þ
|
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
o
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Delaware
(State
or other jurisdiction of incorporation or
organization)
|
33-0325826
(I.R.S.
Employer Identification
Number)
|
|
|
|
Page
|
PART
I
|
|
FINANCIAL
INFORMATION
|
|
|
|
||
Item 1.
|
|
Financial
Statements (Condensed)
|
|
|
Condensed
Consolidated Balance Sheets at September 28, 2007 (unaudited) and
March
31, 2007
|
3
|
|
|
|
||
|
Condensed
Consolidated Statements of Operations for the three-month and six-month
periods ended September 28, 2007 and September 29, 2006
(unaudited)
|
4
|
|
|
|
||
|
Condensed
Consolidated Statements of Cash Flows for the six-month periods ended
September 28, 2007 and September 29, 2006 (unaudited)
|
5
|
|
|
|
||
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
|
|
||
Item 2.
|
|
Management’s
Discussion and Analysis of
Financial Condition and Results of Operations
|
19
|
|
|
||
Item 3.
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
26
|
|
|
||
Item 4.
|
|
Controls
and Procedures
|
26
|
|
|
||
PART
II
|
|
OTHER
INFORMATION
|
|
Item
1
|
Legal
Proceedings
|
27
|
|
|
|
||
Item
1A
|
Risk
Factors
|
27
|
|
Item
2
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
27
|
|
Item
3
|
Defaults
Upon Senior Securities
|
27
|
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
27
|
|
Item
5
|
Other
Information
|
27
|
|
Item 6.
|
|
Exhibits
|
27
|
Exh.
31.1 Section 302 Certification of Chief Executive Officer
|
|||
Exh.
31.2 Section 302 Certification of Chief Financial Officer
|
|||
Exh.
32.1 Section 906 Certification of Chief Executive Officer
|
|||
Exh.
32.2 Section 906 Certification of Chief Financial Officer
|
|||
Signatures
|
|
|
29
|
September
28, 2007 (Unaudited)
|
March
31, 2007
|
||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
6,495,000
|
$
|
3,274,000
|
|||
Accounts
receivable, net
|
4,131,000
|
3,587,000
|
|||||
Inventories,
net
|
3,808
000
|
4,439,000
|
|||||
Prepaid
expenses and other current assets
|
517,000
|
377,000
|
|||||
Total
current assets
|
14,951,000
|
11,677,000
|
|||||
Equipment
and leasehold improvements, net
|
4,901,000
|
4,736,000
|
|||||
Goodwill
|
4,579,000
|
4,579,000
|
|||||
Intangibles
and patents, net
|
11,773,000
|
12,640,000
|
|||||
Deferred
tax asset
|
1,225,000
|
1,225,000
|
|||||
Other
assets
|
375,000
|
385,000
|
|||||
Total
assets
|
$
|
37,804,000
|
$
|
35,242,000
|
Liabilities
and shareholders' equity
|
|||||||
Current
liabilities
|
|||||||
Line
of credit
|
$
|
900,000
|
$
|
741,000
|
|||
Accounts
payable
|
1,218,000
|
1,401,000
|
|||||
Compensation
and related withholdings
|
1,069,000
|
1,091,000
|
|||||
Interest
payable
|
340,000
|
325,000
|
|||||
Other
accrued expenses
|
999,000
|
610,000
|
|||||
Current
portion of long-term debt, related parties
|
900,000
|
550,000
|
|||||
Current
portion of long-term debt
|
5,686,000
|
4,535,000
|
|||||
Total
current liabilities
|
11,112,000
|
9,253,000
|
|||||
Long-term
debt, less current portion
|
3,566,000
|
3,015,000
|
|||||
Long-term
debt, less current portion - related parties
|
951,000
|
1,851,000
|
|||||
Total
liabilities
|
15,629,000
|
14,119,000
|
|||||
Commitments
and contingencies
|
|||||||
Class
A
redeemable convertible preferred stock, $.001 par value; 780,000
shares
authorized; 40,000 shares issued and outstanding; liquidation preference
$32,000
|
32,000
|
32,000
|
|||||
Shareholders'
equity:
|
|||||||
Class
A common
stock,
$.001 par value, 50,000,000 authorized; September 28, 2007 - 22,271,939
shares issued and outstanding, March 31, 2007 - 19,226,006 shares
issued
and outstanding.
|
22,000
|
19,000
|
|||||
Class
B common
stock,
$.001 par value; 4,420,113 shares authorized; September 28, 2007
and March
31, 2007 - 31,691 issued and outstanding.
|
—
|
—
|
|||||
Additional
paid-in capital
|
48,699,000
|
43,887,000
|
|||||
Accumulated
deficit
|
(26,578,000
|
)
|
(22,815,000
|
)
|
|||
Total
shareholders' equity
|
22,143,000
|
21,091,000
|
|||||
Total
liabilities and shareholders' equity
|
$
|
37,804,000
|
$
|
35,242,000
|
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
September
28, 2007
|
September
29, 2006
|
September
28, 2007
|
September
29, 2006
|
||||||||||
Sales,
net
|
$
|
6,529,000
|
$
|
5,878,000
|
$
|
12,674,000
|
$
|
11,546,000
|
|||||
Cost
of products sold
|
3,784,000
|
2,997,000
|
7,459,000
|
6,189,000
|
|||||||||
Gross
profit
|
2,745,000
|
2,881,000
|
5,215,000
|
5,357,000
|
|||||||||
Operating
expenses:
|
|||||||||||||
Research,
development and engineering
|
1,016,000
|
1,018,000
|
1,910,000
|
1,986,000
|
|||||||||
Sales
and marketing
|
559,000
|
452,000
|
1,205,000
|
983,000
|
|||||||||
General
and administrative
|
1,180,000
|
1,488,000
|
2,353,000
|
2,753,000
|
|||||||||
Amortization
Expense
|
490,000
|
381,000
|
980,000
|
763,000
|
|||||||||
Wafer
fabrication relocation expenses
|
268,000
|
88,000
|
611,000
|
121,000
|
|||||||||
Total
operating expenses
|
3,513,000
|
3,427,000
|
7,059,000
|
6,606,000
|
|||||||||
Loss
from operations
|
(768,000
|
)
|
(546,000
|
)
|
(1,844,000
|
)
|
(1,249,000
|
)
|
|||||
Other
income (expense):
|
|||||||||||||
Interest
income
|
26,000
|
59,000
|
47,000
|
117,000
|
|||||||||
Interest
expense
|
(250,000
|
)
|
(208,000
|
)
|
(452,000
|
)
|
(412,000
|
)
|
|||||
Interest
expense, related parties
|
(42,000
|
)
|
(55,000
|
)
|
(99,000
|
)
|
(112,000
|
)
|
|||||
Interest
expense, debt issue cost
|
(30,000
|
)
|
(33,000
|
)
|
(60,000
|
)
|
(66,000
|
)
|
|||||
Interest
expense, debt discount
|
(805,000
|
)
|
(346,000
|
)
|
(1,373,000
|
)
|
(640,000
|
)
|
|||||
Other
income
|
12,000
|
5,000
|
18,000
|
5,000
|
|||||||||
Net
loss
|
$
|
(1,857,000
|
)
|
$
|
(1,124,000
|
)
|
$
|
(3,763,000
|
)
|
$
|
(2,357,000
|
)
|
|
Basic
and diluted loss per share
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
$
|
(0.19
|
)
|
$
|
(0.12
|
)
|
|
Weighted
average common shares outstanding
|
|||||||||||||
Basic
and diluted
|
19,906,000
|
19,026,000
|
19,584,000
|
19,003,000
|
For
the six months ended:
|
September
28, 2007
|
September
29, 2006
|
|||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(3,763,000
|
)
|
$
|
(2,357,000
|
)
|
|
Adjustment
to reconcile net loss to net cash (used in) provided by operating
activities
|
|||||||
Depreciation
|
522,000
|
475,000
|
|||||
Amortization
|
980,000
|
763,000
|
|||||
Stock
compensation expense
|
133,000
|
183,000
|
|||||
Amortization
of discount on convertible notes payable
|
1,373,000
|
640,000
|
|||||
Amortization
of debt issue costs
|
60,000
|
66,000
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
(544,000
|
)
|
930,000
|
||||
Inventories
|
631,000
|
(393,000
|
)
|
||||
Prepaid
expenses and other assets
|
(130,000
|
)
|
97,000
|
||||
Accounts
payable and other liabilities
|
138,000
|
16,000
|
|||||
Net
cash (used in) provided by operating activities
|
(600,000
|
)
|
420,000
|
||||
Cash
flows from investing activities:
|
|||||||
Capital
expenditures
|
(687,000
|
)
|
(782,000
|
)
|
|||
Patent
expenditures
|
(113,000
|
)
|
(50,000
|
)
|
|||
Net
cash used in investing activities
|
(800,000
|
)
|
(832,000
|
)
|
Cash
flows from financing activities:
|
|||||||
Proceeds
from bank term loan
|
433,000
|
—
|
|||||
Proceeds
from bank line of credit
|
159,000
|
—
|
|||||
Payments
on bank term loan
|
(153,000
|
)
|
(450,000
|
)
|
|||
Payments
on long-term debt - related parties
|
(550,000
|
)
|
(500,000
|
)
|
|||
Proceeds
from MEDC term loan
|
357,000
|
—
|
|||||
Net
proceeds from equity financing
|
4,321,000
|
—
|
|||||
Proceeds
from exercise of stock options
|
54,000
|
213,000
|
|||||
Net
cash provided by (used in) financing activities
|
4,621,000
|
(737,000
|
)
|
||||
Net
increase (decrease) in cash and cash equivalents
|
3,221,000
|
(1,149,000
|
)
|
||||
Cash
and cash equivalents at beginning of year
|
3,274,000
|
5,933,000
|
|||||
Cash
and cash equivalents at end of quarter
|
$
|
6,495,000
|
$
|
4,784,000
|
Cash
paid for income taxes
|
$
|
55,000
|
$
|
—
|
|||
Cash
paid for interest
|
$
|
438,000
|
$
|
273,000
|
·
|
The
time period that stock-based awards are expected to remain outstanding
has
been determined based on the average of the original award period
and the
remaining vesting period in accordance with the SEC’s short-cut approach
pursuant to SAB No. 107, “Disclosure
About Fair Value of Financial Statements”.
The expected term assumption for awards issued during the three-month
period ended September 28, 2007 was 6.25 years. As additional
evidence develops from the Company’s stock trading history, the expected
term assumption will be refined to capture the relevant trends.
|
·
|
The
future volatility of the Company’s stock has been estimated based on
the
weekly stock price from the acquisition date of Picometrix LLC
(May 2,
2005) to the date of the latest stock grant.
The expected volatility assumption for awards issued during the
three-month periods ending September 28, 2007 and September 29,
2006 was
49.9% and 58.0%, respectively. As additional evidence develops,
the future
volatility estimate will be refined to capture the relevant trends.
|
·
|
A
dividend yield of zero has been assumed for awards issued during
the
three-month periods ended September 28, 2007 and September 29,
2006, based
on the Company’s actual past experience and the fact that Company does not
anticipate paying a dividend on its shares in the near future.
|
·
|
The
Company has based its risk-free interest rate assumption for awards
issued
during the three-month periods ended September 28, 2007 and September
29,
2006 on the implied yield available on U.S. Treasury issues with an
equivalent expected term, which was 4.44% and 4.75% during the
respective
periods.
|
·
|
The
forfeiture rate for awards issued during the three-month periods
ended
September 28, 2007 and September 29, 2006 were approximately 18.7%
and was
based on the Company’s actual historical forfeiture trend.
|
|
Three Months Ended
|
||||||
|
September
28, 2007
|
September
29, 2006
|
|||||
Option
Plan Shares:
|
|||||||
Expected
term (in years)
|
6.25
|
10.0
|
|||||
Volatility
|
49.9
|
%
|
58.0
|
%
|
|||
Expected
dividend
|
0
|
%
|
0
|
%
|
|||
Risk-free
interest rate
|
4.44
|
%
|
4.75
|
%
|
|
|
Number
of
Options
Outstanding
|
|
Weighted
Average Exercise Price per Share
|
|
Number
of
Shares
Exercisable
|
|
Weighted
Average Exercise Price per Share
|
|
||||
Balance
of March 31, 2007
|
2,540,000
|
$
|
1.90
|
1,978,000
|
$
|
1.81
|
|||||||
Granted
|
115,000
|
$
|
1.80
|
||||||||||
Exercised
|
—
|
—
|
|||||||||||
Expired
|
—
|
—
|
|||||||||||
Balance
of June 29, 2007
|
2,655,000
|
$
|
1.88
|
2,192,000
|
$
|
1.82
|
|||||||
Granted
|
36,000
|
$
|
1.89
|
||||||||||
Exercised
|
81,000
|
$
|
0.65
|
||||||||||
Expired
|
—
|
—
|
|||||||||||
Balance
of Sept. 28, 2007
|
2,610,000
|
$
|
1.92
|
2,140,000
|
$
|
1.87
|
September
28, 2007
|
March
31, 2007
|
||||||
Raw
material
|
$
|
2,757,000
|
$
|
3,348,000
|
|||
Work-in-process
|
1,229,000
|
1,503,000
|
|||||
Finished
products
|
898,000
|
512,000
|
|||||
Total
inventories
|
4,884,000
|
5,363,000
|
|||||
Less
reserve
|
(1,076,000
|
)
|
(924,000
|
)
|
|||
Inventories,
net
|
$
|
3,808,000
|
$
|
4,439,000
|
September
28, 2007
|
March
31, 2007
|
|||||||||||||||||||||
Weighted
Average Lives
|
|
Carrying
Value
|
|
Accumulated
Amortization
|
|
Intangibles
Net
|
|
Carrying
Value
|
|
Accumulated
Amortization
|
|
Intangibles
Net
|
|
|||||||||
Non-Compete
agreements
|
3
|
$
|
130
|
$
|
99
|
$
|
31
|
$
|
130
|
$
|
82
|
$
|
48
|
|||||||||
Customer
list-API
|
5
|
285
|
285
|
—
|
285
|
285
|
—
|
|||||||||||||||
Customer
list-Pico
|
15
|
190
|
31
|
159
|
190
|
24
|
166
|
|||||||||||||||
Trademarks
|
15
|
2,270
|
339
|
1,931
|
2,270
|
286
|
1,984
|
|||||||||||||||
Customer
relationships
|
5
|
1,380
|
312
|
1,068
|
1,380
|
174
|
1,206
|
|||||||||||||||
Patents
|
6
|
110
|
66
|
44
|
107
|
62
|
45
|
|||||||||||||||
Patents
pending
|
-
|
420
|
-
|
420
|
310
|
-
|
310
|
|||||||||||||||
Technology
|
10
|
10,950
|
2,830
|
8,120
|
10,950
|
2,069
|
8,881
|
|||||||||||||||
Total
Intangibles
|
11.4
|
$
|
15,735
|
$
|
3,962
|
$
|
11,773
|
$
|
15,622
|
$
|
2,982
|
$
|
12,640
|
Intangible
Assets
|
Patents
|
|||||||||
2008
(6 months)
|
$
|
976,000
|
2008
(6 months)
|
|
$
|
3,000
|
||||
2009
|
2,090,000
|
2009
|
6,000
|
|||||||
2010
|
2,035,000
|
2010
|
6,000
|
|||||||
2011
|
1,584,000
|
2011
|
6,000
|
|||||||
2012
|
1,305,000
|
2012
|
6,000
|
|||||||
2013
& after
|
3,319,000
|
2013
& after
|
17,000
|
|||||||
Total
|
$
|
11,309,000
|
Total
|
$
|
44,000
|
As
of
|
|||||||
September
28, 2007
|
March
31, 2007
|
||||||
Bank
Term Loan - Fifth Third Bank
|
$
|
2,147
|
$
|
1,867
|
|||
Line
of credit - Fifth Third Bank
|
900
|
741
|
|||||
MEDC
- loan 1
|
1,025
|
922
|
|||||
MEDC
- loan 2
|
855
|
600
|
|||||
Convertible
Debt - 1st
Tranche
|
1,525
|
1,525
|
|||||
Discount
on Convertible Debt - 1st
Tranche
|
(43
|
)
|
(86
|
)
|
|||
Convertible
Debt - 2nd
Tranche
|
4,000
|
4,000
|
|||||
Discount
on Convertible Debt - 2nd
Tranche
|
(256
|
)
|
(1,278
|
)
|
|||
Debt
to Related Parties
|
1,850
|
2,401
|
|||||
Total
|
$
|
12,003
|
$
|
10,692
|
Three
months ended
|
Six
months ended
|
||||||||||||
BASIC
AND DILUTED
|
September
28, 2007
|
September
29, 2006
|
September
28, 2007
|
September
29, 2006
|
|||||||||
Weighted
Average Shares Outstanding
|
19,906,000
|
19,026,000
|
19,584,000
|
19,003,000
|
|||||||||
Net
Loss
|
$
|
(1,857,000
|
)
|
$
|
(1,124,000
|
)
|
$
|
(3,763,000
|
)
|
$
|
(2,357,000
|
)
|
|
Basic
and Diluted Loss Per Share
|
$
|
(0.09
|
)
|
$
|
(0.06
|
)
|
$
|
(0.19
|
)
|
$
|
(0.12
|
)
|
Three
months ended
|
|
Six
months ended
|
|
||||||||||||||||||||||
Revenues
|
|
September
28, 2007
|
|
%
|
|
September
29, 2006
|
|
%
|
|
September
28, 2007
|
|
%
|
|
September
29, 2006
|
|
%
|
|||||||||
Telecommunications
|
$
|
1,589,000
|
24
|
%
|
$
|
1,761,000
|
30
|
%
|
$
|
2,847,000
|
21
|
%
|
$
|
2,505,000
|
21
|
%
|
|||||||||
Industrial
Sensing/NDT
|
2,630,000
|
40
|
%
|
2,403,000
|
41
|
%
|
5,546,000
|
47
|
%
|
4,814,000
|
42
|
%
|
|||||||||||||
Military/Aerospace
|
950,000
|
15
|
%
|
1,138,000
|
19
|
%
|
1,821,000
|
14
|
%
|
3,006,000
|
26
|
%
|
|||||||||||||
Medical
|
1,360,000
|
21
|
%
|
481,000
|
8
|
%
|
2,460,000
|
18
|
%
|
1,115,000
|
10
|
%
|
|||||||||||||
Homeland
Security
|
—
|
—
|
95,000
|
2
|
%
|
—
|
—
|
106,000
|
1
|
%
|
|||||||||||||||
Total
Revenues
|
$
|
6,529,000
|
100
|
%
|
$
|
5,878,000
|
100
|
%
|
$
|
12,674,000
|
100
|
%
|
$
|
11,546,000
|
100
|
%
|
Operating
Leases
|
Non-Cancelable
Purchase
Orders
|
Total
|
||||||||
2008
(6 months)
|
$
|
574,000
|
$
|
1,333,000
|
$
|
1,907,000
|
||||
2009
|
1,053,000
|
457,000
|
1,510,000
|
|||||||
2010
|
705,000
|
—
|
705,000
|
|||||||
2011
|
176,000
|
—
|
176,000
|
|||||||
2012
|
—
|
—
|
—
|
|||||||
2013
and thereafter
|
—
|
—
|
—
|
|||||||
Total
|
$
|
2,508,000
|
$
|
1,790,000
|
$
|
4,298,000
|
Exhibit
No.
|
||||
31.1
|
|
Certificate
of the Registrant’s Chairman, Chief Executive Officer, and Director
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
||
|
|
|
||
31.2
|
|
Certificate
of the Registrant’s Chief Financial Officer, and Secretary pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
||
|
|
|
||
32.1
|
|
Certificate
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes- Oxley Act of 2002
|
||
|
|
|
||
32.2
|
|
Certificate
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
|
Advanced
Photonix, Inc.
(Registrant)
|
|||
November
12, 2007
|
|||
/s/
Richard Kurtz
|
|||
Richard
Kurtz
Chairman,
Chief Executive Officer
And
Director
|
/s/
Robin Risser
|
|||
Robin
Risser
Chief
Financial Officer
And
Director
|