**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

|                                                   | **ý** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|
|                                                   |       |                                                                                           |   |   |
| **For  the quarterly period ended March 31, 2003**     |
|                                                   |
| **OR**                                                 |
|                                                   |       |                                                                                           |   |   |
|                                                   | **o**      | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                   |       |                                                                                           |   |   |
| **Commission file number 001-16047**                   |
|                                                   |
| **Advanced  Power Technology, Inc.**                   |
| (Exact name of registrant as specified in its charter) |

 

| **Delaware**                                                    |   | **93-0875072**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or other Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer  Identification Number) |
|                                                            |   |                                     |
| **405 SW  Columbia Street, Bend, Oregon 97702**                 |
| (Address of principal executive offices and Zip Code)           |
|                                                            |
| **(541)  382-8028**                                             |
| (Registrant’s telephone number)                            |

 

Indicate by check markwhether the Registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to the filing requirements for the past90 days.  Yes ý    No o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act). Yes o  No ý

 

The number of shares ofthe Registrant’s Common Stock outstanding as of April 30, 2003 was 10,402,737shares.

 

 

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**ADVANCEDPOWER TECHNOLOGY, INC.**

**FORM 10-Q**

**TABLE OF CONTENTS**

** **
| **Part I**  |   | **Financial Information**                                                                   |
|-------------|--------|---------------------------------------------------------------------------------------------|
|        |   |                                                                                        |
| Item 1.     |   | Financial Statements:                                                                       |
|        |   |                                                                                        |
|        |   | Consolidated Balance  Sheets as of March 31, 2003 and December 31, 2002                     |
|        |   |                                                                                        |
|        |   | Consolidated  Statements of Operations for the three months ended March 31, 2003 and 2002   |
|        |   |                                                                                        |
|        |   | Consolidated  Statements of Cash Flows for the three months ended March 31, 2003 and 2002   |
|        |   |                                                                                        |
|        |   | Notes to  Consolidated Financial Statements                                                 |
|        |   |                                                                                        |
| Item 2.     |   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|        |   |                                                                                        |
| Item 3.     |   | Quantitative  and Qualitative Disclosure About Market Risk                                  |
|        |   |                                                                                        |
| Item 4.     |   | Controls and  Procedures                                                                    |
|        |   |                                                                                        |
| **Part II** |   | **Other Information**                                                                       |
|        |   |                                                                                        |
| Item 1.     |   | Legal Proceedings                                                                           |
|        |   |                                                                                        |
| Item 6.     |   | Exhibits and  Reports on Form 8-K                                                           |
|        |   |                                                                                        |
|        |   | Signature                                                                                   |
|        |   |                                                                                        |
|        |   | Certifications                                                                              |
|        |   |                                                                                        |
|        |   | Exhibits                                                                                    |

 

2

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**ITEM1. FINANCIAL STATEMENTS**

** **

**ADVANCED POWER TECHNOLOGY, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(Inthousands, except share amounts)**

 
|                                                                                                                                                                                          |   | **March 31,  2003** |       | **December 31,  2002** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|------------------------|------------|
|                                                                                                                                                                                          |   | **(unaudited)**     |       |                   |       |
|                                                                                                                                                                                          |   |                |       |                   |       |
| **Assets**                                                                                                                                                                                    |   |                | ** ** |                   | ** ** |
| Current  assets:                                                                                                                                                                              |   |                |       |                   |       |
| Cash and cash equivalents                                                                                                                                                                     |   | $                   | 7,990      |                   | $          | 6,708 |   |
| Short-term investments in  available-for-sale securities                                                                                                                                      |   | 8,073               |       | 10,452                 |       |
| Accounts receivable, net of  allowance of $161 (2003) and $70 (2002)                                                                                                                          |   | 7,195               |       | 6,899                  |       |
| Inventories, net                                                                                                                                                                              |   | 11,728              |       | 11,949                 |       |
| Prepaid expenses and other  current assets                                                                                                                                                    |   | 2,329               |       | 2,521                  |       |
| Total  current assets                                                                                                                                                                         |   | 37,315              |       | 38,529                 |       |
|                                                                                                                                                                                          |   |                |       |                   |       |
| Property and equipment, net of  accumulated amortization and depreciation of $12,197 (2003) and $11,410  (2002)                                                                               |   | 10,501              |       | 10,617                 |       |
| Long-term investments in available-for-sale  securities                                                                                                                                       |   | 2,000               |       | 2,000                  |       |
| Other assets                                                                                                                                                                                  |   | 181                 |       | 109                    |       |
| Technology rights, net of  accumulated amortization of $1,146 (2002) and $876 (2002)                                                                                                          |   | 9,618               |       | 9,887                  |       |
| Goodwill                                                                                                                                                                                      |   | 15,570              |       | 15,806                 |       |
| Total assets                                                                                                                                                                                  |   | $                   | 75,185     |                   | $          | 76,948 |   |
|                                                                                                                                                                                          |   |                |       |                   |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                |   |                |       |                   |       |
| Current liabilities:                                                                                                                                                                          |   |                |       |                   |       |
| Accounts payable                                                                                                                                                                              |   | $                   | 2,782      |                   | $          | 2,873 |   |
| Accrued expenses                                                                                                                                                                              |   | 1,735               |       | 2,475                  |       |
| Total current liabilities                                                                                                                                                                     |   | 4,517               |       | 5,348                  |       |
| Other long term liabilities                                                                                                                                                                   |   | 423                 |       | 428                    |       |
| Total liabilities                                                                                                                                                                             |   | 4,940               |       | 5,776                  |       |
|                                                                                                                                                                                          |   |                |       |                   |       |
| Stockholders’ equity:                                                                                                                                                                    |   |                |       |                   |       |
| Preferred stock, par value  $.001, 1,000,000 shares authorized; no shares issued and outstanding                                                                                              |   | —              |       | —                 |       |
| Common stock, par value $.01,  19,000,000 shares authorized; 10,511,594 issued and 10,402,737 shares outstanding  in 2003; 10,503,219 shares issued and 10,394,362 shares outstanding in 2002 |   | 105                 |       | 105                    |       |
| Additional paid-in capital                                                                                                                                                                    |   | 88,502              |       | 88,490                 |       |
| Treasury stock, at cost,  108,857 shares                                                                                                                                                      |   | (1,700              | )          | (1,700                 | )          |
| Deferred stock compensation                                                                                                                                                                   |   | (124                | )          | (171                   | )          |
| Accumulated other comprehensive  income                                                                                                                                                       |   | 189                 |       | 166                    |       |
| Accumulated deficit                                                                                                                                                                           |   | (16,727             | )          | (15,718                | )          |
| Total stockholders’ equity                                                                                                                                                               |   | 70,245              |       | 71,172                 |       |
| Total liabilities and  stockholders’ equity                                                                                                                                              |   | $                   | 75,185     |                   | $          | 76,948 |   |

 

See accompanyingnotes to consolidated financial statements.

 

3

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**ADVANCED POWER TECHNOLOGY, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Inthousands, except per share amounts)**

**(Unaudited)**

** **
|                                                                              |   | **Three Months Ended  March 31,** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                              |   | **2003**                          |   | **2002** | ** ** |
|                                                                              |   |                              |   |   |   |
| Revenues, net                                                                     |   | $                                 | 11,159 |   | $ | 8,239 |   |
| Cost of goods sold                                                                |   | 7,752                             |   | 5,612 |   |
| Amortization of technology  rights and other charges                              |   | 284                               |   | 392 |   |
| Total cost of goods sold                                                          |   | 8,036                             |   | 6,004 |   |
| Gross profit                                                                      |   | 3,123                             |   | 2,235 |   |
|                                                                              |   |                              |   |   |   |
| Operating expenses:                                                               |   |                              |   |   |   |
| Research and development                                                          |   | 833                               |   | 1,021 |   |
| Selling, general and  administrative                                              |   | 3,931                             |   | 2,510 |   |
| In-process research and  development                                              |   | —                            |   | 1,897 |   |
| Total operating expenses                                                          |   | 4,764                             |   | 5,428 |   |
| Loss from operations                                                              |   | (1,641                            | )      | (3,193 | ) |
| Interest income, net                                                              |   | 56                                |   | 219 |   |
| Other income, net                                                                 |   | 11                                |   | 39 |   |
| Loss before income tax benefit                                                    |   | (1,574                            | )      | (2,935 | ) |
| Income tax benefit                                                                |   | (565                              | )      | (370 | ) |
| Net loss                                                                          |   | $                                 | (1,009 | ) | $ | (2,565 | ) |
|                                                                              |   |                              |   |   |   |
| Net loss per share:                                                               |   |                              |   |   |   |
| Basic                                                                             |   | $                                 | (0.10  | ) | $ | (0.26 | ) |
| Diluted                                                                           |   | (0.10                             | )      | (0.26 | ) |
| Weighted average number of shares  used in the computation of net loss per share: |   |                              |   |   |   |
| Basic                                                                             |   | 10,400                            |   | 9,859 |   |
| Diluted                                                                           |   | 10,400                            |   | 9,859 |   |

 

See accompanying notes to consolidated financial statements.

 

4

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**ADVANCED POWER TECHNOLOGY, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In thousands)**

**(Unaudited)**
|                                                                                    |         | **Three Months Ended  March 31,** |   |
|-----------------------------------------------------------------------------------------|--------------|-----------------------------------|--------|
|                                                                                    |         | **2003**                          |   | **2002** | ** ** |
| Cash flows from operating  activities:                                                  |         |                              |   |   |   |
| Net loss                                                                                |         | $                                 | (1,009 | ) | $ | (2,565 | ) |
| Adjustments to reconcile net  loss to net cash (used) provided by operating activities: |         |                              |   |   |   |
| Depreciation and amortization                                                           |         | 1,063                             |   | 625 |   |
| Inventory provisions                                                                    |         | (142                              | )      | — |   |
| Amortization of deferred stock  compensation                                            |         | 47                                |   | 146 |   |
| Amortization of investment  premium                                                     |         | 13                                |   | 36 |   |
| Deferred gain on sale-leaseback                                                         |         | (4                                | )      | (5 | ) |
| Non-cash charge for in-process  research & development                              |         | —                            |   | 1,897 |   |
| Changes in operating assets and  liabilities, net of effects of acquisitions:           |         |                              |   |   |   |
| Accounts receivable                                                                     |         | (273                              | )      | (765 | ) |
| Inventories                                                                             |         | 388                               |   | 849 |   |
| Prepaid expenses and other  assets                                                      |         | (214                              | )      | 1,781 |   |
| Accounts payable and accrued  expenses                                                  |         | (272                              | )      | (301 | ) |
| Net cash (used) provided by  operating activities                                       |         | (403                              | )      | 1,698 |   |
| Cash flows from investing  activities:                                                  |         |                              |   |   |   |
| Purchases of available-for-sale  securities                                             |         | (1,000                            | )      | (1,000 | ) |
| Proceeds from sale of  available-for-sale securities                                    |         | 3,363                             |   | 3,736 |   |
| Payment for acquisitions, net  of cash acquired                                         |         | —                            |   | (14,085 | ) |
| Proceeds from sale of property  and equipment                                           |         | 97                                |   | 72 |   |
| Purchase of property and  equipment                                                     |         | (773                              | )      | (259 | ) |
| Net cash (used) provided by  investing activities                                       |         | 1,687                             |   | (11,536 | ) |
| Cash flows from financing  activities:                                                  |         |                              |   |   |   |
| Payments on capital lease  obligations                                                  |         | (20                               | )      | (18 | ) |
| Proceeds from exercise of stock  options                                                |         | 12                                |   | 94 |   |
| Net cash (used) provided by  financing activities                                       |         | (8                                | )      | 76 |   |
| Effects of exchange rate  changes on cash                                               |         | 6                                 |   | 5 |   |
| Net change in cash and cash  equivalents                                                |         | 1,282                             |   | (9,757 | ) |
| Cash and cash equivalents at  beginning of period                                       |         | 6,708                             |   | 16,102 |   |
| Cash and cash equivalents at  end of period                                             |         | $                                 | 7,990  |   | $ | 6,345 |   |
|                                                                                    |         |                              |   |   |   |
| Supplemental disclosure of cash  flow information:                                      |         |                              |   |   |   |
| Cash received (paid) during the  period for:                                            | Interest     |                              | $      | (14 | ) | $ | (29 | ) |
|                                                                                    | Income taxes |                              | 225    |   | 1,395 |   |
|                                                                                    |         |                              |   |   |   |
| Supplemental disclosure of  noncash activities:                                         |         |                              |   |   |   |
| Unrealized gain (loss) on  short-term and long-term investments                         |         | $                                 | (2     | ) | $ | (35 | ) |
| Issuance of stock and options  for acquisition of business                              |         | —                            |   | 20,313 |   |

 

See accompanying notes to consolidated financialstatements.

 

5

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**ADVANCED POWER TECHNOLOGY, INC.**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

**(In thousands, except share amounts)**

**(unaudited)**

 

**Note 1. Basis of Presentation**

 

The accompanying unaudited consolidated financialstatements include normal recurring adjustments necessary for a fair presentationof Advanced Power Technology, Inc.’s (APT) interim results.  The consolidated financial statements andnotes in this Form 10-Q are presented as permitted by Regulation S-X, and assuch, they do not contain certain information included in APT’s 2002 annualconsolidated financial statements and notes. This Form 10-Q should be read in conjunction with APT’s consolidatedfinancial statements and notes included in its Annual Report on Form 10-K forthe year ended December 31, 2002.  Thefinancial information as of December 31, 2002 is derived from the auditedconsolidated financial statements as filed with APT’s Annual Report on Form10-K for the year ended December 31, 2002. The results of operations for the three months ended March 31, 2003 arenot necessarily indicative of the results expected for the entire fiscal yearending December 31, 2003.

 

APT’s financial quarters are 13 week periods. Thefirst quarter of 2003 ended on March 30 and the first quarter of 2002 ended onMarch 31.  For convenience, the firstquarters of 2003 and 2002 are shown as ended on March 31.

 

**Note 2. Summary of Significant Accounting Policies**

 

***(a) Revenue Recognition, Sales Returns and Allowances***

 

The balances and changes inreserve for warranties and sales returns for the three months ended March 31,2003 and 2002 are as follows:

 
|                                       |   | **Three Months Ended  March 31,** |   |
|--------------------------------------------|--------|-----------------------------------|--------|
|                                       |   | **2003**                          |   | **2002** | ** ** |
|                                       |   |                              |   |   |   |
| Balance – beginning of period         |   | $                                 | 351    |   | $ | 365 |   |
| Fair value of acquisition  related balance |   | —                            |   | 58 |   |
| Provisions                                 |   | 244                               |   | 287 |   |
| Charge offs                                |   | (306                              | )      | (191 | ) |
| Balance – end of period               |   | $                                 | 289    |   | $ | 519 |   |

 

***(d) Stock-Based Compensation***

 

APT has elected to continue toapply the prescribed accounting in Opinion 25 and provide the requireddisclosures per SFAS 123 and SFAS 148. APT accounts for equity instrumentsissued to non-employees in accordance with the provisions of SFAS 123 andEmerging Issues Task Force consensus on Issue No. 96-18, “Accounting for EquityInstruments that are Issued to Other than Employees, for Acquiring or inConjunction with Selling Goods or Services.”

 

6

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Had APT determined compensationcost based on the fair value at the grant date for its stock options underSFAS 123, APT’s net income (loss) would have been the pro forma amounts indicatedin the table below.

 
|                                                                                                                   |   | **Three Months  Ended March  31,** |   |
|------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                                                                   |   | **2003**                                |   | **2002** |   |
|                                                                                                                   |   |                                    |   |   |   |
| Net income (loss):                                                                                                     |   |                                    |   |   |   |
| As reported                                                                                                            |   | $                                       | (1,009 | ) | $ | (2,565 | ) |
| Add: Stock based compensation  included in reported net income (loss), net of related tax effects                      |   | 47                                      |   | 146 |   |
| Deduct: Stock based  compensation determined under fair value based method for all awards, net of  related tax effects |   | (438                                    | )      | (554 | ) |
| Pro forma net income (loss)                                                                                            |   | $                                       | (1,400 | ) | $ | (2,973 | ) |
|                                                                                                                   |   |                                    |   |   |   |
| Earnings (loss) per share:                                                                                             |   |                                    |   |   |   |
| Basic and Diluted – as reported                                                                                   |   | $                                       | (0.10  | ) | $ | (0.26 | ) |
| Basic and Diluted – pro forma                                                                                     |   | $                                       | (0.13  | ) | $ | (0.30 | ) |

 

**(e) Net Income (Loss) Per Share**

 

Basic net income (loss) per share is computed usingthe weighted average number of shares of common stock outstanding for theperiod. Diluted net income per share is computed using the weighted averagenumber of shares of common stock and dilutive potential common shares relatedto stock options and warrants outstanding during the period.  Anti-dilutive potential common shares areexcluded from the diluted net income share calculation.  Dilutive net (loss) per share excludes allpotential common shares from the calculation as the impact would beanti-dilutive.

 

Incremental dilutive shares included in thecalculation of diluted net income (loss) per share and incrementalanti-dilutive shares that were excluded from the calculation of diluted netincome (loss) per share for the three months ended March 31, 2003 and 2002 aresummarized in the following table.

 
|                                                                                |   | **Three Months Ended  March 31** |   |
|-------------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                                |   | **2003**                         |   | **2002** | ** ** |
|                                                                                |   |                             |   |   |   |
| Incremental dilutive shares  included in diluted net income per share calculation   |   | —                           |   | — |   |
|                                                                                |   |                             |   |   |   |
| Anti-dilutive shares excluded  from diluted net income (loss) per share calculation |   | 1,179,000                        |   | 902,000 |   |

 

 

7

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**Note 3. Comprehensive Income (loss)**

 

Comprehensive income (loss) is the total of net income(loss) and all other non-owner changes in equity. Comprehensive income(loss)  includes foreign currencytranslations and unrealized gains and losses from investments, as presented inthe following table.

 
|                                              |   | **Three Months Ended  March 31,** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|
|                                              |   | **2003**                          |   | **2002** | ** ** |
|                                              |   |                              |   |   |   |
| Net loss                                          |   | $                                 | (1,009 | ) | $ | (2,565 | ) |
| Other comprehensive income  (loss), net of tax    |   |                              |   |   |   |
| Foreign currency translation  adjustment          |   | 25                                |   | (9 | ) |
| Unrealized loss on available  for sale securities |   | (2                                | )      | (35 | ) |
| Comprehensive loss                                |   | $                                 | (986   | ) | $ | (2,609 | ) |

 

**Note 4. Inventories, net**

 
|               |   | **March 31,  2003** |   | **December  31,  2002** |   |
|--------------------|--------|---------------------|--------|-------------------------|--------|
|               |   |                |   |                    |   |
| Raw  materials     |   | $                   | 2,786  |                    | $      | 2,806 |   |
| Work  in process   |   | 6,421               |   | 6,705                   |   |
| Finished  goods    |   | 4,063               |   | 4,128                   |   |
|               |   | 13,270              |   | 13,639                  |   |
| Valuation  reserve |   | (1,542              | )      | (1,690                  | )      |
|               |   | $                   | 11,728 |                    | $      | 11,949 |   |

 

**Note 5.Acquisitions**

 

***(a******                                     GHz Technology, Inc.***

 

On January 25, 2002, APTacquired all of the outstanding shares and stock options of GHz Technology,Inc. (GHz), in exchange for cash, APT common stock, and APT stock options.  The company was renamed Advanced PowerTechnology RF, Inc. (APTRF).  The GHzassets acquired included approximately $205 in cash and $7,656 in marketablesecurities.  The transaction wasaccounted for by the purchase method of accounting, in accordance with SFAS141, “Business Combinations” and SFAS 142. APT obtained a third party valuation study to estimate the fair value ofthe acquired intangible assets.  APTbegan to consolidate the financial results of GHz on January 25, 2002 andforward.

 

***(b)******                                 Microsemi RF Products, Inc.***

 

On May 24, 2002, APT acquired theproduct lines and certain assets of Microsemi RF Products, Inc. (MSC RF), awholly-owned subsidiary of Microsemi Corporation, for $12,200 in cash.  The company was renamed Advanced PowerTechnology RF Pennsylvania, Inc. (APTRF-PA). The transaction was accounted for by the purchase method of accounting,in accordance with SFAS 141 and SFAS 142. APT obtained a third party valuationstudy to estimate the fair value of the acquired intangible assets.  APT began to consolidate the financialresults of the acquired business on May 24, 2002 and forward

 

8

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***(c)******                               Pro Forma Condensed Consolidated Results***

 

The following table reflects theunaudited combined results of APT, GHz, and MSC RF as if the acquisitions hadtaken place as of January 1, 2002.  Thepro forma information includes non-cash charges for amortization of technologyrights, inventory fair value adjustments, depreciation and deferredcompensation related to the acquisitions, consistent with generally acceptedaccounting principles.  The periodexcludes a charge of $1,897 for in-process research and developmentexpense.  The pro forma information doesnot necessarily reflect the actual results that would have occurred if thecompanies had been combined during the period nor is it necessarily indicativeof future results of operations for the combined companies.

 
|                                                                              |   | **Three Months Ended  March 31,** |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                              |   | **2003**                          |   | **2002** | ** ** |
|                                                                              |   |                              |   |   |   |
| Revenues, net                                                                     |   | $                                 | 11,159 |   | $ | 11,033 |   |
| Net loss                                                                          |   | (1,009                            | )      | (1,325 | ) |
|                                                                              |   |                              |   |   |   |
| Net loss per share:                                                               |   |                              |   |   |   |
| Basic                                                                             |   | $                                 | (0.10  | ) | $ | (0.13 | ) |
| Diluted                                                                           |   | (0.10                             | )      | (0.13 | ) |
| Weighted average number of  shares used in the computation of net loss per share: |   |                              |   |   |   |
| Basic                                                                             |   | 10,400                            |   | 10,277 |   |
| Diluted                                                                           |   | 10,400                            |   | 10,277 |   |

 

**Note 8. SEGMENT INFORMATION**

 

APT operates in one segment andis engaged in the manufacture and marketing of high-performance powersemiconductors and modules for switching and RF applications.

 

**Note 9. COMMITMENTS AND CONTINGENCIES**

 

From time to time the Company isinvolved in various legal matters that arise out of the ordinary conduct of ourbusiness, including those related to litigation over intellectual propertyrights, commercial transactions, contracts and environmental matters.  The Company is currently involved in variouslegal proceedings.  The Company does notbelieve that the ultimate resolution of such litigation will have a materialadverse effect on the Company’s financial position, results of operations orcash flows.  The Company accrues losscontingencies in connection with its litigation when it is probable that a losshas occurred and the amount of the loss can be reasonably estimated.

 

9

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**ITEM 2.MANAGEMENT’S****DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

This discussion and analysis is intended to be read inconjunction with Management’s Discussion and Analysis of Financial Conditionand Results of Operations set forth in our Annual Report on Form 10-K for theyear ended December 31, 2002.

 

**Forward-looking Statements and Risk Factors AffectingBusiness and Results of Operations**

 

All statements and trend analyses contained in thisitem and elsewhere in this report on Form 10-Q relative to the futureconstitute “forward-looking” statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-statements are subject to thebusiness and economic risks faced by us and our actual results of operationsmay differ materially from those contained in the forward-looking statements.In addition, results of operations for the periods discussed below should notbe considered indicative of the results to be expected in any future period andfluctuations in operating results might result in fluctuations in the marketprice of our common stock. Our quarterly and annual operating results may varysignificantly depending on many factors, including but not limited to, the costand liability associated with patent infringement litigation, the ability ofsubcontractors to meet their delivery commitments; unfavorable changes inindustry and competitive conditions; our mix of product shipments; the accuracyof our customer’s forecasts; the effectiveness of our efforts to control andreduce costs; and other risks detailed in “Management’s Discussion and Analysisof Financial Condition and Results of Operations - Risk Factors AffectingBusiness and Results of Operations” in our Annual Report on Form 10-K for theyear ended December 31, 2002, filed with the Securities and ExchangeCommission.

 

**Overview**

 

We are a leading designer,manufacturer and marketer of high-performance power semiconductors and modulesfor both switching and RF applications. Power semiconductors manage andregulate electrical power by converting electricity into a form required byelectrical and electronic products. Our power semiconductors increase systemefficiency, permit the design of more compact end products and improve featuresand functionality. We are primarily focused on the high power, high frequencysegment of the power semiconductor market. High power refers to the ability todissipate above one kilowatt, and high frequency refers to the ability toswitch on and off at rates above 100 kilohertz. In addition we arestrengthening our portfolio of RF products that operate at frequencies rangingfrom 1 megahertz to 100 megahertz. RF generally refers to the ability tooperate at frequencies above 1 megahertz. We sell our products primarily inNorth America, Europe, and Asia, through a network of independent salesrepresentatives and distributors.

 

To further our penetration in RFmarkets, we completed the acquisition of GHz Technology, Inc. and the businessof Microsemi RF Products, Inc. in January 2002 and May 2002, respectively.  These acquisitions are part of the Company’songoing strategy to expand its product and technology portfolio in the RF powerarena through both internal development and acquisitions.  We believe that these acquisitions serve toposition APT as an emerging, dominant supplier in bipolar RF power transistorsfor avionics, radar and non-cellular communications applications.  These acquisitions have added valuable RFtechnology and substantial RF engineering, manufacturing and marketingcapability to the Company.

 

In August 2000, we completedan initial public offering, or IPO, of 4,025,000 shares of our common stock,including the underwriters’ over-allotment, at an offering price of $15.00 pershare. The IPO included 2,830,000 shares sold by APT and 1,195,000 shares soldby shareholders of APT, and resulted in net proceeds to APT of approximately$38.3 million. The net remaining proceeds are currently held in variousinvestments and will be used for general corporate purposes, including researchand development and possible acquisitions. Our common stock is listed on theNasdaq National Market under the symbol APTI.

 

The following discussion shouldbe read in conjunction with the consolidated financial statements providedunder Part II, Item 8 of this Annual Report on Form 10-K. Certainstatements contained herein may constitute forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995. These

 

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statements involve a number of risks,uncertainties and other factors that could cause actual results to differmaterially, as discussed more fully herein.

 

**Critical Accounting Policies and Estimates**

 

Advanced Power Technology’sdiscussion and analysis of its financial condition and results of operationsare based upon consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States.The preparation of these financial statements requires APT to make estimatesand judgments that affect the reported amounts of assets, liabilities, revenuesand expenses, and related disclosures of contingent assets and liabilities. Onan on-going basis, APT evaluates its estimates, including those related toproduct returns and warranty obligations, allowance for doubtful accounts,excess and obsolete inventories, income taxes, valuation of intangible assetsincluding goodwill, valuation of long-lived assets, contingencies andlitigation, and excess component order cancellation costs. APT bases itsestimates on historical experience and on various other assumptions that arebelieved to be reasonable under the circumstances, the results of which formthe basis for making judgments about the carrying values of assets andliabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates under different assumptions or conditions.

 

APT believes the following criticalaccounting policies affect its more significant judgments and estimates used inthe preparation of its consolidated financial statements.

 

***Product Returns and WarrantyObligations***

 

Standard product revenue isrecognized upon shipment of product. APT recognizes revenue oncustomer-specific products or services based on the terms of customer contractswhich are generally based on customer acceptance. In general, APT provides fora one-year repair or replacement warranty on its products. Upon shipment, APTalso provides for the estimated cost that may be incurred for product warrantyand sales returns based on historical experience. APT uses independentdistributors to sell its products. Distributors can return up to 5% of thedollar value of products purchased during the prior six months upon a30 days notice and receive certain price protections on purchasedproducts. Sales to distributors are recognized upon shipment, less an allowancefor estimated returns based on historical experience.

 

While the Company engages inextensive product quality programs and processes, including actively monitoringand evaluating the quality of its component suppliers, APT’s warrantyobligation is affected by product non-conformance rates, material usage andservice delivery costs incurred in correcting a product non-conformance. Shouldactual product non-conformance rates, material usage, service delivery costs,or distributor returns differ from APT’s estimates, revisions to the estimatedwarranty liability would be required.

 

***Allowance for Doubtful Accounts***

 

APT maintains an allowance fordoubtful accounts for estimated losses resulting from the inability of itscustomers to make required payments. Management regularly reviews the adequacyof the allowance after considering the size of the accounts receivable balance,historical bad debts, the customer’s expected ability to pay and our collectionhistory with each customer. Management reviews significant individual accountsthat are past due to determine whether an allowance should be made based onthese factors.  If the financialcondition of our customers were to deteriorate, resulting in an impairment oftheir ability to make payments, additional allowances may be required.

 

***Excess and Obsolete Inventories***

 

Inventories are stated at thelower of standard cost (approximates actual cost on a first-in, first-outbasis) or market (net realizable value). APT establishes reserves for estimated obsolescence or unmarketableinventory equal to the difference between the cost of inventory and theestimated net realizable value based upon assumptions about future demand andmarket conditions. APT evaluates historical usage of the product, currentcustomer demand, and forecasted usage of the product.  If actual market conditions are less favorable than thoseprojected by management, additional inventory write-downs may be required.

 

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***Income Taxes***

 

APT records a valuation allowanceto reduce its deferred tax assets to the amount that is more likely than not tobe realized. While APT considers future taxable income and ongoing prudent andfeasible tax planning strategies in assessing the need for the valuationallowance, in the event APT were to determine that it would be able to realizeits deferred tax assets in the future in excess of its net recorded amount, anadjustment to the deferred tax asset would increase income in the period suchdetermination was made. Likewise, should APT determine that it would not beable to realize all or part of its net deferred tax asset in the future, anadjustment to the deferred tax asset would be charged to income in the periodsuch determination was made.

 

***Valuation of Goodwill and IntangibleAssets with Indefinite Lives***

 

APT values goodwill and intangibleassets with indefinite lives in accordance with Statement of FinancialAccounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS No.142”).  Currently APT carries a goodwillbalance in connection with acquisitions made in 2002, but has no otherintangible assets with indefinite lives. We annually review goodwill and other intangible assets that haveindefinite lives for impairment and when events or circumstances indicate thecarrying value of these assets might exceed their current fair values. Wedetermine fair value using discounted cash flow analysis and other acceptablevaluation methodologies, which requires us to make certain assumptions andestimates regarding industry economic factors and future profitability.  It is our policy to conduct impairmenttesting based on our most current business plans, which reflect changes weanticipate in the economy and industry. If actual results are not consistent with our assumptions and judgments,we could be exposed to a material impairment charge.

 

***Valuation of Long-Lived Assets***

 

APT values goodwill andintangible assets with indefinite lives in accordance with Statement ofFinancial Accounting Standards No. 144 “Accounting for the Impairment orDisposal of Long-Lived Assets” (“SFAS No. 144”). We evaluate our long-livedassets for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable. We determine the potential impairment using undiscounted cash flowanalysis, which requires us to make certain assumptions and estimates regardingindustry economic factors and future profitability.  It is our policy to conduct impairment testing based on our mostcurrent business plans, which reflect changes we anticipate in the economy andindustry.  If actual results are notconsistent with our assumptions and judgments, we could be exposed to amaterial impairment charge.

 

***Contingencies and Litigation***

 

APT is subject to the possibilityof various loss contingencies arising in the ordinary course of business.  We consider the likelihood of loss orimpairment of an asset or the incurrence of a liability, as well as our abilityto reasonably estimate the amount of loss in determining loss contingencies.  An estimated loss contingency is accruedwhen it is probable that an asset has been impaired or a liability has beenincurred and the amount of loss can be reasonably estimated.  We regularly evaluate current informationavailable to us to determine whether such accruals should be adjusted.

 

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**Results of Operations**

 

The following table presents ourconsolidated statement of operations data for the periods indicated as apercentage of net revenue:

 
|                                                 |   | **Three Months Ended  March 31,** |   |
|------------------------------------------------------|--------|-----------------------------------|--------|
|                                                 |   | **2003**                          |   | **2002** | ** ** |
|                                                 |   |                              |   |   |   |
| Revenues, net                                        |   | 100.0                             | %      | 100.0 | % |
| Cost of goods sold                                   |   | 69.5                              |   | 68.1 |   |
| Amortization of technology  rights and other charges |   | 2.5                               |   | 4.8 |   |
| Total cost of goods sold                             |   | 72.0                              |   | 72.9 |   |
| Gross profit                                         |   | 28.0                              |   | 27.1 |   |
| Operating expenses:                                  |   |                              |   |   |   |
| Research and development                             |   | 7.5                               |   | 12.4 |   |
| Selling, general and  administrative                 |   | 35.2                              |   | 30.5 |   |
| In-process research and  development                 |   | —                            |   | 23.0 |   |
| Total operating expenses                             |   | 42.7                              |   | 65.9 |   |
| Loss from operations                                 |   | (14.7                             | )      | (38.8 | ) |
| Interest and other income, net                       |   | 0.6                               |   | 3.1 |   |
| Loss before income tax benefit                       |   | (14.1                             | )      | (35.7 | ) |
| Income tax benefit                                   |   | (5.1                              | )      | (4.5 | ) |
| Net loss                                             |   | (9.0                              | )%     | (31.2 | )% |

 

*Revenues.*  Revenues for the first quarterof 2003 were $11.2 million, up 35.4% from $8.2 million in the first quarter of2002, and down 2.5% from $11.4 million for the fourth quarter 2002.  Excluding the acquisitions of GHz TechnologyInc. (GHz) and the business of Microsemi RF Products, Inc., which werecompleted on January 25, 2002 and May 24, 2002, respectively, first quarter2003 revenues were up 10.9% over the year ago quarter.  On a before acquisition basis, the increasein revenues over the prior year quarter is attributable to higher sales to theindustrial/medical and semiconductor capital equipment markets.  APT’s sales into the semiconductor capitalequipment and industrial/medical markets hit a trough in the second half of2001, and then strengthened in the second half of 2002 and first quarter of2003, although with significant quarter to quarter variability.

 

Including the impact of thecompanies acquired, the 35.4% increase in revenues over the prior year quarteris a result of growth across all of the markets we serve, which include:communications/data processing, semiconductor capital equipment,industrial/medical and military/aerospace. Compared to the fourth quarter of2002, we saw sequential increases in the communications/data processing andsemiconductor capital equipment markets, offset by a sequential decline in theindustrial/medical segment.  Thisdecrease was driven primarily by lower sales to one customer in medical imagingapplications as a result of reduced end customer demand and by the impact of alast time buy shipment made in the fourth quarter of 2002.

 

Sales to distributors wereapproximately 25% of revenues in the first quarter of 2003, compared to our2002/2001 average of 21%.  We monitorinventory levels at our distributors on a monthly basis.  During the first quarter of 2003,inventories at our US distributors decreased and sales to end customersincreased sequentially by 16% from the fourth quarter of 2002.

 

Sales of our higher margin RFproducts represented approximately 47.8% in the first quarter of 2003 comparedto 36.2% in the first quarter of 2002.

 

*Gross Profit.*  Gross profit for the firstquarter of 2003 was 28.0% compared to 27.1% in the first quarter of 2002 and26.6% in the fourth quarter of 2002.  Excludingthe non-cash purchase accounting adjustments for the fair value of inventoryacquired and the amortization of the technology rights asset, gross profit was30.5% for the first

 

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quarter of 2003 compared to 31.9% in the first quarter of 2002 and30.6% in the fourth quarter of 2002. Although our revenues increased by 35.4% in the first quarter of 2003compared to the first quarter of 2002, when excluding the non-cash purchaseaccounting adjustments, our gross margin percentage declined in the firstquarter of 2003 compared to the first quarter of 2002. The decline in grossmargin percentage is due to slightly more unfavorable product mix and low fixedcost absorption at the Microsemi RF Products Inc business we acquired on May24, 2002, which contributed gross margin at a lower percentage rate than ouroverall business.  The company ispursuing actions to reduce our production costs, which we expect will lower ouroverall breakeven point.  These includethe consolidation of internal wafer fabrication operations at our Bend facilityand greater utilization of low cost offshore assembly subcontractors associatedwith corresponding downsizing of internally assembly operations.

 

*Research and Development Expense.*  Firstquarter of 2003 research and development expenses were $833,000 or 7.5% ofrevenues, compared to $1.0 million in the first quarter of 2002 or 12.4% of revenues.  The decrease in spending over the prior yearquarter is primarily due to lower expenditures for supplies and materials usedin research and development expenses which were high in the first quarter of2002 in order to support the introduction of a number of new products,especially in our Power MOS7© technology. The lower spending was partially offset by additional research anddevelopment expenses contributed by the companies we acquired in 2002.  The Company plans to continue itsresearch and development programs leading to the introduction of new productsfor use in both switching and RF applications.

 

*Selling, General and Administrative Expense.*  Firstquarter of 2003 selling, general and administrative expenses were $3.9 millionor 35.2% of revenues, compared to $2.5 million in the first quarter of 2003 or30.5% of revenues and $3.4 million in the fourth quarter of 2002 or 30.1% ofrevenues.  The increase in selling,general and administrative expenses over the prior year quarter is partially dueto $527,000 of incremental spending at the subsidiaries we acquired at the endof January and May of 2002.  This amountincludes a $240,000 severance charge in the first quarter of 2003 due to anorganizational restructuring.  Theremaining $894,000 increase over the prior year quarter is partially due toincreased legal expenses in connection with the ongoing patent litigation, asmore fully explained in Part II, Item 1 to this filing.  We have denied infringement of the IXYSpatents and have asserted affirmative defenses to our claims.  However, the length of time and legal feesassociated with the patent litigation with IXYS may be significant. Theremaining increase over the prior year quarter is due to higher payrollexpenses, as the graduated pay reductions implemented in 2001 were discontinuedin the third quarter of 2002, higher insurance costs and additionaldepreciation charges due to capital additions for technologyinfrastructure.  The increase in selling,general and administrative expenses over the fourth quarter of 2002 isprimarily due to the increased legal expenses and a severance charge in thefirst quarter of 2003 as mentioned above.

 

*Stock Compensation Expense.*  Stockcompensation expense includes costs relating to stock-based employee compensationarrangements, and is based on the difference between the fair market value ofour common stock on the date of grant of options and the exercise price ofoptions to purchase that stock. Stock compensation expense is recognized overthe vesting periods of the related options, typically five years. On aconsolidated basis, stock compensation expense of $47,000 was recorded in thefirst quarter of 2003. Of this amount, $14,000 was recorded in cost of goodssold and $33,000 was recorded in selling, general and administrative expense.Stock compensation expense of $146,000 was recorded in the first quarter of2002. Of this amount, $64,000 was recorded in cost of goods sold, $22,000 wasrecorded in research and development expense and $60,000 was recorded inselling, general and administrative expense. We expect to record stockcompensation expense of $39,000 in the second quarter of 2003.

 

*Interest and o**ther income, net*.  Interestand other income, net, which includes interest income, interest expense andother expense, was $67,000 in the first quarter of 2003 compared to $258,000 inthe first quarter of 2002.  The primarycomponent is interest income earned on our cash and marketable securities.  Net interest income was $56,000 in the firstquarter of 2003 compared to $219,000 in the first quarter of 2002.  The decline in interest income is primarilydue to lower interest rates available in the current investment market and alower investment balance due to cash used for the acquisitions we made in 2002.

 

*IncomeTax Expense (Benefit)*. We recorded a tax benefit in the first quarter of 2003, at an effectivetax rate of 35.9%.  The first quartertax rate benefit is lower than the expected tax rate primarily due to a foreignnet operating loss in the quarter which carries a full valuation allowance. Oureffective tax rate in the first quarter of

 

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2002 was 12.6%. The effective tax rate in the first quarter of 2002 waslower than the federal statutory rate primarily due to the in process researchand development expenses, which are not deductible for tax purposes and thebenefit of a reduction in the valuation allowance due to the realization offoreign net operating loss carry forwards.

 

*Valuationof Goodwill and Intangible Assets with Finite Lives*.  Due to recent stock market and economicconditions, the Company will perform an interim impairment analysis in thesecond quarter of 2003.  The Company hasengaged the services of an outside valuation specialist for this project.  The results of this analysis might requirethat the Company record a non-cash charge for the amount of any impairmentdeemed to have occurred.

 

**Liquidity and Capital Resources**

** **

In the first three months of 2003, we usedapproximately $403,000 in operating activities.  This primarily resulted from our net loss of $1.0 million and anegative cash flow from operating assets and liabilities of $371,000, offset bynon-cash charges for depreciation andamortization of $1.1 million.

 

In the first three months of2003, we generated $1.7 million from investing activities, which consistedmainly of net proceeds from the sale of available-for-sale securities of $2.4million, offset by purchases of $773,000 of fixed assets.  Our purchases of fixed assets were fortechnology infrastructure and facility and equipment expenditures at our Bendfacility in support of the consolidation of wafer fab operations from ourPennsylvania facility to Bend.

 

In the first three months of2003, we used approximately $8,000 in financing activities, which primarilyconsisted of the payment of capital lease obligations of $20,000 offset by thenet proceeds of $12,000 from the exercise of stock options.

 

As of March 31, 2003 APT had$32.8 million in working capital.  Ourtrade accounts receivable balance was $7.2 million reflecting a days salesoutstanding ratio of 58 days, compared to trade accounts receivable of $6.9million at December 31, 2002, reflecting a days sales outstanding ratio of 63days.  Our inventory balance was $11.7million reflecting inventory turns of 2.7 times per year, compared to aninventory balance of $11.9 million at December 31, 2002, reflecting inventoryturns of 2.8 times per year. The calculations above are based on quarterlyaverage balances of trade accounts receivable and inventory and annualizedquarterly sales and cost of goods sold.

 

APT currently expects to fundexpenditures for capital requirements as well as liquidity needs from acombination of available cash balances, internally generated funds andfinancing arrangements if needed. As of March 31, 2003, APT had$18.1 million in cash and cash equivalents and available-for-salesecurities. APT’s investment policy is to invest in short term, high-gradeliquid investments with the goal of capital preservation. APT’s ability togenerate positive cash flow from operations may be affected by marketconditions as well as other risk factors as described in our Annual Report onForm 10-K for the year ended December 31, 2002. We expect from time to time toevaluate potential acquisitions and equity investments complementary to ourmarket strategy. To the extent we pursue such transactions, we could requireadditional equity or debt financing to fund such activities or to fund ourworking capital requirements in the event of an industry downturn or anunexpected adverse change in our business operations. To the extent we requireadditional capital, we cannot assure you that we will be able to obtain suchfinancing on terms favorable to us, or at all.

 

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**Recent Accounting Pronouncements**

 

InJune 2002, the FASB issued SFAS 146 - “Accounting for Costs Associated withExit or Disposal Activities.” SFAS 146 addresses accounting and reporting forcosts associated with exit or disposal activities and nullifies Emerging IssuesTask Force Issue No. 94-3, “Liability Recognition for Certain EmployeeTermination Benefits and Other Costs to Exit an Activity (Including CertainCosts Incurred in a Restructuring).” SFAS 146 requires that a liability for acost associated with an exit or disposal activity be recognized and measuredinitially at fair value when the liability is incurred. SFAS 146 is effectivefor exit or disposal activities that are initiated after December 31, 2002,with early application encouraged.  Theadoption of the new rule is not expected to have a material impact on theCompany’s statements of position, operations or cash flows.

 

InNovember, 2002, the FASB issued FASB Interpretation No. 45 - “Guarantor’sAccounting and Disclosure Requirements for Guarantees, Including IndirectGuarantees of Indebtedness of Others” (“FIN 45”). This interpretationelaborates on the disclosures to be made by a guarantor in its interim andannual financial statements about its obligations under certain guarantees thatit has issued and requires that they be recorded at fair value. The initialrecognition and measurement provisions of this interpretation are to be appliedonly on a prospective basis to guarantees issued or modified after December 31,2002. The disclosure requirements of this interpretation are effective forfinancial statements of interim or annual periods ending after December 15,2002. The adoption of the new rule is not expected to have a material impact onthe Company’s statements of position, operations or cash flows.

 

**ITEM 3. QUANTITATIVE****AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

 

We do not use derivativefinancial instruments in our investment portfolio. Due to the short durationand conservative nature of our cash equivalents, and the high quality andconservative nature of our long-term investments, we do not expect any materialloss with respect to our investment portfolio.

 

Currently less than 2% of oursales are transacted in local currencies, primarily Euros. As a result, ourinternational results of operations have limited exposure to foreign exchangerate fluctuations. We do not currently hedge against foreign currency ratefluctuations. Most of our export sales and sales by APT Europe are in U.S.dollars, and most of our foreign currency sales are from operations withsignificant expenses in the same currency. As a result, gains and losses fromsuch fluctuations have not been material to our consolidated results ofoperations

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

*(a) Evaluationof disclosure controls and procedures.*

 

As required by new Rule 13a-15 under the SecuritiesExchange Act of 1934, within the 90 days prior to the date of this report, theCompany carried out an evaluation under the supervision and with theparticipation of the Company’s management, including the Company’s ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of thedesign and operation of the Company’s disclosure controls and procedures. Basedupon that evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures are effectiveto ensure that information required to be disclosed by the Company in thereports it files or submits under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the Securitiesand Exchange Commission’s rules and forms. In connection with the new rules, wecurrently are in the process of further reviewing and documenting ourdisclosure controls and procedures, including our internal controls andprocedures for financial reporting, and may from time to time make changesaimed at enhancing their effectiveness and to ensure that our systems evolvewith our business.

 

Based on our most recent evaluation of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures, the Company did not discover:

 

(a) any significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data nor anymaterial weaknesses in internal controls;

 

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(b) any instances of fraud, whether or not material,that involved management or other employees who have a significant role in theregistrant’s internal controls.

 

*(b)Changes in internal controls*

 

None.

**PART II.  OTHERINFORMATION**

 

**ITEM1.  LEGAL PROCEEDINGS**

 

On August 15, 2002, IXYSCorporation filed a patent infringement lawsuit against APT with the UnitedStates District Court, Northern District of California.  The claim filed by IXYS alleges that APTinfringes on their United States Patent No. 5,486,715 and 5,801,419.  The IXYS claim also requested that damagesbe determined at trial and that such damages be trebled. On October 1, 2002,APT filed its answers to the IXYS allegations of patent infringement.  In addition, APT filed a patent infringementcounterclaim against IXYS, alleging that IXYS infringes on APT United StatesPatent No. 5,283,202, entitled “IGBT Device With Platinum Lifetime ControlHaving Gradient Or Profile Tailored Platinum Diffusion Regions.”  APT has filed with the court severalaffirmative defenses related to the validity of the IXYS patents.  In addition, APT does not believe that itinfringes upon the IXYS patents cited in the claim.  APT plans to vigorously defend itself in this lawsuit.

 

**ITEM6. EXHIBITS AND REPORTS ON FORM 8-K**

 

(a) The exhibits filed aspart of this report are listed below:

 
| **Exhibit No.** |   |                                                                                                                      |
|-----------------|--------|---------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                      |
| 99.1            |   | Certification pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

(b) Reports on Form 8-K

 

No reports on Form 8-K were filed during the quarterended March 31, 2003*.*

 

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**SIGNATURE**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized this 12thday of May, 2003

 
|   |   | ADVANCED POWER  TECHNOLOGY, INC.             |               |
|--------|--------|----------------------------------------------|--------------------|
|   |   |                                         |               |
|   |   |                                         |               |
|   |   | By:                                          | /s/ GREG M. HAUGEN |   |   |
|   |   |                                         |               |
|   |   | Greg M. Haugen                               |               |
|   |   | Vice President, Finance  and Administration, |               |
|   |   | Chief  Financial Officer and Secretary       |               |
|   |   | (Principal Financial  Officer)               |               |
|        |        |                                              |                    |  |  |

 

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**CERTIFICATION****PURSUANT TO**

**RULE 13a-14 AND 15d-14 OF THESECURITIES AND EXCHANGE ACT OF 1934**

**AS ADOPTED PURSANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002**

 
| I, Patrick Sireta, certify that: |
|----------------------------------|
|                             |   |   |
| 1.                               |   | I have reviewed this quarterly report on Form 10-Q  of Advanced Power Technology; |
|                             |   |   |
| 2.                               |   | Based on my knowledge, this quarterly report does  not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this quarterly report; |
|                             |   |   |
| 3.                               |   | Based on my knowledge, the financial statements, and  other financial information included in this quarterly report, fairly present  in all material respects the financial condition, results of operations and  cash flows of the registrant as of, and for, the periods presented in this  quarterly report; |
|                             |   |   |
| 4.                               |   | The registrant’s other certifying officers and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we have: |
|                             |   |   |
|                             |   | a) | designed such disclosure controls and procedures to  ensure that material information relating to the registrant, including its  consolidated subsidiaries, is made known to us by others within those  entities, particularly during the period in which this quarterly report is  being prepared; |
|                             |   |   |
|                             |   | b) | evaluated the effectiveness of this registrant’s  disclosure controls and procedures as of a date within 90 days prior to the  filing date of this quarterly report (the “Evaluation Date”) ; and |
|                             |   |   |
|                             |   | c) | presented in this quarterly report our conclusions  about the effectiveness of the disclosure controls and procedures based on  our evaluation as of Evaluation Date; |
|                             |   |   |
| 5.                               |   | The registrant’s other certifying officers and I  have disclosed, based on our most recent evaluation, to the registrant’s  auditors and the audit committee of registrant’s board of directors: |
|                             |   |   |
|                             |   | a) | all significant deficiencies in the design or  operation of internal controls which could adversely affect the registrant’s  ability to record, process, summarize and report financial data and have  identified for the registrant’s auditors any material weaknesses in internal  controls; and |
|                             |   |   |
|                             |   | b) | any fraud, whether or not material, that involves  management or other employees who have a significant role in the registrant’s  internal controls; and |
|                             |   |   |
| 6.                               |   | The registrant’s other certifying officers and I  have indicated in this quarterly report whether or not there were significant  changes in internal controls or in other factors that could significantly  affect internal controls subsequent to the date of our most recent evaluation,  including any corrective actions with regard to significant deficiencies and  material weaknesses. |

 
|   |   | By: /s/ PATRICK SIRETA                 |   |
|--------|--------|----------------------------------------|--------|
|   |   | President and Chief  Executive Officer |
|   |   | May 12, 2003                           |

 

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**CERTIFICATION PURSUANT TO**

**RULE 13a-14 AND 15d-14 OF THESECURITIES AND EXCHANGE ACT OF 1934**

**AS ADOPTED PURSANT TO SECTION 302 OFTHE SARBANES-OXLEY ACT OF 2002**

 
| I, Greg Haugen, certify that: |
|-------------------------------|
|                          |   |   |
| 1.                            |   | I have reviewed this quarterly report on Form 10-Q  of Advanced Power Technology; |
|                          |   |   |
| 2.                            |   | Based on my knowledge, this quarterly report does  not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this quarterly report; |
|                          |   |   |
| 3.                            |   | Based on my knowledge, the financial statements, and  other financial information included in this quarterly report, fairly present  in all material respects the financial condition, results of operations and  cash flows of the registrant as of, and for, the periods presented in this  quarterly report; |
|                          |   |   |
| 4.                            |   | The registrant’s other certifying officers and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we have: |
|                          |   |   |
|                          |   | a) | designed such disclosure controls and procedures to  ensure that material information relating to the registrant, including its  consolidated subsidiaries, is made known to us by others within those  entities, particularly during the period in which this quarterly report is  being prepared; |
|                          |   |   |
|                          |   | b) | evaluated the effectiveness of this registrant’s  disclosure controls and procedures as of a date within 90 days prior to the  filing date of this quarterly report (the “Evaluation Date”) ; and |
|                          |   |   |
|                          |   | c) | presented in this quarterly report our conclusions  about the effectiveness of the disclosure controls and procedures based on  our evaluation as of Evaluation Date; |
|                          |   |   |
| 5.                            |   | The registrant’s other certifying officers and I  have disclosed, based on our most recent evaluation, to the registrant’s  auditors and the audit committee of registrant’s board of directors: |
|                          |   |   |
|                          |   | a) | all significant deficiencies in the design or  operation of internal controls which could adversely affect the registrant’s  ability to record, process, summarize and report financial data and have  identified for the registrant’s auditors any material weaknesses in internal  controls; and |
|                          |   |   |
|                          |   | b) | any fraud, whether or not material, that involves  management or other employees who have a significant role in the registrant’s  internal controls; and |
|                          |   |   |
| 6.                            |   | The registrant’s other certifying officers and I  have indicated in this quarterly report whether or not there were significant  changes in internal controls or in other factors that could significantly  affect internal controls subsequent to the date of our most recent  evaluation, including any corrective actions with regard to significant deficiencies  and material weaknesses. |

 
|   |   | By: /s/ GREG HAUGEN                          |   |
|--------|--------|----------------------------------------------|--------|
|   |   | Vice President, Finance  and Administration, |
|   |   | Chief Financial Officer  and Secretary       |
|   |   | (Principal Financial  Officer)               |
|   |   | May 12, 2003                                 |

 

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