Page 1 of 8
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X Quarterly report pursuant to Section 13 or 15(d)
of the
Securitie
s
Exchange
Act of
1934
For the quarterly period ended December 31, 1997 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 December 31, 1997
Common stock, par value $.01
8,512,274
Page 2 of 8
PART 1, FINANCIAL INFORMATION
ITEM 1, FINANCIAL STATEMENTS
APA OPTICS, INC.
CONDENSED BALANCE SHEETS
ASSETS December 31 March 31
1997 1997
CURRENT ASSETS: (Unaudited) (Audited)
Cash and short-term investments
$5,571,250 $3,875,205
Accounts receivable
318,312 355,981
Inventories:
Raw materials
18,111 15,666
Work-in-process & finished
goods 112,208 132,697
Prepaid expenses
32,051 27,408
Bond reserve funds
85,417 70,000
TOTAL CURRENT ASSETS
6,137,349 4,476,957
PROPERTY AND EQUIPMENT, NET
2,720,937 2,107,755
OTHER ASSETS
1,152,320 2,834,686
$
$10,010,606 9,419,398
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ $
223,021 158,021
Accounts payable
22,970 59,210
Accrued expenses
108,759 118,216
TOTAL CURRENT LIABILITIES
354,750 335,447
LONG-TERM DEBT
3,460,419 3,670,983
SHAREHOLDERS' EQUITY
Undesignated shares; 5,000,000
shares
authorized; none issued
--- ---
Common stock, $.01 par value;
15,000,000
shares authorized; 8,512,274 &
8,306,624
issued
85,123 83,066
Paid-in-capital
9,564,280 8,244,423
Retained earnings (deficit)
(3,453,966) (2,914,521)
6,195,437 5,412,968
$
$10,010,606 9,419,398
* Derived from audited financial statements
Page 3 of 8
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
December 31 December 31
1997 1996 1997
1996
REVENUES $ $ $ $1,877,
457,274 666,01 1,772,2 068
4 99
COSTS AND EXPENSES:
Cost of sales and
services
555,047 522,58 1,764,7 1,321,6
3 57 51
Selling, general &
administrative
127,760 135,58 368,158 442,071
2
Research & development
128,553 86,115 263,607 312,121
811,360 744,28 2,396,5 2,075,8
0 22 43
Gain/loss from operations:
(354,08 (78,26 (624,22 (198,77
6) 6) 3) 5)
INTEREST INCOME & EXPENSE:
Interest income
67,052 84,927 223,200 200,470
Interest expense
(44,410 (45,75 (137,57 (110,56
) 3) 2) 7)
22,642 39,174 85,628 89,903
INCOME (LOSS)
BEFORE INCOME TAXES
INCOME TAX EXPENSE (331,44 (39,09 (538,59 (108,87
4) 2) 5) 2)
(BENEFIT)
250 930 850 1,430
NET INCOME (LOSS) $ $ $
(331,69 (40,02 $(539,4 (110,30
4) 2) 45) 2)
EARNINGS (LOSS) PER
COMMON & COMMON EQUIVALENT
SHARE $ $ $ $
(.04) (.00) (.06) (.01)
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,424,7 8,304, 8,155,9
65 624 8,346,6 44
53
Page 4 of 8
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31
1997 1996
OPERATING ACTIVITIES
Net income (loss) $ $
(539,445 (110,302)
)
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization
314,127 333,863
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable 37,669 (372,713)
Decrease in inventories and
prepaid expenses
(2,016) (10,811)
Costs in excess of billings on
research contracts --- 210,658
Increase in accounts payable and
accrued expenses
19,303 30,836
Other
(15,346) (20,429)
Net cash provided by (used in) operating
activities
(185,708 61,102
)
INVESTING ACTIVITIES
Purchases of property and equipment
(855,310 (284,388)
)
Net cash (used in) investing activities
(855,310 (284,388)
)
FINANCING ACTIVITIES
Proceeds from the sale of common stock
1,353,78 1,281,263
9
Long-term debt proceeds
--- 3,472,483
Earnest money deposit on bond financing
315,000 (315,000)
Debt placement costs
--- (253,721)
Bond reserve funds (1,776,32
1,278,83 7)
7
Repayment of long-term debt
(210,563 (128,908)
)
Net cash provided by financing
activities 2,737,06 2,279,790
3
Increase in cash
1,696,04 2,056,504
5
Cash at Beginning of Period
3,875,20 2,256,309
5
Cash at end of Period $ $4,312,81
5,571,25 3
0
Supplemental schedule of non-cash
transactions:
Land and corresponding deferred revenue $ $
250,000 250,000
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 results of any interim period are not
necessarily indicative of results for the full year.
Page 5 of 8
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
Revenues for the third quarter of fiscal 1998 ended
December 31,1997 were $457,274, a decrease of thirty-one
percent from the third quarter of fiscal 1997 ended December
31, 1996. The third quarter revenues of fiscal 1998 are also
down thirty percent as compared to the second quarter of
fiscal 1998. Revenues for the first three quarters of fiscal
1998 are down six percent as compared to the first three
quarters of fiscal 1997. The decrease in revenues can be
attributed to work shifted from government contracts to
internal research and development. The Company continues to
devote personnel toward product development associated with
the Aberdeen facility.
For the third quarter of fiscal 1998, the Company is
reporting a loss of $331,694 as compared to a loss of
$40,022 in the third quarter of fiscal 1997. For the first
nine months of fiscal 1998, the Company is reporting a loss
of $539,445 as compared to a loss of $110,302 for the first
nine months of fiscal 1997.The Company's increased loss for
the first nine months of fiscal 1998, as compared to the
first nine months of fiscal 1997 is mainly due to costs
incurred at the Aberdeen facility which amount to
approximately $422,000. The decrease in revenues of 31% from
third quarter 1998 as compared to the fiscal third quarter
1997 is mainly due to decreased revenues from government
contracts. Contract revenues are down for two reasons.
First, the Company's backlog of uncompleted contracts is down
to $1.6 million at December 31, 1997 ($3.2 million at March
31, 1997). Second, about half the contract personnel have
left the Company, due to the Company's shift from a service
oriented Company to production. The Company anticipates a
further decline in revenues for the fourth quarter of fiscal
1998, and losses will accelerate with the decrease in
revenues. The Company currently has eight full-time employees
working at the Aberdeen facility. As yet there has been no
production and no sales generated from Aberdeen.
Liquidity and Capital Resources:
The Company's cash balance at December 31, 1997 is
$5,571,250 compared to $3,875,205 at March 31, 1997. The
increase in cash during the first nine months ended December
31, 1997 is attributable primarily to a draw on the South
Dakota Bond agreement. The Company used working capital to
build the Aberdeen facility and was subsequently reimbursed
from the South Dakota bond funds for the cost of the
facility. Also, warrants outstanding from the Company's 1995
private placement were exercised, netting the Company in
excess of $1.3 million. In spite of the Company's losses, the
Company believes it has sufficient cash for operations beyond
fiscal 1998.
Page 6 of 8
Forward-looking statements contained herein are made pursuant
to the safe harbor provisions of the Private Litigation
Reform Act of 1995. These statements are based upon the
Company's current expectations and judgments about future
developments in the Company's business. Certain important
factors could have a material impact on the Company's
performance, 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.
Page 7 of 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
On or about November 22, 1997, the Company commenced
litigation in the Anoka County District Court (Minnesota)
seeking injunctive relief as well as damages against two of
its former employees, Asif Khan and Jinwei Yang. A temporary
restraining order has been issued by the Court and a decision
on APA's Motion For a Temporary Injunction is currently
pending. Both of the defendants were employed by the Company
in the area of research and development. APA contends that
the defendants are in breach of their respective
confidentiality agreements and that it is entitled to relief
under the Uniform Trade Secrets Act.
ITEM 2. Changes in Securities and Use of Proceeds.
( c ) On November 30, 1997, the Company issued 196,750
shares of its Common Stock to 21 investors upon exercise by
the investors of warrants issued in a private placement in
1995. The exercise price of the warrants was $6.75 per share,
and the Company realized $1,328,062.50 as a result of the
warrant exercises. No underwriter or selling agent was used,
and no discounts or commissions were paid. The Company claims
exemption for this transaction under Rule 506 of the
Securities Act of 1933. A Notice of Sales on Form D was filed
on December 15, 1997.
ITEMS 3-5. Not Applicable.
Page 8 of 8
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27: Financial Data Schedules
There were no reports on Form 8-K filed during the three
months ended December 31, 1997.
Signatures
In accordance with the requirements of the Securities
Exchange Act of 1934, the issuer has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
APA OPTICS, INC.
February 12, 1998
/s/ Anil K. Jain
Date
Anil K. Jain
President
Principal Executive Officer
Treasurer & Principal Financial
Officer
February 12, 1998
/s/ Randal J. Becker
Date
Randal J. Becker
Principal Accounting Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 5,571,250
<SECURITIES> 0
<RECEIVABLES> 318,312
<ALLOWANCES> 0
<INVENTORY> 130,319
<CURRENT-ASSETS> 6,137,349
<PP&E> 2,720,937
<DEPRECIATION> 314,127
<TOTAL-ASSETS> 10,010,606
<CURRENT-LIABILITIES> 354,750
<BONDS> 0
0
0
<COMMON> 85,123
<OTHER-SE> 6,110,314
<TOTAL-LIABILITY-AND-EQUITY> 10,010,606
<SALES> 1,772,299
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<TOTAL-COSTS> 1,764,757
<OTHER-EXPENSES> 631,765
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<INTEREST-EXPENSE> (85,628)
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<INCOME-CONTINUING> (539,445)
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