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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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Delaware
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|
33-0325826
|
(State
or other jurisdiction of incorporation
or
organization)
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|
(I.R.S.
Employer Identification Number)
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PART
I
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|
FINANCIAL
INFORMATION
|
|
|
|
||
Item 1.
|
|
Financial
Statements (Condensed)
|
|
|
|
||
|
Condensed
Consolidated Balance Sheets at December 29, 2006 and March 31, 2006.
|
3
|
|
|
|
||
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Condensed
Consolidated Statements of Operations for the three-month and nine-month
periods ended December 29, 2006 and December 25, 2005.
|
4
|
|
|
|
||
|
Condensed
Consolidated Statements of Cash Flows for the nine-month periods
ended
December 29, 2006 and December 25, 2005.
|
5
|
|
|
|
||
|
Notes
to Condensed Consolidated Financial Statements
|
6
|
|
|
|
||
Item 2.
|
|
Management
Discussion and Analysis
|
14
|
|
|
||
Item 3.
|
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
|
|
||
Item 4.
|
|
Controls
and Procedures
|
20
|
|
|
||
PART
II
|
|
OTHER
INFORMATION
|
|
|
|
||
Item
1A
|
Risk
Factors
|
21
|
|
Item 6.
|
|
Exhibits
|
21
|
|
|
||
|
Signatures
|
22
|
December
29, 2006 (Unaudited)
|
March
31, 2006
(Restated)
|
||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
4,191,000
|
$
|
5,933,000
|
|||
Accounts
receivable, net
|
3,164,000
|
4,387,000
|
|||||
Inventory,
net
|
4,135
000
|
3,434,000
|
|||||
Prepaid
expenses and other current assets
|
547,000
|
711,000
|
|||||
Total
current assets
|
12,037,000
|
14,465,000
|
|||||
Equipment
and leasehold improvements, net
|
4,196,000
|
3,375,000
|
|||||
Goodwill,
net of accumulated amortization of $353,000 for December 29, 2006
and
March 31, 2006
|
4,719,000
|
4,719,000
|
|||||
Intangibles
and patents, net
|
13,315,000
|
14,355,000
|
|||||
Other
assets
|
1,014,000
|
1,087,000
|
|||||
Total
assets
|
$
|
35,281,000
|
$
|
38,001,000
|
|||
Liabilities
and shareholders' equity
|
|||||||
Current
liabilities
|
|||||||
Line
of credit
|
$
|
1,000,000
|
$
|
1,000,000
|
|||
Accounts
payable and accrued expenses
|
2,100,000
|
1,934,000
|
|||||
Compensation
and related withholdings
|
855,000
|
697,000
|
|||||
Deferred
income
|
—
|
77,000
|
|||||
Current
portion of long-term debt, related party
|
550,000
|
500,000
|
|||||
Current
portion of long-term debt
|
4,956,000
|
927,000
|
|||||
Total
current liabilities
|
9,461,000
|
5,135,000
|
|||||
Long-term
debt, less current portion
|
1,350,000
|
5,002,000
|
|||||
Long-term
debt, less current portion - related party
|
1,851,000
|
2,401,000
|
|||||
Total
liabilities
|
12,662,000
|
12,538,000
|
|||||
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:
|
|||||||
Preferred
stock - no shares issued and outstanding
|
-
|
-
|
|||||
Class
A common stock, $.001 par value, 50,000,000 authorized; December
29, 2006
- 19,059,006 shares issued and outstanding, March 31, 2006 - 18,885,006
shares issued and outstanding.
|
19,000
|
19,000
|
|||||
Class
B common stock, $.001 par value; 4,420,113 shares authorized, December
29,
2006 and March 31, 2006 - 31,691 issued and outstanding.
|
-
|
-
|
|||||
Additional
paid-in capital
|
44,058,000
|
43,581,000
|
|||||
Accumulated
deficit
|
(21,490,000
|
)
|
(18,169,000
|
)
|
|||
Total
shareholders' equity
|
22,587,000
|
25,431,000
|
|||||
Total
liabilities and shareholders' equity
|
$
|
35,281,000
|
$
|
38,001,000
|
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
December
29, 2006
|
December
25, 2005
|
December
29, 2006
|
December
25, 2005
|
||||||||||
(Restated)
|
(Restated)
|
||||||||||||
Sales,
net
|
$
|
5,881,000
|
$
|
6,511,000
|
$
|
17,427,000
|
$
|
16,782,000
|
|||||
Cost
of products sold
|
2,997,000
|
3,513,000
|
9,185,000
|
9,512,000
|
|||||||||
Gross
profit
|
2,884,000
|
2,998,000
|
8,242,000
|
7,270,000
|
|||||||||
Operating
expenses:
|
|||||||||||||
Research,
development and engineering expenses
|
1,005,000
|
836,000
|
2,994,000
|
2,083,000
|
|||||||||
Sales,
general and administrative expenses
|
2,041,000
|
1,902,000
|
6,604,000
|
5,540,000
|
|||||||||
Wafer
fabrication relocation expenses
|
174,000
|
—
|
294,000
|
—
|
|||||||||
Total
operating expenses
|
3,220,000
|
2,738,000
|
9,892,000
|
7,623,000
|
|||||||||
Income
(loss) from operations
|
(336,000
|
)
|
260,000
|
(1,650,000
|
)
|
(353,000
|
)
|
||||||
Other
income (expense):
|
|||||||||||||
Interest
income
|
48,000
|
10,000
|
165,000
|
24,000
|
|||||||||
Interest
expense
|
(610,000
|
)
|
(1,102,000
|
)
|
(1,661,000
|
)
|
(2,272,000
|
)
|
|||||
Interest
expense, related party
|
(56,000
|
)
|
(57,000
|
)
|
(168,000
|
)
|
(140,000
|
)
|
|||||
Other
income (expense)
|
(11,000
|
)
|
3,000
|
(7,000
|
)
|
(4,000
|
)
|
||||||
Net
income (loss)
|
$
|
(964,000
|
)
|
$
|
(886,000
|
)
|
$
|
(3,321,000
|
)
|
$
|
(2,745,000
|
)
|
|
Basic
and diluted loss per share
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.17
|
)
|
$
|
(0.16
|
)
|
|
Weighted
average common shares outstanding
|
|||||||||||||
Basic
and diluted
|
19,089,000
|
18,563,000
|
19,032,000
|
16,983,000
|
For
the nine months ended:
|
December
29, 2006
|
December
25, 2005
|
|||||
(Restated)
|
|||||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(3,321,000
|
)
|
$
|
(2,745,000
|
)
|
|
Adjustment
to reconcile net loss to net cash provided by (used in) operating
activities
|
|||||||
Depreciation
and amortization
|
1,999,000
|
1,703,000
|
|||||
Stock
compensation
|
276,000
|
—
|
|||||
Amortization
convertible note discount
|
1,048,000
|
1,904,000
|
|||||
Other
provisions
|
91,000
|
—
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
1,223,000
|
(772,000
|
)
|
||||
Inventories
|
(792,000
|
)
|
(223,000
|
)
|
|||
Prepaid
expenses and other assets
|
137,000
|
(165,000
|
)
|
||||
Accounts
payable and other liabilities
|
221,000
|
(852,000
|
)
|
||||
Net
cash provided by (used in) operating activities
|
882,000
|
(1,150,000
|
)
|
||||
Cash
flows from investing activities:
|
|||||||
Capital
expenditures
|
(1,574,000
|
)
|
(155,000
|
)
|
|||
Patent
expenditures
|
(106,000
|
)
|
(118,000
|
)
|
|||
Cash
paid for Picotronix, Inc. acquisition
|
—
|
(3,500,000
|
)
|
||||
Cash
acquired through acquisition of Picotronix, Inc.
|
—
|
678,000
|
|||||
Cash
paid for acquisition related costs
|
—
|
(936,000
|
)
|
||||
Net
cash used in investing activities
|
(1,680,000
|
)
|
(4,031,000
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from bank term loan
|
—
|
2,700,000
|
|||||
Payments
on bank term loan
|
(675,000
|
)
|
(525,000
|
||||
Payments
on notes payable
|
—
|
(128,000
|
)
|
||||
Payments
on notes payable - related party
|
(500,000
|
)
|
—
|
||||
Proceeds
from placement of convertible note
|
1,000,000
|
||||||
Proceeds
from MEDC term loan
|
600,000
|
||||||
Proceeds
from exercise of warrants
|
—
|
455,000
|
|||||
Proceeds
from exercise of stock options
|
231,000
|
171,000
|
|||||
Net
cash provided by (used in) financing activities
|
(944,000
|
)
|
4,273,000
|
||||
Net
decrease in cash and cash equivalents
|
(1,742,000
|
)
|
(908,000
|
)
|
|||
Cash
and cash equivalents at beginning of year
|
5,933,000
|
2,757,000
|
|||||
Cash
and cash equivalents at end of quarter
|
$
|
4,191,000
|
$
|
1,849,000
|
|||
Supplemental
disclosure of cash flow information:
|
|||||||
Cash
paid for income taxes
|
$
|
—
|
$
|
—
|
|||
Cash
paid for interest
|
$
|
507,000
|
$
|
347,000
|
Consolidated
Statement of Operations
|
As
Reported
|
Restated
|
|||||
Interest
expense, warrant fair value
|
$
|
—
|
$
|
(1,013,000
|
)
|
||
Net
Income (Loss)
|
$
|
127,000
|
$
|
(886,000
|
)
|
||
Basic
earnings (loss) per share
|
$
|
0.01
|
$
|
(0.05
|
)
|
||
Diluted
earnings (loss) per share
|
$
|
0.01
|
$
|
(0.05
|
)
|
Consolidated
Statement of Operations
|
As
Reported
|
|
|
Restated
|
|||
Interest
expense, warrant fair value
|
$
|
—
|
$
|
(1,904,000
|
)
|
||
Net
Income (Loss)
|
$
|
(841,000
|
)
|
$
|
(2,745,000
|
)
|
|
Basic
and diluted loss per share
|
$
|
(0.05
|
)
|
$
|
(0.16
|
)
|
Balance
Sheet
|
As
Reported
|
Restated
|
|||||
Long-term
debt, less current portion
|
$
|
6,132,000
|
$
|
5,002,000
|
|||
Total
liabilities
|
$
|
13,668,000
|
$
|
12,538,000
|
|||
Additional
paid-in capital
|
$
|
40,478,000
|
$
|
43,581,000
|
|||
Accumulated
deficit
|
$
|
(16,196,000
|
)
|
$
|
(18,169,000
|
)
|
|
Total
shareholders’ equity
|
$
|
24,301,000
|
$
|
25,431,000
|
Three
months ended
|
Nine
months ended
|
||||||
December
25, 2005
|
December
25, 2005
|
||||||
Restated
|
Restated | ||||||
Net
Income (loss), as reported
|
$
|
(886,000
|
)
|
$
|
(2,745,000
|
)
|
|
Net
income (loss), proforma
|
$
|
(892,000
|
)
|
$
|
(2,904,000
|
)
|
|
Basic
income (loss) per share, as reported
|
$
|
(0.05
|
)
|
$
|
(0.16
|
)
|
|
Basic
income (loss) per share, proforma
|
$
|
(0.05
|
)
|
$
|
(0.17
|
)
|
Nine
months ended
|
||||
|
December
29,
2006 |
|||
Expected
term (in years)
|
6.5
|
|||
Volatility
|
47.8%
|
%
|
||
Risk-free
interest rate
|
5.0%
|
%
|
||
Dividend
yield
|
0.00
|
%
|
Shares
(000s)
|
Weight
Average Exercise Price
|
||||||
Outstanding,
September 29, 2006
|
2,890
|
$
|
1.79
|
||||
Granted
|
—
|
—
|
|||||
Exercised
|
(17
|
)
|
$
|
0.88
|
|||
Expired
|
(34
|
)
|
$
|
1.99
|
|||
Outstanding,
December 29, 2006
|
2,839
|
$
|
1.79
|
||||
Exercisable,
December 29, 2006
|
2,242
|
$
|
1.74
|
Accounts
receivable consisted of the following:
|
|||||||
December
29, 2006
|
March
31, 2006
|
||||||
Trade
receivables, net
|
$
|
3,085,000
|
$
|
4,068,000
|
|||
Unbilled
receivables
|
79,000
|
319,000
|
|||||
Total
|
$
|
3,164,000
|
$
|
4,387,000
|
December
29, 2006
|
March
31, 2006
|
||||||
Raw
material
|
$
|
3,290,000
|
$
|
4,288,000
|
|||
Work-in-process
|
1,420,000
|
937,000
|
|||||
Finished
products
|
379,000
|
390,000
|
|||||
Total
inventories
|
5,089,000
|
5,615,000
|
|||||
Less
reserve
|
(954,000
|
)
|
(2,181,000
|
)
|
|||
Inventories,
net
|
$
|
4,135,000
|
$
|
3,434,000
|
December
29, 2006
|
March
31, 2006
|
|||||||||||||||||||||
Weighted
Average Lives
|
Carrying
Value
|
Accumulated
Amortization
|
Intangibles
Net
|
Carrying
Value
|
Accumulated
Amortization
|
Intangibles
Net
|
||||||||||||||||
Non-Compete
agreement
|
3
|
$
|
130
|
$
|
71
|
$
|
59
|
$
|
130
|
$
|
38
|
$
|
92
|
|||||||||
Customer
list-API
|
5
|
635
|
254
|
381
|
635
|
159
|
476
|
|||||||||||||||
Customer
list-Pico
|
15
|
190
|
21
|
169
|
190
|
11
|
179
|
|||||||||||||||
Trademarks
|
15
|
2,270
|
248
|
2,022
|
2,270
|
135
|
2,135
|
|||||||||||||||
R&D
contracts
|
15
|
1,380
|
151
|
1,229
|
1,380
|
82
|
1,298
|
|||||||||||||||
Patents
|
6
|
106
|
59
|
47
|
70
|
54
|
16
|
|||||||||||||||
Patents
pending
|
254
|
254
|
184
|
-
|
184
|
|||||||||||||||||
Technology
|
10
|
10,950
|
1,796
|
9,154
|
10,950
|
975
|
9,975
|
|||||||||||||||
Total
Intangibles
|
11.4
|
$
|
15,915
|
$
|
2,600
|
$
|
13,315
|
$
|
15,809
|
$
|
1,454
|
$
|
14,355
|
Intangible
Assets
|
Patents
|
|||||||||
2007
(3 months)
|
$
|
380,000
|
2007 (3 months) |
$
|
2,100
|
|||||
2008
|
1,521,000
|
2008 |
6,700
|
|||||||
2009
|
1,521,000
|
2009 |
5,700
|
|||||||
2010
|
1,454,000
|
2010 |
5,200
|
|||||||
2011
|
1,358,000
|
2011 |
5,200
|
|||||||
2012
& after
|
6,780,000
|
2012 & after |
21,600
|
|||||||
Total
|
$
|
13,014,000
|
Total
|
$
|
46,500
|
Balance
12/29/06
|
FY2007
|
FY2008
|
FY2009
|
FY2010
|
FY2011
|
FY2012
& Beyond
|
||||||||||||||||
Bank
Term Loan -SBB&T
|
$
|
1,275
|
$
|
225
|
$
|
900
|
$
|
150
|
||||||||||||||
Credit
Line -SBB&T
|
1,000
|
1,000
|
||||||||||||||||||||
MEDC-
loan 1
|
750
|
109
|
188
|
188
|
265
|
|||||||||||||||||
MEDC
- loan 2
|
600
|
117
|
200
|
200
|
83
|
|||||||||||||||||
Convertible
Debt 1st
Tranche
|
1,525
|
1,525
|
||||||||||||||||||||
Discount
on convertible note 1st
|
(123
|
)
|
(38
|
)
|
(85
|
)
|
||||||||||||||||
Convertible
Debt 2nd
Tranche
|
4,000
|
4,000
|
||||||||||||||||||||
Discount
on convertible note 2nd
|
(1,721
|
)
|
(443
|
)
|
(1,278
|
)
|
||||||||||||||||
Debt
to Related Parties
|
2,401
|
550
|
900
|
951
|
||||||||||||||||||
TOTAL
|
$
|
9,707
|
$
|
744
|
$
|
5,612
|
$
|
1,276
|
$
|
1,339
|
$
|
388
|
$
|
348
|
Three
months ended
|
Nine
months ended
|
||||||||||||
BASIC
AND DILUTED
|
December
29, 2006
|
|
December
25, 2005
|
|
December
29, 2006
|
|
December
25, 2005
|
||||||
Restated
|
Restated
|
||||||||||||
Average
Shares Outstanding
|
19,089,000
|
18,563,000
|
19,032,000
|
16,983,000
|
|||||||||
Net
Loss
|
$
|
(964,000
|
)
|
$
|
(886,000
|
)
|
$
|
(3,321,000
|
)
|
$
|
(2,745,000
|
)
|
|
Basic
and Diluted Loss Per Share
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
$
|
(0.17
|
)
|
$
|
(0.16
|
)
|
Three
months ended
|
Nine
months ended
|
||||||||||||||||||||||||
|
Dec.
29, 2006
|
|
%
|
|
Dec.
25, 2005
|
|
%
|
|
Dec.
29, 2006
|
|
%
|
|
Dec.
25, 2005
|
%
|
|||||||||||
Revenue
|
|||||||||||||||||||||||||
Telecommunications
|
$
|
1,766,000
|
30
|
%
|
844,000
|
13
|
%
|
$
|
4,271,000
|
24
|
%
|
$
|
2,269,000
|
14
|
%
|
||||||||||
Industrial
Sensing/NDT
|
2,287,000
|
39
|
%
|
2,739,000
|
42
|
%
|
7,101,000
|
41
|
%
|
6,952,000
|
41
|
%
|
|||||||||||||
Military/Aerospace
|
1,162,000
|
20
|
%
|
1,696,000
|
26
|
%
|
4,169,000
|
24
|
%
|
4,135,000
|
25
|
%
|
|||||||||||||
Medical
|
578,000
|
10
|
%
|
518,000
|
8
|
%
|
1,693,000
|
10
|
%
|
1,661,000
|
10
|
%
|
|||||||||||||
Homeland
Security
|
88,000
|
1
|
%
|
714,000
|
11
|
%
|
193,000
|
1
|
%
|
1,765,000
|
10
|
%
|
|||||||||||||
Total
Revenue
|
$
|
5,881,000
|
100
|
%
|
$
|
6,511,000
|
100
|
%
|
$
|
17,427,000
|
100
|
%
|
$
|
16,782,000
|
100
|
%
|
Period
ending December. 29, 2006
|
Operating
Leases
|
Non-Cancelable
Purchase
Orders
|
Total
|
|||||||
2007
(3 months)
|
$
|
292,000
|
713,000
|
$
|
1,005,000
|
|||||
2008
|
1,148,000
|
1,148,000
|
||||||||
2009
|
1,111,000
|
—
|
1,111,000
|
|||||||
2010
|
782,000
|
—
|
782,000
|
|||||||
2011
|
255,000
|
—
|
255,000
|
|||||||
2012
and thereafter
|
47,000
|
—
|
47,000
|
|||||||
Total
|
$
|
3,635,000
|
$
|
713,000
|
$
|
4,348,000
|
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
|
/s/
Richard Kurtz
|
|||
Richard
Kurtz
Chairman,
Chief Executive Officer
And
Director
|
/s/
Robin Risser
|
|||
Robin
Risser
Chief
Financial Officer
And
Director
|