UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 2, 2005
ADVANCED PHOTONIX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 1-11056 33-0325836
---------------------------- ------------ -------------------
(STATE OR OTHER JURISDICTION (COMMISSION (IRS EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1240 Avenida Acaso, Camarillo, California 93012
------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (805) 987-0146
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
1
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
As reported in Advanced Photonix, Inc.'s ("API") Current Report on Form 8-K
dated May 2, 2005, API completed its previously disclosed acquisition of
Picotronix, Inc, through the merger of Picotronix, Inc. (doing business as and
referred to herein as "Picometrix"), a Michigan corporation, with and into
Michigan Acquisition Sub, LLC ("Newco"), a Delaware limited liability company
and a wholly-owned subsidiary of API, pursuant to an Agreement and Plan of
Merger dated March 8, 2005 by and among API, Newco, Picometrix and Robin Risser
and Steven Williamson, the stockholders of Picometrix. Immediately following the
effective time of the merger, the name of Newco was changed to Picometrix, LLC.
This Amendment No. 2 to Current Report on Form 8-K dated May 2, 2005 is being
filed to correct certain classification errors in the Statement of Cash Flows
noted by the auditors of Picometrix Inc. in the financial statements of
Picometrix Inc. .
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired. The following financial
statements relating to Picometrix are included at the end of this Amendment No.
2 to Current Report on Form 8-K dated May 2, 2005 and are filed herewith and
incorporated herein by reference.
AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Audited Balance Sheet as at December 31, 2004
Statements of Operations and Accumulated Deficit for the Years Ended December
31, 2004 and December 31, 2003
Statements of Cash Flows for the Years Ended December 31, 2004 and December 31,
2003
Consolidated Statements of Shareholders' Equity for the three years in the
period ended December 31, 2004
Notes to Financial Statements
UNAUDITED INTERIM FINANCIAL STATEMENTS
Balance Sheet as at March 31, 2005
Statements of Cash Flows for the Three Months Ended March 31, 2005
Statements of Operations an Accumulated Deficit for the Three Months Ended March
31, 2005
2
(b) Pro Forma Financial Information. The following unaudited pro forma financial
statements of Advanced Photonix, Inc. relating to the acquisition of Picometrix
are included at the end of this Amendment No. 2 to Current Report on Form 8-K
dated May 2, 2005 and are filed herewith and incorporated herein by reference.
Summary of Combined Company Unaudited Pro Forma Condensed Consolidated
Statements of Operations
Unaudited Pro Forma Condensed Consolidated Balance Sheet as at March 27, 2005
Unaudited Pro Forma Condensed Consolidated Statements of Operations for the Year
Ended March 27, 2005
(c) Exhibits: None
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF PICOTRONIX, INC.:
We have audited the accompanying balance sheets of Picotronix, Inc. (the
"Company") as of December 31, 2004 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the years ended
December 31, 2004 and 2003. 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 the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of the Picotronix, Inc. at December
31, 2004 and the results of its operations and its cash flows for the years
ended December 31, 2004 and 2003 in conformity with accounting principles
generally accepted in the United States.
Farber & Hass LLP
May 26, 2005
Camarillo, California
4
PICOTRONIX, INC.
AUDITED BALANCE SHEETS
DECEMBER 31, 2004
-----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,008,605
Restricted Cash 276,333
Accounts receivable, net of allowance for doubtful accounts of $2,184 1,245,795
Inventories, net of reserve for obsolescence of $216,006 652,509
Prepaid expenses and other current assets 185,907
Deferred tax asset, net of valuation allowance of ($688,721) 349.979
Total current assets 3,719,128
Property and equipment:
Leasehold improvements 130,712
Machinery and equipment 3,844,665
Furniture and fixtures 582,880
-----------------
4,558,257
Accumulated depreciation (2,556,172)
-----------------
2,002,085
Other assets:
Deposits and other assets 94,452
Patents, net of accumulated amortization of $7,091 467,142
-----------------
Total assets $ 6,282,807
=================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Total current liabilities
Accounts payable:
Trade 293,758
Income taxes payable 5,889
Accrued liabilities:
Compensation and related withholdings 206,246
Interest payable 81,111
Consulting 60,000
Deferred Revenue 275,000
Other 151,403
Current portion of long-term debt 146,861
-----------------
Total liabilities 1,220,268
Long-term debt, less current portion 6,904,490
-----------------
Total liabilities 8,124,758
Shareholders' deficit:
Class A common stock, non-voting, no par value,
2,520,000 shares authorized and reserved for future issuance, zero shares
issued and outstanding
Class B common stock, voting, no par value; 15,480,000
shares authorized, 15,480,000 issued and outstanding 22,440
Accumulated deficit (1,864,391)
-----------------
Total shareholders' deficit (1,841,951)
-----------------
Total liabilities and shareholders' deficit $ 6,282,807
=================
See accompanying notes.
5
PICOTRONIX, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
2004 2003
---------------- ---------------
Net sales $ 7,473,404 $ 3,488,230
Cost of products sold 2,311,104 987,360
---------------- ---------------
Gross profit 5,162,300 2,500,870
Selling, general and administrative expenses 1,703,389 1,508,024
Research and development expenses 2,574,997 2,737,611
---------------- ---------------
4,278,386 4,245,635
---------------- ---------------
Income (loss) from operations 883,914 (1,744,765)
Other income (expense):
Interest expense (304,785) (256,500)
Interest income 6,990 10,285
Loss on impairment of property and equipment (104,689)
Other (42,039) 12,447
---------------- ---------------
Income (loss) before income taxes 544,080 (2,083,222)
Federal income taxes (benefit):
Current 5,889 -
Deferred (349,979) -
---------------- ---------------
(344,090) -
---------------- ---------------
Net income (loss) 888,170 (2,083,222)
(Accumulated deficit) retained earnings at
beginning of year (2,752,561) (669,339)
---------------- ---------------
Accumulated deficit at end of year $ (1,864,391) $ (2,752,561)
================ ===============
See accompanying notes.
6
PICOTRONIX, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31,
2004 2003
------------ -------------
OPERATING ACTIVITIES
Net income (loss) $ 888,170 $ (2,083,222)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 568,441 663,151
Loss on impairment of property and equipment - 104,689
Provision for obsolete inventory (57,041) (21,848)
Deferred income tax benefit (349,979) 274,940
Changes in operating assets and liabilities:
Deferred revenue 275,000 -
Income taxes 5,889 (65,373)
Prepaid expenses 55,122 (83,439)
Accounts payable, accrued expenses, and
other 41,762 (34,182)
Deposits and other assets 11,785 (2,713)
Inventories (220,892) 64,367
Accounts receivable (845,335) 20,680
------------ -------------
Net cash provided by (used in) operating activities 372,922 (1,162,950)
INVESTING ACTIVITIES
Purchases of property and equipment (33,239) (1,999)
Patents 264,918) (55,983)
------------ -------------
Net cash (used in) operating activities (298,157) (57,982)
FINANCING ACTIVITIES
Payments on capital lease obligation (52,232) (62,328)
Net borrowings from finance companies and state agencies 827,440 131,941
Net repayments to finance companies (200,041) (249,687)
Proceeds from issuance of common stock - 19,440
------------ -------------
Net cash provided by (used in) financing activities 575,167 (160,634)
------------ -------------
Net (decrease) increase in cash 649,932 (1,381,566)
Cash at beginning of year 635,006 2,016,572
------------ -------------
Cash at end of year $ 1,284,938 $ 635,006
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash for income taxes $ - $ -
============ =============
Cash paid for interest $ 174,854 $ 233,206
============ =============
SUPPLEMENTAL DISCLOSURE OF NON CASH OPERATING, INVESTING AND FINANCING
ACTIVITIES
See accompanying notes.
7
PICOTRONIX, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
CLASS B
COMMON STOCK
For each of the three years in the period ----------------------- ACCUMULATED
ended December 31, 2004 SHARES AMOUNT DEFICIT TOTAL
----------------------------------------- ---------- ------ ----------- ----------
BALANCE AT DECEMBER 31, 2002 13,536,000 3,000 (669,339) (666,339)
Shares issued for cash 1,944,000 19,440 19,440
Net Loss (2,083,222) (2,083,222)
---------- ------ ----------- ----------
BALANCE AT DECEMBER 31, 2003 15,480,000 22,440 (2,752,561) (2,730,121)
Shares issued -
Net profit 888,170 888,170
---------- ------ ----------- ----------
BALANCE AT DECEMBER 31, 2004 15,480,000 22,440 (1,864,391) (1,841,951)
8
PICOTRONIX, INC.
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Picotronix, Inc., d.b.a. Picometrix, Inc. (the "Company") was incorporated on
January 9, 1992 under the laws of the State of Michigan.
DESCRIPTION OF BUSINESS
The Company designs and manufactures ultra high-speed optical electronic
(optoelectronic) components used for the detection and measurement of optical
and electrical signals for the telecommunication, defense, and measurement
markets and terahertz systems used for defense/homeland security, and industrial
quality control markets.100% of sales in 2004 and 2003 were to customers located
in the United States. Sales to government agencies account for 15% and 47% in
2004 and 2003 respectively.
ERROR CORRECTION
In July 2005, the auditors of Picometrix, Farber & Hass, LLP, detected errors in
certain previously issued financial statements including the financial
statements for the two year ended December 31, 2003 and 2004 and the quarter
ended March 31, 2005. The errors relate to the grouping of certain ledger
accounts for purpose of classification in the Statement of Operations and the
Statement of Cash Flow.
In the Statement of Operations for 2003 and 2004, Interest Income has been
separated from Interest Expense and Other, resulting in a net change of zero to
Net Income.
In the Statement of Cash Flow for 2003, the following changes were made:
a) Deferred income tax benefit of $274,940 was separated from Income Taxes,.
b) Assets purchased, in a non-cash financing activity, in exchange for a note
payable of $104,690, were eliminated from the statement by reducing
Purchases of property & equipment and also by reducing Net repayments to
finance companies.
c) The provision for obsolete inventory ($21,848) was re-classified to
Adjustments to reconcile net loss to net cash used in operating
activities.
In the Statement of Cash Flow for 2004, the following changes were made:
a) Deferred revenue of $275,000 was re-classified to Changes in operating
Assets & Liabilities.
b) Assets purchased, in a non-cash financing activity, in exchange for a note
payable of $77,440, were eliminated from the statement by reducing
Purchases of property & equipment and also by reducing Net repayments to
finance companies.
c) The provision for obsolete inventory of $57,041 was re-classified to
Adjustments to reconcile net income.
9
PICOTRONIX, INC. STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
PICOTRONIX, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED DECEMBER 31
2004 2004 2003 2003
------------ -------------- -------------- ---------------
PREVIOUSLY PREVIOUSLY
CORRECTED REPORTED CORRECTED REPORTED
------------ -------------- -------------- ---------------
Net sales $ 7,473,404 $ 7,473,404 $ 3,488,230 $ 3,488,230
Cost of products sold 2,311,104 2,311,104 987,360 987,360
------------ -------------- -------------- ---------------
Gross profit 5,162,300 5,162,300 2,500,870 2,500,870
Selling, general and administrative expenses 1,703,389 1,703,389 1,508,024 1,508,024
Research and development expenses 2,574,997 2,574,997 2,737,611 2,737,611
------------ -------------- -------------- ---------------
4,278,386 4,278,386 4,245,635 4,245,635
------------ -------------- -------------- ---------------
Income (loss) from operations 883,914 883,914 1,744,765) (1,744,765)
Other income (expense):
Interest expense (304,785) (297,795) (256,500) (256,500)
Interest income 6,990 - 10,285 -
Loss on impairment of property (104,689) (104,689)
and equipment
Other (42,039) (42,039) 12,447 22,732
------------ -------------- -------------- ---------------
Income (loss) before income taxes 544,080 544,080 (2,083,222) (2,083,222)
Federal income taxes (benefit):
Current 5,889 5,889 - -
Deferred (349,979) (349,979) - -
------------ -------------- -------------- ---------------
(344,090) (344,090) - -
------------ -------------- -------------- ---------------
Net income (loss) 888,170 888,170 (2,083,222) (2,083,222)
(Accumulated deficit) retained earnings at
beginning of year (2,752,561) (2,752,561) (669,339) (669,339)
------------ -------------- -------------- ---------------
Accumulated deficit at end of year $ (1,864,391) $ (1,864,391) $ (2,752,561) $ (2,752,561)
============ ============== ============== ===============
See accompanying notes.
10
PICOTRONIX, INC.
STATEMENTS OF CASH FLOWS
DECEMBER 31, DECEMBER 31,
2004 2004 2003 2003
------------ ---------- ------------ ------------
PREVIOUSLY PREVIOUSLY
CORRECTED REPORTED CORRECTED REPORTED
------------ ---------- ------------ ------------
OPERATING ACTIVITIES
Net income (loss) $ 888,170 $ 888,170 $ (2,083,222) $ (2,083,222)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 568,441 568,441 663,151 779,756
Loss on impairment of property and equipment - - 104,689 104,689
Provision for obsolete inventory (57,041) - (21,848) -
Deferred income tax benefit (349,979) (349,979) 274,940 -
Changes in operating assets and liabilities:
Deferred revenue 275,000 - - -
Income taxes 5,889 5,889 (65,373) 209,567
Prepaid expenses 55,122 67,181 (83,439) (90,581)
Accounts payable, accrued expenses, and
other 41,762 41,760 (34,182) (58,870)
Deposits and other assets 11,785 11,785 (2,713) (7,003)
Inventories (220,892) (277,933) 64,367 42,519
Accounts receivable (845,335) (857,394) 20,680 32,109
------------ ---------- ------------ ------------
Net cash provided by (used in) operating activities 372,922 97,920 (1,162,950) (1,071,036)
INVESTING ACTIVITIES
Purchases of property and equipment (33,239) (110,678) (1,999) (106,689)
Patents (264,918) (264,918) 55,983) (202,224)
------------ ---------- ------------ ------------
Net cash (used in) operating activities (298,157) (375,596) 57,982) (308,913)
FINANCING ACTIVITIES
Payments on capital lease obligation (52,232) (52,232) (62,328) (62,328)
Net borrowings from finance companies and state agencies 827,440 750,000 131,941 41,271
Net repayments to finance companies (200,041) 229,840 (249,687) -
Proceeds from issuance of common stock - - 19,440 19,440
------------ ---------- ------------ ------------
Net cash provided by (used in) financing activities 575,167 927,608 (160,634) (1,617)
------------ ---------- ------------ ------------
Net (decrease) increase in cash 649,932 649,932 (1,381,566) (1,381,566)
Cash at beginning of year 635,006 635,006 2,016,572 2,016,572
------------ ---------- ------------ ------------
Cash at end of year $ 1,284,938 $1,284,938 $ 635,006 $ 635,006
============ ========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash refunded for income taxes $ - $ - $ - $ 209,567
============ ========== ============ ============
Cash paid for interest $ 174,854 $ 173,365 $ 233,206 $ 233,206
============ ========== ============ ============
SUPPLEMENTAL DISCLOSURE OF NON CASH OPERATING, INVESTING AND FINANCING
ACTIVITIES
In April 2003, the Company entered into an agreement with Advanced Air to
pay $95,000 for the balance owed on a equipment purchase in exchange for
a note payable of the same amount issued to a finance company.
In June 2003, the Company entered into an agreement with Angstrom for
$19,130 for the amount owed for the cleanroom in exchange for a note
payable of the same amount issued to a finance company.
In September 2003, the Company entered into an agreement with Siemens to
pay $122,500 for the amount owed for the cleanroom in exchange for a note
payable of the same amount issued to a finance company.
In December 2004, the Company entered into an agreement with Agilent to
pay $77,440 for an asset purchase asset purchase in exchange for a note
payable of the same amount issued to a finance company.
See accompanying notes.
11
FISCAL YEAR-END
The Company's fiscal year ends on December 31st. Fiscal years in the two-year
period ended December 31st contains fifty-two weeks each.
OPERATING SEGMENT INFORMATION
The Company predominantly operates in one industry segment, hi-speed
optoelectronic components and terahertz systems. Substantially all of the
Company's assets and employees are located at the Company's facility in Ann
Arbor, Michigan.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of all financial instruments potentially subject to valuation
risk (principally consisting of cash equivalents, accounts receivable, accounts
payable, notes receivable and notes payable) approximates fair value based upon
prevailing interest rates available to the Company.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments, with an original maturity
of three months or less when purchased, to be cash equivalents.
RECEIVABLES AND REVENUE RECOGNITION
Revenue is recognized at the time of shipment. Shipping and delivery costs are
included in cost of sales. Accounts receivable are stated at amounts estimated
by management to be the net realizable value. Credit terms are granted and
periodically revised based upon evaluations of the customer's financial
condition, with collateral generally not required. The Company reserves for
doubtful accounts based upon past history or known billing disputes. The Company
reviews all accounts receivable balances in determining its reserve estimate.
The Company charges off accounts receivable when it becomes apparent that
amounts will not be collected.
SHORT-TERM AND LONG-TERM INVESTMENTS
Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities", requires that all debt and
marketable equity securities be classified in one of three categories: trading,
available-for-sale, or held-to-maturity. It is the Company's intent to maintain
a diverse portfolio to take advantage of investment opportunities. The Company
has classified all investments as current assets, which includes
available-for-sale and held-to-maturity. Available-for-sale investments are
redeemable within one year. Held-to-maturity securities are callable government
issues; however, market rates make the call remote and the Company has the
intent and ability to not redeem the issue.
Available-for-sale securities are recorded at market value. Unrealized holding
gains and losses, net of the related income tax effect, are excluded from
earnings and are reported as a separate component of shareholders' equity until
realized. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and accretion
are included in interest income. At the time of sale, any realized gains or
losses, calculated by the specific identification method, are recognized as a
component of operating results.
Held-to-maturity securities are carried at amortized cost. The Company held no
short-term or long-term investments as of December 31, 2004 The Company did have
$51,614 invested in a money market account at December 31, 2004 which is
included as a part of Cash and Cash Equivalents on the Balance Sheet.
12
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents and accounts receivable. The
Company maintains cash balances at two financial institutions that are insured
by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. As of
December 31, 2004, the Company had cash at two financial institutions in excess
of Federally insured amounts. As excess cash is available, the Company invests
in short-term and long-term investments, primarily consisting of Government
Securities and Money Market instruments. Accounts receivable are unsecured and
the Company is at risk to the extent such amount becomes uncollectible. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. As of December 31, 2004,
two customers comprised 18% and 15%, respectively, of accounts receivable. As of
December 31, 2003, two customers comprised 25 % and 19%, respectively, of
accounts receivable. For fiscal years 2004 and 2003, cash deposits held at
financial institutions in excess of FDIC insured amounts were as follows:
2004 2003
---------- ---------
$1,029,411 $ 334,018
SIGNIFICANT CUSTOMERS
During the fiscal year ended December 31, 2004, two customers represented 40%
and 16%, respectively, of the Company's net sales. During the fiscal year ended
December 31, 2003, two customers represented 29% and 20%, respectively, of the
Company's net sales.
INVENTORIES
Inventories, which include material, labor and manufacturing overhead, are
stated at standard cost (which approximates the first in, first out method) or
market.
Inventories consist of the following at December 31, 2004.
2004
-----------
Raw material $ 844,467
Finished goods 24,047
-----------
Total inventories 868,514
Less reserve (216,005)
-----------
Inventories, net $ 652,509
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the assets or lease term ranging from three to twenty years.
Equipment and leasehold improvements consist of the following at December 31,
2004.
2004
-----------
Machinery and equipment $ 3,446,458
Furniture and fixtures 582,880
Leasehold improvements 130,712
Data processing equipment 398,207
-----------
Total $ 4,558,257
13
Future depreciation on equipment and leasehold improvements is approximately as
follows:
2005 $ 520,000
2006 496,000
2007 491,000
2008 284,000
2009 139,000
thereafter 72,085
----------
total 2,002,085
LONG-LIVED ASSETS
The Company recognizes impairment losses on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. In such circumstances, those assets are written down to estimated fair
value. Long-lived assets consist primarily of fixed assets. In 2003 the Company
took an impairment charge of $104,689 for clean room equipment which represented
the purchase price of the equipment. Picometrix impaired the cleanroom in prior
years due to the fact that the company located a third party cleanroom facility
which was more economical to operate.
REVENUE RECOGNITION
Revenues from research and development cost plus 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. Estimations of costs are reviewed periodically and any anticipated losses
are recognized in the period in which they first become determinable. The
Company recognizes revenues upon shipment. Provision for estimated losses, if
any, is made in the period in which such losses are determined.
PATENTS
Patents represent costs incurred in connection with patent applications. Such
costs are amortized using the straight-line method over the useful life of the
patent once issued, or expensed immediately if any specific application is
unsuccessful. Amortization expense was approximately $3,200 and $1,700 in 2004
and 2003, respectively. The current patents held by the Company have remaining
useful lives of approximately 15 years. Future amortizations of patent expenses
are as follows:
2005 $ 3,511
2006 3,511
2007 3,511
2008 3,511
2009 3,511
thereafter 22,943
--------
TOTAL $ 40,499
The balance of $426,643 of patents is not currently being amortized as these
patent applications have not yet been granted. These costs will be amortized
over the useful patent life when the patents are granted. If these patent
applications are denied the Company will expense those patent application costs
at that time.
SHIPPING AND HANDLING COSTS
The Company's policy is to classify shipping and handling costs as a component
of Cost of Goods sold in the Statement of Operations.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense was
approximately $ 47,000 and $ 19,000 in 2004 and 2003, respectively.
14
WARRANTIES
The Company typically warrants its products against defects in material and
workmanship for a period of one (1) year from the date of shipment. Warranty
costs are expensed in the period incurred and were not material in 2004 and 2003
PERVASIVENESS OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
ACCOUNTING FOR STOCK OPTION BASED COMPENSATION
SFAS No. 123, "Accounting for Stock Based Compensation", sets forth accounting
and reporting standards for stock based employee compensation plans. As allowed
by SFAS 123, the Company continues to measure compensation cost under Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees" and complies with the pro forma disclosure requirements of the
standard.
NEW ACCOUNTING PRONOUNCEMENTS
In November 2004, the FASB issued FASB Statement No. 151, "Inventory Costs - An
amendment of ARB No. 43, Chapter 4". Statement 151 clarifies that abnormal
amounts of idle facility expense, freight, handling costs and spoilage should be
expensed as incurred and not included in overhead. Further, Statement 151
requires that allocation of fixed production overheads to conversion costs
should be based on normal capacity of the production facilities. The provisions
in Statement 151 are effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Companies must apply the standard prospectively.
The Company will adopt this standard on April 1, 2006.
In December 2004, the FASB issued FASB Statement No. 153, "Exchanges of
Non-monetary Assets" which is an amendment of APB Opinion No. 29. The amendments
made by the Statement are based on the principle that exchanges of non-monetary
assets should be measured based on the fair value of the assets exchanged.
Further, the amendment eliminates the narrow exception for non-monetary
exchanges of similar productive assets and replaces it with a broader exception
for exchanges of non-monetary assets that do not have "commercial substance."
Previously, Opinion 29 required that the accounting for an exchange of a
productive asset for a similar productive asset or an equivalent interest in the
same or similar productive asset should be based on the recorded amount of the
asset relinquished. The provisions in Statement 153 are effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. Early application is permitted and companies must apply the standard
prospectively. The Company will adopt this statement on July 1, 2005.
In December 2004 the FASB issued SFAS 123(R), "Share-Based Payment" -- Statement
123, as originally issued, is effective until the provisions of Statement 123(R)
are fully adopted. This statement will provide investors and other users of
financial statements with more complete and neutral financial information by
requiring the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
market value of the equity or liability instruments issued. The Company will
adopt this Statement in July 2005.
The FASB issued SFAS 132(R), "Employers' Disclosures about Pensions and Other
Postretirement Benefits -- Statement 132", as originally issued, is effective
until the provisions of Statement 132(R) are fully adopted. The provisions of
FAS 132 did not change. FAS 132(r) identified new disclosures that are required.
All new disclosure requirements for the domestic plans of publicly traded
entities are effective for years ending after December 15, 2003. Estimated
future benefit payments, and all other new disclosure requirements for foreign
plans and nonpublic entities are effective for years ending after June 15, 2004.
In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards 154 "Accounting Changes and Error
Corrections"("SFAS 154"). This Statement replaces APB Opinion No. 20,
"Accounting Changes", and FASB Statement No. 3, "Reporting Accounting Changes in
Interim Financial Statements", and changes the requirements for the accounting
for and reporting of a change in accounting principle. The accompanying audited
consolidated financial statements do not have any accounting changes or error
corrections.
The Company does not believe that any of these recent accounting pronouncements
will have a material impact on its financial position or results of operations.
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures for research, development and engineering of products and
manufacturing processes are expensed as incurred.
15
DEFERRED REVENUE
The company recorded deferred revenue in 2004 of $275,000 for prepaid extended
warranty contracts for I year from one customer. The deferred warranty revenue
will be recognized over the period covered by the extended warranty.
NOTES PAYABLE AND LONG-TERM DEBT
On August 28, 2002, the Company entered into a $6 million loan agreement (note
payable) with Coherent, Inc. ("Coherent" and used the proceeds for the payment
of certain indebtedness of the Company and for working capital purposes.
Interest was paid monthly at prime minus 0.50% (5.25% and 4% at December 31,
2004 and 2003, respectively). Coherent assigned the $6 million note payable to
DP1 LLC (Assignee and the "Lender") on September 30, 2004 for $ 4 million and
Picometrix entered into an amended and restated promissory note with DP1 LLC
with a maturity date of March 1, 2006. Payment of either principle or interest
is not required until maturity or until the closing, if sooner, of an investment
by the Lender and/or its affiliate in Picometrix or a financing by a party other
than the Lender and/or its affiliates. Interest accrues at 10% until April 1,
2005 and 18% from April 1, 2005 to December 1, 2005 on $ 4 million and 12%
thereafter on $ 6 million. The note can be retired for $ 4 million plus accrued
interest if paid off by December 1, 2005, thereafter the payoff amount is $ 6
million plus accrued thereafter. Upon the maturity of the note payable and in
addition to the outstanding principal and accrued interest, the Company will pay
Assignee $50,000. The note is secured by substantially all assets of the
Company. The assignor has agreed to subordinate the note payable and any
security interest securing repayment for any secured loan from an institutional
lender, provided 100% of the proceeds of such loan are used to repay the note.
On March 8, 2005, Picometrix entered into an Agreement and Plan of Merger (the
"Agreement") with Advanced Photonix, Inc. and its newly formed subsidiary,
Michigan Acquisition Sub, LLC ("Newco"), a Delaware limited liability company,
whereby Picometrix merged with and into Newco, with Newco (renamed Picometrix
LLC) being the surviving entity. Advanced Photonix, Inc. provided a loan to
Picometrix for $4,228,000, which was used to prepay a $6,000,000 Note Payable,
plus accrued interest at the time of the Agreement. This resulted in a
$1,950,000 gain on the note payable. Immediately following the closing of the
transaction in May 2005, the API Loan was contributed to the capital of
Picometrix, LLC. See subsequent events footnote.
In September of 2004 Picometrix entered into a long-term financing obligation
with the Michigan Economic Development Corporation for up to $1,024,526 in
unsecured financing with interest accruing monthly for the first four years and
then added to the principle and amortized over the next four years at 7%.
In 2003 and 2004 Picometrix entered into long term financing arrangements with
certain equipment vendors for approximately $334,000 amortized over 12 to 48
months at varying interest rates as described below.
A long term, unsecured financing arrangement with Advanced Air in an original
amount of $95,000 entered into on May 1, 2003 at zero percent interest rate,
with payments of $3,200 per month, a maturity of October 1, 2005 and a balance
at December 31, 2004 of $31,000.
A short term, secured financing arrangement with Agilent in an original amount
of $77,440 entered into in December 2004 at 8.16% interest rate, with payments
of $6,742 per month, a maturity of November, 2005 and a balance at December 31,
2004 of $71,224.
A long term, unsecured financing arrangement with Angstrom in an original amount
of $19,130 entered into in June, 2003 at zero percent interest rate, with
payments of $638 per month, a maturity in November, 2005 and a balance at
December 31, 2004 of $7,014.
A long term, unsecured financing arrangement with Bede Scientific in an original
amount of $20,300 entered into on June, 2003 at 4.25% interest rate, with
payments of $461 per month, a maturity of October, 2006 and a balance at
December 31, 2004 of $9,732.
A long term, unsecured financing arrangement with Siemens in an original amount
of $122,500 entered into in October, 2003 at zero percent interest rate, with
payments of $3,403 per month, a maturity of September, 2006 and a balance at
December 31, 2004 of $71,458.
Long-term financing obligations at December 31, 2004 consist of the following:
Note payable - DP1 LLC, see above $ 6,000,000
Note payable - MEDC 750,000
Obligations under capital leases (see note below) 103,908
Bede 9,733
Siemens Building 71,458
Agilent 71,224
Advanced Air 31,000
ANGSTROM 7,014
-----------
Total 7,051,351
Less: current portion (146,861)
-----------
LONG TERM FINANACING LESS CURRENT PORTION 6,904.490
16
Future payments on long-term financing obligations through 2009 are
approximately as follows:
2005 $ 146,861
2006 6,154,490
2007 0
2008 52,000
2009 219,000
thereafter 479,000
Total 7,051,351
CAPITALIZED LEASES
The Company has two (2) capitalized lease obligations which provide for monthly
payments of $5,284 with capitalized imputed interest rates of 8.7% each with a
weighted average imputed interest rate of 8.7% at December 31, 2004. The leases
mature at the end of 2006.. Future payments on the lease obligations are
approximately as follows:
2005 $ 63,400
2006 51,000
-----------
Total minimum lease payments $ 114,400
Interest (10,492)
-----------
Present value of net minimum lease payments $ 103,908
CAPITALIZATION
The Company's Certificate of Incorporation provides for two classes of common
stock, a Class A, non-voting, no par stock for future issuance to employees,
directors and consultants of the company (none issued or outstanding at December
31, 2004), for which 2,520,000 shares are authorized for issuance and reserved
under the 2000 stock option plan and a Class B voting, no par common stock for
which 15,480,000 shares are authorized and issued.
INCOME TAXES
Deferred taxes reflect the net effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at December 31, 2004 and 2003 are
as follows:
2004 2003
----------- -----------
Deferred tax assets:
Net operating loss carry forwards $ 480,551 $ 20,066
Asset impairment 470,731 470,731
Research and development tax credit 187,358 187,358
Inventory 81,942 61,874
Accruals & Other 25,972 22,072
AMT credits 5,889 -
----------- -----------
Total deferred tax assets 1,252,443 1,462,101
Deferred tax liabilities:
Depreciation (145,873) (133,456)
Tax accounting method change (67,870) (101,805)
Total deferred tax liabilities (213,743) (235,261)
----------- -----------
Net deferred tax asset 1,030,700 1,226,840
Less valuation allowance (688,721) -
----------- -----------
Net deferred tax asset $ 349,979 $ 1,226,840
17
Realization of future tax benefits related to deferred tax assets is dependent
on many factors, including the Company's ability to generate sufficient taxable
income and the change in control provisions of Internal Revenue Code section
382.. Management has considered these factors in reaching its conclusion to
provide a valuation allowance for financial reporting purposes.
At December 31, 2004 and 2003, the Company has net operating loss carry forwards
of approximately $1,413,000 and $2,117,000, respectively that begin to expire in
2022.
The Company has $187,000 of R&D tax credit carry forwards available at December
31, 2004 and 2003.
RETIREMENT PLAN
The Company maintains a 401(k) Plan which is qualified under the Internal
Revenue Code. The plan permits eligible employees to make voluntary
contributions up to the IRS allowable limit. The Company has the option to make
a discretionary contribution of a percentage of the employee's compensation
limited to the amount deductible for federal tax purposes. The Company
contributions and administrative costs recognized as expense were approximately
$55,000 and $1,000 in 2004 and 2003, respectively.
COMMITMENTS
The Company leases a building and office equipment under various operating
leases. The building lease expires in 2011, and the Company has an option to
extend for two additional five year periods with annual base rent increase of
80% of the increase in the CPI index. In accordance with the lease agreement,
the Company is required to have a letter of credit (LOC) of $275,000 throughout
the lease term. At December 31, 2004, future minimum annual rental commitments
under non-cancelable operating leases are approximately as follows:
2005 $ 704,300
2006 704,300
2007 704,300
2008 704,300
2009 704,300
2010 704,300
2011 352,100
-----------
Total $ 4,577,900
Rent expense was approximately $704,000 and $704,000 for the years ended
December 31, 2004 and 2003, respectively.
In connection with the issuance of the LOC, the issuing bank has required that
the Company provide applicable funds to cover amounts drawn under the LOC. The
funds are invested in bank certificates of deposit. These funds are shown as
restricted cash on the balance sheet.
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.
18
STOCK OPTIONS
During 2000, the Company adopted the 2000 Stock Option Plan, under which stock
options may be granted to employees, directors and consultants of the Company.
The Plan is administered by the Board of Directors (BOD), and the Company's
shareholders have authorized the BOD to reserve 2,520,000 shares of Class A,
non-voting, no par stock for future issuance under the Plan. The options are not
transferable and are subject to various restrictions outlined in the Plan.
The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25 (APB 25), Accounting for Stock Issued to
Employees. Accordingly, no compensation expense has been recognized in the
financial statements for employee stock options. Statement of Financial
Accounting Standards (SFAS) No. 123 encourages companies to adopt a fair value
method of accounting for stock compensation plans. Companies that do not adopt a
fair value method are required to make pro-forma disclosures of net income and
earnings per share, if material, as if they had adopted the fair value
accounting method. The fair value of options granted has been estimated at the
date of the grant using the minimum value method. No compensation cost has been
recognized as all options were granted at the fair market value at the date of
grant. Had compensation expense for these plans been determined consistent with
SFAS No. 123, the Company's net income (loss) and net income (loss) per share
would be as follows:
2004 2003
Net income (loss), as reported $ 888,170 $ (2,083,222)
Net incomes (loss), Pro forma 871,377 (2,106,252)
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to April 3, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in 2004 and 2003, respectively: risk-free interest rates of, 3%, 3.07%
expected volatility of .73, and .8 and expected lives of 10 years in all
periods. No dividends were assumed in the calculations.
Options vest over 3 to 5 years and are subject to forfeiture. Stock option
transactions for fiscal years 2003 and 2004 are summarized as follows:
Shares Weighted Average
(000) Exercise Price
------ ----------------
Outstanding, December 31, 2002 1,508 $ 0.36
Granted 362 $ 0.03
Exercised 0 0
Canceled/Expired (472) $ 0.33
-----
Outstanding, December 31, 2003 1,398 $ 0.28
===== ========
Exercisable, December 31, 2003 826 $ .32
===== ========
Outstanding, December 31, 2003 1,398 $ 0.28
Granted 0 0
Exercised 0 0
Canceled/Expired (160) $ 0.05
-----
Outstanding, December 31, 2004 1,238 $ .31
===== ========
Exercisable, December 31, 2004 991 $ .33
===== ========
19
Information regarding stock options outstanding as of December 31, 2004 is as
follows:
Options Outstanding
-----------------------------------------------
(in 000s) Weighted Average Weighted Average
Price Range Shares Exercise Price Remaining Life
------------- --------- ---------------- ----------------
$0.03 - $.23 788 $ 0.18 6.3
$0.40 - $1.25 450 $ 0.55 7.0
Options Outstanding
-----------------------------------------------
(in 000s) Weighted Average Weighted Average
Price Range Shares Shares Exercise Price Remaining Life
------------------ -------- ---------------- ----------------
$0.03 - $.23 1,212 $ 0.21 5.7
$0.40 - $1.25 467 $ 0.57 6.9
All outstanding stock options of Picometrix representing 1,238,000 of Class A
non-voting common stock if exercised were repurchased in April 2005 for a cash
consideration $ 509,545 at an average price $.41 per share.
SUBSEQUENT EVENTS (UNAUDITED)
On March 8, 2005, Picometrix entered into an Agreement and Plan of Merger (the
"Agreement") with Advanced Photonix, Inc. and its newly formed subsidiary,
Michigan Acquisition Sub, LLC ("Newco"), a Delaware limited liability company,
whereby Picometrix merged with and into Newco, with Newco (renamed Picometrix
LLC) being the surviving entity. Advanced Photonix, Inc. provided a loan to
Picometrix for $4,228,000, which was used to prepay a $6,000,000 Note Payable,
plus accrued interest at the time of the Agreement. This resulted in a
$1,950,000 gain on the note payable. The merger transaction was completed in May
2005. The merger consideration paid to the stockholders of Picometrix at the
closing of the transaction consisted of $3,500,000 in cash, four-year API
promissory notes in the aggregate principal amount of $2,900,500 (the "API
Notes") and 2,575,000 shares of API Class A Common Stock.
The API notes are payable in four annual installments of $500,000, $550,000,
$900,000 and $950,500 respectively. The API Notes bear an interest rate of prime
plus 1.0% and are secured by all of the intellectual property of Picometrix. API
has the option of prepaying the API Notes without penalty. API engaged a third
party valuation firm to perform a valuation of tangible and intangible assets.
This valuation was then used to allocate the merger consideration (including all
cash, the API Loan to Picometrix, the API Notes and the API Class A Common
Stock) to Picometrix LLC tangible and intangible assets. The excess of the
assets over liabilities represented the capitalization of Picometrix LLC.
Immediately following the effective time of the transaction, the API Loan was
contributed to the capital of Picometrix, LLC.
20
UNAUDITED INTERIM FINANCIAL STATEMENTS
PICOTRONIX, INC.
BALANCE SHEETS-INTERIM
UNAUDITED
UNAUDITED UNAUDITED
MARCH 31, 2005 MARCH 31, 2005
--------------- -------------------
CORRECTED PREVIOUSLY REPORTED
--------------- -------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,222,303 $ 1,222,303
Restricted cash 275,774 275,774
Accounts receivable, less allowance of 2,184 988,506 988,506
Inventories, less allowance of 217,704 723,233 723,233
Prepaid expenses and other current assets 122,204 122,204
Income tax refundable - -
-------------- --------------
Total current assets 3,332,020 3,332,020
Property and equipment:
Leasehold improvements 130,712 130,712
Machinery and equipment 3,849,413 3,849,413
Furniture and fixtures 582,880 582,880
-------------- --------------
4,563,005 4,563,005
Accumulated depreciation (2,690,206) (2,690,206)
-------------- --------------
1,872,799 1,872,799
Other assets:
Deposits and other assets 94,452 94,452
Patents, net 467,142 467,142
-------------- --------------
Total assets $ 5,766,413 $ 5,766,413
============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
Accounts payable:
Trade 227,106 227,106
Income taxes payable 16,725 16,725
Accrued liabilities:
Compensation and related withholdings 303,896 303,896
Interest payable - -
Consulting - -
Deferred revenue 275,000 275,000
Other 172,582 172,582
Current portion of long-term debt 4,074,681 4,074,681
-------------- --------------
Total liabilities 5,069,990 5,069,990
Long-term debt, less current portion 1,153,291 1,153,291
-------------- --------------
Total liabilities 6,223,281 6,223,281
Shareholders' deficiency:
Class B common stock, voting, no par value; 15,480,000 shares authorized,
15,480,000 issued and outstanding (13,536,000 issued and outstanding in 2002) 22,440 22,440
Accumulated deficit (479,308) (479,308)
-------------- --------------
Total shareholders' deficiency (456,868) (456,868)
-------------- --------------
Total liabilities and shareholders' deficiency $ 5,766,413 $ 5,766,413
============== ==============
See accompanying notes.
21
PICOMETRIX, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
INTERIM
UNAUDITED UNAUDITED
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 31, 2005 MARCH 31, 2005
-------------- -------------------
CORRECTED PREVIOUSLY REPORTED
-------------- -------------------
Net sales $ 1,464,398 $ 1,464,398
Cost of products sold 338,179 338,179
----------- -----------
Gross profit 1,126,219 1,126,219
Selling, general and administrative expenses 530,288 530,288
Research and development expenses 708,070 708,070
----------- -----------
1,238,358 1,238,358
----------- -----------
Loss from operations (112,139) (112,139)
Other income (expense):
Interest expense (91,044) (85,963)
Interest income 5,081 -
Forgiveness of debt 1,950,000 1,950,000
----------- -----------
Income before income taxes 1,751,898 1,751,898
Federal income taxes (benefit):
Current 366,815 366,815
Deferred - -
----------- -----------
366,815 366,815
----------- -----------
Net income 1,385,083 1,385,083
(Accumulated deficit) retained earnings at
beginning of year (1,864,391) (1,864,391)
----------- -----------
Accumulated deficit at end of year $ (479,308) $ (479,308)
=========== ===========
22
PICOTRONIX, INC.
STATEMENTS OF CASH FLOWS
INTERIM
UNAUDITED UNAUDITED
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 31, 2005 MARCH 31, 2005
-------------- -------------------
CORRECTED PREVIOUSLY REPORTED
-------------- -------------------
OPERATING ACTIVITIES
Net income $ 1,385,083 $ 1,385,083
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 134,034 134,034
Loss on impairment of property and equipment - -
Provision for obsolete inventory 1,698 -
Deferred income tax benefit 349,979 349,979
Changes in operating assets and liabilities:
Income taxes 10,836 10,836
Prepaid expenses 63,703 63,703
Accounts payable, accrued expenses, and other (88,934) (88,934)
Inventories (72,422) (70,724)
Accounts receivable 257,289 257,289
------------- -------------
Net cash provided by operating activities 2,041,266 2,041,266
INVESTING ACTIVITIES
Purchases of property and equipment (4,748) (4,748)
Increase in deposits and other assets - -
Decrease (increase) in restricted investments - -
Decrease (increase) in patent activity - -
------------- -------------
Net cash (used in) operating activities (4,748) (4,748)
FINANCING ACTIVITIES
Payments on capital lease obligation (15,852) (15,852)
Net repayments to finance companies (1,807,527) (1,807,527)
------------- -------------
Net cash (used in) provided by financing activities (1,823,379) (1,823,379)
------------- -------------
Net (decrease) increase in cash 213,139 213,139
Cash at beginning of year 1,284,938 1,284,938
------------- -------------
Cash at end of year $ 1,498,077 $ 1,498,077
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash refunded for income taxes $ - $ -
============= =============
Cash paid for interest $ 178,099 $ 178,099
============= =============
SUPPLEMENTAL DISCLOSURE OF NON CASH OPERATING, INVESTING
AND FINANCING ACTIVITIES
ERROR CORRECTION (UNAUDITED)
In the un-audited Statement of Cash Flow for the three months ending March 31,
2005, the following changes were made:
a) The provision for obsolete inventory ($1,698) was re-classified to
Adjustments to reconcile net income to net cash provided by operating
activities, resulting in a net change of zero to the Ending Cash amount.
In the Statement of Operations and Accumulated Deficit, for the three months
ending March 31, 2005, the flowing changes were made:
b) The Interest Income was separated from Interest Expense resulting in an
income amount of $5,081 and increasing the Interest Expense by $5,081, resulting
in a net chance of zero to Income before taxes.
23
SUMMARY COMBINED COMPANY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Effective May 2, 2005, Advanced Photonix, Inc ("API") completed its acquisition
of Picotronix, Inc, through the merger of Picotronix, Inc. (doing business as
and referred to herein as "Picometrix"), into Picometrix LLC, a wholly-owned
subsidiary of API. Pursuant to the merger between Picometrix and API, API paid
approximately $16 million in the form of $3.5 million in cash, four-year API
promissory notes in the aggregate principal amount of approximately $2.9 million
(the "API Notes") and $5.4 million in API Class A Common Stock (2,575,000 shares
valued at $2.11) and provided a loan in the amount of approximately $4.2 million
to Picometrix (the "API Loan"), the proceeds of which were used to prepay
existing long-term indebtedness of Picometrix to a third party. Immediately
following the effective time of the transaction, the API Loan was contributed to
the capital of Picometrix, LLC.
The combined company unaudited pro forma consolidated statements of operations
give effect to the purchase of Picometrix as if the transaction had occurred on
March 28, 2004. The combined company unaudited pro forma condensed consolidated
statements of operations do not purport to represent what the results of
operations actually would have been if the purchase had occurred as of such
date, or what such results will be for any future periods.
The combined company unaudited pro forma consolidated statements of operations
are derived from the historical financial statements of API and Picometrix and
the assumptions and adjustments described in the accompanying notes. The pro
forma adjustments are based on preliminary estimates and assumptions that API
and Picometrix believe are reasonable under the circumstances. The combined
company unaudited pro forma financial information should be read in conjunction
with the historical financial statements and the accompanying notes thereto of
API and Picometrix. The combined company unaudited pro forma consolidated
statements of operations do not reflect any cost savings or other economic
efficiencies which will result from the purchase.
24
ADVANCED PHOTONIX, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 27, 2005
3/27/2005 3/31/2005
API PICOMETRIX ADJUSTMENTS NOTE PRO FORMA
---------------- --------------- --------------- ---- ----------------
CURRENT ASSETS
Cash and cash equivalents $ 1,503,000 $ 1,222,303 $ (4,291,471) 3 $ 1,878,287
2,700,000 6
(509,545) 9
1,254,000 8
Restricted cash 1,254,000 275,774 (1,254,000) 8 275,774
--------------- -------------- -------------- - ---------------
Total cash and cash equivalents 2,757,000 1,498,077 (2,101,016) 2,154,061
Accounts receivable, net of allowances 2,610,000 988,506 3,598,506
Note receivable from Picometrix, Inc. 4,228,000 (4,228,000) 7 -
Inventories, net of allowances 3,644,000 723,233 4,367,233
Deferred tax asset, current portion 644,000 644,000
Prepaid expenses and other current assets 563,000 122,204 685,204
--------------- -------------- -------------- ---------------
TOTAL CURRENT ASSETS 14,446,000 3,332,020 (6,329,016) 11,449,004
--------------- -------------- -------------- ---------------
Fixed assets, net of depreciation 1,399,000 1,872,799 595,163 2 3,866,962
--------------- -------------- -------------- ---------------
OTHER ASSETS
Deferred tax assets, net 4,105,000 4,105,000
Goodwill, net 2,421,000 2,421,000
Intangible assets 494,000 467,142 12,486,926 2 13,448,068
Security deposits and other assets 490,000 94,452 584,452
--------------- -------------- -------------- ---------------
TOTAL OTHER ASSETS 7,510,000 561,594 12,486,926 20,558,520
--------------- -------------- -------------- ---------------
TOTAL ASSETS $ 23,355,000 $ 5,766,413 $ 6,753,073 $ 35,874,486
=============== ============== ============== ===============
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,174,000 $ 995,309 $ $ 3,169,309
Current portion of long-term debt 1,011,000 4,074,681 900,000 6 1,757,681
(4,228,000) 7
--------------- -------------- -------------- ---------------
TOTAL CURRENT LIABILITIES 3,185,000 5,069,990 (3,328,000) 4,926,990
--------------- -------------- -------------- ---------------
LONG-TERM LIABILITIES
Long-term debt 4,861,000 1,153,291 2,900,500 4 10,714,791
1,800,000 6
--------------- -------------- -------------- ---------------
TOTAL LONG-TERM LIABILITIES 4,861,000 1,153,291 4,700,500 10,714,791
--------------- -------------- -------------- ---------------
COMMITMENTS AND CONTINGENCIES
Class A redeemable convertible preferred stock 32,000 32,000
--------------- -------------- -------------- ---------------
TOTAL COMMITMENTS AND CONTINGENCIES 32,000 32,000
--------------- -------------- -------------- ---------------
TOTAL LIABILITIES 8,078,000 6,223,281 1,372,500 15,673,781
--------------- -------------- -------------- ---------------
SHAREHOLDERS' EQUITY
Common stock 13,000 22,440 (22,440) 1 15,575
2,575 5
Additional paid-in capital 27,995,000 5,430,675 5 33,425,675
Accumulated deficit (12,731,000) (479,308) 479,308 1 (13,240,545)
(509,545) 9
--------------- -------------- -------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 15,277,000 (456,868) 5,380,573 20,200,705
--------------- -------------- -------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 23,355,000 $ 5,766,413 $ 6,753,073 $ 35,874,486
=============== ============== ============== ===============
SEE NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
25
NOTES:
1 Eliminates the items on Picometrix historical financial statements.
2 Reflects preliminary allocation of purchase price to tangible and intangible
assets.
3 Represents the cash portion of the purchase price.
4 Reflects the impact of issuance of $2,900,500 aggregate principal amount of
promissory notes issued to finance the acquisition of Picometrix, (the "API
notes"), payable to the Picometrix stockholders.
5 Reflects API stock issued as part of the purchase price.
6 Reflects incurrence of a term loan by API for $2,700,000 to finance purchase
of Picometrix.
7 Elimination of intercompany loan
8 Restrictions on cash removed upon close of Picometrix transaction.
9 Repurchase of Class A common Stock Options.
26
ADVANCED PHOTONIX, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 27, 2005
API PICOMETRIX
HISTORICAL HISTORICAL ADJUSTMENTS NOTE PRO FORMA
---------------- ------------- -------------- ---- ---------------
REVENUES $ 14,803,000 $ 7,473,404 $ 22,276,404
COST OF SALES 10,071,000 2,311,104 12,382,104
--------------- ------------ ------------- --------------
GROSS PROFIT (LOSS) 4,732,000 5,162,300 - 9,894,300
OPERATING EXPENSES
Research and development expense 146,000 2,574,997 2,720,997
Selling, general and administrative expense 3,920,000 1,703,389 5,623,389
Depreciation 119,033 1 119,033
Amortization - - 1,186,017 2 1,186,017
--------------- ------------ ------------- --------------
INCOME (LOSS) FROM OPERATIONS 666,000 883,914 (1,305,050) 244,864
--------------- ------------ ------------- --------------
OTHER INCOME (EXPENSE)
Interest income 43,000 6,990 49,990
Interest expense (154,000) (304,785) (167,752) 3 (626,537)
392,771 4 392,771
(62,045) 5 (62,045)
Other, net (35,000) (42,039) 1,950,000 7 1,872,961
--------------- ------------ ------------- --------------
TOTAL OTHER (INCOME) EXPENSE (146,000) (339,834) 2,112,974 1,627,140
--------------- ------------ ------------- --------------
NET INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES 520,000 544,080 807,924 1,872,004
--------------- ------------ ------------- --------------
PROVISION (BENEFIT) FOR INCOME TAXES
Provision for income taxes - current 18,000 5,889 6 23,889
Provision (benefit) for income taxes - deferred (4,752,000) (349,979) (5,101,979)
--------------- ------------ ------------- --------------
TOTAL PROVISION FOR INCOME TAXES (4,734,000) (344,090) - (5,078,090)
--------------- ------------ ------------- --------------
NET INCOME (LOSS) $ 5,254,000 $ 888,170 $ 807,924 $ 6,950,094
=============== ============ ============= ==============
BASIC NET INCOME PER COMMON SHARE $ 0.39 $ 0.43
=============== ==============
DILUTED NET INCOME PER COMMON SHARE $ 0.34 $ 0.38
=============== ==============
BASIC WEIGHTED AVERAGE COMMON SHARES 13,461,000 2,575,000 16,036,000
=============== ============= ==============
DILUTED WEIGHTED AVERAGE COMMON SHARES 15,599,000 2,575,000 18,174,000
=============== ============= ==============
1 Reflects the projected impact of depreciation on writeup of assets.
2 Reflects the projected impact of amortization of acquired intangible
assets of $3,588,616 over 15 years useful life and $9,467,764 over 10
years useful life.
3 Reflects the impact of interest expense from $2,900,500 aggregate
principal amount of the API notes. The interest rate used was the average
prime rate plus 1% per quarter (4/1/04 - 3/27/05) multiplied by the number
of days in each quarter.
4 Reflects the reversal of Interest paid to Coherent and DPC1 with respect
to the repayment of the loan.
5 Reflects the impact of interest expense from $2,700,000 aggregate
principal amount of the API notes. The interest rate used was the average
prime rate plus 1% per quarter (4/1/04 - 9/30/04) multiplied by the number
of days in each quarter.
6 No income tax benefit is assumed due to uncertainties surrounding the
ultimate realizability of net operating losses.
7 Reflects gain on forgiveness of debt on DPC1.
27
ERROR CORRECTION (PROFORMA)
In the Pro Forma Balance Sheet statement, for calendar year ending March 27,
2005, the following changes were made:
a) In the liability section a re-classification of accounts payable and
accrued expenses with the current portion of long term debt was made to
the Picometrix balance sheet resulting in a net zero change in Total Long
Term Liabilities.
b) In shareholder equity sections an adjustment to the common stock and
accumulated deficit was made to correct a mathematical error balancing
Total liabilities and Shareholders Equity to Total Assets.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED PHOTONIX, INC.
By: /s/ Richard Kurtz
----------------------------------------
Richard Kurtz, Chief Executive Officer
Dated: August 3, 2005
28