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 June 30, 1998 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 0-16106
APA Optics, Inc.
(exact name of Registrant 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)
Registrant's telephone number, including area code:
(612) 784-4995
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
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 June 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 June 30 March
31
1998
1998
CURRENT ASSETS: (Unaudited)
(Audited)
*
Cash and short-term investments $ 4,748,116
$5,184,21
5
Accounts receivable 203,321
236,284
Inventories:
Raw materials 10,182
11,965
Work-in-process & finished 157,546
goods 145,156
Prepaid expenses 11,926
22,975
Bond reserve funds 119,958
131,667
TOTAL CURRENT ASSETS 5,251,049
5,732,262
PROPERTY AND EQUIPMENT NET 2,663,758
2,702,887
OTHER ASSETS 1,173,657
1,194,763
$ 9,088,464 $
9,629,912
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term $ 231,385 $
debt 226,385
Accounts payable 33,294
36,960
Accrued expenses 135,862
123,437
TOTAL CURRENT LIABILITIES 400,541
386,782
LONG-TERM DEBT 3,306,206
3,383,267
SHAREHOLDERS' EQUITY
Undesignated shares; 5,000,00
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) (4,360,434)
(3,882,28
8)
5,381,717
5,859,863
$ 9,088,464 $
9,629,912
*Derived from audited financial statements
Page 3 of 7
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
June 30
1998 1997
REVENUES $ 248,557 $ 661,640
COSTS AND EXPENSES:
Cost of sales and
services 524,519 534,059
Selling general &
administrative 132,417 122,059
Research & development 91,003 58,429
747,939 714,547
Gain/Loss from Operations: (499,382) (52,907)
INTEREST INCOME & EXPENSE:
Interest Income 66,913 70,128
Interest Expense (45,676) (45,856)
21,237 24,272
Loss before
Income taxes (478,145) (28,635)
Income taxes 300
0
Net loss $ (478,145) $ (28,935)
Net loss per share
Basic and diluted $ $
(.06) (.00)
Weighted average shares
outstanding
Basic and diluted 8,512,274 8,306,932
Page 4 of 7
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
June
1998 1997
OPERATING ACTIVITIES
Net income (loss) $ $
(478,145) (28,935)
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization
109,251 103,529
Changes in operating assets and
liabilities:
Accounts receivable
32,963 (94,321)
Inventories and
prepaid expenses
442 (33,405)
Accounts payable and accrued
expenses
13,759 31,568
Other
(8,341) (1,543)
Net cash used in operating
activities
(330,071) (23,107)
INVESTING ACTIVITIES
(Purchases) Sales of property and (
equipment (46,122) 395,660)
Net cash used in investing activities
(46,122) (395,660)
FINANCING ACTIVITIES
Proceeds from the sale of common stock
--- 625
Repayment of Long Term Debt
(77,061) (12,180)
Bond reserve funds
17,155 (12,110)
Net cash used in financing activities
(59,906) (23,665)
decrease in cash
(436,099) (442,432)
Cash at Beginning of Period
5,184,215 3,875,205
Cash at End of Period $ $ 3,432,773
4,748,116
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 7
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations:
Revenues for the first quarter of fiscal 1999 ended June
30, 1998 were $248,557, a decrease of 62% from the first
quarter of fiscal 1998 ended June 30, 1997. The decrease in
revenues can be attributed to a substantial reduction in
government contract work, which has historically been the
Company's main source of revenues. The Company will need to
replace these lost revenues with production revenues.
For the first quarter of fiscal 1999, the Company is
reporting a net loss of $478,146 as compared to a net loss of
$28,935 in the first quarter of fiscal 1998. The substantial
increase in losses for the first quarter 1999 can be
attributed to the 62% reduction in revenues coupled with
operating costs (approximately $225,000) including salaries,
overhead, and depreciation at the Aberdeen Production Center
in Aberdeen, South Dakota. The Company has also significant
costs (approximately $91,000) in the continued development of
its detectors and Wavelength Divisional Multiplexer (WDM),
another product related to fiber optic communications. The
Company anticipates the losses to continue until the Company
achieves a level of revenue sufficient to cover the
production costs. The Company has sold qualification units of
its UV detectors to more than 20 companies. The Company hopes
it can start selling these detectors in large quantities to
generate revenues. The Company has also received orders for a
few WDMs units from two large companies. The Company hopes
that it will generate revenues from the sales of additional
WDM units in the forthcoming quarters.
Page 6 of 7
Liquidity and Capital Resources:
The Company's cash balance at June 30, 1998 is
$4,748,116 compared to $5,184,215 at March 31, 1998. The cash
decrease can be attributed to the losses incurred during the
first quarter of fiscal 1999. The Company believes it has
sufficient working capital to sustain operations through
fiscal 1999 and beyond.
Forward-looking statements contained herein are made pursuant
to the safe harbor provisions of the Private Litigation
Reform Act 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.
The Company has assessed and continues to assess the impact
of the Year 2000 issues on its reporting systems and
operations. The Company plans to devote the necessary
resources to resolve all significant Year 2000 issues in a
timely manner. If Year 2000 modifications are not properly
completed either by the Company or any entities with whom the
Company conducts business, the Company could be adversely
impacted.
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings Status.
On or about November 22, 1997, the Company commenced
litigation in the Anoka County District Court (Minnesota)
against two of its former employees, Asif Khan and Jinwei
Yang, contending that the defendants are in breach of their
respective confidentiality agreements and that APA is
entitled to both damages and injunctive relief under the
Uniform Trade Secrets Act. Both of the defendants were
employed by the Company in the area of research and
development of Gallium Nitride and are the subjects of a
confidentiality agreement. APA's Motion for a Temporary
Injuction was denied on February 19, 1998. In June 1998, the
parties submitted to mediation and reached agreement on the
terms of a settlement, which is subject to preparation and
execution of related documentation.
Page 7 of 7
ITEM 2-5. Not Applicable
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 June 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.
8/12/98
/s/ Anil K. Jain
Date
Anil K. Jain
President
Principal Executive Officer
Treasurer & Principal Financial
Officer
8/12/98
/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-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 4,748,116
<SECURITIES> 0
<RECEIVABLES> 203,321
<ALLOWANCES> 0
<INVENTORY> 167,728
<CURRENT-ASSETS> 5,251,049
<PP&E> 2,663,758
<DEPRECIATION> 109,251
<TOTAL-ASSETS> 9,088,464
<CURRENT-LIABILITIES> 400,541
<BONDS> 0
0
0
<COMMON> 85,123
<OTHER-SE> 5,296,594
<TOTAL-LIABILITY-AND-EQUITY> 9,088,464
<SALES> 248,557
<TOTAL-REVENUES> 248,557
<CGS> 524,519
<TOTAL-COSTS> 524,519
<OTHER-EXPENSES> 223,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (21,237)
<INCOME-PRETAX> (478,145)
<INCOME-TAX> 0
<INCOME-CONTINUING> (478,145)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (478,145)
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