SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended March 31, 1997
[ ] 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:
0-16106
APA Optics, Inc.
(exact name of registrant as
specified in its charter)
Minnesota 41-1347235
(State of Incorporation)
(I.R.S. Employer ID No.)
2950 N.E. 84th Lane, Blaine, MN
55449
(Address of principal executive offices)
(zip code)
Issuer's telephone number, including area code: (612) 784-4995
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months and (2) has been subject to the filing
requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in
response to item 405 of Regulation S-B in this form, and no
disclosure will be contained to the best of issuer's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB. [
]
The issuer's revenues for its most recent fiscal year were
$2,769,270.
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of May 30, 1997, was
approximately $30,637,667.
The shares of Common Stock outstanding as of May 30, 1997 were
8,307,124.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the fiscal
year ended March 31, 1997 (the "1997 Annual Report") , are
incorporated by reference into Part II. The Annual Report is
filed with this report as Exhibit 13.
Portions of the proxy statement for the annual shareholders
meeting to be held on August 20, 1997 ("Proxy Statement") are
incorporated by reference into Part III.
Part I
Item 1. Description of Business.
(a) General Development of Business.
APA Optics, Inc. (the "Company"), a Minnesota corporation
organized in 1979, is engaged in the business of developing,
designing, and fabricating optical components and optical
systems for laser and other industrial application; Developing
and fabrication optical coatings and thin film optical
devices; Research and development of optoelectronic technology
and related devices.
(b) Description of Business.
Products and Services
(i) Optical Lens Systems. The Company designs and builds
multi-element lens systems and components, including mounting
structures, for precision quality optical needs. Many
applications such as laser industrial imaging systems and
display systems require precision quality optics.
A lens is a transparent optical component, the surface of
which converges or diverges the light transmitted through it
to form a real or virtual image of an object. A lens system
consists of two or more lenses and is generally required for
photographic and laser devices, microscopes, and telescopes.
The design of a lens system involves selection of suitable
optical glass and a delicate balance of various radii of
lenses, lens thickness, and separation between various lenses.
To accomplish these tasks, the Company uses sophisticated
computer design programs, some of which it has purchased and
some of which have been internally developed.
The Company has designed and built lens systems for
various applications. These applications include laser-based
systems, imaging systems, inspection systems, display systems,
display optics, focusing optics for ultraviolet fire alarms,
alignment verification optics for dual magnetic recording
heads, and multi-magnification optics systems for optical
comparators.
(iii) Optical Thin Film Coatings. The Company custom
designs, develops, and fabricates optical thin film coatings
for optical components of lasers, laser systems, optical
instruments, and optical devices.
The Company uses its optical thin film coating services
in two major ways. Antireflective coatings are deposited onto
fabricated lens components. The Company also uses its thin
film coating facility to design, develop and fabricate coating
for lens components supplied by customers.
Applications for thin film coatings services are
concentrated primarily in optical components used in lasers
and laser systems. The Company provides high quality coatings
to meet the delicate demands required in these systems.
(iii) Binary Optic Laser Scanner (BOLS): The BOLS provides
two-dimensional scanning of laser Beams without and motors or
rotating platforms. BOLS will find many applications due to
its many unique features including compactness and ruggedness.
BOLS can create multiple beams from a single input laser beam,
and scan all of these in two-dimensions and receive the
returns from the scanned beams. Some of the potential
applications include: laser radar; 3-dimensional surface
profiling; on-site, non-contact inspection during
manufacturing, etc.
(iv) Optoelectronics Devices. The Company is focusing its
research and development effort on several optoelectronic
devices. Optoelectronic devices will be vital components of
future communication systems and optical instruments. To
foster development of fiber-optic high data rate communication
systems, certain miniature lightweight modules, including
amplifiers, switches, couplers, filters, and isolators, need
to be created. These modules must then be integrated into
microcircuit chips. Solving the problems of this technology is
the current focus of the Company's development effort.
The Company is developing the following major
optoelectronic devices:
Wavelength Divisional Multiplexed (WDM) Modulator.
Recently, the Company demonstrated the feasibility of a WDM
optical modulator capable of transmitting several channels
through a single optical fiber for communication applications.
APA Optics developed the optical modulator (single channel)
technology during the early 90's for fiber optic
communication. These modulators have the capability of direct
high speed (several billion bits per second) data loading and
unloading on laser beams going through optical fibers, either
for short distance or long distance. The WDM consists of a
Gallium Arsenide material chip (fabricated using conventional
semiconductor processing techniques) on which both laser beams
and electrical beams can travel independently or interact with
each other. This device, therefore, provides an easy way of
mixing computer data, video or cable information (which are
electrical in nature) with the laser beam going through the
optical fiber. As a result, the modulator will be very
valuable for fiber optic communication systems including Local
Area Networks (LANs). The WDM optical modulator, developed
recently, provides a major break-through in that information
can travel on several different channels within a single fiber
(A simple analogy is the expansion of a single lane highway to
multi-lane throughway). As a result, the WDM due to its
multiple channels provides: higher speed, increased and
regulated data handling capabilities as compared to a single
channel modulator.
The Company filed a patent for WDM optical modulator in June
1994, which was allowed on May 8, 1995. The Company is
building three sets of WDM optical modulators for internal
testing and characterization. The Company plans to build
several prototype and pre-production sets prior to
manufacturing of the WDM modulators.
UV Detector. The UV Detector is a high response solid
state detector based on single-crystal gallium nitride. The
GaN detector is expected to have applications in spectrometry,
solar radiation measurement, excimer-laser measurement and
calibration, biomedical instrumentation, and flame detection
and monitoring. The detector is visible blind, which allows
detection of UV radiation in the presence of room lights
without a filter. The Company believes the GaN detector has
advantages over photomultiplier tubes because of its
ruggedness and chemical inertness, which suit it for
application in high-vibration and harsh environments as well
as high-temperature operation.
Other Products
The Company is performing contract research on at least
two additional AlGaN based devices, namely: a UV/blue laser
and a transistor, which may form the basis for future
products.
Major Customers
Revenues from sales and contract fees to the following
unrelated customers constituted more than ten percent of the
Company's total operating revenues in the last two fiscal
years:
Year Ended March 31,
Name
1997 1996
Government Agencies *
93% 89%
*Represents services to several operating agencies of the
U.S. Government, as follows:
1997 1996
Air Force
42% 38%
Army
22 4
Navy
36 58
Total
100% 100%
Backlog
The Company's backlog of uncompleted contracts at March
31, 1997, was approximately $3,200,000, as compared to
$4,000,000 at March 31, 1996. Of the current year's backlog,
all contracts will be completed within the next year except
for several multi-year contracts, of which approximately
$1,000,000 will be completed in the following year.
Competition
Competition in the optics fabrication business is
significant. Many of the companies engaged in the business are
well-financed and have significantly greater research,
development, production, and marketing resources than those of
the Company. The Company believes that it has a competitive
advantage in the important factors of quality and performance
since it has a complete facility for the development, design,
and fabrication of optical systems. Also, the geographical
location of the Company gives it a competitive advantage in
marketing its products to companies located in the Midwest,
since most of the Company's competitors are located on the
East and West Coasts.
There is also significant competition for research and
development contracts for the development of optics
technologies. Many potential competitors have significantly
greater resources for product research and development than
the Company. However, the Company believes that an early start
in relatively new technologies will provide an edge in
procuring various development contracts.
Research and Development
During the fiscal years ended March 31, 1997, and 1996
the Company spent approximately $375,000 and $30,000,
respectively, on research and development sponsored by the
Company. In addition, in each of those years, the Company
spent approximately $1,610,000, and $1,559,000, respectively,
on research activities sponsored by customers.
Employees
As of March 31, 1997, the Company employed 22 full-time
employees and 2 part-time employees (including its executive
officers).
Item 2. Description of Property.
The Company's offices, manufacturing facilities, and
laboratories are located in an industrial building at 2950
N.E. 84th Lane, Blaine, Minnesota. The Company currently
leases 23,500 square feet of space in the building under
sublease from Jain-Olsen Properties, a partnership consisting
of Anil K. Jain and Kenneth A. Olsen, officers and directors
of the Company. See Note 10 of Notes to Financial Statements
in the 1997 Annual Report included as Exhibit 13 to this
Report.
The Company also owns land directly west of the Blaine
facility and may use it for future expansion. The Company is
in the final stages of completing construction of a 24,000
square foot production facility in Aberdeen, South Dakota,
which will be used for manufacturing the Company's new
products. The land upon which this facility is located was
granted to the Company as part of a financing package from the
city of Aberdeen. See Note 6 of Notes to Financial Statements
in the 1997 Annual Report included as Exhibit 13 to this
Report for further information on the financing of this
facility.
Item 3. Legal Proceedings.
There are no material pending legal proceedings in which
the Company is a party or of which it or any of its property
is the subject.
Item 4. Submission of Matters to a Vote of Security-Holders.
No matter was submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters.
"Common Stock Information" on page 8 of the 1997 Annual
Report is incorporated herein by reference.
During the fiscal year ended March 31, 1997, the Company
issued the following unregistered securities:
1. In June 1996, the Company sold a total of 148,148 shares
of its Common Stock to NE Venture, Inc. for cash consideration
of $500,000 and in September 1996 sold an additional 148,844
shares to NE Venture, Inc. for cash consideration of
&700,000.These sales were in connection with the financing of
the Company's Aberdeen production facility.
2. During fiscal 1997 the Company sold 24,625 shares of its
Common Stock to 5 individuals upon exercise of warrants issued
to the agent of a private placement conducted in 1991. The
Company received total cash consideration from such exercises
of $81,263.
3. On February 10, 1997, a director of the Company exercised
options to purchase 4,000 shares of the Company's Common
Stock. The total purchase price for such exercise was $14,000,
which was paid in part by delivery to the Company of 2,000
shares of Common Stock valued at $5.1875 per share. The
balance of $3,625 was paid in cash.
4. In March 1996, the Company issued warrants to purchase
31,875 shares of the Company's Common Stock at $4.00 per share
to a consultant in lieu of payment of $31,875 in fees for
services rendered by the consultant in connection with the
Aberdeen financing.
In connection with the foregoing transactions, except for
the transaction described in paragraph 1 above, the Company
relied on the exemption provided under Section 4(2) of the
Securities Act of 1933 for sales not involving a public
offering. The Company relied on the exemption provided by
Regulation D for the sales to NE Venture, Inc., filing Form Ds
following each transaction. No commissions or other
underwriting compensation was paid in connection with the
sales described above.
Item 6. Management's Discussion and Analysis or Plan of
Operations.
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 8 of the 1997
Annual Report is incorporated herein by reference.
Item 7. Financial Statements.
The financial statements included on pages 9-17 of the
1997 Annual Report are incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters, and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of APA Optics, Inc. executive
officers, their ages, positions and offices as of March 31,
1997.
Name Age
Position
Dr. Anil K. Jain 51
President & Treasurer
Kenneth A. Olsen 53
Vice President and Secretary
Randal J. Becker 44
Principal Accounting Officer
Dr. Jamshid Pooladdej 46 Vice
President, Aberdeen Products Division
BUSINESS EXPERIENCE
Dr. Anil K. Jain has been a Director and President and
Treasurer since March 1979. From 1973 until October 15, 1983,
when Dr. Jain commenced full time employment with the Company,
he was employed at the Systems and Research Center at
Honeywell Inc. as a Senior Research Fellow, coordinating
optics-related development.
Kenneth A. Olsen has been a Director since 1980, Secretary
since 1983, and Vice President since 1992. Prior to joining
the Company, he had been with 3M Corp., St. Paul, Minnesota.
Randal Becker has been Principal Accounting Officer since
joining the Company in 1987. Prior to joining the Company he
was with Apache Corporation, Minneapolis, Minnesota.
Dr. Jamshid Pooladdej was hired March 17, 1997 as V.P.
Aberdeen Products Division. Prior to joining the Company, he
had been director of manufacturing engineering at Ciena
Corporation, Columbia, MD, since 1994. Before his service at
Ciena Corp., he was engineering manager for Laser Diode Inc.,
New Brunswick, N.J., from 1991 to 1994.
Information regarding Directors is incorporated herein by
reference from the Proxy Statement.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Item 12. Certain Relationships and Related Transactions.
The information requested by the above items 10, 11, and
12 is included in the Proxy Statement, which is incorporated
herein by reference.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits: See Exhibit Index on Page 9
(b) Reports filed on Form 8-K:
No reports on Form 8-K were filed during the fourth
quarter of the fiscal year ended March 31, 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the Registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
APA Optics, Inc.
Date: 6/27/97 By /s/
Anil K. Jain
Anil K. Jain, President
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Anil K. Jain
President, Chief 6/27/97
Anil K. Jain
Executive Officer,
treasurer, chief
financial officer,
and director
/s/ Kenneth A. Olsen
Secretary, Vice 6/27/97
Kenneth A. Olsen
President, and
director
/s/ Randal J. Becker
Principal 6/27/97
Randal J. Becker
accounting officer
/s/ Lincoln Hudson
Director 6/27/97
Lincoln Hudson
/s/ Gregory Von Wald Director
6/27/97
Gregory Von Wald
EXHIBIT INDEX
Exhibit
Page Number or Incorporated
Number Description
by Reference to
3.1 Restated Articles
Exhibit 3.1 to Registrant's
of Incorporation, as amended
Report on Form 10-KSB for
to date, and Statement
the fiscal year ended March
regarding establishment of
31, 1995 (the "1995 10-KSB")
class of shares
3.2 Bylaws
Exhibit 3.2 to the
Registration statement on
Form S-18 filed with the
Chicago Regional Office of
the Securities and Exchange
Commission on June 26, 1986
(the "Registration
Statement")
4.1a First Restated and Amended
Exhibit 4.1a to
Loan Agreement by and between
Report on Form 10-K for the
the Minnesota Agricultural and
fiscal year ended March 31,
Economic Development Board
1991 ("1991 10-K")
(the "Board") and the
Registrant dated July 1, 1990
4.1b Security Agreement from the
Exhibit 4.1b to the 1991
Registrant to the Board dated
10-K
as of July 1, 1990
4.1c Registrant's Restated and
Exhibit 4.1c to the 1991
Amended Promissory Note in the
10-K
amount of $1.5 million payable
to the Board
4.1d Intercreditor Agreement and
Exhibit 4.1d to the 1991
Consent by and among the
10-K
Board, the Registrant, and
other parties dated July 1,
1990
4.2(a) State of South Dakota Board of
Exhibit 4.1(a) to the
Economic Development $300,000
Report on 10-QSB for
Promissory Note, REDI Loan: 95-13-A
the quarter ended June 30,
1996 (the "June 1996 10-QSB")
4.2(b) State of South Dakota Board of
Exhibit 4.1(b) to the June
Economic Development Security
1996 10-QSB
Agreement, REDI Loan No: 95-13-A
dated May 28, 1996
4.3(a) $700,000 Loan Agreement dated June 24,
Exhibit 4.2(a) to the June
1996 by and between Aberdeen Development
1996 10-QSB
Corporation and APA Optics, Inc.
4.3(b) $300,000 Loan Agreement dated June 24,
Exhibit 4.2(b) to the June
1996 between Aberdeen Development
1996 10-QSB
Corporation and APA Optics, Inc.
4.3(c) $250,000 Loan Agreement dated June 24,
Exhibit 4.2 (c) to the June
1996 by and between Aberdeen Development
1996 10-QSB
Corporation and APA Optics, Inc.
4.3(d) $300,000 Loan Agreement dated June 24
Exhibit 4.2(d) to the June
1996 by and between Aberdeen Development
1996 10-QSB
Corporation and APA Optics, Inc.
4.4(a) Loan Agreement between South Dakota
Exhibit 4.3(a) to the June
Economic Development Finance and
1996 10-QSB
APA Optics, Inc.
4.5(b) Mortgage and Security Agreement - One
Exhibit 4.3(b) to the June
Hundred Day Redemption from APA Optics,
1996 10-QSB
Inc. to South Dakota Economic Development
Finance Authority dated as of June 24, 1996
4.6(a) Subscription and Investment Representation
Exhibit 4.4(a) to the June
Agreement of NE Venture, Inc.
1996 10-QSB
4.6(b) Form of Common Stock Purchase Warrant
Exhibit 4.4(b) to the June
for NE Venture, Inc.
1996 10-QSB
10.1 Sublease Agreement between the
Exhibit 10.1 to the
Registrant and Jain-Olsen Properties and
Registration Statement
Sublease Amendment and Option Agreement
between the Registrant and
Jain-Olsen Properties
*10.2a Stock Option Plan for Nonemployee
Exhibit 10.3a to
Directors
Registrant's Report on Form
10-KSB for the fiscal year
ended March 31, 1994 (the
"1994 10-KSB")
*10.2b Form of option agreement issued
Exhibit 10.3b to 1994 10-KSB
under the plan
*10.3 1997 Stock Compensation Plan
Page 12
*10.4 Insurance agreement by and
Exhibit 10.5 to Registrant's
between the Registrant and
Report on Form 10-K for
Anil K. Jain
the fiscal year ended March
31, 1990
13 Annual Report to Shareholders
Page 29
for year ended March 31, 1997
27 Financial data schedules
Page 50
Indicates management contract or compensation plan or
arrangements required to be filed as an exhibit to this form.
