Needham Presentation

Jan. 13, 2011

NYSE AMEX: API

Forward Looking Statement

This presentation contains forward-looking statements.

All forward-looking statements involve risks and
uncertainties, including, without limitation, the risks
detailed in the Company’s filings and reports with the
Securities and Exchange Commission. Such statements
are only predictions, and actual events or results may
differ materially from those projected.

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Key Facts
Symbol (NYSE Amex) API
Corporate Headquarters Ann Arbor, MI
Stock Price (12/23/10) || 52-Week Range $1.57|| $0.41 – $1.64
Shares Outstanding 25,776,000
Market Capitalization $40,470,000
Volume (daily 90-day average) – as of 12/23/10 83,726
Debt (10/1/10) $5,815,000
Cash (10/1/10) $1,511,000
Quarterly Revenue (10/1/10) $6,999,000
Quarterly EBITDA (10/1/10) $455,000
Insider Ownership 19%
Institutional Ownership Shares 16%
Full-time Employees (approx.) 153
Fiscal Year End March 31
Accounting Firm BDO USA, LLP
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Revenue Growth (past four quarters)
8,000 600
Thousands

Thousands
511

7,000
405 400
6,999

6,000 6,253
200

5,000
52
0
4,588
4,000 5,128 REVENUE
ADJUSTED EBITDA
-200
3,000

-400
2,000

(568)
-600
1,000

- -800
Q3 2010 Q4 2010 Q1 2011 Q2 2011

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Optoelectronic Semiconductors Products
Three Product Platforms Five Markets
High-Speed Optical Receivers

components Telecom

Custom Optoelectronic Solutions Medical

subsystems Military

Terahertz Instrumentation Industrial/NDT

Homeland
systems
Security

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Vertical Integration-
Core Competencies
Material Growth

Systems
Subsystems
Components

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Growth Markets
• Telecom – Entering Growth Phase 40% CAGR
– Optical Receivers
• 40G- High Growth w/TAM growing from $15M to $150M
• 100G- Volume beginning 2011
– Telecom infrastructure build out driven by HD video,
wireline/wireless, emerging markets (China…etc)
• Military – Mature & Stable Phase
– Custom Optoelectronic Solutions – Moderate Growth w/TAM of
$150M
– Military demand for smart sensors
• Industrial/NDT – Emerging Market High Growth
– Terahertz (imaging with chemical analysis)
– TAM growing from $10M to $220M by 2017 excluding HLS mkt
– Process and product quality control (nondestructive)

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High-Speed Optical Receivers (HSOR)
• Telecommunication Transmission Market
– Client Side (VSR) and Line side (DPSK,DQPSK, DP-QPSK)
– Metro, Long Haul, and Ultra Long Haul for 40G & 100G
• Routers, Switches, and Transport (WDM)

CoreStream Agility

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40G & 100G Market Growth

Quarterly Telecom
Revenues
• 40G rapid growth phase
– Client Side driven by date centers
and routers
– Line side driven by emerging
international markets
• 100G deployed in 2010
• Volume deployment ramping up in
2011
• Drivers
– Increased capacity
– Reduced latency

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HSOR Technology Integration

40G NRZ Receiver

16mm footprint

40G DPSK Receiver

18mm footprint
Equivalent to two PT-40D’s
Moving from component to
subsystems

40G DQPSK Receiver

36mm footprint 100G DP-QPSK Receiver
Utilizes two BR-40B’s 50mm footprint
Equivalent to four BR-40B’s
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Custom Optoelectronic Solutions
• Military/Space Market • Industrial Market
– High reliability applications – Process control
– Custom packaging – OEM equipment

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Optoelectronic Solutions
• Increase market share and improve gross
margins
– Military & Space Market
• Improving performance on smart munitions
• P type PIN Quad detector
– Industrial Market
• Expanding into new low light level applications
• Silicon APD

Growing Silicon product gross margins

by increasing capacity utilization
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What is Terahertz?
• Terahertz is…
– A new disruptive technology for Non-destructive Testing (NDT)
by combining imaging and chemical analysis
– Non-contact, non-destructive, non-invasive
– Safe, not harmful to operators or inspected objects
• Terahertz can…
– See through most materials
– Determine chemical composition
– Measure multiple properties simultaneously
• Moisture, density, weight, thickness…

THz

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Evolution of Technology
3rd Generation –
1st Generation – 2nd Generation –
Factory Hardened
4TH Generation
Laboratory Experiment Research Tool 55 lbs
800 lbs

Bell Labs T-Ray 2000® T-Ray 4000®

1997 2001 2008

$35 Million in R&D over 11 years T-Ray® QA1000

35 patents and patents pending 2004

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Flexibility of Technology
T-Ray 4000® Transportable, factory hardened

4th Generation
• Faster, Cheaper
lighter
• Patent protected
• Scalable platform
– Application
reconfigurable

2008
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T-Ray 4000® Military Aerospace
Market (Revenue Generating)
• Traditional QC early adopters:
– NASA Space Shuttle (adopted)
• Imaging for foam defects
• Imaging for tile defects
– Aerospace
• Imaging for radome defects
• Military (F-35 $300B Program)

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Delamination and Water Intrusion
with in fixed and mobile Radomes’
Development of Handheld Scanner- 1st Gen

Radome Panel
Fixed Radome With Water
Intrusion

Water intrusion into composite

laminate panel degrades radar Development of a mobile
performance. line scanner for mapping
Current solution: Manual Tap Radome defects
testing

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F-35 Manufacture and Repair
• Awarded Phase II SBIR
Contract
– $3.0 million alpha prototype
– $1.5 million option for beta
prototype
• T-Ray® Applications
– Panel fit and placement
– Fastener positioning
– Coating thickness

Step
Coating

Substrate
Gap

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Aerospace Market Opportunity

• F-35 Program
– Manufacturing sites requirements
• 10 systems
– Inspection and repair sites
• 20 systems
• Radome Fixed and Mobile
• 20 systems
• TOTAL MARKET OPPORTUNITY $ 50 million
– System sales $20 million
– Spares and Service @ 15% $3 million annually for 10 years

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Security Market Applications
• Checked & carry-on baggage scanning using
imaging capability

Sheet explosive
Gun

Top
of briefcase
Knife Block Explosive
Middle
of briefcase

Bottom
of briefcase

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Security Market Applications
• Non-Imaging personnel anomaly screening (without
privacy and health concerns)
• Shoe screening
• Head covering screening
• People screening

No Threat Detected

Threat Detected

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In-Q-Tel Development Agreement
funded by TSA

• Completion by November 2011

• Objective delivery three fully functional systems
• What happens after delivery?
– TSA testing for Multi-modal Listing
– TSA Field testing at two or three airports for Airport
Screening
– System deployment starts 2013
• Security Market potential $250 million
– System Sales $100 million
– Spares and Service $150 million (over 10 years)

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Terahertz Industrial Markets

• Industrial process control and QC market

– Estimated Market $600M per year by 2020

– 1st Targeted Market - Replacement of Nuclear Gauges (NG)

• Total NG Market size $400 million annually
• Targeting replacement of NG with T-Gauge®
• Target NG Markets
– Extruded materials, Paper,Tires
• Other Target Markets
– Consumer goods, pharma, petrochemical, coating, food, etc…

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 World’s First installed T-Ray® Gauge
-replacing Nuclear Gauge in Roofing Market
T-Ray® gauge –
Measures total & layer
thickness with greater
accuracy, no regulatory
providing more data for quality
control,( i.e. delamination,
moisture, etc )

Nuclear gauge –
Limited to total thickness measurements
Expensive regulatory requirements
requires multiple sensors 24
Paper Coating Industry
Replacing Nuclear Gauge and IR Gauge

• High value added Paper (i.e. photographic paper)

• Primary focus cost saving with TOC, material savings, capex by;
– Replacing two gauges (NG &IR) with one T-Gauge
– Measuring total thickness (same as NG)
– Measuring coating thickness and uniformity = material savings (NG & IR can’t measure)
– Measuring moisture (NG can not measure, same as IR)

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Company Growth Strategy
• 40/100G Telecom components Ramp capacity to match high
– Organic Growth (40% CAGR) growth demand
– Increasing Value add - vertical integration
• (synergistic technology)
• Systems – Terahertz
– Organic Growth (50% CAGR)
• Penetrate early adopters for NG market Large emerging market
– Begin building VAR Network Attack NG Market
• Target vertical markets
– Cost reduce for volume markets
• Vertical integration of major components
• Subsystems – Custom Optosolutions
– Organic Growth (5% to 10%) Cash flow
• Selective product development Recurring revenue
• Cost savings thru process improvement
• Generate cash flow and improve GM
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Summary Take-A-Way

• High growth opportunities

• Telecom NOW
• Terahertz early stages with industrial & HLS wins
• High value-added products
• Increasing Gross Margin from 34% to 44%
• Improving financial results
• Revenue CAGR -53% (past 4 quarters)
• Improving profitability and cash flow (6 months YTD)
• YTD EBITDA $842,000
• YTD Non-GAAP NI $307,000

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 Thank You
Richard Kurtz, CEO & Chairman
rkurtz@advancedphotonix.com

Robin Risser, CFO

rrisser@advancedphotonix.com

NYSE Amex: API

www.advancedphotonix.com

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