conducted by OEM's and other third
parties proves successful, the ability to successfully market its LAAPD devices
on a volume basis will be substantially dependent upon the willingness of
potential customers who currently use PMT's to incur the substantial expense and
expend the time and effort necessary for the redesign of their products to
accommodate the LAAPD devices.
The Company pursues marketing efforts related to securing government contracts
and subcontracts to fund continued research and product development based on its
APD technology. Such efforts encompass subcontracts with industrial partners as
well as contracts directly with agencies of the federal government. During
fiscal 1998, revenues from these efforts represented approximately 5% of total
revenue.
6
Competition
- -----------
The Company competes with a range of companies for the custom optoelectronic and
silicon photodetector requirements of vendors of medical instruments, computer
peripherals, a variety of industrial products and specialized military and
commercial aerospace applications. The Company believes 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 Far Eastern manufacturers of standard "off-the-shelf"
optoelectronic components or silicon photodetectors.
The Company believes that the principal competition for its silicon LAAPD
photodetection devices lies with producers of PMT's, the only product currently
available for many of the applications for which the Company's LAAPD products
are designed. The Company believes that there are a number of manufacturers of
PMT's, most of which have significantly greater financial, technological,
marketing and personnel resources than the Company. In addition, several
companies produce solid state detectors based on small area APD technology.
Although a few additional photodetector companies are engaged in developing
APD's, the Company believes that most of these companies are limited by their
technology to small area APD devices which the Company believes are considerably
less useful than the Company's LAAPD devices in broadening the applicability of
APD technology to imaging and the sensing of extremely low light levels. The
Company's LAAPD products have electronic signal gain of up to 300 (one
photoelectron converted to 300 photoelectrons) while typical small area APD
devices have a gain of about 50 and, therefore, are not competitive with the
Company's LAAPD devices in certain applications.
PMT's were first invented in the 1940's. It is possible that existing PMT
manufacturers or other photodetector manufacturers will begin APD development
and eventually manufacture competitive APD devices.
Proprietary Technology
- ----------------------
The Company has been issued patents as follows:
US PATENT NO. DESCRIPTION DATE ISSUED
- ------------- --------------------------------- ----------------------
5,757,057 Large Area Avalanche Array May 1998
5,477,075 Solid State Photodetector with
Light-Responsive Rear Face December 1995
5,311,044 Avalanche Photomultiplier Tube May 1994
5,146,296 Devices for Detecting and/or
Imaging Single Photoelectron September 1992
5,057,892 Light Responsive Avalanche Diode October 1991
5,021,854 Silicon Avalanche Photodiode Array June 1991
4,717,946 Thin Line Junction Photodiode By predecessor company
4,782,382 High Quantum Efficiency
Photodiode Devices By predecessor company
Other patent submissions are currently under review by the U.S. Patent and
Trademark Office. There can be no assurance that the pending patent applications
will issue as patents, 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 prevent infringement of a patent could be
substantial. If the Company is unable to obtain patents for its proposed
applications, other entities may exploit the Company's developments in APD
technology. Furthermore, there can be no assurance the Company's APD technology
will not infringe patents or other rights owned by others, licenses to which may
7
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 pertinent
published materials, to the Company's knowledge, its competitors hold no
patents, licenses or other rights to the APD technology which would preclude the
Company from pursuing its intended operations or from obtaining patent
protection for its proposed applications.
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 may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company.
Employees
- ---------
At June 5, 1998, the Company employed 61 full-time employees (including 2
officers), 8 engineering and development personnel, 41 operations personnel, 6
sales and marketing personnel, and 6 general administrative personnel (including
2 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 as payroll expense.
Item 2. Properties
----------
The Company leases its executive offices, research, marketing and manufacturing
facility which consists of approximately 39,000 square feet in a building
complex located at 1240 Avenida Acaso, Camarillo, California. The lease expires
in February 2004. The Company believes that its existing facility is adequate to
meet its needs for the foreseeable future. See "Business - Manufacturing."
Item 3. Legal Proceedings None
-----------------
Item 4. Submission of Matters to a Vote of Security Holders None
---------------------------------------------------
PART II
Item 5. Market for the Registrant's Securities and Related Stockholder Matters
---------------------------------------------------------------------
The Company's Class A Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "API". The Company's Class B stock is not publicly
traded.
At June 11, 1998, the Company had 90 holders of record for the Class A Common
Stock, representing approximately 1,300 holders owning shares of Class A Common
Stock in street name. On the same date, there were 10 holders of the Class B
Common Stock.
8
The following table sets forth high and low closing prices by quarter for fiscal
years 1998 and 1997.
Quarterly Stock Market Data
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1998 1997 1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ---- ---- ----
Common Stock (1)
High 2 1/16 4 1/4 2 3/8 4 1/8 2 3 7/8 1 3/4 2 11/16
Low 1 3/16 2 5/8 1 1/8 2 1/2 15/16 2 1 1/8 1 3/4
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. As of June 5, 1998, 690,000 shares of
Class A Redeemable Convertible Preferred Stock had been converted into 207,000
shares of Class B Common Stock, leaving outstanding 90,000 shares of Class A
Redeemable Convertible Preferred Stock. The aggregate non-cumulative annual
dividend preference of such Class A Redeemable Convertible Preferred Stock is
$6,480. 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 or
Class B Common Stock.
Item 6. Selected Financial Data
1998 1997 1996 1995 1994
- ----------------------------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Selected Statement of Operations Data:
Revenues $ 7,008,000 $ 6,375,000 $ 7,863,000 $ 6,775,000 $ 6,267,000
Loss from operations (115,000) (2,061,000) (807,000) (2,448,000) (3,944,000)
Net Income (Loss) 10,000 (1,886,000) (654,000) (2,368,000) (3,897,000)
Basic income (loss) per share (1) $0.00 $(0.17) $(0.07) $(0.28) $(0.55)
Weighted average shares outstanding (2) 10,886,000 10,831,000 9,988,000 8,383,000 7,075,000
Selected Balance Sheet Data:
Working capital $ 3,737,000 $ 3,334,000 $ 4,931,000 $ 2,083,000 $ 4,182,000
Total assets 6,366,000 6,165,000 7,706,000 5,580,000 7,835,000
Long term debt, net - - - 26,000 42,000
Accumulated deficit (17,662,000) (17,672,000) (15,786,000) (15,132,000) (12,764,000)
Stockholders' equity 5,045,000 4,948,000 6,806,000 4,438,000 6,785,000
1 The impact of dilutive shares is immaterial.
2 See Note 2 to Financial Statements
9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Fiscal year 1998 Compared to Fiscal Year 1997
REVENUES
The Company's revenues for the fiscal year ended March 29, 1998 ("1998") were
$7.0 million, an increase of 10% from revenues of $6.4 million for the fiscal
year ended March 30, 1997 ("1997").
Net product sales of $6.7 million increased $870,000 (15%) in 1998. As detailed
below, this increase reflects higher shipments of military aerospace products,
partially offset by slightly lower shipments of commercial products. Volume in
military aerospace products increased by approximately 54% in 1998 compared to
1997. The increase in military aerospace products was partially offset by
slightly lower shipments of commercial products which decreased by approximately
7% in 1998 compared to 1997. The Company believes that cutbacks in its sales and
marketing efforts during fiscal 1996 impacted its ability to book new orders and
resulted in lower sales during the second half of 1997 and the first half of
1998. These cutbacks were a result of cash conservation measures put in place
prior to the Company completing a private placement in August 1995. After
receiving the additional equity financing, the Company hired and replaced
employees in the sales department and otherwise increased marketing efforts
including additional trade-show attendance and advertising. These efforts have
resulted in an increase in commercial backlog and helped to increase commercial
sales during the fourth quarter of 1998 by approximately 24% compared to the
same period in the prior year. The Company believes that these efforts should
continue to result in higher commercial sales in future periods.
During the fourth quarter of fiscal 1998, shipments of Large Area Avalanche
Photodiode (LAAPD) products (included in net product sales) were the highest in
Company history. While sales from these products represented only 3% of total
net product sales, the Company anticipates increasing volume from sales of LAAPD
products as markets begin to implement this "enabling" technology and as the
Company continues its efforts to further refine and optimize LAAPD manufacturing
process steps and ramp up its sales and marketing efforts to promote this new
technology.
Development contract revenues during 1998 decreased by $237,000 (41%) when
compared to 1997. The Company was awarded a Phase II Department of Energy (DOE)
grant of approximately $750,000 in June 1995, and in December 1995, was awarded
a $1.1 million contract from the Advanced Research Projects Agency of the
Pentagon and the Aircraft Division of the Naval Air Warfare Center (ARPA/NAWC).
These types of government development contracts are typically multi-year awards
and are subject to periodic review and cancellation by the government due to a
variety of reasons including a lack of funding. During the third quarter of
1998, revenues from the DOE contract began to wind down and the contract was
completed. The ARPA/NAWC contract was completed during the fourth quarter. While
the Company has proposals outstanding, it is currently not working on any
government funded development contracts
COSTS AND EXPENSES
Cost of product sales increased by only $20,000 (1%) in 1998 despite the 15%
increase in net product sales (see "Revenues" above). Cost of product sales as a
percent of net product sales decreased by 13% and gross profit margin on net
product sales increased 8 percentage points to 41% compared to 1997. The
improvement is attributable to a number of factors including improvements in
operating efficiencies as well as improved margins on product mix. In line with
the reduction in product shipments which spanned the second half of fiscal 1997
through the first half of fiscal 1998, the Company reduced its workforce from 86
to 69 during fiscal 1997 through attrition and a reduction in force in February
1997. The Company's workforce is currently at 61 full-time employees.
10
Research and development ("R&D") costs decreased by $670,000 (35%) to $1.2
million in 1998. The decrease in R&D costs is primarily due to the lower level
of R&D effort on government contracts (see "Revenues" above) as well as a
general reduction in internal R&D efforts as the Company focuses more on the
commercialization/manufacture of the LAAPD. In conjunction with its
commercialization efforts, the Company has consolidated its core business and
LAAPD manufacturing operations which previously had been managed as separate
operational centers. In addition, the Company has better controlled internal R&D
activities. R&D costs have varied significantly in the past, and may continue to
do so, due to the level of activity associated with development contracts as
well as the number and complexity of new process and product development
projects, the qualification of new process developments and customer evaluation
and acceptance of new products.
Marketing and sales expenses decreased by $19,000 (2%) to $978,000 in 1998.
Marketing and sales expenses should increase as the Company continues to pursue
its plan for growth and commercialization of the LAAPD family of products.
General and administrative expenses decreased by $644,000 (40%) to $983,000 in
1998 primarily due to lower labor related costs partially offset by higher
marketing costs. During 1997, the Company recorded a one-time reorganization
charge of approximately $323,000 related to management changes and during the
second quarter of 1998 reversed approximately $100,000 of this accrual. During
1998, general and administrative expenses, before the impact of these
adjustments, decreased by $221,000 (17%) to $1.1 million. These decreases were
due to a number of factors including lower compensation, training, management
systems, amortization and consulting costs.
Interest income in 1998 of $123,000 was $44,000 lower than 1997 as a result of
lower average cash balances and lower available interest rates. In August 1995,
the Company completed a private placement which increased its average cash
balances during Q3 and Q4 of 1996 and all of 1997 (see Liquidity and Capital
Resources).
Fiscal year 1997 Compared to Fiscal Year 1996
REVENUES
The Company's revenues for the fiscal year ended March 30, 1997 ("1997") were
$6.4 million, a decrease of 19% from revenues of $7.9 million for the fiscal
year ended March 31, 1996 ("1996"). The Company believes that cutbacks in its
sales and marketing efforts during fiscal 1996 impacted its ability to book new
orders and resulted in lower sales during 1997 (see "Revenues" in Fiscal year
1998 Compared to Fiscal Year 1997 above).
Net product sales of $5.8 million decreased $1.3 million (18%) in 1997 primarily
due to a lower level of shipments of military aerospace products. Military
shipments were impacted by the winding down of a missile guidance system program
which was approaching the end of its life cycle. During 1997, net product sales
of Large Area Avalanche Photodiode (LAAPD) products increased by $53,000 to
$154,000. During 1996, the Company curtailed LAAPD production because of low
reliability and yields it was obtaining in the manufacturing process. After
considerable research efforts, the Company developed a new manufacturing process
and, in July 1996, the Company filed for a patent seeking protection of the new
manufacturing process.
Development contract revenues decreased by $233,000 (29%). During the third
quarter of 1997, revenues from the DOE contract began to wind down and the
contract was completed. During the second half of 1997, revenues from the
ARPA/NAWC contract were impacted by a delay in funding from the customer.
COSTS AND EXPENSES
Cost of product sales decreased by $566,000 (13%) in 1997 and gross profit
margin on net product sales decreased 4 percentage points to 33% compared to
1996. The decreases are attributable to lower product shipments and a related
decrease in manufacturing volume efficiencies. In line with the reduction in
product shipments, the Company reduced its workforce (permanent and temporary
employees from 86 to 69 during 1997) through attrition and a reduction in force
in February 1997.
11
Research and development costs decreased by $187,000 (9%) to $1.9 million in
1997. The decrease in R&D costs was primarily due to the lower level of R&D
effort on government contracts (see "Revenues" above) as well as a general
reduction in internal R&D efforts as the Company focused more on the production
of the LAAPD. In addition, the Company better controlled internal R&D
activities.
Marketing and sales expenses increased by $296,000 (42%) to $997,000 in 1997.
The increases were primarily due to increased manpower and higher marketing
costs. This increase was expected, as the Company pursued its plan for growth.
In addition, sales and marketing expenditures had been deferred during 1996
awaiting the successful completion of a private placement offering (See
Liquidity and Capital Resources).
General and administrative expenses increased by $223,000 (16%) to $1.6 million
in 1997 primarily due to a one-time reorganization charge of approximately
$323,000 related to management changes which occurred in October 1996. Other
general and administrative expenses decreased by $111,000 (8%) in 1997 compared
to 1996. The decline was primarily due to lower personnel and insurance costs
(coverages remained constant or were improved).
Interest income in 1997 of $167,000 was $24,000 higher than 1996 as a result of
higher average cash balances. In August 1995, the Company completed a private
placement which increased its average cash balances during Q3 and Q4 of 1996 and
all of 1997 (see Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1998, the Company had cash, cash equivalents and short-term
investments of $2.4 million, working capital of $3.7 million and an accumulated
deficit of $17.7 million. The Company's cash, cash equivalents and short-term
investments decreased $313,000 during the twelve months ended March 29, 1998.
Cash expenditures were primarily impacted by $499,000 used to finance inventory
growth related to higher levels of LAAPD inventory as the Company begins to
commercialize the product line and higher material requirements associated with
a change in the Company's product mix. Accounts receivable increased by $324,000
due to a 42% increase in revenues during the fourth quarter of fiscal 1998
compared to the comparable period in 1997. Capital spending during 1998 was
$163,000 compared to $331,000 during 1997.
To enable the Company to meet its capital commitment needs, the Company
historically has supplemented cash provided by operations with proceeds from
private placement equity financing, bank lines of credit and loans from
stockholders. On August 15, 1995, the Company completed a $3,000,000 private
placement in which it issued 2,400,000 shares of Class A Common Stock.
The Company has used the proceeds of its 1995 private placement to implement its
strategic business plan, which focuses on growing the core business, bringing
initial LAAPD products to market and developing proof-of-concept demonstration
LAAPD Arrays which are expected to prove helpful in securing future financing
and strategic partners. Development of LAAPD Arrays beyond the proof-of-concept
phase may require additional funds.
The Company has a revolving line of credit agreement with a bank for the lesser
of $1,000,000 or 75 percent of eligible trade accounts receivable, as defined by
the agreement. The agreement was renewed on July 15, 1997, expires in one year
and provides for interest to be paid monthly at prime plus 1.25 percent. The
Company must adhere to certain requirements and provisions to be in compliance
with the terms of the agreement. Borrowings under the line of credit are secured
by accounts receivable, inventory, equipment and general intangibles. At March
29, 1998, no amounts were outstanding under any bank line of credit and there
were no stockholder loans to the Company.
12
The Company believes that its current cash and cash equivalents, cash from
operations and availability under its line of credit are sufficient to sustain
operations at least through March 1999. The Company believes that the moderate
rate of inflation over the past few years has not had a significant impact on
the Company's sales or operating results.
YEAR 2000 ISSUES
- ----------------
The Company uses computer software programs purchased from various independent
vendors who may have written their programs using a two digit date field rather
than a four digit field to define the applicable year. Such computer programs
utilizing a two digit date field may recognize a date using "00" as the year
1900 rather than the year 2000 (the "Year 2000 Issue"). The Year 2000 Issue
could potentially result in a system failure or in miscalculations causing
disruptions of operations, including among other things, a temporary inability
to process transactions, send invoices or engage in other similar normal
business activities. The Company has identified Year 2000 Issues in certain
software applications and is in the process of upgrading or replacing such
applications with software which recognizes dates beyond December 31, 1999, thus
addressing a substantial portion of the Year 2000 Issue that may impact the
Company. The cost of this project, as it relates to the Year 2000 Issue, is not
expected to have a material effect on the operations of the Company and will be
funded through operating cash flows.
FORWARD LOOKING STATEMENTS
- --------------------------
THIS ANNUAL REPORT INCLUDES FORWARD LOOKING STATEMENTS THAT ARE BASED ON
ASSUMPTIONS THAT MANAGEMENT BELIEVES TO BE REASONABLE BUT ARE SUBJECT TO
INHERENT UNCERTAINTIES AND RISKS INCLUDING, BUT NOT LIMITED TO, UNFORESEEN
TECHNOLOGICAL OBSTACLES WHICH MAY PREVENT OR SLOW THE DEVELOPMENT AND/OR
MANUFACTURE OF NEW PRODUCTS, LIMITED (OR SLOWER THAN ANTICIPATED) CUSTOMER
ACCEPTANCE OF NEW PRODUCTS WHICH HAVE BEEN AND ARE BEING DEVELOPED BY THE
COMPANY (PARTICULARLY ITS LAAPD PRODUCT LINE), AND A DECLINE IN THE GENERAL
DEMAND FOR OPTOELECTRONIC PRODUCTS.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The following consolidated financial statements of Advanced Photonix, Inc.
are included in Item 8.
Page
Report of Independent Public Accountants 14
Consolidated Statements of Operations
for each of the three years in the period ended March 29, 1998 15
Consolidated Balance Sheets at March 29, 1998 and March 30, 1997 16-17
Consolidated Statements of Stockholders' Equity
for each of the three years in the period ended March 29, 1998 18
Consolidated Statements of Cash Flows
for each of the three years in the period ended March 29, 1998 19
Notes to Consolidated Financial Statements 20-26
All other 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 consolidated financial statements,
or are inapplicable and, therefore, have been omitted.
13
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Advanced Photonix, Inc.:
We have audited the accompanying consolidated balance sheets of Advanced
Photonix, Inc. (a Delaware Corporation) and Subsidiary as of March 29, 1998 and
March 30, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 29, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Photonix, Inc. and
Subsidiary as of March 29, 1998 and March 30, 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
March 29, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 21, 1998
14
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For each of the three years 1998 1997 1996
in the period ended March 29, 1998
- --------------------------------------------------------------------------------------------------------------------------
REVENUES
Net product sales $ 6,662,000 $ 5,792,000 $ 7,047,000
Development contracts 346,000 583,000 816,000
---------------- ---------------- ----------------
7,008,000 6,375,000 7,863,000
---------------- ---------------- ----------------
COST AND EXPENSES
Cost of product sales 3,920,000 3,900,000 4,466,000
Research and development 1,242,000 1,912,000 2,099,000
Marketing and sales 978,000 997,000 701,000
General and administrative 983,000 1,627,000 1,404,000
---------------- ---------------- ----------------
7,123,000 8,436,000 8,670,000
---------------- ---------------- ----------------
LOSS FROM OPERATIONS (115,000) (2,061,000) (807,000)
---------------- ---------------- ----------------
OTHER INCOME (EXPENSE)
Interest expense - - (3,000)
Interest income 123,000 167,000 143,000
Other, net 2,000 8,000 13,000
---------------- ---------------- ----------------
125,000 175,000 153,000
---------------- ---------------- ----------------
NET INCOME (LOSS) - $.00, $(.17), $(.07) per share $ 10,000 $ (1,886,000) $ (654,000)
================ ================ ================
See notes to consolidated financial statements.
15
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
March 29, March 30,
1998 1997
- --------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,386,000 $ 1,217,000
Short-term investments 977,000 1,459,000
Accounts receivable, less allowance of $83,000 in 1998 and 1997 966,000 642,000
Inventories 1,573,000 1,074,000
Prepaid expenses and other current assets 84,000 61,000
--------------- ---------------
Total Current Assets 4,986,000 4,453,000
--------------- ---------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost 3,387,000 3,331,000
Less accumulated depreciation and amortization (2,689,000) (2,364,000)
--------------- ---------------
698,000 967,000
OTHER ASSETS
Goodwill, net of accumulated amortization of $219,000 in 1998 and
$186,000 in 1997 617,000 650,000
Patents, net of accumulated amortization of $25,000 in 1998 and
$21,000 in 1997 40,000 40,000
Other 25,000 55,000
--------------- ---------------
682,000 745,000
--------------- ---------------
$ 6,366,000 $ 6,165,000
=============== ===============
See notes to consolidated financial statements.
16
ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEETS
March 29, March 30,
1998 1997
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 518,000 $ 295,000
Accrued expenses:
Salaries and employee benefits 310,000 451,000
Warranty 95,000 95,000
Other 326,000 278,000
---------------- ---------------
Total Current Liabilities 1,249,000 1,119,000
---------------- ---------------
COMMITMENTS AND CONTINGENICES (Notes 7 and 8)
STOCKHOLDERS' EQUITY
Class A Common Stock, par value $.001 per share; authorized
50,000,000 shares;
1998 - 10,838,260 shares issued and outstanding
1997 - 10,717,493 shares issued and outstanding 11,000 11,000
Class B Common Stock, par value $.001 per share; authorized
4,420,113 shares;
1998 - 76,135 shares issued and outstanding
1997 -159,225 shares issued and 137,002 outstanding - -
Convertible Preferred Stock at redemption value; authorized
10,000,000 shares
1998 - 90,000 shares issued and outstanding
1997 - 123,000 shares issued and outstanding 72,000 98,000
Additional paid-in capital 22,696,000 22,659,000
Less cost of 22,223 shares of Class B Common Stock
in Treasury in 1997 - (50,000)
Accumulated Deficit (17,662,000) (17,672,000)
---------------- ---------------
5,117,000 5,046,000
---------------- ---------------
$ 6,366,000 $ 6,165,000
================ ===============
See notes to consolidated financial statements.
17
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For each of the three Additional
years in the period Class A Class B Convertible Paid-in Class B Common
ended March 29, 1998 Common Stock Common Stock Preferred Stock Ca[ital Treasury Stock Accumulated
Shares Amount Shares Amount Shares Amount Amount Shares Amount Deficit Total
------ ------ ------ ------ ------ ------ ------ ------ ------ ------- -----
BALANCE AT APRIL 2, 7,056,638 $7,000 1,332,428 $1,000 123,000 98,000 $19,612,000 22,223 $(50,000) $(15,132,000) $4,536,000
1995
Issuance of Class A
Common Stock 2,400,000 2,000 - - - - 2,992,000 - - - 2,994,000
Conversion of Class
B Common Stock 1,161,648 1,000 (1,161,648) (1,000) - - - - - - -
Exercise of Options 12,900 - - - - - 28,000 - - - 28,000
Net loss - - - - - - - - - (654,000) (654,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 10,631,186 10,000 170,780 - 123,000 98,000 22,632,000 22,223 (50,000) (15,786,000) 6,904,000
31, 1996
Issuance Costs on
Sale of Class A
Common Stock - - - - - - (18,000) - - - (18,000)
Conversion of Class
B Common Stock 33,778 - (33,778) - - - - - - - -
Exercise of Options 52,529 1,000 - - - - 45,000 - - - 46,000
Net Loss - - - - - - - - - (1,886,000) (1,886,000)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 10,717,493 11,000 137,002 - 123,000 98,000 22,659,000 22,223 (50,000) (17,672,000) 5,046,000
30, 1997
Conversion of
Redeemable Preferred
Stock - - 9,900 - (33,000)(26,000) 26,000 - - - -
Issuance Costs on
Sale of Class A
Common Stock - - - - - - (17,000) - - - (17,000)
Conversion of Class
B Common Stock 70,767 - (70,767) - - - - - - - -
Exercise of Options 50,000 - - - - - 78,000 - - - 78,000
Retirement of
Treasury Shares - - - - - - (50,000)(22,223) 50,000 - -
Net Income - - - - - - - - - 10,000 10,000
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH
29, 1998 10,838,260 $11,000 76,135 - 90,000 72,000 $22,696,000 - - $(17,662,000) $5,117,000
====================================================================================================================================
See notes to consolidated financial statements.
18
ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For each of the three years in the period ended March 29, 1998 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 10,000 $ (1,886,000) $ (654,000)
Adjustment to reconcile net income (loss) to net cash provided by (used in)
operating activities
Depreciation 426,000 524,000 539,000
Amortization 37,000 66,000 55,000
(Gain) loss on disposal of fixed assets 6,000 - (4,000)
Changes in assets and liabilities:
Short-term investments 482,000 (1,459,000) -
Accounts receivable (324,000) 150,000 328,000
Inventories (499,000) (288,000) 219,000
Prepaid expenses and other current assets (23,000) 25,000 (40,000)
Other assets 26,000 2,000 (2,000)
Accounts payable and other accrued expenses 130,000 317,000 (116,000)
Advances - 27,000 (84,000)
------------- -------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 271,000 (2,522,000) 241,000
------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (163,000) (331,000) (82,000)
------------- -------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (163,000) (331,000) (82,000)
------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock, net of issuance costs (17,000) (17,000) 2,994,000
Proceeds from exercise of stock options 78,000 45,000 28,000
Repayment of long-term debt - - (42,000)
------------- -------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 61,000 28,000 2,980,000
------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 169,000 (2,825,000) 3,139,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,217,000 4,042,000 903,000
------------- -------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,386,000 $ 1,217,000 $ 4,042,000
============= ============== =============
See notes to consolidated financial statements.
19
ADVANCED PHOTONIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1998
NOTE 1 - LINE OF BUSINESS AND BUSINESS RISKS
Advanced Photonix, Inc. (together with its subsidiary Silicon Detector
Corporation, the "Company"), designs and manufactures optoelectronic
semiconductor based components and hybrid assemblies (the "core business") and
is engaged in the development and manufacture of proprietary and other solid
state light and radiation detection devices, including proprietary advanced
solid state silicon photodetection devices which utilize Large Area Avalanche
Photodetection ("LAAPD") technology.
The Company has an accumulated deficit of $17,662,000 as of March 29, 1998, and
has incurred losses since inception until the current fiscal year. The Company's
LAAPD technology is still considered to be a new technology and is subject to
risks inherent in the development of products based on new technologies. These
risks include getting the invention out of the laboratory and into actual use in
the field and stepping up production from the prototype (early) stages of
manufacturing. In order to fund these development efforts, the Company
historically has relied upon proceeds from equity financings, bank
lines-of-credit and loans from stockholders. At March 29, 1998, no amounts were
outstanding under any bank line-of-credit and there were no stockholder loans to
the Company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year: The Company's fiscal year ends on the last Sunday in March. Fiscal
years in the three-year period ended March 29, 1998, each contain fifty-two
weeks.
Principles of consolidation: The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, SDC. All significant
intercompany accounts and transactions have been eliminated.
Cash, cash equivalents and short-term investments: The Company considers all
highly liquid investments, with an original maturity of three months or less
when purchased, to be cash equivalents. Short-term investments are comprised of
readily marketable debt securities with remaining maturities of more than 90
days at date of purchase. The short-term investments are all considered trading
securities and are bought and held principally for the purpose of selling in the
near term. The fair value of such investments approximated the carrying value as
of March 29, 1998 and March 30, 1997. Cash flows from purchases and sales of
trading securities are classified as cash flows from operating activities.
The Company maintains cash balances at a financial institution that are insured
by the Federal Deposit Insurance Corporation up to $100,000. The Company places
its cash equivalents and short-term investments in investment grade, short-term
debt instruments and limits the amount of credit exposure to any one commercial
issuer. As of March 29, 1998, the Company had cash and cash equivalents at
various financial institutions and in various highly liquid investments which
were in excess of federally insured amounts.
Credit risk: 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. Receivables generally are due within 60 days. A significant portion
of revenues and accounts receivable are with U.S. Government contractors,
including approximately 26%, 19% and 16% of revenues from a major customer for
the fiscal years ending 1998, 1997 and 1996, respectively. In fiscal 1998, the
Company had export sales of approximately $1,047,000 to customers in Australia,
France, Italy, Japan, Mexico, Spain, Switzerland, Canada, Germany, Great Britain
20
and Sweden (none of which was individually greater than 10% of total revenues).
As of March 29, 1998, one customer comprised 14% of accounts receivable.
Inventories: Inventories, which include material, labor and manufacturing
overhead are stated at the lower of cost (first in, first out) or market.
Inventories consist of the following:
March 29, 1998 March 30, 1997
-------------------- -------------------
Raw materials $ 481,000 $ 336,000
Work in progress 940,000 586,000
Finished products 152,000 152,000
-------------------- -------------------
$ 1,573,000 $ 1,074,000
==================== ===================
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 five years to eleven years. The Company capitalizes expenditures
that materially increase asset lives and charges ordinary repairs and
maintenance to operations as incurred. When assets are sold or otherwise
disposed of, the cost and related depreciation or amortization are removed from
the accounts and any resulting gain or loss is included in other income
(expense) in the accompanying statements of operations. Equipment and leasehold
improvements consist of the following:
March 29, 1998 March 30, 1997
-------------------- -------------------
Laboratory equipment $ 2,689,000 $ 2,570,000
Furniture, fixtures and office equipment 300,000 365,000
Leasehold improvements 306,000 315,000
Construction in progress 92,000 81,000
-------------------- -------------------
$ 3,387,000 $ 3,331,000
==================== ===================
Patents: Patents represent costs incurred in connection with patent
applications. Such costs are amortized using the straight-line method over the
useful life of the patent once issued, or expensed immediately if any specific
application is unsuccessful. Amortization expense was $4,000, $12,000 and $2,000
for the fiscal years 1998, 1997 and 1996, 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, $34,000 and $33,000 for the fiscal years 1998, 1997 and 1996,
respectively. The Company continually evaluates the recoverability of goodwill
by assessing whether the recorded value of the goodwill will be recovered
through future expected operating results.
Revenue recognition:
Development contracts - 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.
Product Sales - 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.
21
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. To date, warranty costs have not been material.
Net Income (Loss) Per Share: Net income (loss) per share calculations are in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share" (SFAS 128). Accordingly, "basic" net income (loss) per
share is computed by dividing net income (loss) by the weighted average number
of shares outstanding for the year. "Diluted" net income (loss) per share has
not been presented as the impact is either not material or anti-dilutive. All
net income (loss) per share amounts for 1997 and 1996 have been restated to
reflect the adoption of SFAS No. 128. Such weighted average shares were
approximately 10,886,000 in 1998, 10,831,000 in 1997 and 9,988,000 in 1996.
Options totaling 2,052,000, 2,512,000 and 2,191,000 in 1998, 1997 and 1996,
respectively, have been excluded from the determination of weighted average
shares outstanding as their affect would be anti-dilutive or not material.
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.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounting for Stock Option Based Compensation: SFAS No. 123, "Accounting for
Stock Based Compensation" ("SFAS 123"), sets forth accounting and reporting
standards for stock based employee compensation plans. As allowed by SFAS 123,
the Company continues to measure compensation cost under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
complies with the pro forma disclosure requirements of the new standard (see
Note 6). Adoption of SFAS 123 has not affected the Company's results of
operations or financial position.
New Authoritative Pronouncements: In June 1997, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes new standards for the reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. These new standards require that all items recognized as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. The adoption of
SFAS 130 will not impact the Company's financial statements.
In June 1997, the FASB issued SFAS No. 11, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 changes the way
public companies report segment information in annual financial statements and
also requires those companies to report selected segment information in interim
financial reports. SFAS 131 is effective for periods beginning after December
15, 1997. The adoption of SFAS 131 will not have a material impact on the
Company's financial statements.
Reclassifications: Certain prior years' amounts have been reclassified to
conform to the current year's presentation.
22
NOTE 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.
Pursuant to a Private Offering Memorandum dated June 15, 1995, the Company
completed a private placement of 2,400,000 shares, from which the Company
received gross proceeds of $3,000,000. The first closing was completed in July
and the final closing in August 1995.
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 $.001 per share. The number of shares of Class A
Preferred Stock issued and outstanding was 90,000 at March 29, 1998 and 123,000
at March 30, 1997, respectively. The Class A Preferred Stock has a liquidation
preference equal to its issue price ($.80 per share).The Class A Preferred Stock
is convertible at any time, at the option of the holder, into .3 share of Class
B Common Stock for each share of Preferred Stock converted. As of March 29,
1998, there were 27,000 shares of Class B Common Stock reserved for the
potential conversion of the Class A Preferred Stock. 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 $72,000 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.
NOTE 4 - LINE OF CREDIT
The Company has a revolving line of credit agreement with a bank for the lesser
of $1,000,000 or 75 percent of eligible trade accounts receivable, as defined by
the agreement. The agreement expires in July 1998 and provides for interest to
be paid monthly at prime plus 1.25 percent (9.75 percent at March 29, 1998). The
Company must adhere to certain requirements and provisions to be in compliance
with the terms of the agreement. The Company was in compliance with all such
covenants as of March 29, 1998. Borrowings under the line of credit are secured
by accounts receivable, inventory, equipment and general intangibles. There was
no outstanding balance under the line of credit agreement as of March 29, 1998.
NOTE 5 - INCOME TAXES
At March 29, 1998, the Company had net operating loss carry forwards of
approximately $15.7 million for federal tax purposes that expire at various
dates through fiscal year 2012. The tax laws related to the utilization of loss
carryforwards are complex and the amount of the Company's loss carry forward
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 Company also has approximately $509,000 in research and
development credit carryovers available for federal tax purposes that expire in
the fiscal years 2004 through 2013.
Under SFAS No. 109, "Accounting for Income Taxes", deferred tax assets may be
recognized for temporary differences that will result in deductible amounts in
future periods and for loss carryforwards. A valuation allowance is recognized
if, based on the weight of available evidence, it is more likely than not that
some portion or all of the deferred tax asset will not be realized. A detail of
the Company's net deferred tax asset as of March 29, 1998 and March 30, 1997
follows:
23
March 29, 1998 March 30, 1997
--------------------- ----------------------
NOL Carryforwards $ 6,074,000 $ 6,273,000
Inventory obsolescence 549,000 541,000
Warranty 37,000 37,000
Depreciation (54,000) (3,000)
Other 106,000 105,000
--------------------- ----------------------
6,712,000 6,953,000
Less valuation allowance (6,712,000) (6,953,000)
--------------------- ----------------------
Net deferred tax asset $ -0- $ -0-
===================== ======================
Due to the uncertainty surrounding the realization of the favorable tax
attributes of such net operating loss carry forwards in future tax returns, the
Company has recorded a valuation allowance against its otherwise recognizable
deferred tax assets. Accordingly, no deferred tax asset has been reported in the
accompanying balance sheet.
As the Company utilized tax loss carryforwards in fiscal 1998 and incurred
losses in fiscal years 1997 and 1996, the Company has recorded minimum state
taxes of $1,600 in other expense each year in the accompanying statements of
operations.
NOTE 6 - STOCK OPTIONS
The Company has three stock option plans: the 1990 Incentive Stock Option and
Non-Qualified Stock Option Plan, the 1991 Directors' Stock Option Plan ("The
Directors' Plan") and the 1997 Employee Stock Option Plan. The Company measures
compensation for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation expense for these plans
been determined consistent with SFAS No. 123, the Company's net loss and net
loss per share would have increased to the following pro forma amounts:
1998 1997
----------------- ---------------
Net Income (Loss) - as reported $ 10,000 $ (1,886,000)
Net Loss - pro forma $ (309,000) (2,108,000)
Basic Income (Loss) per share - as reported .00 (0.17)
Basic Income (Loss) per share - pro forma (.03) (0.19)
----------------- ---------------
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 1998 and 1997, respectively: risk free interest rates of 5.82 percent
and 6.53 percent, expected volatility of 48.57 percent and 63.33 percent, and
expected lives of 10 years in both periods. No dividends were assumed in the
calculations.
The Company's various stock option plans provide for the granting of
non-qualified and incentive stock options to purchase up to 2,200,000 shares of
common stock for periods not to exceed 10 years. As of March 29, 1998, there
were 1,298,000 shares available for future grant under such plans. Options
typically vest at the rate of 25 percent per year over four years, except for
options granted under The Directors' Plan, which typically vest at the rate of
50 percent per year over two years. Under these plans, the option exercise price
24
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 1998, 1997 and 1996 are summarized as follows:
1998 1997 1996
---------------------------------------------------------------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
(000) Ex Price (000) Ex Price (000) Ex Price
- -------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 2,512 $3.41 2,191 $3.52 2,247 $4.16
Granted 90 1.34 530 2.58 550 2.18
Exercised (50) 1.56 (101) 2.13 (13) 2.16
Cancelled (500) 2.18 (108) 2.74 (593) 4.74
Outstanding at end of year 2,052 $3.67 2,512 $3.41 2,191 $3.52
- -------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,659 $4.02 1,905 $3.76 1,825 $3.83
- -------------------------------------------------------------------------------------------------------------------
Weighted average fair value of options $0.90 $2.01 $1.76
granted
- -------------------------------------------------------------------------------------------------------------------
The following table summarizes information about fixed-price stock options
outstanding at March 29, 1998:
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------
Option Price Range Shares Wtd Avg Remaining Wtd Avg Shares Wtd Avg Exercise
Contractual Life Exercise Price Price
- ---------------------- ---------------- ------------------------ ----------------- -------------- -------------------
$ 6.00 750,000 2.88 years $6.00 750,000 $6.00
$ 4.00-5.75 67,000 4.00 years $4.84 67,000 $4.84
$ 2.25-2.44 979,000 5.85 years $2.37 678,000 $2.32
$ 1.25-1.75 256,000 7.88 years $1.50 163,000 $1.59
NOTE 7 - COMMITMENTS
The Company leases its manufacturing and office facility under a noncancellable
operating lease. Approximate minimum future lease payments under all
noncancellable operating leases expiring at various dates through fiscal 2004,
are as follows:
Fiscal year ending:
1999 $ 350,000
2000 370,000
2001 372,000
2002 368,000
2003 375,000
Thereafter 342,000
------------
$ 2,177,000
============
Rent expense for the fiscal years ending 1998, 1997 and 1996 was approximately
$353,000, $346,000 and $323,000, respectively.
25
The Company has employment and termination agreements with certain employees
under which the employees may receive severance pay through the greater of the
end of the term of the contract or up to twelve months. Total compensation under
these agreements in the event of employment through the full term would be
approximately $275,000 for each of the fiscal years ending 1999 and 2000,
respectively.
NOTE 8 - 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.
NOTE 9 - 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 recognized as expense were
approximately $60,000, $69,000, and $68,000 for the fiscal years ending 1998,
1997 and 1996, respectively.
NOTE 10 - SUPPLEMENTAL STATEMENTS OF CASH FLOWS INFORMATION
March 29, 1998 March 30, 1997 March 31, 1996
----------------------------------------------------------------
Cash paid during the year for:
Interest (net of amount capitalized) $ - $ - $ 2,600
Income taxes 1,600 1,600 5,407
Noncash Transaction:
Issuance of common stock upon the conversion of 26,000 - -
Redeemable Convertible Preferred Stock
NOTE 11 - VALUATION AND QUALIFYING ACCOUNTS
(000) Balance at Charged to Cost Deductions Balance at End
Beginning of and Expenses of Period
Period
--------------- ----------------- --------------- -----------------
Year end March 29, 1998 $ 83 $ - $ - $ 83
- -----------------------
Allowance for bad debt
Warranty 95 25 25 95
Year end March 30, 1997 105 - 22 83
- -----------------------
Allowance for bad debt
Warranty 95 39 39 95
Year end March 31, 1996 105 - - 105
- -----------------------
Allowance for bad debt
Warranty 95 - - 95
26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers
Set forth below is certain information relating to the directors and officers of
the Company.
Name Age Position
Harry Melkonian 48 Chairman of the Board, President and
Chief Executive Officer
Robert G. Allison 41 Director
James A. Gordon 48 Director
Hayden Leason 67 Director
Jon B. Victor 45 Director
Patrick J. Holmes 52 Executive Vice President, Chief
Financial Officer, Secretary & Treasurer
Harry Melkonian, Chairman of the Board, President & Chief Executive Officer
Mr. Melkonian joined the Company in June 1992. He has been President since
November 1996, was elected Chief Executive Officer in October 1997 and Chairman
of the Board in April 1998. He served as General Manager of the Company's PIN
photodiode business from 1993 until November 1996. From 1989 until joining the
Company, Mr. Melkonian operated Melkonian Associates, a consulting firm that
assisted the Company in the acquisition of its subsidiary, Silicon Detector
Corporation. From 1987 until 1989, he was Director of Operations at Simulaser
Corporation; and for six years previously, he held various operations level
positions at Sensor Technology, Inc. Mr. Melkonian holds a Bachelor of Science
degree in Business Administration from Northeastern University.
Robert G. Allison, Director
Mr. Allison became a director in January 1998. He previously served as a
director from October 1996 to June 1997. Mr. Allison is the Managing Partner of
Allison Venture Partners, Inc., a private capital and consulting firm serving
the technology market. Mr. Allison is a partner of Edgewater Private Equity
Fund, LP and Edgewater Private Equity Fund II, LP, limited partnerships formed
for investment purposes. Prior to forming Allison Venture Partners, Mr. Allison
served as the Executive Vice President, Chief Operating Officer and Director of
Aurora Electronics Group, Inc. (AUR-AMEX). Mr. Allison served as Vice President,
Semiconductor Marketing and Assets at Arrow Electronics, Inc. (NASDQ-ARW) and
was the founder, President and CEO of Insight Electronics, Inc., a specialized
semiconductor distributor which was acquired by MEMEC Group, PLC.
James A. Gordon, Director
Mr. Gordon became a director of the Company in August 1992. Since January 1992,
Mr. Gordon has been President of Gordon Management, Inc., which is the general
partner of Edgewater Private Equity Fund, LP
27
and Edgewater Private Equity Fund II, LP, limited partnerships formed for
investment purposes. In addition, Mr. Gordon has managed Focused Value Equity
portfolios since 1985. Mr. Gordon presently serves as a member of the Boards of
Directors of the following organizations: Grinnell College (also serving as
Chairman of the Investment Committee), IMNET Systems, Inc.; HealthDesk, Inc. and
Microware Systems Corporation. He is currently a Board member of the National
Committee for the Performing Arts of the Kennedy Center. Mr. Gordon served as a
member of the Board of Directors for Des Moines Art Center; Des Moines Ballet;
Des Moines Metro Opera; Governor's United Nations Board; Iowa Society to Prevent
Blindness; Des Moines Parent Teacher Association; Young President's
Organization; and Northwestern University Alumni Board.
Hayden Leason, Director
Mr. Leason became a director of the Company in July 1995. He served as Chairman
of the Board from October 1996 until October 1997 and as Chief Executive Officer
from November 1996 until October 1997. In 1965 Mr. Leason founded Filtertek
Inc., a designer and manufacturer of specialty filtration elements, which
subsequently became a New York Stock Exchange listed company. He served as
Chairman and Chief Executive Officer until 1992 when he sold his interest to
Schawk Inc. Since 1992, Mr. Leason has managed various private investments. Mr.
Leason is a 1954 graduate of Northwestern University where he received his
Bachelor of Science degree in Business Administration.
Jon B. Victor, Director
Mr. Victor became a director of the Company in June 1995. He served as Chairman
of the Board from October 1997 until April 1998. Mr. Victor is the Manager of
Greenwich Ventures, LLC, which is the general partner of Greenwich Ventures, LP
and Vantage Ventures, CV, Investment Partnerships, which he organized in 1996.
He began his career in the equity research and trust departments of the Bank of
New York. From 1978 through 1982 he worked for J. & W. Seligman & Co., where he
was responsible for offshore advisory relationships, and was President of the
firm's broker/dealer subsidiary. Mr. Victor founded Security Capital Management,
Inc., an investment advisory firm, in 1983, and served as its President or
Co-President until 1996. In 1992, Mr. Victor co-founded Gordon Management, Inc.,
the general partner of Edgewater Private Equity Fund, LP, and Edgewater Private
Equity Fund II, LP. Mr. Victor is a 1973 magna cum laude graduate of Washington
University and a 1977 graduate of the George Washington University School of Law
where he earned his J.D. cum laude and completed his M.B.A. course work. Mr.
Victor serves on the Board of Directors of several private investment firms and
acts as an independent arbitrator for the National Futures Association.
Patrick J. Holmes, Executive Vice President, Chief Financial Officer, Corporate
Secretary and Treasurer Mr. Holmes joined the Company in August 1993 and was
named Executive Vice President in November 1996. From 1989 until joining the
Company, Mr. Holmes was a Division Controller for Textron, Inc. From 1985 until
1989, he was Chief Accountant and Financial Operations Manager for two start-up
companies of Lockheed Corporation in Sunnyvale, CA. Previously, Mr. Holmes held
senior financial posts with General Dynamics and Datapoint Corporation. Mr.
Holmes, who is a Certified Public Accountant, received his degree in accounting,
magna cum laude, from the University of Missouri in St. Louis and is a past
recipient of the Missouri Society of CPAs Silver Medal. 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.
Item 11. 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
$100,000 for services rendered during the last three fiscal years.
28
SUMMARY COMPENSATION TABLE
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
---------------------------- -------------------------- -------
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Fiscal Salary Bonus Compensation Awards Options Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)(1)
- --------------------------------------------------------------------------------------------------------------------
Harry Melkonian, 1998 150,000 40,000 - - - - 4,700
Chairman of the Board, 1997 135,000 - - - 140,000 - 3,900
President and Chief 1996 110,000 15,000 - - - - 3,300
Executive Officer (2)
- --------------------------------------------------------------------------------------------------------------------
Hayden Leason 1998 - - - - - - -
Chairman of the Board and 1997 - - - - - - -
Chief Executive Officer (3) 1996 - - - - - - -
- --------------------------------------------------------------------------------------------------------------------
Patrick J. Holmes 1998 125,000 15,000 - - - - 3,900
Executive Vice President, 1997 125,000 - - - 70,000 - 3,300
CFO, Secretary and 1996 125,000 15,000 - - - - 3,800
Treasurer
- --------------------------------------------------------------------------------------------------------------------
1 Represents amounts paid by the Company on behalf of the named person in connection with the Company's 401(k) Retirement Plan.
2 Mr. Melkonian was elected Chief Executive Office in October, 1997, and Chairman of the Board in April 1998..
3 Mr. Leason resigned as Chairman of the Board and Chief Executive Officer in October 1997. Options granted as part of plans
provided to outside directors of the Company have been excluded from the table (10,000 in 1998 and 25,000 in 1996).
Employment Agreements
The Company has employment and termination agreements with certain employees,
including Messrs. Melkonian and Holmes under which the employees may receive
severance pay through the end of the term of the contract or up to twelve
months. See Notes to Consolidated Financial Statements - Note 7.
Stock Options
Except as described in the Summary Compensation Table, no options were granted
to executive officers of the Company during fiscal 1998.
The following tables set forth certain information concerning stock options
granted to and exercised by 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. No options were exercised during the last fiscal
year.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
Value of Unexercised
Number of Securities Underlying In-the-Money Options at
Shares Acquired Unexercised Options at Fiscal Year End (#)Fiscal Year End ($)
Name (1) on Exercise (#) Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- -----------------------------------------------------------------------------------------------------------------------------
Harry Melkonian - - 88,000/112,000 -/-
Hayden Leason - - 25,000/10,000 -/-
Patrick J. Holmes - - 74,000/76,000 -/-
- -----------------------------------------------------------------------------------------------------------------------------
1 See "Summary Compensation Table" and Item 10 "Directors and Executive Officers" for principal position.
On January 18, 1995 the Board of Directors canceled outstanding options to
purchase an aggregate of 365,000 shares of the Company's Class A Common Stock
and granted to the holders of such options new options to purchase an equivalent
number of shares. These options were the only options of the Company which have
been issued coincident with the cancellation of outstanding options or otherwise
repriced since the Company's inception through March 29, 1998. The Board of
Directors concluded that the subsequent decrease in the market price for the
Company's Class A Common Stock below the exercise price for the
29
canceled options was due to factors which were principally not all within the
realm of responsibility of the option holders and that the options no longer
provided the incentive to such option holders to perform on behalf of the
Company in the manner contemplated by the Board when the canceled options were
initially granted. On the date of the issuance of the new options and the
cancellation of the outstanding options, the closing sale price for the
Company's Class A Common Stock as reported on the American Stock Exchange was
$1.56. The following table sets forth certain information regarding the
aforementioned canceled and new options:
Ten-Year Option Repricings
Number of Securities Market Price of Exercise Price at Length of Original
Underlying Options Stock at Time of Time of New Option Term Remaining at
Repriced or Repricing or Repricing or Exercise Date of
Name1 Date Amended (#) Amendment ($) Amendment ($) Price ($) Repricing or Amendment
- ---- ---- ----------- ------------- ------------- --------- ----------------------
Harry Melkonian 1/18/95 60,000 1.56 3.62 1.56 7 years
Patrick J. Holmes 1/18/95 30,000 1.56 4.87 1.56 9 years
30,000 1.56 4.50 1.56 9 years
- ------------------------------------------------------------------------------------------------------------------------------
1 See "Summary Compensation Table" and Item 10 "Directors and Executive Officers" for principal position.
Compensation of Directors
Prior to October 1995, each director who is not an employee of the Company or an
affiliate received an annual fee of $10,000, payable in quarterly increments,
and a fee of $1,000 for each meeting attended. Each of the directors who is not
an employee of the Company is eligible for grants of stock options upon their
appointment to the Board of Directors under the 1991 Special Directors Stock
Option Plan and on an annual basis so long as they remain on the Board.
Directors who are also officers of the Company or its affiliates do not receive
cash compensation in consideration for their services as directors. All
directors, however, including employee directors, are reimbursed for reasonable
travel expenses incurred in connection with their attending meetings of the
Board of Directors and committees. In October 1995, the Board of Directors
eliminated the accrual or payment of all fees including all annual fees, meeting
fees and any payment for services as the Chairman or Member of any Committee of
the Board of Directors except for reasonable travel expenses. In addition,
participation in the 1991 Special Directors Stock Option Plan, other than
initial grants for new directors, was suspended. In January 1998, the Board
reinstated participation in the 1991 Special Directors Stock Option Plan and
approved an annual stock option grant in lieu of an annual cash fee. This grant
would be the approximate equivalent of $10,000 calculated using the
Black-Scholes option pricing model.
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 ownership and changes in ownership with the Securities and
Exchange Commission and to furnish the Company with copies of these reports. New
rules governing these reports were adopted in February 1991 and generally became
effective in May 1991. Based upon the Company's review of copies of these
reports received by it, the Company believes that all filings required to be
made by the Reporting Persons during the fiscal year ended March 29, 1998 were
made on a timely basis.
30
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 5, 1998, 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 Class B Common Stock
-------------------------------------------- ------------------------------------------------------
Shares Under Shares Under
Shares Exercisable Percent of Shares Exercisable Percent of Percent
Owned Options/Warrants(1) Class Owned Options/Warrants Class Voting(2)
The Dreyfus Corporation(3) 1,497,700 - 13.8 - - - 13.7
Hayden Leason(4) 1,304,100 27,500 12.3 - - - 12.2
The Townsend Group 874,100 - 8.1 - - - 8.0
Advanced Detectors,Inc.(5) - 750,000 6.5 - - - 6.4
J. Morton Davis(6) 656,045 - 6.1 - - - 6.0
James A. Gordon(7) 593,640 33,000 5.5 - - - 5.4
Edgewater Private Equity Fund(8) 593,640 33,000 5.5 - - - 5.4
Robert G. Allison(9) 593,640 33,000 5.5 - - - 5.4
Jon Victor(10) 237,400 27,500 2.4 - - - 2.4
Patrick J. Holmes 52,600 108,000 1.5 - - - 1.5
Harry Melkonian 10,000 116,000 1.2 - - - 1.2
Directors & Officers as 2,197,740 312,000 22.5 - - - 22.5
a Group
- -----------------------------------------------------------------------------------------------------------------------------------
1 Includes shares under options/warrants exercisable on June 5, 1998 and options which become exercisable within 60 days thereafter.
2 Represents combined voting power of both Class A and Class B Common Stock,
assuming beneficial owner exercises all exercisable options and warrants.
3 Shareholder is a subsidiary of Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, PA 15258-0001.
4 The address of this shareholder is Palmas Del Mar, 10 Monte Sol, Humacao, Puerto Rico 00791.
5 Formerly Xsirius, Inc., the last known address of this beneficial owner was 1220 Avenida Acaso, Camarillo, CA 93012.
6 The address of this shareholder is D.H. Blair, 44 Wall Street, New York, NY 10005. Includes 617,760 shares owned by
D.H. Blair Investment Banking Corporation and 38,285 shares owned by Parliament Hill Corporation.
7 The address of this shareholder is c/o Edgewater Private Equity Fund, 666 Grand Avenue, Suite 200, Des Moines, IA 50309.
Includes 593,640 shares owned by Edgewater Private Equity Fund, L.P. ("Edgewater"). Mr. Gordon is the President of Gordon
Management, Inc. which is the general partner of Edgewater. Also includes 2,500 options granted to Mr. Allison. Mr. Allison is
a partner of Edgewater.
8 The address of this shareholder is c/o Edgewater Private Equity Fund, 666 Grand Avenue, Suite 200, Des Moines, IA 50309.
Includes 30,500 options granted to Mr. Gordon (see footnote 7) and 2,500 options granted to Mr. Allison (see footnote 10).
9 The address of this shareholder is c/o Allison Venture Partners, Inc., 103 N. Point Drive, Lake Forest, CA 92630.
Includes 593,640 shares owned by Edgewater Private Equity Fund, L.P. ("Edgewater"). Mr. Allison is the President of Allison
Venture Partners, Inc. which is the general partner of Edgewater.
10 The address of this shareholder is c/o Greenwich Ventures, LLC, 3463 State Street, Santa Barbara, CA 93105.
Item 13. Certain Relationships and Related Transactions
See Item 11. Executive Compensation.
31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
The following is a list of the financial statement schedules and exhibits filed
herewith.
(a) (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.
(a) (3) Exhibits:
Exhibit
No. Description
3.1 Certificate of Incorporation of the Registrant, as amended. -
incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, filed with the Securities and
Exchange Commission on November 23, 1990.
3.1.1 Amendment to Certificate of Incorporation of the Registrant, dated
October 29, 1992-incorporated by reference to the Registrant's March
31, 1996 Annual Report on Form 10-K.
3.1.2 Amendment to Certificate of Incorporation of the Registrant, dated
September 9, 1992-incorporated by reference to the Registrant's March
31, 1996 Annual Report on Form 10-K.
3.2 By-laws of the Registrant, as amended - incorporated by reference to
the Registrant's March 31, 1996 Annual Report on Form 10-K.
10.1* Advanced Photonix, Inc. 1991 Special Directors Stock Option Plan -
incorporated by reference to Exhibit 10.9 to the Registrant's March
31, 1991 Annual Report on Form 10-K.
10.2* Advanced Photonix, Inc. 1990 Incentive Stock Option and Non-Qualified
Stock Option Plan - incorporated by reference to Exhibit No. 10.11 to
the Registrant's Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on November 23, 1990.
10.3* Advanced Photonix, Inc. 1997 Employee Stock Option Plan - incorporated
by reference to Exhibit 10.13 to the Registrant's March 30, 1997
Annual report on Form 10-K
10.4* Amendment No. 1 to 1997 Employee Stock Option Plan of Advanced
Photonix, Inc. - incorporated by reference to Exhibit 10.14 to the
Registrant's December 28, 1997 Quarterly Report on Form 10-Q
10.5 Employment Agreement dated June 1, 1998, between Advanced Photonix,
Inc. and Patrick J. Holmes.
10.6 Employment Agreement dated June 1, 1998, between Advanced Photonix,
Inc. and Harry Melkonian.
10.7 Form of Non-Qualified Stock Option granted to Advanced Detectors,
Inc., formerly Xsirius, Inc. - incorporated by reference to Exhibit
10.13 to Amendment No. 3 to the Registrant's Registration Statement on
Form S-1, filed with the Securities and Exchange Commission on
February 11, 1991.
32
10.8 Loan and Security Agreement dated July 15, 1997 between Silicon Valley
Bank and Registrant - incorporated by reference to Exhibit 10.14 to
the Registrant's June 29, 1997 Quarterly Report on Form 10-Q.
10.9 Lease Agreement dated February 23, 1998 between Advanced Photonix,
Inc. and High Tech No. 1, Ltd.
10.10 Form of Indemnification Agreement provided to Directors and Principal
Officers of Advanced Photonix, Inc. -- incorporated by reference to
Exhibit 10.15 to the Registrant's December 28, 1997 Quarterly Report
on Form 10-Q
21 List of Subsidiaries of Registrant - incorporated by reference to
Exhibit 22 to the Registrant's March 31, 1993 Annual Report on Form
10-K.
23.1 Consent of Arthur Andersen LLP, independent public accountants.
*Constitutes a compensation plan or arrangement required to be filed as part of
this report.
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/ Harry Melkonian
--------------------
Harry Melkonian,
President & Chief Executive Officer
Date: June 26, 1998
---------------
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/ Harry Melkonian Chairman of the Board, President & June 26, 1998
- ------------------- Chief Executive Officer -------------
Harry Melkonian (Principal Executive Officer)
/s/ Robert G. Allison Director June 26, 1998
- ------------------- -------------
Robert G. Allison
/s/ Hayden Leason Director June 26, 1998
- ------------------- -------------
Hayden Leason
/s/ James A. Gordon Director June 26, 1998
- ------------------- -------------
James A. Gordon
/s/ Jon B. Victor Director June 26, 1998
- ------------------- -------------
Jon B. Victor
/s/ Patrick J. Holmes Executive Vice President, Chief June 26, 1998
- ------------------- Financial Officer, Corporate -------------
Patrick J. Holmes Secretary/Treasurer,
(Principal Financial and Accounting Officer)
33