Advanced Photonix (API)

In October 2008, the FASB issued FSP
FAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Is Asset Not Active” (“FAS No. 157-3”) with an immediate effective date,
including prior periods for which financial statements have not been issued. FSP
FAS No. 157-3 clarifies the application of fair value in inactive markets and
allows for the use of management’s internal assumptions about future cash flows
with appropriately risk-adjusted discount rates when relevant observable market
data does not exist. The objective of FAS No. 157 has not changed and continues
to be the determination of the price that would be received in an orderly
transaction that is not a forced liquidation or distressed sale at the
measurement date. The adoption of FSP FAS No. 157-3 did not have a material
effect on the Company’s results of operations, financial position or liquidity.

In February 2007, the FASB issued SFAS
No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS No.
159”), which permits entities to choose to measure many financial instruments
and certain other items at fair value. SFAS No. 159 also includes an amendment
to SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities”
which applies to all entities with available-for-sale and trading securities.
This Statement is effective as of the beginning of an entity’s first fiscal year
that begins after November 15, 2007. The adoption of this pronouncement had no
impact on our financial statements.

In December 2007, the FASB issued SFAS
No. 141 (Revised 2007), “Business
Combinations” (“SFAS No. 141(R)”). The
objective of SFAS No. 141(R) is to improve reporting by creating greater
consistency in the accounting and financial reporting of business combinations,
resulting in more complete, comparable and relevant information for investors
and other users of financial statements. SFAS No. 141(R) requires the acquiring
entity in a business combination to recognize all (and only) the assets acquired
and liabilities assumed in the transaction; establishes the acquisition-date
fair value as the measurement objective for all assets acquired and liabilities
assumed; and requires the acquirer to disclose to investors and other users all
of the information they need to evaluate and understand the nature and financial
effect of the business combination. SFAS No. 141(R) is effective as of the start
of fiscal years beginning after December 15, 2008. Early adoption is not
allowed. The adoption of SFAS No. 141(R) will change our accounting treatment
for business combinations on a prospective basis beginning April 1, 2009.

In December 2007, the FASB issued SFAS
No. 160, “Non-controlling Interests in
Consolidated Financial Statements” (“SFAS
No. 160”). SFAS No. 160 improves the relevance, comparability, and transparency
of financial information provided to investors by requiring all entities to
report non-controlling (minority) interests in subsidiaries in the same way as
equity in the consolidated financial statements. Moreover, SFAS No. 160
eliminates the diversity that currently exists in accounting for transactions
between an entity and non-controlling interests by requiring them to be treated
as equity transactions. SFAS No. 160 is effective as of the start of fiscal
years beginning after December 15, 2008. Early adoption is not allowed. Since
the Company currently has no minority interest, adoption of this standard will
have no impact on our financial position, results of operations or cash flows.

In December 2007, the SEC issued Staff
Accounting Bulletin No. 110 (“SAB No. 110”) to amend the SEC’s views discussed
in Staff Accounting Bulletin No. 107 (“SAB No. 107”) regarding the use of the
simplified method in developing an estimate of expected life of share options in
accordance with SFAS No. 123(R). SAB No. 110 is effective for us beginning April
1, 2007. The Company currently uses reasonable estimates of expected life in
accordance with SAB No. 107, as amended by SAB No. 110.

In April 2008, the FASB issued FASB
Staff Position (FSP) No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”
(”FSP No. FAS 142-3”). The final FSP amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under SFAS
No. 142, “Goodwill and Other
Intangible Assets”. The FSP is intended to
improve the consistency between the useful life of an intangible asset
determined under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS No. 141 (revised 2007),
“Business Combinations”, and other US generally accepted accounting principles. The FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. The Company is
currently evaluating the impact, if any, FSP No. FAS 142-3 will have on its
consolidated financial statements.

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In May 2008, the FASB issued FASB Staff
Position (FSP) No. APB 14-1. This FSP clarifies that convertible debt
instruments that may be settled in cash upon conversion (including partial cash
settlement) are not addressed by paragraph 12 of APB Opinion No. 14,
“Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants”.
Additionally, this FSP specifies that issuers of such instruments should
separately account for the liability and equity components in a manner that will
reflect the entity’s nonconvertible debt borrowing rate when interest cost is
recognized in subsequent periods. This FSP is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company is in the process of evaluating the
impacts, if any, of adopting this FSP.

In June 2008, the FASB ratified the
consensus reached by the Emerging Issues Task Force, EITF Issue No. 07-5,
“Determining Whether an Instrument (or an
Embedded Feature) Is Indexed to an Entity’s Own Stock” (“EITF 07-5”). EITF 07-5 addresses how an entity should evaluate
whether an instrument is indexed to its own stock. The consensus is effective
for fiscal years (and interim periods) beginning after December 15, 2008. The
consensus must be applied to outstanding instruments as of the beginning of the
fiscal year in which the consensus is adopted and should be treated as a
cumulative-effect adjustment to the opening balance of retained earnings. Early
adoption is not permitted. The Company is in the process of evaluating the
impacts, if any, of adopting this EITF.

In June 2008, the FASB issued FASB
Staff Position (“FSP”) EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment
Transactions Are Participating Securities.”
This FSP provides that unvested share-based payment awards that contain
non-forfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
basic earnings per share pursuant to the two-class method described in SFAS No.
128, “Earnings per Share”. All prior period earnings per share data presented shall be
adjusted retrospectively to conform to the provisions of this FSP. This FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008 and interim periods within those fiscal years. Early
application is prohibited. The Company is in the process of evaluating the
impact, if any, of adopting this FSP.

In April 2009, the FASB issued FASB
Staff Position (“FSP”) FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies.”
FSP FAS 141(R)-1 provides guidance for determining the acquisition-date fair
value of assets acquired and liabilities assumed in a business combination that
arise from contingencies, and provides guidance on how to account for these
assets and liabilities subsequent to the completion of a business combination.
FSP FAS 141(R)-1 also requires increased disclosures on assets acquired and
liabilities assumed in a business combination that arise from contingencies. FSP
FAS 141(R)-1 is effective for assets or liabilities arising from contingencies
in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The adoption of FSP FAS  141(R)-1 will change our accounting
treatment for business combinations on a prospective basis beginning April 1,
2009.