##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-K/A
  þ
    
    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
 o
    
    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.®
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    33-0325826
(I.R.S. Employer
Identification No.)
 
 
    
 þ o
 o
 o þ




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##### Table of Contents



Balance Sheet
    
    As Reported
    
    RestatedLong-term debt, less current portion
    
    
    4,859,000
    
    
    
    3,832,000Total long-term debt
    
    
    4,861,000
    
    
    
    3,834,000Additional paid-in capital
    
    
    27,995,000
    
    
    
    29,198,000Accumulated deficit
    
    
    (12,731,000
    )
    
    
    (12,907,000
    )Total shareholders equity
    
    
    15,277,000
    
    
    
    16,304,000
 Consolidated Statement of Operations
    
    As Reported
    
    RestatedInterest expense, warrant fair value
    
    
    
    
    
    
    176,000Total other Income (expense)
    
    
    (146,000
    )
    
    
    (322,000
    )Net Income (Loss)
    
    
    5,254,000
    
    
    
    5,078,000Basic earnings (loss) per share
    
    $
    0.39
    
    
    $
    0.38Diluted earnings (loss) per share
    
    $
    0.34
    
    
    $
    0.33
 2




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPART IIIItem 10. Directors and Executive OfficersItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accounting Fees and ServicesPART IVItem 15. Exhibits, Financial Statement SchedulesSIGNATURESEXHIBIT INDEXCertification by Chief Executive Officer to Section 302Certification by Chief Financial Officer to Section 302Statement of Chief Executive Officer to Section 906Statement of Chief Financial Officer to Section 906    Table of Contents  
 PART I
 
 Item 1. Business
 General
  Products & Technologies
  
    
    Silicon PIN photodetectors  spectrally enhanced, both single and multi-element
 
    
    Silicon high resistivity p-type detectors
 
    
    Silicon APDs  discrete, with and without thermoelectric coolers, and with integrated modules
 
    
    Photodetector hybrids, which include signal amplification circuitry within the detector package
 
    
    Custom LED assemblies and LED displays
 
    
    FILTRODE®  patented technology integrating optical filters directly on photodiode chips
 Markets
   
    
    Missile guidance
    
    Laser range finders
    
    Laser training systems
    
    Heads-up displays
    
    Satellite positioning
 3




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##### Table of Contents




    
    Optical encoders
    
    Laboratory instrumentation
    
    Baggage/Cargo scanners
    
    Bar code scanners
    
    Laser positioning systems
  
    
    Blood analysis, including pulse oximetry and glucometry
    
    Bacteriology
    
    Medical imaging
  
    
    Laser detection
    
    Adaptive cruise control
    
    Automatic power windows
    
    Drive-by-wire
  
    
    VCSEL monitor
    
    Pump laser monitor
    
    Wireless communication
  
    
    Multi-element hybrid assemblies used on the U.S. Navys Rolling Airframe Missile (RAM) developed by Raytheon
 
    
    Narrow and wide field-of-view detectors used in Tube-launched Optically-tracked Wire-guided (TOW) missile tracking
systems
 
    
    LED arrays for use in thermal image displays in military night vision applications
 
    
    Quadrant photodetectors used in the autocollimator for airborne navigation/FLIR (Forward Looking Infrared) pods and
smart bombs
 
    
    Opto assemblies for biological and blood analysis
 
    
    Assemblies used in automotive distance control systems
 Recent Developments
  4




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##### Table of Contents



Raw Materials
  Research and Development
   
    
    APD performance enhancements  designed specifically for certain
military and medical imaging applications
 
    
    Silicon PIN photodiodes, which are being developed to meet unique
customer requirements, such as higher speeds, lower electrical
noise, and unique multi-element geometries.
 
    
    Additional applications leveraging the Companys patented
Filtrode family, integrating a variety of filters onto a detector
chip
 
    
    Position Sensitive Devices  the Company is broadening its
offering of these devices with improved performance for industrial
sensing markets
 Environmental Regulations
  5




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Backlog and Customers
   Marketing
  Competition
  Proprietary Technology
  6




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US PATENT NO.
    
    DESCRIPTION
    
    DATE ISSUED6,111,299
    
    Active Large Area Avalanche Photodiode Array
    
    August 20006,005,276
    
    Solid State Photodetector with Light Responsive Rear Face
    
    December 19995,801,430
    
    Solid State Photodetector with Light Responsive Rear Face
    
    September 19985,757,057
    
    Large Area Avalanche Array
    
    May 19985,477,075
    
    Solid State Photodetector with Light Responsive Rear Face
    
    December 19955,311,044
    
    Avalanche Photomultiplier Tube
    
    May 19945,146,296
    
    Devices for Detecting and/or Imaging Single Photoelectron
    
    September 19925.057,892
    
    Light Responsive Avalanche Diode
    
    October 19915,021,854
    
    Silicon Avalanche Photodiode Array
    
    June 19914,782,382
    
    High Quantum Efficiency Photodiode Devices
    
    November 1988 (by predecessor co.)4,717,946
    
    Thin Line Junction Photodiode
    
    January 1988 (by predecessor co.)
   Employees
  7




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Item 2. Properties
  
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    Quarterly Stock Market Data1st Quarter
    
    2nd Quarter
    
    3rd Quarter
    
    4th Quarter2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004Common Stock1High
    
    
    3.21
    
    
    
    1.05
    
    
    
    2.57
    
    
    
    1.89
    
    
    
    1.85
    
    
    
    2.51
    
    
    
    2.17
    
    
    
    2.45Low
    
    
    2.02
    
    
    
    .87
    
    
    
    1.65
    
    
    
    .88
    
    
    
    1.57
    
    
    
    1.37
    
    
    
    1.64
    
    
    
    1.66
 1 Price ranges on the American Stock Exchange  8




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##### Table of Contents



Item 6. Selected Financial Data
  (in thousands, except per share data)2005
    
    2004
    
    2003
    
    2002
    
    2001restatedNet Sales
    
    $
    14,803
    
    
    $
    12,401
    
    
    $
    9,147
    
    
    $
    6,931
    
    
    $
    6,806Gross Profit
    
    $
    4,732
    
    
    $
    4,297
    
    
    $
    2,699
    
    
    $
    2,761
    
    
    $
    2,544as a percentage of Sales
    
    
    32
    %
    
    
    35
    %
    
    
    30
    %
    
    
    40
    %
    
    
    37
    %Net Income (Loss) from Continuing
Operations
    
    $
    5,078
    
    
    $
    794
    
    
    $
    (803
    )
    
    $
    (284
    )
    
    $
    212Earnings (Loss) Per Common Share -
Basic
    
    $
    0.38
    
    
    $
    0.06
    
    
    $
    (0.06
    )
    
    $
    (0.02
    )
    
    $
    0.02Earnings (Loss Per Common Share -
Diluted
    
    $
    0.33
    
    
    $
    0.06
    
    
    $
    (0.06
    )
    
    $
    (0.02
    )
    
    $
    0.02Weighted Average Common Shares
Outstanding
    
    
    13,461
    
    
    
    13,400
    
    
    
    12,356
    
    
    
    12,209
    
    
    
    12,204Total Assets
    
    $
    23,355
    
    
    $
    12,574
    
    
    $
    11,552
    
    
    $
    9,255
    
    
    $
    9,476Current Liabilities
    
    $
    3,185
    
    
    $
    2,858
    
    
    $
    2,640
    
    
    $
    612
    
    
    $
    523Long Term Liabilities
    
    $
    3,834
    
    
    $
    11
    
    
    $
    22
    
    
    $
    
    
    
    $
    Class A Redeemable ConvertiblePreferred Stock
    
    $
    32
    
    
    $
    32
    
    
    $
    32
    
    
    $
    32
    
    
    $
    32Shareholders Equity
    
    $
    16,304
    
    
    $
    9,673
    
    
    $
    8,858
    
    
    $
    8,611
    
    
    $
    8,921Working Capital
    
    $
    11,261
    
    
    $
    5,802
    
    
    $
    4,811
    
    
    $
    7,461
    
    
    $
    7,953Dividends declared on Capital Stock
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 9




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
 Application of Critical Accounting Policies
  Revenue Recognition
  Impairment of Long-Lived Assets
  Deferred Tax Asset Valuation Allowance
  10




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Inventories
  Accounts Receivable and Allowance for Doubtful Accounts
  TABLE OF CONTRACTUAL OBLIGATIONS
  CONTRACTUAL OBLIGATIONS
    
    
    
    
    
    
    PAYMENTS DUE BY PERIODTotal
    
    
    Less than 1
    
    
    
    
    
    
    
    More than 5Restated
    
    
    year
    
    1  3 years
    
    3  5 years
    
    yearsLong-term debt
    
    
    5,000,000
    
    
    
    
    
    
    
    
    5,000,000
    
    
    
    
    
    
    
    Discount on convertible
notes
    
    
    (1,168,000
    )
    
    
    
    (939,000
    )
    
    
    (229,000
    )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
    
    
    6,208,000
    
    
    
    
    381,000
    
    
    
    5,827,000
    
    
    
    
    
    
    
    
 11




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RESULTS OF OPERATIONS
 Fiscal year 2005 Compared to Fiscal Year 2004
 REVENUES
    COSTS AND EXPENSES
    12




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Fiscal year 2004 Compared to Fiscal Year 2003
 REVENUES
  13




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COSTS AND EXPENSES
    14




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LIQUIDITY AND CAPITAL RESOURCES
      15




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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  FORWARD LOOKING STATEMENTS
  16




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Item 8. Financial Statements and Supplementary Data
  PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.
    
    
    18FINANCIAL STATEMENTS:Consolidated
Balance Sheet, 
at March 27, 2005 and March 28, 2004
    
    
    19-20Consolidated Statements of Operations
for the Years Ended March 27, 2005, March 28, 2004
and March 30, 2003
    
    
    21Consolidated Statements of Shareholders Equity
for the Years Ended March 27, 2005, March 28, 2004 and
March 30, 2003
    
    
    22Consolidated Statements of Cash Flows
for the Years Ended March 27, 2005, March 28, 2004 and
March 30, 2003
    
    
    23-24Notes to Consolidated Financial Statements
    
    
    25-43
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
 18




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ADVANCED PHOTONIX, INC.
 CONSOLIDATED BALANCE SHEET
 RestatedMarch 27, 2005
    
    
    March 28, 2004ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    1,503,000
    
    
    $
    1,299,000Restricted cash
    
    
    1,254,000
    
    
    
    Investments
    
    
    
    
    
    
    1,700,000Accounts receivable, less allowance of $24,000 in 2005
and $56,000 in 2004
    
    
    2,610,000
    
    
    
    2,442,000Note receivable from Picometrix, Inc.
    
    
    4,228,000
    
    
    
    Inventories, less allowance of $1,032,000 in 2005
and $925,000 in 2004
    
    
    3,644,000
    
    
    
    2,929,000Deferred tax asset, current portion
    
    
    644,000
    
    
    
    Prepaid expenses and other current assets
    
    
    563,000
    
    
    
    290,000Total current assets
    
    
    14,446,000
    
    
    
    8,660,000EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost
    
    
    5,118,000
    
    
    
    4,905,000Less accumulated depreciation and amortization
    
    
    (3,719,000
    )
    
    
    (3,500,000
    )Equipment and leasehold improvements, net
    
    
    1,399,000
    
    
    
    1,405,000OTHER 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
    
    
    
    2,421,000Patents, net of accumulated amortization of $51,000 in 2005
and $47,000 in 2004
    
    
    13,000
    
    
    
    16,000Non-compete agreement, net of current portion and accumulated
amortization of $150,000 in 2005 and $119,000 in 2004
    
    
    
    
    
    
    31,000Prepaid 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
    
    
    
    41,000Total other assets
    
    
    7,510,000
    
    
    
    2,509,000TOTAL ASSETS
    
    $
    23,355,000
    
    
    $
    12,574,000(Continued)
 19




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ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET  Continued
 RestatedMarch 27, 2005
    
    
    March 28, 2004LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Line of Credit
    
    $
    1,000,000
    
    
    $
    900,000Accounts payable
    
    
    1,053,000
    
    
    
    772,000Accrued salaries, wages and benefits
    
    
    529,000
    
    
    
    398,000Current portion of capital lease payable
    
    
    11,000
    
    
    
    16,000Customer deposits
    
    
    271,000
    
    
    
    747,000Other accrued expenses
    
    
    321,000
    
    
    
    25,000Total current liabilities
    
    
    3,185,000
    
    
    
    2,858,000LONG TERM DEBT:Convertible note payable, net of discount of $141,000
    
    
    3,832,000
    
    
    
    Capital lease payable, net of current portion
    
    
    2,000
    
    
    
    11,000Total long term debt
    
    
    3,834,000
    
    
    
    11,000COMMITMENTS 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
    
    
    
    32,000SHAREHOLDERS 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
    
    
    
    13,000Class B common stock, $.001 par value; 4,420,113 shares authorized;
2005 and 2004 - 31,691 shares issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    29,198,000
    
    
    
    27,646,000Accumulated deficit
    
    
    (12,907,000
    )
    
    
    (17,986,000
    )Total shareholders equity
    
    
    16,304,000
    
    
    
    9,673,000TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    23,355,000
    
    
    $
    12,574,000
  20




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ADVANCED PHOTONIX, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS  FOR THE YEARS ENDED MARCH 27, 2005 AND MARCH 28, 2004 AND MARCH 30, 2003
 2005
    
    
    2004
    
    
    2003RestatedSALES
    
    
    14,803,000
    
    
    
    12,401,000
    
    
    
    9,147,000COST OF GOODS SOLD
    
    
    10,071,000
    
    
    
    8,104,000
    
    
    
    6,448,000GROSS PROFIT
    
    
    4,732,000
    
    
    
    4,297,000
    
    
    
    2,699,000RESEARCH AND DEVELOPMENT EXPENSES
    
    
    146,000
    
    
    
    280,000
    
    
    
    511,000SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
    
    
    3,920,000
    
    
    
    3,174,000
    
    
    
    3,058,000INCOME (LOSS) FROM OPERATIONS
    
    
    666,000
    
    
    
    843,000
    
    
    
    (870,000
    )OTHER INCOME (EXPENSE)Interest income
    
    
    43,000
    
    
    
    20,000
    
    
    
    70,000Interest expense
    
    
    (13,000
    )
    
    
    (30,000
    )
    
    
    (13,000
    )Interest expense  convertible notes
    
    
    (141,000
    )
    
    
    
    
    
    
    Interest expense  warrant discount
    
    
    (176,000
    )
    
    
    
    
    
    
    Other, net
    
    
    (35,000
    )
    
    
    (34,000
    )
    
    
    5,000TOTAL OTHER INCOME (EXPENSE)
    
    
    (322,000
    )
    
    
    (44,000
    )
    
    
    62,000INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES
    
    
    344,000
    
    
    
    799,000
    
    
    
    (808,000
    )PROVISION (BENEFIT) FOR INCOME TAXESProvision (benefit) for income taxes  current
    
    
    18,000
    
    
    
    12,000
    
    
    
    2,000Provision (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)
    
    
    5,078,000
    
    
    
    794,000
    
    
    
    (803,000
    )BASIC EARNINGS (LOSS) PER SHARE
    
    $
    0.38
    
    
    $
    0.06
    
    
    $
    (0.06
    )DILUTED EARNINGS (LOSS) PER SHARE
    
    $
    0.33
    
    
    $
    0.06
    
    
    $
    (0.06
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
    
    
    13,461,000
    
    
    
    13,400,000
    
    
    
    12,356,000
  21




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ADVANCED PHOTONIX, INC.
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 AdditionalClass A
    
    Class B
    
    Paid-in
    
    AccumulatedFor each of the three years in the
    
    Common Stock
    
    Common Stock
    
    Capital
    
    Deficit
    
    Totalperiod ended March 27, 2005
    
    Shares
    
    Amount
    
    Shares
    
    Amount
    
    restated
    
    restated
    
    restatedBALANCE AT MARCH 31, 2002
    
    
    12,211,648
    
    
    $
    12,000
    
    
    
    31,691
    
    
    $
    
    
    
    $
    26,576,000
    
    
    $
    (17,977,000
    )
    
    $
    8,611,000Options issued to acquire SSI
(below market price)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    5,000Exercise of Options
    
    
    98,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,000
    
    
    
    
    
    
    
    71,000Shares issued to acquire TOI assets
    
    
    1,059,110
    
    
    
    1,000
    
    
    
    
    
    
    
    
    
    
    
    973,000
    
    
    
    
    
    
    
    973,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (803,000
    )
    
    
    (803,000
    )BALANCE AT MARCH 30, 2003
    
    
    13,369,258
    
    
    
    13,000
    
    
    
    31,691
    
    
    
    
    
    
    
    27,625,000
    
    
    
    (18,780,000
    )
    
    
    8,858,000Exercise of Options
    
    
    77,801
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,000
    
    
    
    
    
    
    
    67,000Return of shares issued to acquire
TOI assets (Final settlement of
shares held in escrow)
    
    
    (50,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46,000
    )
    
    
    
    
    
    
    (46,000
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    794,000
    
    
    
    794,000BALANCE AT MARCH 28, 2004
    
    
    13,397,059
    
    
    
    13,000
    
    
    
    31,691
    
    
    
    
    
    
    
    27,646,000
    
    
    
    (17,986,000
    )
    
    
    9,673,000Exercise of Options
    
    
    2,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    1,000Discount on note payable (fair
value of detachable warrants
issued)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,344,000
    
    
    
    
    
    
    
    1,344,000Shares issued to acquire PDI
    
    
    113,572
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    207,000
    
    
    
    
    
    
    
    207,000Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,078,000
    
    
    
    5,078,000BALANCE AT MARCH 27, 2005
    
    
    13,512,631
    
    
    $
    13,000
    
    
    
    31,691
    
    
    $
    
    
    
    $
    29,198,000
    
    
    $
    (12,907,000
    )
    
    $
    16,304,000
  22




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##### Table of Contents



ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 2005
    
    
    2004
    
    
    2003For each of the three years in the period ended March 27, 2005
    
    RestatedCASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    5,078,000
    
    
    $
    794,000
    
    
    $
    (803,000
    )Adjustment to reconcile net income (loss) to net cash provided by
(used by) operating activitiesDepreciation
    
    
    369,000
    
    
    
    328,000
    
    
    
    192,000Amortization
    
    
    198,000
    
    
    
    78,000
    
    
    
    48,000Amortization, convertible note discount
    
    
    176,000
    
    
    
    
    
    
    
    Disposal of fixed assets
    
    
    56,000
    
    
    
    39,000
    
    
    
    Provision for doubtful accounts
    
    
    
    
    
    
    (36,000
    )
    
    
    40,000Provision for obsolete inventory
    
    
    
    
    
    
    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
    
    
    
    891,000Prepaid 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
    )
    
    
    146,000Customer deposit liability
    
    
    (477,000
    )
    
    
    
    
    
    
    Accrued expenses
    
    
    79,000
    
    
    
    (125,000
    )
    
    
    93,000Net cash provided by operating activities
    
    
    228,000
    
    
    
    1,216,000
    
    
    
    8,000CASH FLOWS FROM INVESTING ACTIVITIESCapital 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
    )
 23




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##### Table of Contents



ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS  Continued
 2005
    
    
    2004
    
    
    2003For each of the three years in the period ended March 27, 2005
    
    RestatedCASH FLOWS FROM FINANCING ACTIVITIESRepayment 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
    
    
    
    
    
    
    
    
    
    
    5,000Proceeds from exercise of stock options
    
    
    2,000
    
    
    
    66,000
    
    
    
    71,000Net cash provided by (used by) financing activities
    
    
    5,024,000
    
    
    
    (211,000
    )
    
    
    76,000NET 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
    
    
    
    3,083,000CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    $
    1,503,000
    
    
    $
    1,299,000
    
    
    $
    902,000
  2005
    
    
    2004
    
    
    2003Cash paid for interest
    
    $
    153,000
    
    
    $
    30,000
    
    
    $
    13,000Cash paid for income taxes
    
    $
    19,000
    
    
    $
    5,000
    
    
    $
    6,000
    24




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##### Table of Contents



ADVANCED PHOTONIX, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBusiness 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.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:
 25




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##### Table of Contents



2005
    
    2004
    
    2003Canada
    
    
    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
    %
 Fair Value of Financial Instruments
 Cash and Cash Equivalents
 Restricted Cash
 Short-Term and Long-Term Investments
     26




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##### Table of Contents



Cost
    
    Fair Value
    
    HoldingsGain/(Losses)Equity securities
    
    $
    1,700,000
    
    
    $
    1,700,000
    
    
    $
    -0-Totals
    
    $
    1,700,000
    
    
    $
    1,785,000
    
    
    $
    -0-
 Concentration of Credit Risk
 2005
    
    2004
    
    2003$2,421,000
    
    $1,013,000
    
    $500,000
 Significant Customer
 Inventories
  2005
    
    
    2004Raw material
    
    $
    3,129,000
    
    
    $
    2,857,000Work-in-process
    
    
    1,245,000
    
    
    
    880,000Finished products
    
    
    302,000
    
    
    
    117,000Total inventories
    
    
    4,676,000
    
    
    
    3,854,000Less reserve
    
    
    (1,032,000
    )
    
    
    (925,000
    )Inventories, net
    
    $
    3,644,000
    
    
    $
    2,929,000
 27




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##### Table of Contents



Equipment and Leasehold Improvements
  2005
    
    
    2004Machinery and equipment
    
    $
    3,795,000
    
    
    $
    3,611,000Furniture and fixtures
    
    
    154,000
    
    
    
    145,000Leasehold improvements
    
    
    294,000
    
    
    
    267,000Data processing equipment
    
    
    322,000
    
    
    
    284,000Vehicles
    
    
    26,000
    
    
    
    26,000Capitalized software
    
    
    382,000
    
    
    
    368,000Construction-in-process
    
    
    68,000
    
    
    
    93,000Assets held for sale or disposal
    
    
    77,000
    
    
    
    111,000Total
    
    $
    5,118,000
    
    
    $
    4,905,000
 Long-Lived Assets
 Intangible Assets 
   2006
    
    $
    326,0002007
    
    
    326,0002008
    
    
    243,0002009
    
    
    127,0002010
    
    
    95,000Total
    
    $
    1,117,000
 28




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##### Table of Contents



Patents
 2006
    
    $
    3,0002007
    
    
    3,0002008
    
    
    2,0002009
    
    
    1,0002010
    
    
    Total
    
    $
    9,000
 Goodwill Goodwill and
other Intangible Assets,
 Revenue Recognition
  Shipping and Handling Costs 
 Advertising Expense
 Warranties
 Net Income (Loss) Per Share
 29




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##### Table of Contents



2005 Restated
    
    2004
    
    2003BASICAverage Shares Outstanding
    
    
    13,461,000
    
    
    
    13,400,000
    
    
    
    12,356,349Net Income (Loss)
    
    
    5,078,000
    
    
    
    794,000
    
    
    
    (803,000
    )Basic Income (Loss) Per Share
    
    $
    0.38
    
    
    $
    0.06
    
    
    $
    (0.06
    )DILUTEDAverage Shares Outstanding
    
    
    13,461,000
    
    
    
    13,400,000
    
    
    
    12,356,349Net 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
    
    
    
    296,025Total Shares
    
    
    15,599,000
    
    
    
    13,962,000
    
    
    
    12,652,374Net Income, adjusted for interest
expense on convertible note
(net of tax)
    
    
    5,128,000
    
    
    
    794,000
    
    
    
    (803,000
    )Diluted Earnings Per Share
    
    $
    0.33
    
    
    $
    0.06
    
    
    $
    (0.06
    )Average Market Price of Common Stock
    
    $
    2.18
    
    
    $
    1.57
    
    
    $
    1.07Ending Market Price of Common Stock
    
    $
    2.11
    
    
    $
    2.05
    
    
    $
    0.96
  2005
    
    2004
    
    2003No. Shares
    
    
    
    
    
    No. Shares
    
    
    
    
    
    No. SharesExercise Price
    
    Underlying
    
    Exercise Price
    
    Underlying
    
    Exercise Price
    
    Underlyingper Share
    
    Options
    
    per Share
    
    Options
    
    per Share
    
    Options2.2500
    
    
    35,400
    
    
    
    1.8750
    
    
    
    64,000
    
    
    
    1.1875
    
    
    
    14,5002.5000
    
    
    27,700
    
    
    
    2.5000
    
    
    
    27,700
    
    
    
    1.2500
    
    
    
    64,3003.0940
    
    
    1,000
    
    
    
    3.0940
    
    
    
    1,000
    
    
    
    1.6250
    
    
    
    4,0003.1875
    
    
    350,000
    
    
    
    3.1875
    
    
    
    350,000
    
    
    
    1.8750
    
    
    
    66,0005.3440
    
    
    50,000
    
    
    
    5.3440
    
    
    
    50,000
    
    
    
    2.5000
    
    
    
    30,500TOTAL
    
    
    464,100
    
    
    TOTAL
    
    
    492,700
    
    
    
    3.0940
    
    
    
    1,0003.1875
    
    
    
    350,0005.3440
    
    
    
    50,000TOTAL
    
    
    580,300
 Research and Development Costs
 30




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##### Table of Contents



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.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
 31




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##### Table of Contents



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.
    
    Restatement for changes in Accounting for Convertible Securities with a Beneficial
Conversion FeatureIn accordance with Emerging Issues Task Force Issue 98-5, Accounting for Convertible
Securities with a Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios (EITF 98-5), the Company recognized an imbedded beneficial conversion feature
present in the Convertible Note. The Company allocated a portion of the proceeds equal to
the intrinsic value of that feature to additional paid-in capital. The Company recognized
and measured an aggregate of $3,165,000 of the proceeds, which is equal to the intrinsic
value of the embedded beneficial conversion feature, to additional paid-in capital and a
discount against the Convertible Notes.In connection with the placement of the Convertible Notes in October 2004, September 2005
and March 2006, the Company issued detachable warrants granting the holders the right to
acquire 1,446,398 shares of the Companys common stock at $1.78 per share. The warrants
expire five years from the date of registration. In accordance with Emerging Issues Task
Force Issue 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments (EITF
-0027), the Company recognized the value attributable to the warrants in the amount of
$1,881,000 to additional paid-in capital and a discount against the Convertible Notes. The
Company valued the warrants in accordance with EITF 00-27 using the Black-Scholes pricing
model and the following assumptions: contractual terms of 5 years, an average risk free
interest rate of 4.9%, a dividend yield of 0%, and volatility of 72%, 52% and 52%,
respectively.The debt discount attributed to the beneficial conversion feature and value of the warrants
issued is amortized over the Convertible Notes maturity period (three year) as interest
expense. In Q2 & Q3 of
FY 2006, $3,475,000 and $1,000,000, respectively of the Convertible Notes were converted to
the Companys common stock, and accordingly, that portion of the un-amortized debt discount
was charged to interest expense. Additionally, in FY 2006, the un-amortized debt discount
of $331,000 on the warrants associated with the convertible notes was charged to interest
expense.The Company recorded non-cash interest expense in the amount of $176,000 during the year
ended March 27, 2005 in connection with the Convertible Notes.
  32




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##### Table of Contents



Balance Sheet
    
    As Reported
    
    RestatedLong-term debt, less current portion
    
    
    4,859,000
    
    
    
    3,832,000Total long-term debt
    
    
    4,861,000
    
    
    
    3,834,000Additional paid-in capital
    
    
    27,995,000
    
    
    
    29,198,000Accumulated deficit
    
    
    (12,731,000
    )
    
    
    (12,907,000
    )Total shareholders equity
    
    
    15,277,000
    
    
    
    16,304,000
 Consolidated Statement of Operations
    
    As Reported
    
    RestatedInterest expense, warrant fair value
    
    
    
    
    
    
    176,000Total other Income (expense)
    
    
    (146,000
    )
    
    
    (322,000
    )Net Income (Loss)
    
    
    5,254,000
    
    
    
    5,078,000Basic earnings (loss) per share
    
    $
    0.39
    
    
    $
    0.38Diluted earnings (loss) per share
    
    $
    0.34
    
    
    $
    0.33
 3.
    
    ACQUISITIONIn 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 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:
 33




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##### Table of Contents



Assets AcquiredCash
    
    $
    44,000Accounts receivable
    
    
    239,000Inventories
    
    
    423,000Prepaid & other current assets
    
    
    3,000Furniture and equipment
    
    
    239,000Customer list
    
    
    635,000Total Assets Acquired
    
    $
    1,583,000Liabilities AssumedAccounts 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
 4.
    
    CAPITALIZATIONThe 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 equal or exceeds
$.072. The Class A Preferred stockholders do not have voting rights except as required by
applicable law.5.
    
    INCOME TAXESAt 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.
 34




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##### Table of Contents



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:
 Years Ended
    
    March 27, 2005
    
    March 28, 2004
    
    March 30, 2003Federal 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
    )
    
    
    273,000Other
    
    
    10,000
    
    
    
    1,000
    
    
    
    (3,000
    )Effective federal income tax
    
    
    (4,734,000
    )
    
    
    5,000
    
    
    
    (5,000
    )
 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:
 Federal
    
    
    StateCurrent
    
    $
    507,000
    
    
    $
    137,000Long Term
    
    
    8,395,000
    
    
    
    460,000$
    8,902,000
    
    
    $
    597,000
 The Companys net deferred tax assets consist of the following components, for fiscal years 2005 and 2004:
 35




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##### Table of Contents



2005
    
    2004Sec. 263A Adjustment
    
    
    59,000
    
    
    
    40,000Accrued Bonuses
    
    
    63,000
    
    
    
    2,000Accrued Interest
    
    
    
    
    
    
    6,000Inventory Reserve
    
    
    409,000
    
    
    
    396,000Utility Accruals
    
    
    7,000
    
    
    
    7,000Warranty Reserve
    
    
    13,000
    
    
    
    8,000A/R Allowance
    
    
    9,000
    
    
    
    24,000Accrued Vacation
    
    
    77,000
    
    
    
    65,000NOL Carryforwards
    
    
    8,217,000
    
    
    
    8,640,000Accumulated Amortization
    
    
    32,000
    
    
    
    19,000Accumulated Depreciation
    
    
    (149,000
    )
    
    
    (96,000
    )R&D Credits
    
    
    721,000
    
    
    
    765,000California Mfg. Credit
    
    
    40,000
    
    
    
    59,000Total
    
    
    9,498,000
    
    
    
    9,935,000Valuation Allowance
    
    
    (4,749,000
    )
    
    
    (9,935,000
    )Net Deferred Tax Asset
    
    
    4,749,000
    
    
    
    
 At March 27, 2005 the Companys net operating loss carry forwards will expire on the
following dates:
 Federal
    
    CaliforniaAmount
    
    
    Expiration
    
    Amount
    
    
    Expiration$
    1,073,430
    
    
    March 31, 2006
    
    $
    2,181,725
    
    
    March 31, 20073,171,670
    
    
    March 31, 2007
    
    
    82,141
    
    
    March 31, 20132,226,072
    
    
    March 31, 2008
    
    
    973,927
    
    
    March 31, 20143,816,200
    
    
    March 31, 2009
    
    
    471,220
    
    
    March 31, 20141,947,320
    
    
    March 31, 201030,267
    
    
    March 31, 20111,548,581
    
    
    March 31, 2012599,421
    
    
    March 31, 2013250,133
    
    
    March 31, 20146,096,005
    
    
    March 31, 201582,471
    
    
    March 31, 20161,868,504
    
    
    March 31, 2022846,957
    
    
    March 31, 2023$
    23,557,031
    
    
    
    
    $
    3,709,013
 6.
    
    STOCK OPTIONSThe 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
 36




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##### Table of Contents



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:
 2005 restated
    
    2004
    
    2003Net income (loss), as reported
    
    $
    5,078,000
    
    
    $
    794,000
    
    
    $
    (803,000
    )Net income (loss), pro forma
    
    $
    5,032,000
    
    
    $
    723,000
    
    
    $
    (942,910
    )Basic income (loss) per share, as reported
    
    $
    0.38
    
    
    $
    0.06
    
    
    $
    (0.06
    )Basic income (loss) per share, pro forma
    
    $
    0.38
    
    
    $
    0.05
    
    
    $
    (0.07
    )
 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:
 Shares
    
    
    Weighted Average(000)
    
    
    Exercise PriceOutstanding, March 30, 2003
    
    
    1,804
    
    
    $
    1.44Granted
    
    
    300
    
    
    $
    0.92Exercised
    
    
    (78
    )
    
    $
    0.86Expired
    
    
    (65
    )
    
    $
    1.21Outstanding, March 28, 2004
    
    
    1,961
    
    
    $
    1.39Exercisable, March 28, 2004
    
    
    1,580
    
    
    $
    1.52Outstanding, March 28, 2004
    
    
    1,961
    
    
    $
    1.39Granted
    
    
    401
    
    
    $
    1.88Exercised
    
    
    (2
    )
    
    $
    0.65Expired
    
    
    (5
    )
    
    $
    0.86Outstanding, March 27, 2005
    
    
    2,355
    
    
    $
    1.47Exercisable, March 27, 2005
    
    
    1,776
    
    
    $
    1.48
 37




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##### Table of Contents



Information regarding stock options outstanding as of March 27, 2005 is as follows:
 Options Outstanding(in 000s)
    
    Weighted Average
    
    Weighted AveragePrice Range
    
    Shares
    
    Exercise Price
    
    Remaining Life$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
 Options Exercisable(in 000s)
    
    Weighted Average
    
    Weighted AveragePrice Range Shares
    
    Shares
    
    Exercise Price
    
    Remaining Life$0.50 - $1.25
    
    
    1,212
    
    
    $
    0.76
    
    
    
    5.60$  161- $2.50
    
    
    163
    
    
    $
    2.03
    
    
    
    6.45$3.09 - $5.34
    
    
    401
    
    
    $
    3.46
    
    
    
    5.04
 7.
    
    LINE OF CREDIT/SHORT TERM DEBTThe 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, 2005.8.
    
    SENIOR CONVERTIBLE NOTE/LONG TERM DEBT AND RESTRICTED CASHIn 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
 38




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##### Table of Contents



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.9.
    
    RELATED PARTY NOTE RECEIVABLEIn 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).10.
    
    CAPITALIZED LEASE OBLIGATIONThe 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:
 39




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##### Table of Contents



2005
    
    $
    11,0002006
    
    
    2,000Total minimum lease payments
    
    $
    13,000Less interest
    
    
    (3,000
    )Present value of net minimum lease payments
    
    $
    10,000
 11.
    
    COMMITMENTSThe 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:
 2006
    
    $
    434,0002007
    
    
    395,0002008
    
    
    349,0002009
    
    
    310,000Total
    
    $
    1,488,000
 Rent expense was approximately $482,000, $441,000 and $362,000 in fiscal 2005, 2004 and
2003, respectively.12.
    
    LEGALThe 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.13.
    
    EMPLOYEES RETIREMENT PLANThe 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.14.
    
    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
 40




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##### Table of Contents



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 $303,000.15.
    
    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.
 Third
    
    Fourth
    
    Total YearFirst
    
    Second
    
    restated
    
    restated
    
    restated2005Net Sales
    
    $
    3,253,000
    
    
    $
    3,709,000
    
    
    $
    3,852,000
    
    
    $
    3,989,000
    
    
    $
    14,803,000Cost of Sales
    
    
    1,956,000
    
    
    
    2,451,000
    
    
    
    2,832,000
    
    
    
    2,832,000
    
    
    
    10,071,000Research & Development Expenses
    
    
    42,000
    
    
    
    37,000
    
    
    
    33,000
    
    
    
    34,000
    
    
    
    146,000Selling, General & Administrative Expenses
    
    
    902,000
    
    
    
    982,000
    
    
    
    870,000
    
    
    
    1,166,000
    
    
    
    3,920,000Net Income (Loss) (Footnote 1)
    
    $
    347,000
    
    
    $
    260,000
    
    
    $
    (43,000
    )
    
    $
    4,514,000
    
    
    $
    5,078,000Basic Income (Loss) per Common Share
Footnote 2
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.33
    
    
    $
    0.38Diluted Income(Loss) per Common Share
Footnote 3
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.33
    
    
    $
    0.33Weighted Average Common Shares Outstanding
    
    
    13,431,000
    
    
    
    13,431,000
    
    
    
    13,437,000
    
    
    
    13,544,000
    
    
    
    13,461,0002004Net Sales
    
    $
    2,647,000
    
    
    $
    3,256,000
    
    
    $
    2,933,000
    
    
    $
    3,565,000
    
    
    $
    12,401,000Cost of Sales
    
    
    1,774,000
    
    
    
    2,131,000
    
    
    
    1,895,000
    
    
    
    2,304,000
    
    
    
    8,104,000Research & Development Expenses
    
    
    78,000
    
    
    
    80,000
    
    
    
    32,000
    
    
    
    90,000
    
    
    
    280,000Selling, General & Administrative Expenses
    
    
    684,000
    
    
    
    819,000
    
    
    
    756,000
    
    
    
    915,000
    
    
    
    3,174,000
 41




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##### Table of Contents



Third
    
    Fourth
    
    Total YearFirst
    
    Second
    
    restated
    
    restated
    
    restatedNet Income (Loss)
    
    $
    113,000
    
    
    $
    225,000
    
    
    $
    255,000
    
    
    $
    201,000
    
    
    $
    794,000Basic & Diluted Income (Loss) per Common
Share
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.01
    
    
    $
    0.06Weighted Average Common Shares Outstanding
    
    
    12,247,000
    
    
    
    13,449,000
    
    
    
    13,458,000
    
    
    
    13,479,000
    
    
    
    13,400,0002003Net Sales
    
    $
    1,548,000
    
    
    $
    1,838,000
    
    
    $
    2,603,000
    
    
    $
    3,158,000
    
    
    $
    9,147,000Cost of Sales
    
    
    916,000
    
    
    
    1,307,000
    
    
    
    1,737,000
    
    
    
    2,488,000
    
    
    
    6,448,000Research & Development Expenses
    
    
    142,000
    
    
    
    144,000
    
    
    
    107,000
    
    
    
    118,000
    
    
    
    511,000Selling, General & Administrative Expenses
    
    
    541,000
    
    
    
    637,000
    
    
    
    725,000
    
    
    
    1,155,000
    
    
    
    3,058,000Net 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
 42




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##### Table of Contents



1st
    
    2nd
    
    3rd
    
    4thFY 2005
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Total YearNet Income (Loss)
    
    
    347,000
    
    
    
    260,000
    
    
    
    35,000
    
    
    
    4,612,000
    
    
    
    5,254,000RestatementAmortization -
convertible note discount
    
    
    
    
    
    
    
    
    
    
    (78,000
    )
    
    
    (98,000
    )
    
    
    (176,000
    )Net Income (Loss) Restated
    
    
    347,000
    
    
    
    260,000
    
    
    
    (43,000
    )
    
    
    4,514,000
    
    
    
    5,078,000
 Footnote 2  Basic Income (Loss) per Common Share
 1st
    
    2nd
    
    3rd
    
    4thFY 2005
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Total YearAs reported
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.34
    
    
    $
    0.39Restated
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.33
    
    
    $
    0.38
 Footnote 3  Diluted Income (Loss) per Common Share
 1st
    
    2nd
    
    3rd
    
    4thFY 2005
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Total YearAs reported
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.34
    
    
    $
    0.39Restated
    
    $
    0.03
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.33
    
    
    $
    0.38
 43




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
  Disclosure Controls
  Changes in Internal Controls
  
 Item 9B. Other Information
  44




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##### Table of Contents



PART III
  
 Item 10. Directors and Executive Officers
 Code of Ethics
  
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management
  Number of Securitiesto be issued upon
    
    Weighted-averageexercise of
    
    exercise price of
    
    Number of securitiesoutstanding options,
    
    outstanding options,
    
    remaining availablePlan Category
    
    warrants and rights
    
    warrants and rights
    
    for future issuanceEquity compensation
plans approved by
shareholders
    
    
    1,776,100
    
    
    $
    1.48
    
    
    
    1,089,222Equity compensation
plans not approved
by shareholders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,776,100
    
    
    $
    1.48
    
    
    
    1,089,222
 
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accounting Fees and Services
  45




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##### Table of Contents



PART IV
 
 Item 15. Exhibits, Financial Statement Schedules
  (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:
 ExhibitNo.
    
    Description2.1
    
    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, 20042.2
    
    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  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, 20053.1
    
    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, 19903.1.1
    
    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-K3.1.2
    
    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-K3.2
    
    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, 20054.1
    
    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, 200510.1*
    
    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-K10.2*
    
    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
 46




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##### Table of Contents



ExhibitNo.
    
    Description10.3*
    
    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-K10.4*
    
    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-Q10.5*
    
    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, 200410.9
    
    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-K10.10
    
    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-Q10.11*
    
    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, 200210.12*
    
    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-KSB10.20
    
    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, 200410.20.1
    
    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,
200510.26.1
    
    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, 200510.26.2
    
    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, 200510.26.3
    
    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
 47




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##### Table of Contents



ExhibitNo.
    
    Description10.26.4*
    
    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, 200510.26.5*
    
    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, 200521.1
    
    List of Subsidiaries of Registrant  incorporated by reference to Exhibit 21.1 to the
Registrants March 30, 2003 Annual Report on Form 10-KSB31.1
    
    Certification of the Registrants Chairman, Chief Executive Officer, Principal
Financial Officer and Director pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    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. 48




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##### Table of Contents



SIGNATURES
   By:
    /s/ Richard D. KurtzRichard D. Kurtz/, President and Chief Executive Officer November 10,
2006
  Signature
    
    Title
    
    Date/s/ Richard D. Kurtz

Richard D. Kurtz
    
    Chairman of the Board and Chief Executive
Officer
    
    November 10, 2006/s/ Robin Risser

Robin Risser
    
    Chief Financial Office and Director
    
    November 10, 2006/s/ M. Scott Farese
    
    Director
    
    November 10, 2006M. Scott Farese/s/ Lance Brewer 
Lance Brewer
    
    Director
    
    November 10, 2006/s/ Donald Pastor

Donald Pastor
    
    Director
    
    November 10, 2006/s/ Stephen P. Soltwedel

Stephen P. Soltwedel
    
    Director
    
    November 10, 2006
 49




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit2.1
    
    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, 20042.2
    
    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  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, 20053.1
    
    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, 19903.1.1
    
    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-K3.1.2
    
    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-K3.2
    
    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, 20054.1
    
    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, 200510.1*
    
    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-K10.2*
    
    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,
199010.3*
    
    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-K10.4*
    
    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-Q10.5*
    
    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, 200410.9
    
    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-K10.10
    
    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-Q10.11*
    
    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, 200210.12*
    
    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-KSB10.20
    
    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, 200410.20.1
    
    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,
200510.26.1
    
    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, 200510.26.2
    
    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, 200510.26.3
    
    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, 200510.26.4*
    
    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, 200510.26.5*
    
    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, 200521.1
    
    List of Subsidiaries of Registrant  incorporated by reference to Exhibit 21.1 to the
Registrants March 30, 2003 Annual Report on Form 10-KSB31.1
    
    Certification of the Registrants Chairman, Chief Executive Officer, Principal
Financial Officer and Director pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    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.