ADVANCED PHOTONIX INC - 10-K Annual Report

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

FORM 10-K

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

OR

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

Commission file number 1-11056

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

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

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

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

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

None

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

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

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

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

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

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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

PART I

ITEM 1. BUSINESS

GENERAL

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

PRODUCTS & TECHNOLOGIES

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

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

o Silicon high resistivity p-type detectors

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

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

o Custom LED assemblies and LED displays

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

MARKETS

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

Military & Aerospace:

o Missile guidance

o Laser range finders

o Laser training systems

o Heads-up displays

o Satellite positioning

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Industrial & Commercial:

o Optical encoders

o Laboratory instrumentation

o Baggage/Cargo scanners

o Bar code scanners

o Laser positioning systems

Medical:

o Blood analysis, including pulse oximetry and glucometry

o Bacteriology

o Medical imaging

Automotive:

o Laser detection

o Adaptive cruise control

o Automatic power windows

o Drive-by-wire

Communications:

o VCSEL monitor

o Pump laser monitor

o Wireless communication

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

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

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

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

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

o Opto assemblies for biological and blood analysis

o Assemblies used in automotive distance control systems

RECENT DEVELOPMENTS

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

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

RAW MATERIALS

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

RESEARCH AND DEVELOPMENT

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

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

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

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

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

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

ENVIRONMENTAL REGULATIONS

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

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

BACKLOG AND CUSTOMERS

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

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

MARKETING

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

COMPETITION

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

PROPRIETARY TECHNOLOGY

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

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

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

EMPLOYEES

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

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ITEM 2. PROPERTIES

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

ITEM 3. LEGAL PROCEEDINGS

None.

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

None.

PART II

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

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

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

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

(1) Price ranges on the American Stock Exchange

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

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

ITEM 6. SELECTED FINANCIAL DATA

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

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

APPLICATION OF CRITICAL ACCOUNTING POLICIES

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

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REVENUE RECOGNITION

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

IMPAIRMENT OF LONG-LIVED ASSETS

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

DEFERRED TAX ASSET VALUATION ALLOWANCE

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

INVENTORIES

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

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ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

TABLE OF CONTRACTUAL OBLIGATIONS

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

RESULTS OF OPERATIONS

FISCAL YEAR 2005 COMPARED TO FISCAL YEAR 2004

REVENUES

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

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

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

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

COSTS AND EXPENSES

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

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

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

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

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

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

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

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

FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003

REVENUES

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

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

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

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COSTS AND EXPENSES

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

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

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

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

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

13

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

14

FORWARD LOOKING STATEMENTS

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

15

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

16

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Advanced
Photonix, Inc. (the "Company") as of March 27, 2005 and March 28, 2004 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years ended March 27, 2005, March 28, 2004 and March 30,
2003. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of the Company at March
27, 2005 and March 28, 2004 and the results of its operations and its cash flows
for the years ended March 27, 2005, March 28, 2004 and March 30, 2003 in
conformity with accounting principles generally accepted in the United States.

/s/ Farber & Hass LLP
May 27, 2005

17

ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET

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

(Continued)

18

ADVANCED PHOTONIX, INC.
CONSOLIDATED BALANCE SHEET - CONTINUED

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

See notes to consolidated financial statements.

19

ADVANCED PHOTONIX, INC.

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

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

See notes to consolidated financial statements.

20

ADVANCED PHOTONIX, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

See notes to consolidated financial statements.

21

ADVANCED PHOTONIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

22

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

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

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

See notes to consolidated financial statements.

23

ADVANCED PHOTONIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

24

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:

FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of all
financial instruments potentially subject to valuation risk
(principally consisting of cash equivalents, accounts receivable,
accounts payable, notes receivable and notes payable) approximates fair
value based upon prevailing interest rates available to the Company.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid
investments, with an original maturity of three months or less when
purchased, to be cash equivalents.

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

SHORT-TERM AND LONG-TERM INVESTMENTS - Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", requires that all debt and
marketable equity securities be classified in one of three categories:
trading, available-for-sale, or held-to-maturity. It is the Company's
intent to maintain a diverse portfolio to take advantage of investment
opportunities. The Company has classified all investments as current
assets, which includes available-for-sale and held-to-maturity.
Available-for-sale investments are redeemable within one year.
Held-to-maturity securities are callable government issues; however,
market rates make the call remote and the Company has the intent and
ability to not redeem the issue.

Available-for-sale securities are recorded at market value. Unrealized
holding gains and losses, net of the related income tax effect, are
excluded from earnings and are reported as a separate component of
shareholders' equity until realized. The amortized cost of debt
securities is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization and accretion are included in
interest income. At the time of sale, any realized gains or losses,
calculated by the specific identification method, are recognized as a
component of operating results.

Held-to-maturity securities are carried at amortized cost.

The Company held no short-term or long-term investments as of March 27,
2005.

25

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

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

CONCENTRATION OF CREDIT RISK - Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of cash equivalents and accounts receivable. The Company
maintains cash balances at four financial institutions that are insured
by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. As
of March 27, 2005, the Company had cash at three financial institutions
in excess of Federally insured amounts. As excess cash is available,
the Company invests in short-term and long-term investments, primarily
consisting of Government Securities and Money Market instruments.
Accounts receivable are unsecured and the Company is at risk to the
extent such amount becomes uncollectible. The Company performs periodic
credit evaluations of its customers' financial condition and generally
does not require collateral. As of March 27, 2005, one customer
comprised 22% of accounts receivable. As of March 28, 2004, two
customers comprised 14% and 13%, respectively, of accounts receivable.
For fiscal years 2005, 2004 and 2003, cash deposits held at financial
institutions in excess of FDIC insured amounts were as follows:

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

INVENTORIES - Inventories, which include material, labor and
manufacturing overhead, are stated at standard cost (which approximates
the first in, first out method) or market.

Inventories consist of the following at March 27, 2005 and March 28,
2004

26

EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold
improvements are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives
of the assets or lease term ranging from three to nine years.

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

LONG-LIVED ASSETS - The Company recognizes impairment losses on
long-lived assets used in operations when indicators of impairment are
present and the undiscounted cash flows estimated to be generated by
those assets are less than the assets' carrying amount. In such
circumstances, those assets are written down to estimated fair value.
Long-lived assets consist primarily of goodwill and fixed assets.

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

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

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

2006 $ 326,000
2007 326,000
2008 243,000
2009 127,000
2010 95,000
------------
Total $ 1,117,000
============

27

PATENTS - Patents represent costs incurred in connection with patent
applications. Such costs are amortized using the straight-line method
over the useful life of the patent once issued, or expensed immediately
if any specific application is unsuccessful. Amortization expense was
approximately $3,000 in fiscal 2005, 2004 and 2003, respectively. The
current patents held by the Company have remaining useful lives ranging
from 2 years to 10 years, with a weighted average remaining useful life
of 3.5 years. Future amortization of patent expenses are as follows:

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

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

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

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

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

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

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

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

28

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

29

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

PERVASIVENESS OF ESTIMATES - The preparation of consolidated financial
statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

ACCOUNTING FOR STOCK OPTION BASED COMPENSATION - SFAS No. 123,
"Accounting for Stock Based Compensation", sets forth accounting and
reporting standards for stock based employee compensation plans. As
allowed by SFAS 123, the Company continues to measure compensation cost
under Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" and complies with the pro
forma disclosure requirements of the standard (see Note 5).

NEW ACCOUNTING PRONOUNCEMENTS - In November 2004, the FASB issued FASB
Statement No. 151, "Inventory Costs - An amendment of ARB No. 43,
Chapter 4". Statement 151 clarifies that abnormal amounts of idle
facility expense, freight, handling costs and spoilage should be
expensed as incurred and not included in overhead. Further, Statement
151 requires that allocation of fixed production overheads to
conversion costs should be based on normal capacity of the production
facilities. The provisions in Statement 151 are effective for inventory
costs incurred during fiscal years beginning after June 15, 2005.
Companies must apply the standard prospectively. The Company will adopt
this standard on April 1, 2006.

In December 2004, the FASB issued FASB Statement No. 153, "Exchanges of
Nonmonetary Assets" which is an amendment of APB Opinion No. 29. The
amendments made by the Statement are based on the principle that
exchanges of nonmonetary assets should be measured based on the fair
value of the assets exchanged. Further, the amendments eliminate the
narrow exception for nonmonetary exchanges of similar productive assets
and replaces it with a broader exception for exchanges of nonmonetary
assets that do not have "commercial substance." Previously, Opinion 29
required that the accounting for an exchange of a productive asset for
a similar productive asset or an equivalent interest in the same or
similar productive asset should be based on the recorded amount of the
asset relinquished. The provisions in Statement 153 are effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. Early application is permitted and companies must apply
the standard prospectively. The Company will adopt this statement on
July 1, 2005.

In December 2004 the FASB issued SFAS 123(R), "Share-Based
Payment"--Statement 123, as originally issued, is effective until the
provisions of Statement 123(R) are fully adopted. This statement will
provide investors and other users of financial statements with more
complete and neutral financial information by requiring the
compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on
the fair market value of the equity or liability instruments issued.
The Company will adopt this Statement in July 2005.

30

The FASB issued SFAS 132(R), "Employers' Disclosures about Pensions and
Other Postretirement Benefits--Statement 132", as originally issued, is
effective until the provisions of Statement 132(R) are fully adopted.
The provisions of FAS 132 did not change. FAS 132(r) identified new
disclosures that are required. All new disclosure requirements for the
domestic plans of publicly traded entities are effective for years
ending after December 15, 2003. Estimated future benefit payments, and
all other new disclosure requirements for foreign plans and nonpublic
entities are effective for years ending after June 15, 2004.

In May 2005, the Financial Accounting Standards Board (FASB), issued
Statement of Financial Accounting Standards 154 "Accounting Changes and
Error Corrections"("SFAS 154"). This Statement replaces APB Opinion No.
20, "Accounting Changes", and FASB Statement No. 3, "Reporting
Accounting Changes in Interim Financial Statements", and changes the
requirements for the accounting for and reporting of a change in
accounting principle. The accompanying audited consolidated financial
statements do not have any accounting changes or error corrections.

The Company does not believe that any of these recent accounting
pronouncements will have a material impact on its financial position or
results of operations.

2. ACQUISITION

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

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

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

31

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:

3. CAPITALIZATION

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

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

32

4. INCOME TAXES

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

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

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

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

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

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

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:

33

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

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

34

5. STOCK OPTIONS

The Company has four stock option plans: The 1990 Incentive Stock
Option and Non-Qualified Stock Option Plan, the 1991 Directors' Stock
Option Plan ("The Directors' Plan"), the 1997 Employee Stock Option
Plan and the 2000 Stock Option Plan. The Company measures compensation
for these plans under APB Opinion No. 25. No compensation cost has been
recognized as all options were granted at the fair market value or the
greater of the underlying stock at the date of grant. Had compensation
expense for these plans been determined consistent with SFAS No. 123,
the Company's net income (loss) and net income (loss) per share would
be as follows:

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:

35

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

6. LINE OF CREDIT/SHORT TERM DEBT

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

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

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

36

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

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

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

37

8. RELATED PARTY NOTE RECEIVABLE

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

9. CAPITALIZED LEASE OBLIGATION

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

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

10. COMMITMENTS

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

2006 $ 434,000
2007 395,000
2008 349,000
2009 310,000
----------

Total $1,488,000
==========

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

11. LEGAL

The Company is, from time to time, subject to legal and other matters
in the normal course of its business. While the results of such matters
cannot be predicted with certainty, management does not believe that
the final outcome of any pending matters will have a material effect on
the financial position and results of operations of the Company.

38

12. EMPLOYEES' RETIREMENT PLAN

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

13. SUBSEQUENT EVENTS (UNAUDITED)

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

On March 8, 2005, Advanced Photonix, Inc. and its newly formed
subsidiary, Michigan Acquisition Sub, LLC ("Newco"), a Delaware limited
liability company, entered into an Agreement and Plan of Merger (the
"Agreement") with Picotronix, Inc., whereby Picometrix merged with and
into Newco, with Newco being the surviving entity. The transaction was
completed in May 2005. The merger consideration paid to the
stockholders of Picometrix at the closing of the transaction consisted
of $3,500,000 in cash, four-year API promissory notes in the aggregate
principal amount of $2,900,500 (the "API Notes") and 2,575,000 shares
of API's Class A Common Stock.

The API Notes are payable in four annual installments with the first
being a payment of $500,000, the second being a payment of $550,000,
the third being a payment of $900,000 and the fourth being a payment of
$950,500. The API Notes bear an interest rate of prime plus 1.0% and
are secured by all of the intellectual property of Picometrix. API has
the option of prepaying the API Notes without penalty.

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

39

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

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

40

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

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

DISCLOSURE CONTROLS

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

CHANGES IN INTERNAL CONTROLS

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

ITEM 9B. OTHER INFORMATION

None.

PART III

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

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

CODE OF ETHICS

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

ITEM 11. EXECUTIVE COMPENSATION

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

41

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

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

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

(3) Exhibits:

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

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

42

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

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

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

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

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

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

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

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

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

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

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

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

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

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

43

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

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

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

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

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

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

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

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

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

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

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

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

44

SIGNATURES

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

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

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

45

EXHIBIT INDEX

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

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

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

46