<PAGE>



                     U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-K

                                   (Mark One)
  [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934
                    For the fiscal year ended March 27, 2005

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                     For the transition period from _____ to _____

                         Commission file number 1-11056

                           ADVANCED PHOTONIX, INC.(R)
             (Exact name of registrant as specified in its charter)

           Delaware                                          33-0325826
(State or other jurisdiction of                           (I.R.S. Employer
incorporation or organization)                           Identification No.)

                     1240 Avenida Acaso, Camarillo, CA 93012
               (Address of principal executive offices) (Zip Code)

                                 (805) 987-0146
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          Common Stock, $.001 Par Value
                              Class A Common Stock

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X}

Total revenues for registrant's fiscal year ended March 27, 2005 were
$14,802,761.

As of September 26, 2004, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $24,000,000.

As of June 17, 2005 there were 16,087,631 shares of Class A Common Stock and
31,691 shares of Class B Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the Annual Meeting for 2005 are
incorporated by reference in Part III.



<PAGE>


                                     PART I

ITEM 1. BUSINESS

GENERAL

Advanced Photonix, Inc.(R) (the "Company"), was incorporated under the laws of
the State of Delaware in June 1988. The Company is engaged in the development
and manufacture of custom optoelectronic solutions, serving a variety of global
Original Equipment Manufacturer (OEM) markets. While the Company specializes in
silicon-based custom photodiode assemblies, its product families range from
custom light detection assemblies, including its patented Avalanche Photodiode
technology, to light emitting diode (LED) assemblies. The Company supports the
customer from the initial concept and design phase of the product, through to
full-scale production and test. The Company has two manufacturing and wafer
fabricating facilities; one in Camarillo, CA and one in Dodgeville, WI.

PRODUCTS & TECHNOLOGIES

The Company designs and manufactures silicon-based optoelectronic components and
assemblies for a global OEM customer base. The core technology used in the
majority of the Company's products is silicon-based photodiodes. Photodiodes
sense light of varying wavelengths and intensity and convert that light into
electrical signals. The Company manufactures photodiodes of varying complexity,
from basic PIN (positive-intrinsic-negative) photodiodes to the more
sophisticated avalanche photodiode (APD). The APD is a specialized silicon
photodiode capable of detecting very low light levels due to an internal gain
phenomenon known as avalanching. All devices are designed by the Company's
experienced engineering staff, and fabricated in two state-of-the-art clean
rooms. The Company's basic products and technologies include the following:

o Silicon PIN photodetectors - spectrally enhanced, both single and
multi-element

o Silicon high resistivity p-type detectors

o Silicon APDs - discrete, with and without thermoelectric coolers, and with
integrated modules

o Photodetector hybrids, which include signal amplification circuitry within the
detector package

o Custom LED assemblies and LED displays

o FILTRODE(R) - patented technology integrating optical filters directly on
photodiode chips

MARKETS

These products serve customers in a variety of global markets, typically North
America, Asia, Europe and Australia. The target markets and applications served
by the Company are as follows:

Military & Aerospace:

    o   Missile guidance

    o   Laser range finders

    o   Laser training systems

    o   Heads-up displays

    o   Satellite positioning



                                       2
<PAGE>


Industrial & Commercial:

    o   Optical encoders

    o   Laboratory instrumentation

    o   Baggage/Cargo scanners

    o   Bar code scanners

    o   Laser positioning systems

Medical:

    o   Blood analysis, including pulse oximetry and glucometry

    o   Bacteriology

    o   Medical imaging

Automotive:

    o   Laser detection

    o   Adaptive cruise control

    o   Automatic power windows

    o   Drive-by-wire

Communications:

    o   VCSEL monitor

    o   Pump laser monitor

    o   Wireless communication

One of the key competitive advantages held by the Company is its ability to
supply detector assemblies for high reliability (Hi-Rel) applications, including
military and commercial aerospace. Hi-Rel devices are designed, manufactured and
tested to function in severe environmental conditions. The Company has many
years of experience in supplying Hi-Rel devices that demand modern wafer
fabrication techniques, a dedicated assembly area, and a sophisticated test lab.
These assembly and test capabilities meet several military approvals, including
MIL-PRF-19500, MIL-STD-883 and MIL-STD-750. Hi-Rel products manufactured by the
Company include:

    o   Multi-element hybrid assemblies used on the U.S. Navy's Rolling Airframe
        Missile (RAM) developed by Raytheon

    o   Narrow and wide field-of-view detectors used in Tube-launched
        Optically-tracked Wire-guided (TOW) missile tracking systems

    o   LED arrays for use in thermal image displays in military night vision
        applications

    o   Quadrant photodetectors used in the autocollimator for airborne
        navigation/FLIR (Forward Looking Infrared) pods and "smart bombs"

    o   Opto assemblies for biological and blood analysis

    o   Assemblies used in automotive distance control systems

RECENT DEVELOPMENTS

In March 2005, the Company formed a new subsidiary, Michigan Acquisition Sub,
LLC ("Newco"), a Delaware limited liability company, for purposes of entering
into an Agreement and Plan of Merger with Picotronix, Inc. (doing business as
and referred to herein as "Picometrix"), a Michigan corporation, whereby
Picometrix merged with and into Newco, with Newco being the surviving entity.
The merger was completed in May 2005. The merger consideration was determined
through arm's-length negotiations



                                       3
<PAGE>


between the parties. (See Item 7. "Management's Discussion and Analysis of
Financial Condition" and Results of Operations and Item 8. "Notes to the
Consolidated Financial Statements" for more information on the transaction.)

RAW MATERIALS

The principal raw materials used by the Company in the manufacture of its
semiconductor components and sensor assemblies are silicon wafers, chemicals and
gases used in processing wafers, gold wire, lead frames, and a variety of
packages and substrates, including metal, printed circuit board, flex circuits,
ceramic and plastic packages. All of these raw materials can be obtained from
several suppliers. From time to time, particularly during periods of increased
industry-wide demand, silicon wafers and other materials have been in short
supply. However, the Company has not been materially affected by such shortages.
As is typical in the industry, the Company allows for a significant lead-time (2
months or greater) between order and delivery of raw materials.

RESEARCH AND DEVELOPMENT

Since its inception in June 1988, the Company has incurred material research and
development expenses, with the intent of commercializing these investments into
profitable new standard and custom product offerings. During the fiscal years
ended in 2005, 2004, and 2003, research and development expenses amounted to
$146,000, $280,000, and $511,000 respectively. The Company expects that
continued research and development funding will be required for new projects as
well as the continuing development of new derivatives of the Company's current
product line, and for the commercialization of these products. The Company has
in the past, and will continue to pursue customer funded, as well as internally
funded, research and development projects when they are in support of the
Company's development objectives.

During the last fiscal year, the Company shifted its primary research and
development focus from overall APD development to those projects which have
strong existing markets and can be transitioned to full commercialization in a
relatively short period of time. As we begin the new fiscal year, the following
research and development projects are currently underway:

o   APD performance enhancements - designed specifically for certain military
    and medical imaging applications

o   Silicon PIN photodiodes, which are being developed to meet unique customer
    requirements, such as higher speeds, lower electrical noise, and unique
    multi-element geometries.

o   Additional applications leveraging the Company's patented Filtrode(TM)
    family, integrating a variety of filters onto a detector chip

o   Position Sensitive Devices - the Company is broadening its offering of these
    devices with improved performance for industrial sensing markets

ENVIRONMENTAL REGULATIONS

The photonics industry, as well as the semiconductor industry in general, is
subject to governmental regulations for the protection of the environment,
including those relating to air and water quality, solid and hazardous waste
handling, and the promotion of occupational safety. Various federal, state and
local laws and regulations require that the Company maintain certain
environmental permits. The Company believes that it



                                       4
<PAGE>


has obtained all necessary environmental permits required to conduct its
manufacturing processes. Changes in the aforementioned laws and regulations or
the enactment of new laws, regulations or policies could require increases in
operating costs and additional capital expenditures and could possibly entail
delays or interruptions of operations.

BACKLOG AND CUSTOMERS

The Company's sales are made primarily pursuant to standard purchase orders for
delivery of products. However, by industry practice, orders may be canceled or
modified at any time. When a customer cancels an order, they are responsible for
all finished goods, all costs, direct and indirect, incurred by the Company, as
well as a reasonable allowance for anticipated profits. No assurance can be
given that the Company will receive these amounts after cancellation. The
current backlog contains only those orders for which the Company has received a
confirmed purchase order and also includes contracts which have scheduled
shipping dates beyond the upcoming fiscal year. As such, the current backlog
represents only a portion of expected annual revenues for fiscal year 2006. The
Company had approximately $8.2 million in total backlog at the end of fiscal
years 2005 and 2004.

Customers normally purchase the Company's products and incorporate them into
products that they in turn sell in their own markets on an ongoing basis. As a
result, the Company's sales are dependent upon the success of its customers'
products and its future performance is dependent upon its success in finding new
customers and receiving new orders from existing customers.

MARKETING

The Company markets its products in the United States and Canada through its own
technical sales engineers and through independent sales representatives.
International sales, including Europe, the Middle East and Pacific Rim, are
conducted through foreign distributors (see Note 1 to the Financial Statements).
The Company's products are primarily sold as components or assemblies to
original equipment manufacturers (OEM's). The Company markets its products and
capabilities through industry specific channels, both on the internet and in
print through trade journals.

COMPETITION

The Company competes with a range of companies for the custom optoelectronic and
silicon photodetector requirements of customers in its target markets. The
Company believes that its principal competitors for sales of custom devices are
small to medium size companies. Because the Company specializes in custom
devices requiring a high degree of engineering expertise to meet the
requirements of specific applications, it generally does not compete to any
significant degree with other large United States, European or Pacific Rim
manufacturers of standard "off the shelf" optoelectronic components or silicon
photodetectors.

PROPRIETARY TECHNOLOGY

The Company utilizes proprietary design rules and processing steps in the
development and fabrication of its PIN photodiodes and avalanche photodiodes. In
addition, the Company owns the following patents:



                                       5
<PAGE>


<Table>
<Caption>
US PATENT NO.                                DESCRIPTION                                  DATE ISSUED
-------------                                -----------                                  -----------
<S>                   <C>                                                                 <C>
6,111,299             Active Large Area Avalanche Photodiode Array                        August 2000

6,005,276             Solid State Photodetector with Light Responsive Rear Face           December 1999

5,801,430             Solid State Photodetector with Light Responsive Rear Face           September 1998

5,757,057             Large Area Avalanche Array                                          May 1998

5,477,075             Solid State Photodetector with Light Responsive Rear Face           December 1995

5,311,044             Avalanche Photomultiplier Tube                                      May 1994

5,146,296             Devices for Detecting and/or Imaging Single Photoelectron           September 1992

5.057,892             Light Responsive Avalanche Diode                                    October 1991

5,021,854             Silicon Avalanche Photodiode Array                                  June 1991

4,782,382             High Quantum Efficiency Photodiode Devices                          November 1988 (by predecessor co.)

4,717,946             Thin Line Junction Photodiode                                       January 1988 (by predecessor co.)
</Table>

There can be no assurance that any issued patents will provide the Company with
significant competitive advantages, or that challenges will not be instituted
against the validity or enforceability of any patent owned by the Company, or,
if instituted, that such challenges will not be successful. The cost of
litigation to uphold the validity and to prevent the infringement of a patent
could be substantial. Furthermore, there can be no assurance that the Company's
APD technology will not infringe on patents or rights owned by others, licenses
to which might not be available to the Company. Based on limited patent
searches, contacts with others knowledgeable in the field of APD technology, and
a review of the published materials, the Company believes that its competitors
hold no patents, licenses or other rights to the APD technology which would
preclude the Company from pursuing its intended operations.

In some cases, the Company may rely on trade secrets to protect its innovations.
There can be no assurance that trade secrets will be established, that secrecy
obligations will be honored or that others will not independently develop
similar or superior technology. To the extent that consultants, key employees or
other third parties apply technological information independently developed by
them or by others to Company projects, disputes might arise as to the
proprietary rights to such information which may not be resolved in favor of the
Company.

EMPLOYEES

At June 17, 2005 (and subsequent to the merger with Picometrix) the Company had
156 employees, comprised of 147 full time employees (including 4 officers) and 9
part time employees. Included are 19 engineering and development personnel, 11
sales and marketing personnel, 111 operations personnel, and 15 general and
administrative personnel (including 4 officers). The Company may, from time to
time, engage personnel to perform consulting services and to perform research
and development under third party funding. In certain cases, the cost of such
personnel may be included in the direct cost of the contract rather than in
payroll expense.




                                       6
<PAGE>


ITEM 2. PROPERTIES

The Company leases all of its executive offices, research, marketing and
manufacturing facilities. At March 27, 2005, those leases consisted of primarily
45,000 square feet in two facilities. The facility located at 1240 Avenida Acaso
in Camarillo, California is leased through February 2009. A second manufacturing
facility is located at 305 County YZ, Dodgeville, Wisconsin, and is leased
through November 2007. For a portion of the year, the Company also held a lease
on the prior Photonic Detectors, Inc. facility in Simi Valley, California which
was terminated effective April 30, 2005. The Company believes that its existing
facilities are adequate to meet its needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

The Company's Class A Common Stock is traded on the American Stock Exchange
(AMEX) under the symbol "API".

At June 17, 2005, the Company had 106 holders of record for the Class A Common
Stock (including shares held in street name), representing approximately 6,000
beneficial owners of the Class A Common Stock. On the same date, there were 6
holders of record of the Class B Common Stock (none of which were held in street
name).

The following table sets forth high and low closing prices by quarter for fiscal
years 2005 and 2004.

<Table>
<Caption>
                                                  Quarterly Stock Market Data
-----------------------------------------------------------------------------------------------------------------------
                            1st Quarter              2nd Quarter               3rd Quarter               4th Quarter
                        2005         2004         2005         2004         2005         2004         2005         2004
-----------------------------------------------------------------------------------------------------------------------
<S>                     <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Common Stock(1)
      High              3.21         1.05         2.57         1.89         1.85         2.51         2.17         2.45
      Low               2.02          .87         1.65          .88         1.57         1.37         1.64         1.66
-----------------------------------------------------------------------------------------------------------------------
</Table>

(1) Price ranges on the American Stock Exchange

The Company has never paid any cash dividends on its capital stock. The Company
intends to retain earnings, if any, for use in its business and does not
anticipate that any funds will be available for the payment of cash dividends on
its outstanding shares in the foreseeable future. The holders of Common Stock
will not be entitled to receive dividends in any year until the holders of the
Class A Redeemable Convertible Preferred Stock receive an annual non-cumulative
dividend preference of $.072 per share. To date, a total of 740,000 shares of
Class A Redeemable Convertible Preferred Stock have been converted into 222,000
shares of Class



                                       7
<PAGE>


A Common Stock, leaving outstanding 40,000 shares of Class A Redeemable
Convertible Preferred Stock. The aggregate non-cumulative annual dividend
preference of such Class A Redeemable Convertible Preferred Stock is $2,880.
There is no public market for the Company's Class A Redeemable Convertible
Preferred Stock or Class B Common Stock; however, such stock is convertible into
Class A Common Stock at the option of the holder and upon transfer by the holder
of the Class A Redeemable Convertible Preferred Stock.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data for each of the five years presented below is
derived from our audited consolidated financial statements and should be read in
conjunction with the consolidated financial statements, the notes to the
consolidated financial statements, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", all of which are contained in
this report on Form 10-K.

<Table>
<Caption>
                                        (in thousands, except per share data)
                                           2005         2004          2003           2002           2001
<S>                                     <C>           <C>           <C>            <C>            <C>
Net Sales                               $ 14,803      $ 12,401      $  9,147       $  6,931       $  6,806

Gross Profit                            $  4,732      $  4,297      $  2,699       $  2,761       $  2,544
   as a percentage of Sales                   32%           35%           30%            40%            37%

Net Income (Loss) from Continuing
Operations                              $  5,254      $    794      $   (803)      $   (284)      $    212

Earnings (Loss) Per Common Share -
Basic                                   $   0.39      $   0.06      $  (0.06)      $  (0.02)      $   0.02
Earnings (Loss Per Common Share -
Diluted                                 $   0.34      $   0.06      $  (0.06)      $  (0.02)      $   0.02
Weighted Average Common Shares
Outstanding                               13,461        13,400        12,356         12,209         12,204

Total Assets                            $ 23,355      $ 12,574      $ 11,552       $  9,255       $  9,476

Current Liabilities                     $  3,185      $  2,858      $  2,640       $    612       $    523
Long Term Liabilities                   $  4,861      $     11      $     22       $     --       $     --
Class A Redeemable Convertible
Preferred Stock                         $     32      $     32      $     32       $     32       $     32
Shareholders' Equity                    $ 15,277      $  9,673      $  8,858       $  8,611       $  8,921

Working Capital                         $ 11,261      $  5,802      $  4,811       $  7,461       $  7,953
Dividends declared on Capital Stock     $     --      $     --      $     --       $     --       $     --
</Table>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Application of our accounting policies requires management to make certain
judgments and estimates about the amounts reflected in the financial statements.
Management uses historical experience and all available information to make
these estimates and judgments, although differing amounts could be reported if
there are changes in the assumptions and estimates. Estimates are used for, but
not limited to, the accounting for the allowance for doubtful accounts,
inventory allowances, impairment costs, depreciation and amortization, warranty
costs, taxes and contingencies. Management has identified the following
accounting policies as critical to an understanding of our financial statements
and/or as areas most dependent on management's judgment and estimates.



                                       8
<PAGE>


REVENUE RECOGNITION

In accordance with Staff Accounting Bulletin No. 104, we recognize revenue from
the sale of products when the products are shipped to the customer. Revenues
from the sale of services consist of non-recurring engineering charges, which
are recognized when the services have been rendered. Historically, sales returns
have amounted to less than 1% of net income and all sales are recorded net of
sales returns and discounts.

IMPAIRMENT OF LONG-LIVED ASSETS

We continually review the recoverability of the carrying value of long-lived
assets using the methodology prescribed in Statement of Financial Accounting
Standards (SFAS) 144, "Accounting for the Impairment and Disposal of Long-Lived
Assets." We also review long-lived assets and the related intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Upon such an occurrence,
recoverability of these assets is determined by comparing the forecasted
undiscounted net cash flows to which the assets relate, to the carrying amount.
If the asset is determined to be unable to recover its carrying value, then
intangible assets, if any, are written down first, followed by the other
long-lived assets to fair value. Fair value is determined based on discounted
cash flows, appraised values or management's estimates, depending on the nature
of the assets.

DEFERRED TAX ASSET VALUATION ALLOWANCE

We record a deferred tax asset in jurisdictions where we generate a loss for
income tax purposes. For all years prior to fiscal 2005, due to our history of
operating losses, we had recorded a full valuation allowance against these
deferred tax assets in accordance with SFAS 109, "Accounting for Income Taxes,"
because, in management's judgment, the deferred tax assets would not be realized
in the foreseeable future. In fiscal years 2004 and 2005, the Company returned
to a position of continued profitability. Based on recent profit history and on
anticipated future profits resulting from the Company's acquisition and merger
with Picometrix, Inc. in May 2005, we reversed a portion of the valuation
allowance for the year ended March 27, 2005, because, in our estimation, we
believe that at least 50% of the deferred tax assets will be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible, and no assurance can be given that the Company will, in fact,
generate future taxable income in amounts sufficient to fully realize the asset.
We have considered the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making our assessment. The
deferred tax assets are evaluated annually and the valuation allowance may be
adjusted again in the future years if it is determined that any additional
portion of the assets will or will not be realized.

INVENTORIES

Our inventories are stated at standard cost (which approximates the first-in,
first-out method) or market. Slow moving and obsolete inventories are analyzed
quarterly. To calculate a reserve for obsolescence, we begin with a review of
our slow moving inventory. Any inventory which has not moved within the past 24
months is reserved for at 100% of book value; inventory which has not moved
within the past 12 months is reserved for at 40%. The percentages applied to the
reserve calculation are based on historical usage analyses. In addition, any
residual inventory which is customer specific and remaining on hand at the time
of contract completion is reserved for at the standard unit cost. The complete
list of slow moving and obsolete inventory is then reviewed by the production,
engineering and/or purchasing departments to identify items that can be utilized
in the near future. These items are then excluded from the analysis and the
remaining amount of slow-moving and obsolete inventory is then reserved for.
Additionally, non-cancelable open purchase orders for parts we are obligated to
purchase where demand has been reduced may be reserved. Reserves for open
purchase orders where the market price is lower than the purchase order price
are also established. If a product which had previously been reserved for is
subsequently sold, the amount of reserve specific to that item is then reversed.



                                       9
<PAGE>


ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

The Allowance for Doubtful Accounts is established by analyzing each account
that has a balance over 90 days past due. Each account is individually assigned
a probability of collection. The total amount determined to be uncollectible in
the 90-days-past-due category is then reserved fully. The percentage of this
reserve to the 90-days-past-due total is then established as a guideline and
applied to the rest of the non-current accounts receivable balance where
appropriate. When other circumstances suggest that a receivable may not be
collectible, it is immediately reserved for, even if the receivable is not yet
in the 90-days-past-due category.



TABLE OF CONTRACTUAL OBLIGATIONS

The following table sets forth the contractual obligations of the Company at
March 27, 2005.

<Table>
<Caption>
CONTRACTUAL OBLIGATIONS                                             PAYMENTS DUE BY PERIOD
------------------------------------------     ---------------------------------------------------------------
                                                 Less than                                          More than
                                 Total            1 year        1 - 3 years      3 - 5 years         5 years
                              ------------     ------------     ------------     ------------     ------------
<S>                           <C>              <C>              <C>              <C>              <C>
Long-term debt                   5,000,000               --        5,000,000               --               --
Capital lease obligations           13,000           11,000            2,000               --               --
Operating lease
obligations                      1,488,000          434,000        1,054,000               --               --
   Purchase Obligations            875,000          875,000               --               --               --
Other long-term
liabilities reflected on
the registrant's balance
sheet under GAAP                        --               --               --               --               --
                              ------------     ------------     ------------     ------------     ------------
          Total                  7,376,000        1,320,000        6,056,000               --               --
</Table>

RESULTS OF OPERATIONS

FISCAL YEAR 2005 COMPARED TO FISCAL YEAR 2004

REVENUES

The Company's revenues for the fiscal year ended March 27, 2005 (2005) were
$14.8 million, an increase of $2.4 million, or 19% from revenues of $12.4
million for the fiscal year ended March 28, 2004 (2004).

Approximately $500,000 of the increase was attributable to revenues from
Photonic Detectors, Inc. (PDI), which the Company acquired in December 2004. The
remaining increase reflects an overall increase in shipments to customers in
each of the Company's major market segments over the prior year. As has been the
trend for most of the current fiscal year, the most significant revenue
increases are coming from the medical and industrial sensing segments, which
increased by 34% and 17% respectively over the prior year and account for $1.5
million of the total increase. Similarly, sales to the military aerospace and
automotive



                                       10
<PAGE>


markets have also increased, by 5% and 17% respectively, and account for
approximately $400,000 of the remaining increase in net revenues. Stated as a
percentage of net revenues, sales to the industrial sensing markets represent
44%, sales to the military aerospace markets represent 33%, medical is 17% and
automotive is 5%.

As expected, the increased diversification and larger customer base achieved
through the Company's previous acquisitions resulted in net revenues which fully
met our expectations for the most recent fiscal year. During the upcoming year,
we expect to see continued revenue growth in our core silicon business, as well
as a significant revenue increase resulting from our acquisition of Picometrix,
Inc. which occurred in May 2005. As such, in fiscal 2006, we expect total
revenues to increase by 65%-85% over fiscal 2005.

COSTS AND EXPENSES

Cost of product sales increased to $10.1 million in 2005 from $8.1 million in
2004. Stated as percent of net sales, cost of product sales increased 3
percentage points to 68%, reducing our gross profit margin to 32% in 2005 as
compared to 35% in fiscal year 2004. The reduction in gross margin is primarily
attributable to manufacturing issues, including labor inefficiencies and a
significant increase in material costs related to scrap, rework and assembly
yields. Stated as a percentage of net sales, material costs rose to 28% in 2005
as compared to 25% in 2004. In 2005, we were again faced with heightened
competitiveness in certain markets which caused us to absorb increases in
certain material costs while maintaining or reducing existing pricing in our
efforts to generate new business as well as retain existing business. Direct
labor and other overhead expenses as a percentage of net sales remained flat at
8% and 32%, respectively, in 2005 as compared to 2004. While our gross margins
fell slightly short of our expectations for 2005, we are continually seeking
ways to improve our cost and margin structure, and have made margin improvement
a continued priority for 2006.

Research and development (R&D) costs decreased by $134,000 (48%) to $146,000
during 2005 compared to $280,000 in 2004. R & D costs decreased significantly
over the past two years as we concentrated our efforts on projects offering the
highest commercial potential per each dollar spent. We expect that R&D expenses
will increase significantly in the upcoming fiscal year, as we focus on new
opportunities brought to us as a result of the Picometrix acquisition.

Marketing and sales expenses increased by $205,000 (20%) to $1.2 million in
2005. Planned additions to the sales department staff during the year accounted
for $113,000 of increased salary, travel and related expenses. In addition,
increased sales contributed to a $68,000 increase in commission expense and
overall advertising and marketing expenses increased by approximately $24,000.
We remain committed to insuring that our customers receive excellent service. To
that end, we will continue to build our sales department and anticipate further
increases in salary, commissions, travel and related expenses during fiscal
2006, as we plan for the successful integration of the Picometrix business.

Total general and administrative expenses increased by $541,000 (25%) to $2.7
million in 2005 as compared to $2.2 million in 2003. Approximately 50% of the
increase in general and administrative expenses is due to increased personnel
and related expenses, including salaries, bonuses and benefits to support our
growth objectives. In addition, total payroll was increased during the fourth
quarter of fiscal 2005 as a direct result of the PDI acquisition, which was
consummated on December 21, 2004. As part of our integration plan, selected PDI
personnel were either offered a permanent position or requested to remain as an
employee until a date specified by the Company. The net effect of the additional
PDI personnel accounted for approximately $160,000 of the year to date increase.
The remaining increases in general and administrative expenses were primarily
due to acquisition investigation and related expenses, including consultants,
legal, financing and other related expenses, which amounted to approximately
$246,000 in total. In the upcoming year, general



                                       11
<PAGE>


and administrative expenses will increase as needed to provide the
infrastructure necessary to support the Company's growth objectives

Interest income for 2005 totaled $43,000, an increase of $23,000 over 2004, due
primarily to capital financing activities which resulted in higher cash balances
available for short-term investment. Interest expense for the year was $154,000
as compared to $30,000 in 2004, also a result of capital financing activities
and the related interest liabilities.

At March 27, 2005, the Company reversed 50% of its deferred tax valuation
allowance, in the amount of $4,749,000. The deferred tax valuation allowance had
previously been recorded at full value against its deferred tax assets, reducing
the net value of the asset to zero. With the acquisition of both Photonic
Detectors Inc. in December 2004 and Picometrix, Inc. in May 2005, the Company's
management has projected that the Company will generate sufficient future
taxable income to utilize at least a portion of its accumulated NOL's before
they expire and has accordingly reduced the deferred tax asset valuation
allowance to $4.7 million against a deferred tax asset of $9.5 million, bringing
the net value of the deferred tax asset to $4.7 million at March 27, 2005. The
reduction in the valuation allowance has been recorded as a deferred tax benefit
in the statement of operations.

Net income for fiscal year 2005 was $5.3 million, including the $4.7 million
adjustment made to reduce the deferred tax valuation allowance, as compared to
$794,000 in 2004. Total acquisition-related expenses for fiscal year 2005 which
were necessary to support our growth objectives amounted to $560,000 (which
includes interest expense of $154,000, plus the $406,000 increased general and
administrative expenses associated with PDI and other acquisition investigation
activities, as noted above). Thus, excluding the net impact of the deferred tax
asset adjustment and acquisition-related expenses, net income for fiscal 2005
would have been $1.1 million, or $0.08 per share.


FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003

REVENUES

The Company's revenues for the fiscal year ended March 28, 2004 (2004) were
$12.401 million, an increase of $3.254 million, or 36%, from revenues of $9.147
million for the fiscal year ended March 30, 2003 (2003).

The increase was primarily attributable to the Company's acquisitions of Silicon
Sensors, Inc. and Texas Optoelectronics, Inc., both of which occurred during
fiscal 2003. The increase in net product sales reflects significant increases in
shipments to customers in each of the Company's major market segments, the most
notable coming from the military/aerospace segments, which increased 41% over
the prior year and represent 37% of total revenues, or $4.64 million. Similarly,
sales to the industrial sensing segments increased 28% over the prior year and
represent 41% of total revenues, or $5.13 million. Sales to the medical markets,
representing 15% of total revenues, increased 22% to $1.86 million, and sales to
the automotive segment, which are directly attributable to the Texas
Optoelectronics, Inc. acquisition, increased to $717,000 and represent 6% of
total revenues, as compared to $203,000 representing 2% of total revenues in
fiscal year 2003.

Revenues fell somewhat short of expectations because of changes in customer
delivery schedules and other manufacturing issues. Nonetheless, we are pleased
with the market stability and increased diversification that has been achieved
as a result of our acquisitions and consolidation of the three companies.



                                       12
<PAGE>


COSTS AND EXPENSES

Cost of product sales increased to $8.10 million in 2004 from $6.45 million in
2003. Stated as percent of net sales, cost of product sales decreased 5
percentage points to 65%, bringing gross profit margin to 35% in 2004 as
compared to 30% in fiscal year 2003. The improvement in gross margin is
primarily attributable to a reduction in material costs which decreased to 25%
as compared to 30% in the prior year. In addition, margins benefited from the
consolidation of the Company's acquired businesses and steps taken by the
Company to maximize production efficiencies between its two facilities,
including load and inventory sharing, inventory reduction plans, and other cost
management techniques. Direct labor as a percentage of net sales remained
relatively flat at 8% in 2004 as compared to 7% in 2003, as did other fixed and
variable overhead expenses, which amounted to 32% for 2004 compared to 33% in
2003. The Company continually seeks ways to improve gross margin, and expects
that the current margin of 35% is indicative of what can be expected in the
future, given the current operational structure.
Research and development (R&D) costs decreased by $231,000 (45%) to $280,000
during 2004 compared to $511,000 in 2003. R & D costs have fluctuated
significantly over the past two years as we have restructured and refocused our
efforts. During 2004, the Company discontinued projects which did not have a
clearly identified customer demand in our current market segments. We expect R&D
expenditures for fiscal year 2005 to be slightly higher than in 2004.

Marketing and sales expenses decreased slightly, by $59,000 (5%) to $1.026
million in 2004. During 2004, the Company focused on bringing more sales and
marketing functions in-house and improving the effectiveness and utilization of
its internal sales force, thereby decreasing the use of outside sales
representatives and advertising/marketing services. As a result, decreases in
bad debt expense ($78,000) and advertising and marketing expenses ($40,000) were
offset by increases in travel, salary and benefit expenses. To insure that we
can continue to provide excellent service to our consolidated customer base, we
will continue to build our sales department and expect that marketing and sales
expenses will increase in 2005, due primarily to planned additions to the sales
department staff.

Total general and administrative expenses increased by $174,000 (9%) to $2.148
million in 2004 as compared to $1.974 million in 2003. The net increase in
general and administrative expenses is primarily due to increased software
support and travel costs, representing approximately $105,000. In addition, the
Company posted increased consultant and non-compete expenses of $40,000 as well
as an increase to its Directors & Officers liability insurance of $24,000.
General and administrative expenses are expected to increase in fiscal year
2005, due to the addition of an in-house information technology specialist and
the continued strengthening of the administrative infrastructure necessary to
support the Company's growth.

Interest income for 2004 totaled $20,000, a decrease of $50,000 over 2003.
Interest expense for the year was $30,000 as compared to $13,000 in 2004. The
decrease in interest income is primarily due to consistently low interest rates
available throughout the past year and the increase in interest expense is due
to obligations assumed through the acquisition of Texas Optoelectronics, Inc. as
well as expenses associated with the Company's secured line of credit. In
addition, the Company reported a $40,000 net loss on sale of fixed assets, due
primarily to the disposal or sale of select assets acquired from Texas
Optoelectronics, Inc. for which the Company had no useful application.

Net income for fiscal year 2004 was $794,000, an improvement of $1.597 million,
or 199%, over the net loss of ($803,000) reported in 2003.



                                       13
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

On December 21, 2004, the Company purchased the business and all of the
outstanding stock of Photonic Detectors, Inc., a privately owned manufacturer of
optoelectronic components and assemblies, located in Simi Valley, California. In
connection with the transaction, the Company acquired certain net assets,
including $44,000 cash, and assumed certain outstanding liabilities of Photonic
Detectors, Inc. $1,073,000 net cash was expended for the transaction, which
included the agreed purchase price of $1,075,000, plus additional expenses
incurred of $42,000, less the $44,000 cash received.

In addition, in March 2005, approximately $4.2 million was used to fund a
pre-acquisition loan made to Picometrix, Inc. The loan was contributed to the
capital of the newly formed limited liability company upon closing of the
acquisition and merger transaction on May 2, 2005 (see Note 13 to the
Consolidated Financial Statements for information concerning additional debt
incurred by the Company in connection with the Picometrix acquisition).

In July 2004, the Company established a revolving line of credit with a regional
bank which provides for borrowings up to $3,000,000, based on 80% of the
Company's eligible accounts receivable and 40% of the Company's eligible
inventory, subject to certain limitations as defined by the agreement. At March
27, 2005, the outstanding balance on the line was $1.0 million. The line is
secured by all business assets of the Company. Repayment is interest only,
monthly, with principal due at maturity, July 20, 2005. Interest is computed at
the Wall Street Journal Prime plus 1.00% which was 6.00% at March 27, 2005 (see
Note 6 to the Consolidated Financial Statements).

At March 27, 2005, the Company had cash and cash equivalents of $1.5 million and
working capital of $11.3 million. The Company's cash and cash equivalents
increased by $204,000 during the twelve months ended March 27, 2005, including
$1.7 million transferred from short-term investments into cash. $5.0 million was
obtained through private placement of a convertible note, of which $1.25 million
remained in a restricted cash collateral account subject to release upon
satisfaction of certain conditions (which conditions were subsequently met) (see
Note 7 to the Consolidated Financial Statements for further information
concerning this debt), and the balance was available for working capital and
other requirements. Cash provided by operating activities totaled $228,000,
which was net of significant outlays for inventories and prepaid capital finance
expenses. $30,000 was derived through net increases in accounts payable, accrued
expenses, and customer deposit liabilities. $193,000 was used for capital
expenditures required primarily for necessary computer and manufacturing
equipment upgrades or replacements.

The Company is exposed to interest rate risk for marketable securities. Due to
anticipated cash needs during the year, the Company held funds in highly liquid
income and money fund accounts, considered to be cash equivalents, which carried
an average interest rate of 1.3%. At March 27, 2005, the Company did not hold
any funds in either short-term or long term investment accounts. We continually
monitor interest rates and will attempt to utilize the best possible avenues of
investment as excess cash becomes available.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At March 27, 2005, all of our interest rate exposure is linked to the prime
rate, subject to certain limitations. As such, we are at risk to the extent of
changes in the prime rate and do not believe that moderate changes in the prime
rate will materially affect our operating results or financial condition.



                                       14
<PAGE>


FORWARD LOOKING STATEMENTS

The information contained herein includes forward looking statements that are
based on assumptions that management believes to be reasonable but are subject
to inherent uncertainties and risks including, but not limited to, risks
associated with the integration of newly acquired businesses, unforeseen
technological obstacles which may prevent or slow the development and/or
manufacture of new products, limited (or slower than anticipated) customer
acceptance of new products which have been and are being developed by the
Company, the availability of other competing technologies and a decline in the
general demand for optoelectronic products.



                                       15
<PAGE>


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements of Advanced Photonix, Inc. are included in
Item 8:

<Table>
<Caption>
                                                                                                        Page
                                                                                                        ----
<S>                                                                                                     <C>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.                                                 17


FINANCIAL STATEMENTS:

Consolidated Balance Sheet,
    at March 27, 2005 and March 28, 2004                                                                18-19

Consolidated Statements of Operations
  for the Years Ended March 27, 2005, March 28, 2004
  and March 30, 2003                                                                                     20

Consolidated Statements of Shareholders' Equity
  for the Years Ended March 27, 2005, March 28, 2004 and
  March 30, 2003                                                                                         21

Consolidated Statements of Cash Flows
  for the Years Ended March 27, 2005, March 28, 2004 and
  March 30, 2003                                                                                        22-23

Notes to Consolidated Financial Statements                                                              24-40
</Table>


-----------------------------------------------------------------



                                       16
<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders
  of Advanced Photonix, Inc.:

We have audited the accompanying consolidated balance sheets of Advanced
Photonix, Inc. (the "Company") as of March 27, 2005 and March 28, 2004 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years ended March 27, 2005, March 28, 2004 and March 30,
2003. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements present
fairly, in all material respects, the financial position of the Company at March
27, 2005 and March 28, 2004 and the results of its operations and its cash flows
for the years ended March 27, 2005, March 28, 2004 and March 30, 2003 in
conformity with accounting principles generally accepted in the United States.





/s/ Farber & Hass LLP
May 27, 2005




                                       17
<PAGE>


ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET

--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                       March 27, 2005        March 28, 2004
                                                                       ---------------      ---------------
<S>                                                                    <C>                  <C>
ASSETS

CURRENT ASSETS:
Cash and cash equivalents                                              $     1,503,000      $     1,299,000
Restricted cash                                                              1,254,000                   --
Investments                                                                         --            1,700,000
Accounts receivable, less allowance of $24,000 in 2005
     and $56,000 in 2004                                                     2,610,000            2,442,000
Note receivable from Picometrix, Inc.                                        4,228,000                   --
Inventories, less allowance of $1,032,000 in 2005
     and $925,000 in 2004                                                    3,644,000            2,929,000
Deferred tax asset, current portion                                            644,000                   --
Prepaid expenses and other current assets                                      563,000              290,000
                                                                       ---------------      ---------------
     Total current assets                                                   14,446,000            8,660,000
                                                                       ---------------      ---------------

EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost                                5,118,000            4,905,000
Less accumulated depreciation and amortization                              (3,719,000)          (3,500,000)
                                                                       ---------------      ---------------
     Equipment and leasehold improvements, net                               1,399,000            1,405,000
                                                                       ---------------      ---------------

OTHER ASSETS:
Deferred tax asset, net of current portion and valuation allowance
    of $4,749,000                                                            4,105,000                   --
Goodwill, net of accumulated amortization of $353,000                        2,421,000            2,421,000
Patents, net of accumulated amortization of $51,000 in 2005
     and $47,000 in 2004                                                        13,000               16,000
Non-compete agreement, net of current portion and accumulated
     amortization of $150,000 in 2005 and $119,000 in 2004                          --               31,000
Prepaid capital finance expenses, net of current portion and
     accumulated amortization of $83,000 in 2005                               315,000                   --
Customer list of acquired company, net of current portion and
     accumulated amortization of $32,000 in 2005                               481,000                   --
Security deposits and other assets                                             175,000               41,000
                                                                       ---------------      ---------------
     Total other assets                                                      7,510,000            2,509,000
                                                                       ---------------      ---------------

TOTAL ASSETS                                                           $    23,355,000      $    12,574,000
                                                                       ===============      ===============
</Table>

                                                                     (Continued)



                                       18
<PAGE>


ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET - CONTINUED

--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                                   March 27, 2005       March 28, 2004
                                                                                   ---------------      ---------------
<S>                                                                                <C>                  <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of Credit                                                                     $     1,000,000      $       900,000
Accounts payable                                                                         1,053,000              772,000
Accrued salaries, wages and benefits                                                       529,000              398,000
Current portion of capital lease payable                                                    11,000               16,000
Customer deposits                                                                          271,000              747,000
Other accrued expenses                                                                     321,000               25,000
                                                                                   ---------------      ---------------
     Total current liabilities                                                           3,185,000            2,858,000
                                                                                   ---------------      ---------------

LONG TERM DEBT:
Convertible note payable, net of discount of $141,000                                    4,859,000                   --
Capital lease payable, net of current portion                                                2,000               11,000
                                                                                   ---------------      ---------------
     Total long term debt                                                                4,861,000               11,000
                                                                                   ---------------      ---------------

COMMITMENTS AND CONTINGENCIES:
Class A Redeemable Convertible Preferred Stock,
     $.001 par value; 780,000 shares authorized;
     2005 and 2004 - 40,000 shares issued and outstanding;
     liquidation preference $25,000                                                         32,000               32,000
                                                                                   ---------------      ---------------

SHAREHOLDERS' EQUITY:
Preferred stock, $.001 par value; 10,000,000 shares authorized; 780,000 shares
     designated Class A redeemable convertible;
     2005 and 2004 - no shares issued and outstanding                                           --                   --
Class A common stock, $.001 par value; 50,000,000 shares authorized; 5,780,191
     shares reserved for future issuance
     2005 - 13,512,631 shares issued and outstanding
     2004 - 13,397,059 shares issued and outstanding                                        13,000               13,000
Class B common stock, $.001 par value; 4,420,113 shares authorized;
     2005 and 2004 - 31,691 shares issued and outstanding                                       --                   --
Additional paid-in capital                                                              27,995,000           27,646,000
Accumulated deficit                                                                    (12,731,000)         (17,986,000)
                                                                                   ---------------      ---------------
     Total shareholders' equity                                                         15,277,000            9,673,000
                                                                                   ---------------      ---------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                         $    23,355,000      $    12,574,000
                                                                                   ===============      ===============
</Table>


                 See notes to consolidated financial statements.



                                       19
<PAGE>


ADVANCED PHOTONIX, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 27, 2005 AND MARCH 28, 2004 AND MARCH 30, 2003

--------------------------------------------------------------------------------

<Table>
<Caption>
                                                                    2005                2004                  2003
                                                              ---------------      ---------------      ---------------
<S>                                                           <C>                  <C>                  <C>
SALES                                                              14,803,000           12,401,000            9,147,000
COST OF GOODS SOLD                                                 10,071,000            8,104,000            6,448,000
                                                              ---------------      ---------------      ---------------
GROSS PROFIT                                                        4,732,000            4,297,000            2,699,000
RESEARCH AND DEVELOPMENT EXPENSES                                     146,000              280,000              511,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE                         3,920,000            3,174,000            3,058,000
                                                              ---------------      ---------------      ---------------
INCOME (LOSS) FROM OPERATIONS                                         666,000              843,000             (870,000)

OTHER INCOME (EXPENSE)
     Interest income                                                   43,000               20,000               70,000
     Interest expense                                                (154,000)             (30,000)             (13,000)
     Other, net                                                       (35,000)             (34,000)               5,000
                                                              ---------------      ---------------      ---------------
TOTAL OTHER INCOME (EXPENSE)                                         (146,000)             (44,000)              62,000
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES             520,000              799,000             (808,000)

PROVISION (BENEFIT) FOR INCOME TAXES
     Provision (benefit) for income taxes - current                    18,000               12,000                2,000
     Provision (benefit) for income taxes - deferred               (4,752,000)              (7,000)              (7,000)
                                                              ---------------      ---------------      ---------------
TOTAL PROVISION (BENEFIT) FOR INCOME TAXES                         (4,734,000)               5,000               (5,000)
                                                              ---------------      ---------------      ---------------
NET INCOME (LOSS)                                                   5,254,000              794,000             (803,000)
                                                              ===============      ===============      ===============

BASIC EARNINGS (LOSS) PER SHARE                                           .39                  .06                 (.06)
DILUTED EARNINGS (LOSS) PER SHARE                                         .34                  .06                 (.06)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                         13,461,000           13,400,000           12,356,000
</Table>


                 See notes to consolidated financial statements.



                                       20
<PAGE>


                             ADVANCED PHOTONIX, INC.

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<Table>
<Caption>
                                     Class A                       Class B
For each of the three             Common Stock                   Common Stock          Additional
years in the period               ------------                   ------------            Paid-in      Accumulated
ended March 27, 2005         Shares         Amount           Shares        Amount        Capital         Deficit          Total
-----------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>          <C>                  <C>      <C>            <C>             <C>             <C>
BALANCE AT
  MARCH 31, 2002           12,211,648    $     12,000         31,691   $         --   $ 26,576,000    $(17,977,000)   $  8,611,000
Options issued
  to acquire
  SSI (below
  market price)                    --              --             --             --          5,000              --           5,000
Exercise of Options            98,500              --             --             --         71,000              --          71,000
Shares issued to
  acquire TOI assets        1,059,110           1,000             --             --        973,000              --         973,000
Net loss                           --              --             --             --             --        (803,000)       (803,000)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
  MARCH 30, 2003           13,369,258          13,000         31,691             --     27,625,000     (18,780,000)      8,858,000
Exercise of Options            77,801              --             --             --         67,000              --          67,000
Return of shares
  issued to acquire
  TOI assets (Final
  settlement of shares
  held in escrow)             (50,000)             --             --             --        (46,000)             --         (46,000)
Net Income                         --              --             --             --             --         794,000         794,000
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
  MARCH 28, 2004           13,397,059          13,000         31,691             --     27,646,000     (17,986,000)      9,673,000
Exercise of Options             2,000              --             --             --          1,000              --           1,000
Discount on note
  payable (fair
  value of detachable
  warrants issued)                 --              --             --             --        141,000              --         141,000
Shares issued to
  acquire PDI                 113,572              --             --             --        207,000              --         207,000
Net Income                         --              --             --             --             --       5,254,000       5,254,000
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT
  MARCH 27, 2005           13,512,631    $     13,000         31,691   $         --   $ 27,995,000    $(12,731,000)   $ 15,277,000
===================================================================================================================================
</Table>


                 See notes to consolidated financial statements.



                                       21



<PAGE>

                             ADVANCED PHOTONIX, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
For each of the three years in the period ended March 27, 2005            2005              2004           2003
-------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)                                                     $ 5,254,000      $   794,000      $  (803,000)

Adjustment to reconcile net income (loss) to net cash provided by
(used by) operating activities
     Depreciation                                                         369,000          328,000          192,000
     Amortization                                                         198,000           78,000           48,000
     Disposal of fixed assets                                              56,000           39,000               --
     Provision for doubtful accounts                                            0          (36,000)          40,000
     Provision for obsolete inventory                                           0           70,000          (14,000)
     Provision for warranty expense                                        15,000
     Decrease in deferred tax valuation allowance                      (4,749,000)
Changes in operating assets and liabilities:
     Accounts receivable                                                   71,000         (176,000)        (359,000)
     Inventories                                                         (291,000)         307,000          891,000
     Prepaid expenses and other current assets                           (193,000)          27,000          (79,000)
     Prepaid acquisition costs                                           (134,000)         (17,000)              --
     Prepaid capital finance expenses                                    (398,000)              --               --
     Other assets                                                              --               --         (147,000)
     Accounts payable                                                     428,000          (73,000)         146,000
     Customer deposit liability                                          (477,000)              --               --
     Accrued expenses                                                      79,000         (125,000)          93,000
                                                                      -----------      -----------      -----------
              Net cash provided by operating activities                   228,000        1,216,000            8,000
                                                                      -----------      -----------      -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Capital expenditures                                                  (193,000)        (298,000)         (68,000)
   Short term investments                                               1,700,000         (300,000)        (398,000)
   Increase in restricted cash                                         (1,254,000)              --               --
   Cash acquired through acquisition of Photonic Detectors, Inc.           44,000               --               --
   Purchase of outstanding shares of Photonic Detectors, Inc.
      common stock                                                     (1,117,000)              --               --
   Loan to Picometrix, Inc.                                            (4,228,000)
   Intangible assets acquired                                                  --          (10,000)              --
   Purchase of selected net assets of Silicon Sensors, LLC                     --               --       (1,799,000)
                                                                      -----------      -----------      -----------
              Net cash used by investing activities                    (5,048,000)        (608,000)      (2,265,000)
                                                                      -----------      -----------      -----------
</Table>



                                       22
<PAGE>


                             ADVANCED PHOTONIX, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

<Table>
<Caption>
For each of the three years in the period ended March 27, 2005             2005             2004           2003
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>               <C>              <C>
CASH FLOWS FROM FINANCING ACTIVITIES
   Repayment of Photonic Detectors, Inc. line of credit                   (78,000)              --               --
   Advanced Photonix, Inc. secured line of credit                        (900,000)        (300,000)              --
   Advanced Photonix, Inc. revolving line of credit (asset-based)       1,000,000               --               --
   Proceeds from private placement of convertible note                  5,000,000               --               --
   Proceeds from sale of fixed assets                                          --           23,000               --
   Proceeds from issuance of stock options                                     --               --            5,000
   Proceeds from exercise of stock options                                  2,000           66,000           71,000
                                                                      -----------      -----------      -----------
              Net cash provided by (used by) financing activities       5,024,000         (211,000)          76,000
                                                                      -----------      -----------      -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                      204,000          397,000       (2,181,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                          1,299,000          902,000        3,083,000
                                                                      -----------      -----------      -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR                              $ 1,503,000      $ 1,299,000      $   902,000
                                                                      ===========      ===========      ===========
</Table>


<Table>
<Caption>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:                                                             2005              2004             2003
                                                                      -----------      -----------      -----------
<S>                                                                  <C>               <C>              <C>
Cash paid for interest                                                $   153,000      $    30,000      $    13,000
Cash paid for income taxes                                            $    19,000      $     5,000      $     6,000
</Table>


In October 2004 the Company issued $5,000,000 in secured debt to be used for
future acquisition. In conjunction with that debt, the Company issued warrants
convertible into 850,822 shares of the Company's common stock. The warrants
issued were adjusted to present value. The adjustment was $141,000 to additional
paid-in capital.

In January 2003, the Company purchased all of the issued and outstanding shares
of common stock of Texas Optoelectronics Inc. (see Note 2). In connection with
the purchase, the Company incurred a secured debt of $1,200,000 with an
investment brokerage company, of which $300,000 was repaid during fiscal year
2004. At March 28, 2004, the outstanding balance of the secured debt was
$900,000, the balance of which was repaid during fiscal 2005. On July 21, 2004,
the Company entered into an asset-based revolving line of credit for up to $3
million with a local financial institution to support working capital
requirements, capital investments and potential investigation and integration
costs related to future acquisitions. At March 27, 2005 the outstanding balance
on the revolving line of credit was $1 million.

See notes to consolidated financial statements.


                                       23
<PAGE>

ADVANCED PHOTONIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         BUSINESS DESCRIPTION - Advanced Photonix, Inc. (the Company or API), is
         engaged in the development and manufacture of optoelectronic
         semiconductor based components, hybrid assemblies and other proprietary
         solid state light and radiation detection devices, including
         proprietary advanced solid state silicon photodetection devices which
         utilize Avalanche Photodiode (APD) technology. API is located in
         Camarillo, California.

         The Company's wholly-owned subsidiary, Silicon Sensor, Inc. (SSI) (see
         Note 2 - Acquisitions), manufactures silicon photodiodes and
         optoelectronic devices in a manufacturing facility in Dodgeville,
         Wisconsin.

         The Company's wholly-owned subsidiary, Texas Optoelectronics, Inc.
         (TOI) (see Note 2 - Acquisitions), manufactured optoelectronic devices
         in a facility in Garland, Texas. The Company shut down the Garland
         facility in May 2003 and relocated the TOI assets to the Company's
         facilities in Dodgeville, Wisconsin and Camarillo, California.

         In December 2004 the Company acquired all of the outstanding shares of
         Photonic Detectors, Inc. (PDI) (see Note 2 - Acquisitions), PDI
         manufactured optoelectronic devices in a facility in Simi Valley,
         California. The acquired facility was shut down in March 2005 and all
         assets were merged into the operations in Dodgeville, Wisconsin and
         Camarillo, California.

         PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
         include the financial statements of the Company and its wholly-owned
         subsidiaries. All significant inter-company balances and transactions
         have been eliminated in consolidation.

         RECLASSIFICATIONS - Certain prior year balances have been reclassified
         in the consolidated financial statements to conform with the current
         year presentation.

         FISCAL YEAR-END - The Company's fiscal year ends on the last Sunday in
         March. Fiscal years in the three-year period ended March 27, 2005
         contain fifty-two weeks each.

         OPERATING SEGMENT INFORMATION - The Company predominantly operates in
         one industry segment, light and radiation detection devices.
         Substantially all of the Company's assets and employees are located at
         the Company's facilities in Camarillo, California and Dodgeville,
         Wisconsin.





                                       24
<PAGE>


         In fiscal 2005, 2004 and 2003, the Company had export sales of
         approximately $2,488,000, $1,202,000 and $1,848,000, respectively, made
         primarily to customers in North America, Asia and Europe. Sales to
         specific countries, stated as a percentage of total sales, consist of
         the following:

<Table>
<Caption>
                                                 2005             2004             2003
                                              -----------      -----------      -----------
<S>                                           <C>              <C>              <C>
                  Canada                                2%              --               --
                  Germany                              --               --                4%
                  Japan                                 2%              --                2%
                  Spain                                 5%              --                2%
                  United Kingdom                        2%               4%               4%
                  All other countries                   6%               6%               8%
                                              -----------      -----------      -----------
                  Total export sales                   17%              10%              20%
</Table>

         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.

         RESTRICTED CASH - As a condition of the Senior Convertible Note (see
         note 7), the Company established a cash collateral account with a bank
         and a control agreement with a collateral agent. The agreement grants
         the holder of the note a first priority perfected interest in the
         account. Conditioned upon certain defined events and permitted
         acquisitions, the collateral agent may release the funds to the
         Company. In May 2005 (see note 13) the Company concluded a permitted
         acquisition allowing for the release of the restricted funds.

         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 March 27,
         2005.

                                       25
<PAGE>

         All of the Company's short-term investments as of March 28, 2004 were
         due within one year.

         Short-term and long-term investments consist of the following as of
         March 28, 2004:

<Table>
<Caption>
                                                                                        Fair                    Holding
                                                                Cost                    Value                Gain/(Losses)
                                                          -----------------       -----------------          -------------
<S>                                                       <C>                     <C>                        <C>
         Equity securities                                        1,700,000               1,700,000              $-0-
                                                          -----------------       -----------------              ----
         Totals                                           $       1,700,000       $       1,785,000              $-0-
                                                          =================       =================              ====
</Table>


         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 four financial institutions that are insured
         by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. As
         of March 27, 2005, the Company had cash at three 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 March 27, 2005, one customer
         comprised 22% of accounts receivable. As of March 28, 2004, two
         customers comprised 14% and 13%, respectively, of accounts receivable.
         For fiscal years 2005, 2004 and 2003, cash deposits held at financial
         institutions in excess of FDIC insured amounts were as follows:

<Table>
<Caption>
                                        2005              2004          2003
                                     ----------        ----------     --------
<S>                                  <C>               <C>            <C>
                                     $2,421,000        $1,013,000     $500,000
</Table>

         SIGNIFICANT CUSTOMER - During the fiscal year ended March 27, 2005, two
         customers represented 12% and 12% of the Company's net sales. During
         the fiscal years ended March 28, 2004 and March 30, 2003, no customer
         accounted for more than 10% 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 March 27, 2005 and March 28,
         2004

<Table>
<Caption>
                                                     2005              2004
                                                  -----------      -----------
<S>                                               <C>              <C>

Raw material                                      $ 3,129,000      $ 2,857,000
Work-in-process                                     1,245,000          880,000
Finished products                                     302,000          117,000
                                                  -----------      -----------
Total inventories                                   4,676,000        3,854,000
Less reserve                                       (1,032,000)        (925,000)
                                                  -----------      -----------

Inventories, net                                  $ 3,644,000      $ 2,929,000
                                                  ===========      ===========
</Table>





                                       26
<PAGE>


         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 nine years.

         Equipment and leasehold improvements consist of the following at March
         27, 2005 and March 28, 2004:

<Table>
<Caption>
                                                     2005              2004
                                                  -----------      -----------
<S>                                               <C>              <C>
Machinery and equipment                           $ 3,795,000      $ 3,611,000
Furniture and fixtures                                154,000          145,000
Leasehold improvements                                294,000          267,000
Data processing equipment                             322,000          284,000
Vehicles                                               26,000           26,000
Capitalized software                                  382,000          368,000
Construction-in-process                                68,000           93,000
Assets held for sale or disposal                       77,000          111,000
                                                  -----------      -----------

    Total                                          $5,118,000      $ 4,905,000
                                                  ===========      ===========
</Table>

         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 goodwill and fixed assets.

         INTANGIBLE ASSETS - In October 2004 the Company entered into a
         definitive agreement for $5,000,000 of senior convertible notes, (see
         note 7). In connection with the agreement costs of approximately
         $597,000 were incurred which are being amortized over the 36 month term
         of the agreement. Monthly amortization is approximately $16,500 per
         month over the life of the notes.

         In December 2004 the Company acquired Photonic Detectors, Inc. (see
         note 2). The Company recorded an intangible asset of $635,000 which
         represents the excess of cost over fair value of net assets. This
         intangible asset is associated with the value of the acquired customer
         list. The intangible asset is being amortized over a period of 60
         months beginning January 2005. Monthly amortization is $10,000 per
         month. Each year the Company evaluates the present value of future cash
         flows associated with the list. Any impairment would be recognized when
         the expected future operating cash flows from such intangible assets is
         less than their carrying value.

         Assuming no impairment to the intangible value, future amortization
         expense for intangible assets is as follows:

<Table>
<S>               <C>      <C>
                  2006     $    326,000
                  2007          326,000
                  2008          243,000
                  2009          127,000
                  2010           95,000
                           ------------
                  Total    $  1,117,000
                           ============

</Table>


                                      27
<PAGE>

         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 $3,000 in fiscal 2005, 2004 and 2003, respectively. The
         current patents held by the Company have remaining useful lives ranging
         from 2 years to 10 years, with a weighted average remaining useful life
         of 3.5 years. Future amortization of patent expenses are as follows:

                  2006     $   3,000
                  2007         3,000
                  2008         2,000
                  2009         1,000
                  2010            --
                           ---------
                  Total    $   9,000
                           =========

         GOODWILL - The excess of cost over the purchase price of acquired net
         assets is amortized on a straight-line basis over a 25-year period. In
         accordance with SFAS 142, Goodwill and other Intangible Assets, the
         Company ceased amortizing goodwill on April 1, 2002. The Company
         annually evaluates the recoverability of goodwill by assessing whether
         the recorded value of the goodwill will be recovered through future
         expected operating results.

         REVENUE RECOGNITION - Revenues from research and development cost
         reimbursement-type contracts are recorded as costs are incurred based
         upon the relationship between actual costs incurred, total estimated
         costs and the amount of the contract or grant award. Estimation of
         costs are reviewed periodically and any anticipated losses are
         recognized in the period in which they first become determinable.

         The Company recognizes revenues upon shipment. Provision for estimated
         losses, if any, is made in the period in which such losses are
         determined.

         SHIPPING AND HANDLING COSTS -- The Company's policy is to classify
         shipping and handling costs as a component of Costs of Goods Sold in
         the Statement of Operations.

         ADVERTISING EXPENSE - Advertising costs are expensed as incurred.
         Advertising expense was approximately $84,000, $57,000 and $106,000 in
         fiscal 2005, 2004 and 2003, respectively.

         WARRANTIES - The Company typically warrants its products against
         defects in material and workmanship for a period of 90 days from the
         date of shipment. A provision for estimated future warranty costs are
         recorded when products are shipped. Warranty costs were approximately
         $15,000, $0 and $15,000 in fiscal 2005, 2004 and 2003, respectively.

         NET INCOME (LOSS) PER SHARE - Net income (loss) per share calculations
         are in accordance with SFAS No. 128, "Earnings per Share". Accordingly,
         basic earnings (loss) per share is computed by dividing net income
         (loss) by the weighted average number of shares outstanding for each
         year. Diluted earnings (loss) per share has not been presented in 2004
         or 2003 as the impact is immaterial. The impact of Statement 128 on the
         calculation of earnings per share is as follows:


                                       28
<PAGE>

<Table>
<Caption>
                                                                          2005           2004             2003
                                                                      -----------     -----------     -----------
<S>                                                                    <C>             <C>             <C>
         BASIC
         Average Shares Outstanding                                    13,461,000      13,400,000      12,356,349
         Net Income (Loss)                                              5,254,000         794,000        (803,000)
         Basic Income (Loss) Per Share                                $      0.39     $      0.06     $     (0.06)

         DILUTED
         Average Shares Outstanding                                    13,461,000      13,400,000      12,356,349
         Net Effect of Shares Issuable
           pursuant to terms of convertible
           note, based on a weighted average                            1,176,000              --              --
         Net Effect of Dilutive Stock Options
           and Warrants based on the treasury stock
           method using average market price                              962,000         562,000         296,025

         Total Shares                                                  15,599,000      13,962,000      12,652,374
         Net Income, adjusted for interest
           expense on convertible note
           (net of tax)                                                 5,304,000         794,000        (803,000)
         Diluted Earnings Per Share                                   $      0.34     $      0.06     $     (0.06)

         Average Market Price of Common Stock                         $      2.18     $      1.57     $      1.07
         Ending Market Price of Common Stock                          $      2.11     $      2.05     $      0.96
</Table>

         The following stock options granted to Company employees, directors,
         and former owners were excluded from the calculation of earnings per
         share in the financial statements because they were anti-dilutive for
         the periods reported:

<Table>
<Caption>
                      2005                                2004                                 2003
                      ----                                ----                                 ----
                             No. Shares                         No. Shares                           No. Shares
         Exercise Price      Underlying      Exercise Price     Underlying       Exercise Price      Underlying
           per Share           Options         per Share         Options           per Share           Options
       ------------------------------------------------------------------------------------------------------------
<S>      <C>                 <C>             <C>                <C>           <C>                    <C>
                   2.2500           35,400                             64,000              1.1875            14,500
                                                      1.8750
                   2.5000           27,700                             27,700              1.2500            64,300
                                                      2.5000
                   3.0940            1,000                              1,000              1.6250             4,000
                                                      3.0940
                   3.1875          350,000                            350,000              1.8750            66,000
                                                      3.1875
                   5.3440           50,000                             50,000              2.5000            30,500
                                                      5.3440
                                  --------                           --------
                   TOTAL           464,100            TOTAL           492,700              3.0940             1,000
                                  ========                           ========
                                                                                           3.1875           350,000
                                                                                           5.3440            50,000
                                                                                                           --------
                                                                                           TOTAL            580,300
                                                                                                           ========
</Table>


                                       29
<PAGE>

         RESEARCH AND DEVELOPMENT COSTS - The Company charges all research and
         development costs, including costs associated with development contract
         revenues, to expense when incurred. Manufacturing costs associated with
         the development of a new fabrication process or a new product are
         expensed until such times as these processes or products are proven
         through final testing and initial acceptance by the customer. Costs
         related to revenues on non-recurring engineering services billed to
         customers are generally classified as cost of product sales.

         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 (see Note 5).

         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
         Nonmonetary Assets" which is an amendment of APB Opinion No. 29. The
         amendments made by the Statement are based on the principle that
         exchanges of nonmonetary assets should be measured based on the fair
         value of the assets exchanged. Further, the amendments eliminate the
         narrow exception for nonmonetary exchanges of similar productive assets
         and replaces it with a broader exception for exchanges of nonmonetary
         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
         nonmonetary 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.



                                       30
<PAGE>

         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.


2.       ACQUISITION

         In August 2002, SSI, a newly formed wholly-owned subsidiary of the
         Company, purchased substantially all of the assets and selected
         liabilities of Silicon Sensors LLC, a closely-held manufacturer of
         opto-electronic semiconductor based components located in Dodgeville,
         Wisconsin. The financial purchase price was $1,718,675 in cash, plus
         the assumption of the Seller's trade accounts payable and accrued
         liabilities, amounting to approximately $282,000. The Company incurred
         $79,000 of expenses in connection with this acquisition. In addition,
         the Company entered into a 3 year $225,000 non-compete agreement with
         the majority member of Silicon Sensors, LLC and is recording monthly
         amortization expense of $6,250.

         In January 2003, the Company purchased all of the issued and
         outstanding shares of common stock of TOI, a privately owned custom
         manufacturer of opto-electronic components and assemblies. The purchase
         price was 1,009,110 shares of API Class A Common Stock (issued at $0.92
         per share) and repayment of a debt of TOI in the amount of $1,200,000
         representing principal and interest.

         In December 2004, the Company purchased all of the issued and
         outstanding shares of common stock of PDI, a privately owned
         manufacturer of opto-electronic components and assemblies located in
         Simi Valley, California. The purchase price was 113,572 shares of API
         Class A Common Stock (issued at $1.82 per share) plus $1,075,000 in
         cash and the assumption of the seller's trade accounts payable, accrued
         liabilities, and bank line of credit amounting to approximately
         $259,000. In addition, the purchase agreement contains a contingent
         purchase price during the five year contract period following the
         closing date upon which the Company shall pay the seller an amount
         equal to 20% of incremental sales as defined, subject to specific sales
         targets being met. The Company incurred $42,000 of expenses in
         connection with this acquisition. The

                                       31
<PAGE>

         Company has closed the Simi Valley location and integrated its business
         into the Camarillo, California and Dodgeville, Wisconsin facilities. In
         connection with the transaction, the Company recorded a $635,000
         intangible asset ("Customer List") which it will amortize over a 5 year
         period, beginning January 2005. A summary of the assets and liabilities
         acquired at fair market value is as follows:

<Table>
<Caption>
<S>                                         <C>
         Assets Acquired
         Cash                               $       44,000
         Accounts receivable                       239,000
         Inventories                               423,000
         Prepaid & other current assets              3,000
         Furniture and equipment                   239,000
         Customer list                             635,000
                                            --------------
           Total Assets Acquired            $    1,583,000
                                            ==============

         Liabilities Assumed
         Accounts payable                   $     (159,000)
         Accrued salaries & benefits               (22,000)
         Bank line of credit                       (78,000)
                                            --------------
           Total liabilities assumed        $     (259,000)
                                            ==============

         Total Purchase Price               $    1,324,000
                                            ==============
</Table>

3.       CAPITALIZATION

         The Company's Certificate of Incorporation provides for two classes of
         common stock, a Class A for which 50,000,000 shares are authorized for
         issuance and a Class B for which 4,420,113 shares are authorized for
         issuance. The par value of each class is $.001. Subject to certain
         limited exceptions, shares of Class B Common Stock are automatically
         converted into an equivalent number of Class A shares upon the sale or
         transfer of the Class B Common Stock by the original holder. The holder
         of each share of Class A and Class B Common Stock is entitled to one
         vote per share.

         The Company has authorized 10,000,000 shares of Preferred Stock, of
         which 780,000 shares have been designated Class A Redeemable
         Convertible Preferred Stock with a par value of $.001 per share. 40,000
         shares of Class A Redeemable Convertible Preferred Stock ("Class A
         Preferred") were issued and outstanding at March 27, 2005. The Class A
         Preferred Stock has a liquidation preference equal to its issue price
         ($.80 per share) and is convertible at any time, at the option of the
         holder, into .3 shares of Class B Common Stock for each share of Class
         A Preferred Stock converted. The Class A Preferred Stock is subject to
         redemption at the Company's option for $.80 per share at any time. The
         Company would be required to pay approximately $25,000 to redeem these
         shares. The holders of the Class A Preferred Stock are entitled to an
         annual non-cumulative dividend preference of $.072 per share when the
         Company's net earnings per share of Class A Preferred Stock equals or
         exceeds $.072. The Class A Preferred stockholders do not have voting
         rights except as required by applicable law.

                                       32
<PAGE>


4.       INCOME TAXES

         At March 27, 2005, the Company had net operating loss carry forwards
         (NOL's) of approximately $24 million for Federal income tax purposes
         and $4 million for state income tax purposes that expire at various
         dates through fiscal year 2023. The tax laws related to the utilization
         of loss carry forwards are complex and the amount of the Company's loss
         carry forward that will ultimately be available to offset future
         taxable income may be subject to annual limitations under IRC Section
         382 resulting from changes in the ownership of the Company's common
         stock.

         The tax effects of temporary differences that gave rise to significant
         portions of the deferred tax assets at March 28, 2004 were
         substantially composed of the Company's net operating loss carry
         forwards, for which the Company had made a full valuation allowance.
         With the acquisition of both Photonic Detectors Inc. in December 2004
         and Picometrix, Inc. in May 2005, the Company management has projected
         that the Company will generate sufficient future taxable income to
         utilize approximately 50% of the accumulated NOL's before they expire.

         Realization of the deferred tax asset is dependent upon generating
         sufficient taxable income prior to expiration of any NOL's. Although
         realization is not assured, management believes it is more likely than
         not that the recorded deferred asset will be realized. Accordingly the
         Company has reduced the deferred tax asset valuation allowance to $4.7
         million at March 27, 2005.

         The ultimate realization of deferred tax assets is dependent upon the
         generation of future taxable income during the periods in which those
         temporary differences become deductible. Management considers the
         scheduled reversal of deferred tax liabilities, projected future
         taxable income and tax planning strategies in making this assessment.

         The tax provision for the year ended March 27, 2005 is composed of the
         minimum California franchise tax, Wisconsin state income tax and
         reversal of the deferred tax asset valuation allowance. The tax
         provisions for the years ended March 28, 2004 and March 30, 2003 were
         composed of Wisconsin state income tax and the minimum California
         franchise tax.

         Below are reconciliations between the provision for income taxes
         compared with the amounts at the United States federal statutory rate:

<Table>
<Caption>
           YEARS ENDED                                                   MARCH 27, 2005      MARCH 28, 2004    MARCH 30, 2003
<S>                                                                      <C>                 <C>               <C>
           Federal income tax at statutory rates                             177,000             272,000            (275,000)
           State income TAXES, net of federal benefit                         39,000              45,000                 (18)
           Amortization of Goodwill                                               --              (1,400)                 --
           Utilization of NOL Carryforwards                                 (211,000)           (161,000)                 --
           Change in valuation allowance                                  (4,749,000)           (150,000)            273,000
           Other                                                              10,000               1,000              (3,000)
                                                                          --------------------------------------------------
           Effective federal income tax                                   (4,734,000)              5,000              (5,000)
</Table>

         Deferred Tax Assets at March 27, 2005 are as follows, at a projected
         tax rate of 34% for federal income tax purposes and 8.5% for state
         income tax purposes:
<Table>
<Caption>
                                           Federal                        State
                                           -------                        -----
<S>                                      <C>                           <C>
         Current                           507,000                     $137,000
         Long Term                       8,395,000                      460,000
                                         ---------                      -------
                                         8,902,000                      597,000
</Table>

                                       33
<PAGE>

         The Company's net deferred tax assets consist of the following
         components, for fiscal years 2005 and 2004:

<Table>
<Caption>
                                                     2005             2004
                                                  -----------      -----------
<S>                                               <C>              <C>
          Sec. 263A Adjustment                         59,000           40,000
          Accrued Bonuses                              63,000            2,000
          Accrued Interest                                 --            6,000
          Inventory Reserve                           409,000          396,000
          Utility Accruals                              7,000            7,000
          Warranty Reserve                             13,000            8,000
          A/R Allowance                                 9,000           24,000
          Accrued Vacation                             77,000           65,000
          NOL Carryforwards                         8,217,000        8,640,000
          Accumulated Amortization                     32,000           19,000
          Accumulated Depreciation                   (149,000)         (96,000)
          R&D Credits                                 721,000          765,000
          California Mfg. Credit                       40,000           59,000
                                                  -----------      -----------
          Total                                     9,498,000        9,935,000
          Valuation Allowance                      (4,749,000)      (9,935,000)
                                                  -----------      -----------
          Net Deferred Tax Asset                    4,749,000               --
</Table>

At March 27, 2005 the Company's net operating loss carry forwards will expire on
the following dates:

<Table>
<Caption>
         Federal                           California
------------------------------     ------------------------------
  Amount          Expiration         Amount          Expiration
-----------     --------------     -----------     --------------
<S>             <C>                <C>             <C>
$ 1,073,430     March 31, 2006     $ 2,181,725     March 31, 2007
  3,171,670     March 31, 2007          82,141     March 31, 2013
  2,226,072     March 31, 2008         973,927     March 31, 2014
  3,816,200     March 31, 2009         471,220     March 31, 2014
                                   -----------
  1,947,320     March 31, 2010
     30,267     March 31, 2011
  1,548,581     March 31, 2012
    599,421     March 31, 2013
    250,133     March 31, 2014
  6,096,005     March 31, 2015
     82,471     March 31, 2016
  1,868,504     March 31, 2022
    846,957     March 31, 2023
-----------
$23,557,031                        $ 3,709,013
===========                        ===========
</Table>

                                       34
<PAGE>


5.       STOCK OPTIONS

         The Company has four stock option plans: The 1990 Incentive Stock
         Option and Non-Qualified Stock Option Plan, the 1991 Directors' Stock
         Option Plan ("The Directors' Plan"), the 1997 Employee Stock Option
         Plan and the 2000 Stock Option Plan. The Company measures compensation
         for these plans under APB Opinion No. 25. No compensation cost has been
         recognized as all options were granted at the fair market value or the
         greater of the underlying stock 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:

<Table>
<Caption>
                                                                        2005               2004            2003
                                                                      -----------      -----------      -----------
<S>                                                                   <C>              <C>              <C>
Net income (loss), as reported                                        $ 5,254,000      $   794,000      $  (803,000)
Net income (loss), pro forma                                          $ 5,208,000      $   723,000      $  (942,910)
Basic income (loss) per share, as reported                            $      0.39      $      0.06      $     (0.06)
Basic income (loss) per share, pro forma                              $      0.39      $      0.05      $     (0.07)
</Table>

         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 2005, 2004
         and 2003, respectively: risk-free interest rates of, 4%, 5% and 9.0%,
         expected volatility of 1%, 5% and 4% and expected lives of 10 years in
         all periods. No dividends were assumed in the calculations.

         The Company's various stock option plans provide for the granting of
         non-qualified and incentive stock options to purchase up to 3,700,000
         shares of common stock for periods not to exceed 10 years. Options
         typically vest at the rate of 25% per year over four years, except for
         options granted under The Directors' Plan, which typically vest at the
         rate of 50% per year over two years. Under these plans, the option
         exercise price equals the stock's market price on the date of grant.
         Options may be granted to employees, officers, directors and
         consultants. The Company has also granted options, under similar terms
         as above, under no specific shareholder approved plan.

         Stock option transactions for fiscal years 2004 and 2005 are summarized
         as follows:

<Table>
<Caption>
                                                     Shares        Weighted Average
                                                     (000)          Exercise Price
                                                  -----------      ----------------
<S>                                               <C>              <C>
Outstanding, March 30, 2003                             1,804      $           1.44
Granted                                                   300      $           0.92
Exercised                                                 (78)     $           0.86
Expired                                                   (65)     $           1.21
                                                  -----------

Outstanding, March 28, 2004                             1,961      $           1.39
                                                  ===========      ================

Exercisable, March 28, 2004                             1,580      $           1.52
                                                  ===========      ================

Outstanding, March 28, 2004                             1,961      $           1.39
Granted                                                   401      $           1.88
Exercised                                                  (2)     $           0.65
Expired                                                    (5)     $           0.86
                                                  -----------

Outstanding, March 27, 2005                             2,355      $           1.47
                                                  ===========      ================

Exercisable, March 27, 2005                             1,776      $           1.48
                                                  ===========      ================
</Table>


                                       35
<PAGE>

         Information regarding stock options outstanding as of March 27, 2005 is
         as follows:

<Table>
<Caption>
                                                                          Options Outstanding
                                                                   -------------------------------------
                                                    (in 000s)      Weighted Average     Weighted Average
         Price Range                                  Shares        Exercise Price       Remaining Life
----------------------------------------------     -----------     ----------------     ----------------
<S>         <C>                                    <C>             <C>                  <C>
            $0.50 - $1.25                                1,445     $           0.77                 5.59
            $1.61 - $2.50                                  509     $           1.91                 7.06
            $3.09 - $5.34                                  401     $           3.46                 5.04
</Table>


<Table>
<Caption>
                                                                             Options  Exercisable
                                                                   -------------------------------------
                                                   (in 000s)       Weighted Average     Weighted Average
         Price Range Shares                          Shares         Exercise Price       Remaining Life
----------------------------------------------     -----------     ----------------     ----------------
<S>         <C>                                    <C>             <C>                  <C>
            $0.50 - $1.25                                1,212     $           0.76                 5.60
            $1.61 - $2.50                                   163     $           2.03                 6.45
            $3.09 - $5.34                                  401     $           3.46                 5.04
</Table>


6.       LINE OF CREDIT/SHORT TERM DEBT

         The Company has a revolving line of credit from a regional bank which
         provides for borrowings up to $3,000,000. The line allows for
         borrowings on 80% of eligible accounts receivable and 40% on eligible
         inventory, as defined, limited to $1,500,000. The line is secured by
         all business assets of the Company. Repayment is interest only,
         monthly, with principal due at maturity, July 20, 2005. Interest is
         computed at the Wall Street Journal Prime plus 1.00% which was 6.00% at
         March 27, 2005.


7.       SENIOR CONVERTIBLE NOTE/LONG TERM DEBT AND RESTRICTED CASH

         In October 2004, the Company entered into a definitive agreement for
         the private placement to four institutional investors of $5 million
         aggregate principal amount of its senior convertible notes. The
         original Securities Purchase Agreement was filed with the Securities
         and Exchange Commission on October 12, 2004. The notes are convertible
         at the option of the holder under certain circumstances into shares of
         the Company's Class A Common Stock at an initial conversion price of
         $1.9393 per share, subject to adjustment. The notes pay interest at an
         annual rate of prime plus 1% and will mature on October 12, 2007. At
         the time of the closing of the private placement, $2.5 million of the
         purchase price for the notes was being held in a cash collateral
         account subject to release upon satisfaction of certain conditions
         specified in the purchase agreement. The original conditions of release
         provided for $1,250,000 to be eligible for release if the Company had
         entered into a definitive agreement for a permitted acquisition on or
         before January 31, 2005. Subsequently, any balance remaining in the
         cash collateral account, up to the full $2,500,000, would be released
         upon the Company's consummation of a permitted acquisition on or before
         March 31, 2005. The original terms were modified by letters of
         agreement between API and the investors dated March 9, 2005. The
         modified terms provide for $1,250,000 to be released upon entry into a
         definitive agreement

                                       36
<PAGE>

         for a permitted acquisition on or before March 11, 2005 and for the
         remaining funds to be released upon the consummation of that
         acquisition on or before May 1, 2005. A "permitted acquisition" is
         defined in the Securities Purchase Agreement as the purchase by the
         Company of an entity with (1) EBITDA of not less than $750,000 during
         the twelve months immediately preceding the acquisition and (2)
         revenues of not less than $4,000,000 during the twelve months
         immediately preceding the acquisition. Since Photonic Detectors, Inc.
         did not qualify as a "permitted acquisition" no funds were released as
         a result of completing that transaction. However, $1,250,000 was
         released in March 2005, upon signing an Agreement and Plan of Merger
         with Picometrix, Inc. and $1,250,000 remained as restricted cash in the
         cash collateral account at March 27, 2005. The remaining amount of
         restricted cash was released to the Company in May 2005, upon the
         completion of the acquisition of Picometrix, Inc.

         In connection with the transaction, the Company had issued to the
         investors five-year warrants to purchase 850,822 shares of the
         Company's Class A Common Stock at an exercise price of $2.1156 per
         share, subject to adjustment. The Company has agreed to register the
         shares of common stock issuable upon conversion of the notes and upon
         exercise of the warrants for resale under the Securities Act of 1933.
         The investors have the option for a period of one year following
         effectiveness of the registration statement to acquire an additional $5
         million aggregate principal amount of the notes with an initial
         conversion price of $2.1156 per share and five-year warrants to
         purchase an additional 850,822 shares of common stock. The original
         terms of the warrants issued and, the additional warrants to be issued,
         in the private placement to the investors were also modified on March
         9, 2005 to reduce the exercise price from $2.1156 per share of Class A
         Common Stock of API to $1.78 per share (see Note 13 "Subsequent
         Events"). Similarly, on March 9, 2005, the terms of the notes issued in
         connection with the private placement (the "Notes") were modified to
         (i) provide that the interest rate shall not be less than 6.5% at any
         time and (ii) increase the amount of "Permitted Indebtedness" (as such
         term is defined in the Notes) from $3 million to $6 million and (iii)
         decrease the amount of "Permitted Acquisition Indebtedness" (as such
         term is defined in the Notes) from $6 million to $3 million. In
         addition, the investors in the private placement agreed to subordinate,
         pursuant to a form of subordination agreement in form and substance
         reasonable satisfactory to them, (i) the principal and interest
         payments on the Notes to the "Permitted Bank Debt" (as such term is
         defined in the letters of agreement) and (ii) their liens on the
         Company's assets to any lien granted by the Company as security for the
         "Permitted Bank Debt".

         In accordance with APB 14, the Company has recorded a discount to the
         note of $141,000 to account for the fair value associated with the
         note's detachable warrants. Upon any exercise of the conversion
         feature, the notes will then be converted from debt to equity. A copy
         of the original agreement and all related documents were filed with the
         Securities and Exchange Commission on October 12, 2004 on Form 8-K, and
         the foregoing summary is qualified in its entirety by reference
         thereto.



                                       37
<PAGE>



8.       RELATED PARTY NOTE RECEIVABLE

         In March 2005 the Company issued a cash advance to Picometrix, Inc. in
         the amount of $4,228,000 in connection with the pending acquisition of
         Picometrix, Inc. by the Company. The loan was contributed to the
         capital of the newly formed limited liability company upon closing of
         the acquisition and merger transaction in May 2005 (see Note 13).


9.       CAPITALIZED LEASE OBLIGATION

         The Company has a capitalized lease obligation which provides for
         monthly payments of $889. The lease matures through fiscal 2006 and is
         collateralized by certain equipment with a net book amount of
         approximately $27,000. Future payments on the lease obligations are as
         follows:

<Table>
<S>      <C>                                                         <C>
         2005                                                        $ 11,000
         2006                                                           2,000
                                                                      -------
         Total minimum lease payments                                $ 13,000
         Less interest                                                 (3,000)
                                                                     --------
         Present value of net minimum lease payments                 $ 10,000
                                                                     ========
</Table>


10.      COMMITMENTS

         The Company leases its manufacturing and office facility and certain
         office equipment under non-cancelable operating leases. Minimum future
         lease payments under all non-cancelable operating leases expiring at
         various dates through fiscal 2009 are as follows:

<Table>
<S>      <C>                                                        <C>
         2006                                                       $  434,000
         2007                                                          395,000
         2008                                                          349,000
         2009                                                          310,000
                                                                    ----------

         Total                                                      $1,488,000
                                                                    ==========
</Table>

         Rent expense was approximately $482,000, $441,000 and $362,000 in
         fiscal 2005, 2004 and 2003, respectively.


11.      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.

                                       38
<PAGE>


12.      EMPLOYEES' RETIREMENT PLAN

         The Company maintains a 401(k) Plan which is qualified under the
         Internal Revenue Code. All full-time employees are eligible to
         participate in the Plan. Employees may make voluntary contributions to
         the Plan which are matched by the Company at the rate of $.50 for every
         $1.00 of employee contribution, subject to certain limitations. The
         Company contributions and administration costs recognized as expense
         were approximately $62,000, $71,000 and $64,000 in fiscal 2005, 2004
         and 2003, respectively.

13.      SUBSEQUENT EVENTS (UNAUDITED)

         In May 2005 The Company entered into a term note with a regional bank
         which provides for borrowings up to $2,700,000. The note is guaranteed
         by Advanced Photonix, Inc, Silicon Sensors, Inc. and Michigan
         Acquisition Sub, LLC, a newly formed limited liability company
         established for purposes of transacting the merger with Picotronix,
         Inc., a Michigan corporation (doing business as and referred to herein
         as "Picometrix") (see below). Repayment is principal of $75,000 per
         month, plus interest, until maturity on May 2, 2008. Interest is
         computed at the Wall Street Journal Prime plus 1.00% with a ceiling of
         7.75% and a floor of 6.00%.

         On March 8, 2005, Advanced Photonix, Inc. and its newly formed
         subsidiary, Michigan Acquisition Sub, LLC ("Newco"), a Delaware limited
         liability company, entered into an Agreement and Plan of Merger (the
         "Agreement") with Picotronix, Inc., whereby Picometrix merged with and
         into Newco, with Newco being the surviving entity. The 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's Class A Common Stock.

         The API Notes are payable in four annual installments with the first
         being a payment of $500,000, the second being a payment of $550,000,
         the third being a payment of $900,000 and the fourth being a payment of
         $950,500. 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.

         On June 15, 2005, one of the institutional investors associated with
         the private placement transaction (See Note 7 "Senior Convertible
         Note/Long Term Debt and Restricted Cash") exercised its warrant option
         to purchase 170,164 shares of Class A Common Stock at an exercise price
         of $1.78 per share, resulting in proceeds to the Company of $303,000.




                                       39
<PAGE>



14.      QUARTERLY FINANCIAL DATA (UNAUDITED)

         The table below lists financial information (unaudited) by quarter for
         each of the three fiscal years ending March 27, 2005, March 28, 2004,
         and March 30, 2003.

<Table>
<Caption>
                                                       First         Second        Third        Fourth      Total Year
                                                    -----------   -----------   -----------  -----------   -----------
<S>                                                 <C>           <C>           <C>          <C>           <C>
2005

Net Sales                                           $ 3,253,000   $ 3,709,000   $ 3,852,000  $ 3,989,000   $14,803,000

Cost of Sales                                         1,956,000     2,451,000     2,832,000    2,832,000    10,071,000

Research & Development Expenses                          42,000        37,000        33,000       34,000       146,000

Selling, General & Administrative Expenses              902,000       982,000       870,000    1,166,000     3,920,000
Net Income (Loss)                                   $   347,000   $   260,000   $    35,000  $ 4,612,000   $ 5,254,000
Basic Income (Loss) per Common Share                $      0.03   $      0.02   $      0.00  $      0.34   $      0.39
Diluted Income (Loss) per Common Share              $      0.02   $      0.02   $      0.00  $      0.31   $      0.34

Weighted Average Common Shares Outstanding           13,431,000    13,431,000    13,437,000   13,544,000    13,461,000

2004

Net Sales                                           $ 2,647,000   $ 3,256,000   $ 2,933,000  $ 3,565,000   $12,401,000

Cost of Sales                                         1,774,000     2,131,000     1,895,000    2,304,000     8,104,000

Research & Development Expenses                          78,000        80,000        32,000       90,000       280,000

Selling, General & Administrative Expenses              684,000       819,000       756,000      915,000     3,174,000
Net Income (Loss)                                   $   113,000   $   225,000   $   255,000  $   201,000   $   794,000
Basic & Diluted Income (Loss) per Common Share      $      0.01   $      0.02   $      0.02  $      0.01   $      0.06

Weighted Average Common Shares Outstanding           12,247,000    13,449,000    13,458,000   13,479,000    13,400,000

2003

Net Sales                                           $ 1,548,000   $ 1,838,000   $ 2,603,000  $ 3,158,000   $ 9,147,000

Cost of Sales                                           916,000     1,307,000     1,737,000    2,488,000     6,448,000

Research & Development Expenses                         142,000       144,000       107,000      118,000       511,000

Selling, General & Administrative Expenses              541,000       637,000       725,000    1,155,000     3,058,000
Net Income (Loss)                                   $   (23,000)  $  (232,000)  $    61,000  $  (609,000)  $  (803,000)
Basic & Diluted Income (Loss) per Common Share      $      0.00   $     (0.02)  $      0.00  $     (0.05)  $     (0.06)

Weighted Average Common Shares Outstanding           12,247,000    12,251,000    12,251,000   13,037,000    12,356,000
</Table>






                                       40
<PAGE>


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

            None.

ITEM 9A.   CONTROLS AND PROCEDURES

In February 2005, Susan Schmidt resigned from her position as Chief Financial
Officer, effective March 11, 2005, citing personal reasons. On March 11, 2005
Richard Kurtz, Chairman of the Board and Chief Executive Officer, assumed the
position of interim principal financial officer until the appointment of Robin
Risser as Chief Financial Officer on May 2, 2005. During the interim period and
through the date of this report, Ms. Schmidt has continued on with the Company
in the capacity of a consultant, assisting management in the evaluation and
reporting of financial information and maintaining consistency in our disclosure
and internal controls and procedures.

DISCLOSURE CONTROLS

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (or Exchange Act)). Based on this evaluation, our principal executive
officer and principal financial officer concluded that our disclosure controls
and procedures are effective in alerting them in a timely manner to material
information required to be disclosed in our periodic reports filed with the SEC.

CHANGES IN INTERNAL CONTROLS

During our most recent fiscal quarter, there has not occurred any change in our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.


ITEM 9B.   OTHER INFORMATION

           None.

                                    PART III

In accordance with General Instruction G(3), and except for certain of the
information called for by Items 10 and 12 which is set forth below, the
information called for by Items 10 through 13 of Part III is incorporated by
reference from the Company's definitive proxy statement ("Proxy Statement") to
be filed pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934 in connection with the Company's 2005 Annual Meeting of
Stockholders.


ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS

CODE OF ETHICS

The Company has adopted a Code of Ethics for Senior Financial Officers, pursuant
to the Sarbanes-Oxley Act of 2002. The Code of Ethics is published on the
Company's web site, www.advancedphotonix.com on the Investor Relations page.

ITEM 11.   EXECUTIVE COMPENSATION

The response to this item is incorporated by reference from the Company's Proxy
Statement.



                                       41
<PAGE>


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 27, 2005, the aggregated information
pertaining to all securities authorized for issuance under the Company's equity
compensation plans:



<Table>
<Caption>
                                  Number of
                              Securities to be
                                 issued upon     Weighted-average
                                 exercise of      exercise price          Number of
                                 outstanding      of outstanding         securities
                                  options,           options,             remaining
                                warrants and       warrants and        available for
Plan Category                      rights             rights           future issuance
-------------------------     ----------------   ----------------     ----------------
<S>                           <C>                <C>                  <C>
Equity compensation plans
approved by shareholders           1,776,100     $           1.48            1,089,222

Equity compensation plans
not approved by
shareholders                              --                   --                   --

          Total                    1,776,100     $           1.48            1,089,222
</Table>





ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


The response to this item is incorporated by reference from the Company's Proxy
Statement.


ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES

The response to this item is incorporated by reference from the Company's Proxy
Statement.



                                     PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following is a list of the financial statements, schedules and exhibits
filed herewith.

         (1)      Financial Statements: No financial statements have been filed
                  with this Form 10-K other than those listed in Item 8.

         (2)      Financial Statement Schedules: Schedules for which provisions
                  are made in the applicable accounting regulations of the
                  Securities and Exchange Commission are not required under the
                  related instructions, or are disclosed in the accompanying
                  consolidated financial statements, or are inapplicable and,
                  therefore, have been omitted.

         (3)      Exhibits:

      Exhibit
        No.       Description
      -------     -----------
      2.1         Stock Purchase Agreement dated December 21, 2004 between
                  Advanced Photonix, Inc. and Photonic Detectors, Inc. -
                  incorporated by reference to Exhibit 2.1 to the Registrant's
                  Form 8-K, as filed with the Securities and Exchange Commission
                  on December 23, 2004

      2.2         Agreement and Plan of Merger between Advanced Photonix, Inc.
                  and Michigan Acquisition Sub, LLC, Picotronix, Inc., Robin
                  Risser and Steven Williamson, dated March 8, 2005 -


                                       42
<PAGE>

                  incorporated by reference to Exhibit 2.1 to the Registrant's
                  Form 8-K, as filed with the Securities and Exchange Commission
                  on March 14, 2005

         3.1      Certificate of Incorporation of the Registrant, as amended -
                  incorporated by reference to Exhibit 3.1 to the Registrant's
                  Registration Statement on Form S-1, filed with the Securities
                  and Exchange Commission on November 23, 1990

         3.1.1    Amendment to Certificate of Incorporation of the Registrant,
                  dated October 29, 1992-incorporated by reference to the
                  Registrant's March 31, 1996 Annual Report on Form 10-K

         3.1.2    Amendment to Certificate of Incorporation of the Registrant,
                  dated September 9, 1992-incorporated by reference to the
                  Registrant's March 31, 1996 Annual Report on Form 10-K

         3.2      By-laws of the Registrant, as amended - incorporated by
                  reference to Exhibit 3.(ii) to the Registrant's Form 8-K as
                  filed with the Securities and Exchange Commission on June 8,
                  2005

         4.1      Rights Agreement, by and between the Company and Continental
                  Stock Transfer and Trust Company, as amended - incorporated by
                  reference to Exhibit 4.1 to the Registrant's Form 8-K filed
                  with the Securities and Exchange Commission on February 9,
                  2005

         10.1*    Advanced Photonix, Inc. 1991 Special Directors Stock Option
                  Plan - incorporated by reference to Exhibit 10.9 to the
                  Registrant's March 31, 1991 Annual Report on Form 10-K

         10.2*    Advanced Photonix, Inc. 1990 Incentive Stock Option and
                  Non-Qualified Stock Option Plan - incorporated by reference to
                  Exhibit No. 10.11 to the Registrant's Registration Statement
                  on Form S-1, filed with the Securities and Exchange Commission
                  on November 23, 1990

         10.3*    Advanced Photonix, Inc. 1997 Employee Stock Option Plan -
                  incorporated by reference to Exhibit 10.13 to the Registrant's
                  March 30, 1997 Annual Report on Form 10-K

         10.4*    Amendment No. 1 to 1997 Employee Stock Option Plan of Advanced
                  Photonix, Inc. - incorporated by reference to Exhibit 10.14 to
                  the Registrant's December 28, 1997 Quarterly report on Form
                  10-Q

         10.5*    Advanced Photonix, Inc. 2000 Stock Option Plan, as amended -
                  incorporated by reference to Exhibit 99.1 to the Registrant's
                  Form 8-K, as filed with the Securities and Exchange Commission
                  on November 19, 2004

         10.9     Lease Agreement dated February 23, 1998 between Advanced
                  Photonix, Inc. and High Tech No. 1, Ltd. - incorporated by
                  reference to Exhibit 10.9 to the Registrant's March 29, 1998
                  Annual Report on Form 10-K

         10.10    Form of Indemnification Agreement provided to Directors and
                  Principal Officers of Advanced Photonix, Inc. - incorporated
                  by reference to Exhibit 10.15 to the Registrant's December 28,
                  1997 Quarterly report on Form 10-Q

         10.11*   Employment Agreement dated August 21, 2002 between Advanced
                  Photonix, Inc. and Paul D. Ludwig - incorporated by reference
                  to Exhibit 10.1 to the Registrant's Form 8-K as filed with the
                  Securities and Exchange Commission on September 5, 2002

                                       43
<PAGE>

         10.12*   Employment Agreement dated February 10, 2003 between Advanced
                  Photonix, Inc. and Richard D. Kurtz - incorporated by
                  reference to Exhibit 10.12 to the Registrant's March 30, 2003
                  Annual Report on Form 10-KSB

         10.20    Securities Purchase Agreement, Registration Rights Agreement,
                  Senior Subordinated Convertible Note, Warrant to Purchase
                  Class A Common Stock, and Additional Investment Right dated
                  October 12, 2004 between Advanced Photonix, Inc. and private
                  investors - incorporated by reference to Exhibits 10.13
                  through 10.13.4 to the Registrant's Form 8-K, as filed with
                  the Securities and Exchange Commission on October 12, 2004

         10.20.1  Letters of Agreement amending the Securities Purchase
                  Agreement and Warrant to Purchase Class A Common Stock, dated
                  March 9, 2005, between Advanced Photonix, Inc. and private
                  investors - incorporated by reference to Exhibits 10.2 through
                  10.5 to the Registrant's Form 8-K, as filed with the
                  Securities and Exchange Commission on March 14, 2005

         10.26.1  Promissory Note between Picotronix, Inc. and Advanced
                  Photonix, Inc., dated March 10, 2005 - incorporated by
                  reference to Exhibit 10.1 to the Registrant's Form 8-K, as
                  filed with the Securities and Exchange Commission on March 14,
                  2005

         10.26.2  Secured Promissory Note between Advanced Photonix, Inc. and
                  Robin Risser, dated May 2, 2005 - incorporated by reference to
                  Exhibit 10.1 to the Registrant's Form 8-K, as filed with the
                  Securities and Exchange Commission on May 6, 2005

         10.26.3  Secured Promissory Note between Advanced Photonix, Inc. and
                  Steven Williamson, dated May 2, 2005 - incorporated by
                  reference to Exhibit 10.2 to the Registrant's Form 8-K, as
                  filed with the Securities and Exchange Commission on May 6,
                  2005

         10.26.4* Employment Agreement between Advanced Photonix, Inc. and Robin
                  Risser, dated May 2, 2005 - incorporated by reference to
                  Exhibit 10.3 to the Registrant's Form 8-K, as filed with the
                  Securities and Exchange Commission on May 6, 2005

         10.26.5* Employment Agreement between Advanced Photonix, Inc. and
                  Steven Williamson, dated May 2, 2005 - incorporated by
                  reference to Exhibit 10.4 to the Registrant's Form 8-K, as
                  filed with the Securities and Exchange Commission on May 6,
                  2005

         21.1     List of Subsidiaries of Registrant - incorporated by reference
                  to Exhibit 21.1 to the Registrant's March 30, 2003 Annual
                  Report on Form 10-KSB

         31.1     Certification of the Registrant's Chairman, Chief Executive
                  Officer, Principal Financial Officer and Director pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

         32       Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


         *Constitutes a compensation plan or arrangement required to be filed as
         part of this report.



                                       44
<PAGE>




                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

ADVANCED PHOTONIX, INC.
                                                   By: /s/ Paul D. Ludwig
                                                       ------------------------
                                                       Paul D. Ludwig, President
Date: June 24, 2005

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.

<Table>
<Caption>
Signature                                            Title                                       Date
---------                                            -----                                       ----

<S>                                   <C>                                                        <C>
/s/ Richard D. Kurtz                        Chairman of the Board, Chief Executive               June 24, 2005
------------------------------------        Officer and Acting Chief Financial Officer           -------------
Richard D. Kurtz


/s/ M. Scott Farese                         Director                                             June 24, 2005
------------------------------------                                                             -------------
M. Scott Farese


/s/ Ward Harper                             Director                                             June 24, 2005
------------------------------------                                                             -------------
Ward Harper


/s/ Stephen P. Soltwedel                    Director                                             June 24, 2005
-------------------------------                                                                  -------------
Stephen P. Soltwedel
</Table>







                                       45
<PAGE>







                                  EXHIBIT INDEX

      EX NO.      DESCRIPTION
      ------      -----------

         31.1     Certification of the Registrant's Chairman, Chief Executive
                  Officer, Principal Financial Officer and Director pursuant to
                  Section 302 of the Sarbanes-Oxley Act of 2002

         32       Certification pursuant to 18 U.S.C. Section 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002













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