Page 1 of 7
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X Quarterly report pursuant to Section 13 or 15(d)
of the
Securitie
s
Exchange
Act of
1934
For the quarterly period ended September 30, 1998 or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act 1934
For the transition period from
to .
Commission File Number 0-16106
APA Optics, Inc.
(exact name of small business issuer as specified in its
charter)
Minnesota
41-1347235
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
2950 N.E. 84th Lane, Blaine, Minnesota 55449
(Address of principal executive offices and zip code)
Issuer's telephone number, including area code: (612)
784-4995
Indicate whether the issuer (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 issuer was
required to file such reports), and (2) has been subject to
the filing requirement for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
Class:
Outstanding at September 30, 1998
Common stock, par value $.01
8,512,274
Page 2 of 7
PART 1, FINANCIAL INFORMATION
ITEM 1, FINANCIAL STATEMENTS
APA OPTICS, INC.
CONDENSED BALANCE SHEETS
ASSETS September 30 March 31
1998 1998
CURRENT ASSETS: (Unaudited) (Audited)
*
Cash and short-term investments
$4,195,647 $5,184,215
Accounts receivable
147,991 236,284
Inventories:
Raw materials
28,974 11,965
Work-in-process & finished
goods 181,419 145,156
Prepaid expenses
7,484 22,975
Bond reserve funds
24,542 131,667
TOTAL CURRENT ASSETS
4,586,057 5,732,262
PROPERTY AND EQUIPMENT, NET
2,623,405 2,702,887
OTHER ASSETS
1,026,208 1,194,763
$ $
8,235,670 9,629,912
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILTIES:
Current portion of long-term debt $ $
116,385 226,385
Accounts payable
97,389 36,960
Accrued expenses
131,701 123,437
TOTAL CURRENT LIABILITIES
345,475 386,782
LONG-TERM DEBT
3,168,705 3,383,267
SHAREHOLDERS' EQUITY
Undesignated shares; 5,000,000
shares
authorized; none issued
--- ---
Common stock, $.01 par value;
15,000,000
shares authorized; 8,512,274 &
8,512,274
issued
85,123 85,123
Paid-in-capital
9,657,028 9,657,028
Retained earnings (deficit)
(5,020,661) (3,882,288)
4,721,490 5,859,863
$ $
8,235,670 9,629,912
* Derived from audited financial statements
Page 3 of 7
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
September 30 September 30
1998 1997 1998
1997
REVENUES $ $ $ $1,315,
246,437 653,38 494,994 025
5
COSTS AND EXPENSES:
Cost of sales and
services
549,292 675,65 1,073,8 1,209,7
1 11 10
Selling, general &
administrative
251,625 118,33 384,042 240,398
9
Research & development
129,629 76,625 220,632 135,054
930,546 870,61 1,678,4 1,585,1
5 85 62
Gain/loss from
operations: (684,10 (217,2 (1,183, (270,13
9) 30) 491) 7)
INTEREST INCOME &
EXPENSE:
Interest income
59,526 86,020 126,439 156,148
Interest expense
(35,145 (47,30 (80,821 (93,162
) 6) ) )
24,381 38,714 45,618 62,986
Loss before Income taxes
(659,72 (178,5 (1,137, (207,15
8) 16) 873) 1)
Income taxes
500 300 500 600
Net Loss $ $ $
(660,22 (178,8 $(1,138 (207,75
8) 16) ,373) 1)
Net loss per share Basic $ $ $ $
and diluted (.08) (.02) (.13) (.03)
Weighted average shares
outstanding
Basic and diluted 8,307, 8,307,3
8,512,2 831 8,512,2 84
74 74
Page 4 of 7
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
September 30
1998 1997
OPERATING ACTIVITIES
Net income (loss) $(1,138, $
373) (207,751)
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization
220,724 213,541
Changes in operating assets and
liabilities:
Accounts receivable
88,293 11,143
Inventories and
prepaid expenses
69,344 48,674
Accounts payable and accrued
expenses
(41,308) 97,018
Other
(11,833) (1,695)
Net cash (used in) provided by operating
activities
(813,153 160,930
)
INVESTING ACTIVITIES
(Purchases) Sales of property and
equipment (93,241) (635,614)
Net cash used in investing activities
(93,241) (635,614)
FINANCING ACTIVITIES
Proceeds from the sale of common stock
--- 3,438
Repayment of long term Debt
(214,562 (194,451)
)
Bond reserve funds
132,388 (42,222)
Net cash used in financing activities
(82,174) (233,235)
Decrease in cash
(988,568 (707,919)
)
Cash at Beginning of Period 5,184,21
5 3,875,205
Cash at End of Period $4,195,6
47 $3,167,28
6
NOTE TO CONDENSED FINANCIAL STATEMENTS
1. In the opinion of management, the information furnished
reflects all adjustments which are necessary to a fair
statement of the results of the interim periods presented.
All adjustments were of a normal
recurring nature. The result of any interim period are
not necessarily indicative of results for the full
year.
Page 5 of 6
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
Revenues for the second quarter and first six months of
fiscal 1999 ended September 30, 1998 were $246,437 and
$494,994, respectively, in each case substantially below the
levels of the comparable periods of fiscal 1998. The
principal reason for the decrease in revenues was the
Company's decision to focus professional staff on product
development and production activities instead of government
research work. While contract research activity would have
produced current revenues, product planning and fabrication
do not produce revenues until the products are sold. Revenues
are expected to remain in the same range near term.
For the second quarter and first six months of fiscal
1999, the Company incurred net losses of $660,228 and
$1,138,373, respectively, as compared to net losses of
$178,816 and $207,751 in the comparable periods of fiscal
1998. The loss in the second quarter of fiscal 1999 is
significantly higher, largely because of increased consulting
costs due to a contract dispute with the government and
higher research and development costs on the Company's UV
detectors and wavelength divisional multiplexers (WDM).
Significant quarterly losses are expected in the next
quarter. Quarterly losses will continue until the Company
receives sufficient revenues from sales of its new products.
APA Optics, Inc. has sold qualification units of its UV
detectors to a wide range of customers for diverse
applications and now has 2,000 of these detector units on
hand. The Company has written off all labor costs on these
units so as not to overstate inventories. In addition,
evaluation units of the new WDM product have been sold to
three large corporations, significant factors in the
communications equipment industry. The Company believes that
these products represent its future and is dedicated to
successfully producing and marketing these advanced products.
Liquidity and Capital Resources:
The Company's cash balance at September 30, 1998 is
$4,195,647 compared to $5,184,215 at March 31, 1998. This
decrease in cash is attributed primarily to the $1,138,373
loss during the first six months of fiscal 1999. The Company
believes it has sufficient working capital to sustain its
operations through the end of fiscal 1999 and beyond.
Page 6 of 7
Forward-Looking Statements:
Forward-looking statements contained herein are made pursuant
to the safe harbor provisions of the Private Securities
Litigation Reform Act 1995. These statements are based upon
the Company's current expectations and judgements about
future developments in the Company's performance and may be
affected by several factors, including, without limitation,
delays in or increased costs of production, delays in or
lower than anticipated sales of the Company's new products,
and other factors discussed from time to time in the
Company's filings with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance
on forward- looking statements. The Company undertakes no
obligation to update such statements to reflect actual
events.
Year 2000 Issues:
The Company continues to assess the impact of the Year 2000
issues on its reporting systems and operations. To date, the
Company has requested and received confirmations regarding
Year 2000 compliance from its major suppliers and principal
financial institutions. The Company is comfortable with the
Year 2000 compliance externally. The Company believes that
internally there will be little or no impact on operations at
the turn of the century. However, the Company will be testing
its computers and software in the next few months in order to
ensure there will be no disruption to normal operations in
the year 2000. When this assessment is complete, the Company
will determine the need for and draft an appropriate
contingency plan.
ITEMS 1-4. Not Applicable
ITEM 5. Other Information
The proxy rules of the Securities and Exchange Commission
permit shareholders of a company, after timely notice to the
company, to present for shareholder consideration for
inclusion in the company's proxy statement unless such
proposals can be properly omitted by the company in
accordance with the proxy rules. The APA Optics, Inc.
1999Annual Meeting of Shareholders is expected to be held on
or about August 18, 1999, and proxy materials in connection
with that meeting are expected to be mailed on or about July
20, 1999. In order to be included in the Company's proxy
materials for the 1999 Annual Meeting, shareholder proposals
prepared in accordance with the proxy rules, must be received
by the Company on or before March 23, 1999.
In addition, pursuant to a recent amendment to Commission
Rule 14a-4, a shareholder must give notice to the Company
prior to June 6, 1999, of any proposal which such shareholder
intends to raise at the 1999 Annual Meeting. If the Company
receives notice of such proposal after June 6, 1999, under
Rule 14a-4, the persons named in the proxy solicited by the
Company's Board of Directors for the 1999 Annual Meeting may
exercise discretionary voting power with respect to such
proposal.
Page 7 of 7
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27: Financial Data Schedules
(b) There were no reports on Form 8-K filed during the
three months ended September 30,
1998.
Signatures
Pursuant to the requirements 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.
APA OPTICS, INC.
November 13, 1998
/s/ Anil K. Jain
Date
Anil K. Jain
President
Principal Executive Officer
Treasurer & Principal Financial
Officer
November 13, 1998
/s/ Randal J. Becker
Date
Randal J. Becker
Principal Accounting Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 4,195,647
<SECURITIES> 0
<RECEIVABLES> 147,991
<ALLOWANCES> 0
<INVENTORY> 210,393
<CURRENT-ASSETS> 4,586,057
<PP&E> 6,308,941
<DEPRECIATION> 3,685,536
<TOTAL-ASSETS> 8,235,670
<CURRENT-LIABILITIES> 345,475
<BONDS> 0
0
0
<COMMON> 85,123
<OTHER-SE> 4,636,367
<TOTAL-LIABILITY-AND-EQUITY> 8,235,670
<SALES> 494,994
<TOTAL-REVENUES> 494,994
<CGS> 1,073,811
<TOTAL-COSTS> 1,073,811
<OTHER-EXPENSES> 604,674
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (80,821)
<INCOME-PRETAX> (1,137,873)
<INCOME-TAX> 500
<INCOME-CONTINUING> (1,138,373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,138,373)
<EPS-PRIMARY> (.13)
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