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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 December 31, 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 December 31, 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 December 31 March 31
1998 1998
CURRENT ASSETS: (Unaudited) (Audited)
Cash and short-term investments
$3,532,075 $5,184,215
Accounts receivable
98,309 236,284
Inventories:
Raw materials
41,976 11,965
Work-in-process & finished
goods 169,038 145,156
Prepaid expenses
23,898 22,975
Bond reserve funds
38,291 131,667
TOTAL CURRENT ASSETS
3,903,587 5,732,262
PROPERTY AND EQUIPMENT, NET
2,566,638 2,702,887
OTHER ASSETS
1,019,254 1,194,763
$ $
7,489,479 9,629,912
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ $
118,906 226,385
Accounts payable
26,356 36,960
Accrued expenses
129,961 123,437
TOTAL CURRENT LIABILITIES
275,223 386,782
LONG-TERM DEBT
3,110,724 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
9,656,050 9,657,028
Retained earnings (deficit)
(5,637,641) (3,882,288)
4,103,532 5,859,863
$ $
7,489,479 9,629,912
* Derived from audited financial statements
Page 3 of 7
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
December 31 December 31
1998 1997 1998
1997
REVENUES $ $ $ $1,772,
134,128 457,27 629,122 299
4
COSTS AND EXPENSES:
Cost of sales and
services
536,709 555,04 1,610,5 1,764,7
7 20 57
Selling, general &
administrative
143,710 127,76 527,752 368,158
0
Research & development
84,119 128,55 304,751 263,607
3
764,538 811,36 2,443,0 2,396,5
0 23 22
Gain/loss from operations:
(630,41 (354,0 (1,813, (624,22
0) 86) 901) 3)
INTEREST INCOME & EXPENSE:
Interest income
51,578 67,052 178,017 223,200
Interest expense
(37,898 (44,41 (118,71 (137,57
) 0) 9) 2)
13,680 22,642 59,298 85,628
Loss before income taxes
(616,73 (331,4 (1,754, (538,59
0) 44) 603) 5)
Income taxes
250 250 750 850
Net loss $ $ $
(616,98 (331,6 $(1,755 (539,44
0) 94) ,353) 5)
Net loss per share-Basic $ $ $ $
and diluted (.07) (.04) (.21) (.06)
Weighted average shares
outstanding
Basic and diluted 8,512,2 8,424, 8,346,6
74 765 8,512,2 53
74
Page 4 of 7
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31
1998 1997
OPERATING ACTIVITIES
Net income (loss) $(1,755, $
353) (539,445)
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization
331,304 314,127
Changes in operating assets and
liabilities:
Accounts receivable
137,975 37,669
Inventories and
prepaid expenses
38,560 (2,016)
Accounts payable and accrued
Expenses
(111,559 19,303
)
Other
(25,142) (15,346)
Net cash (used in) operating
Activities
(1,384,2 (185,708)
15)
INVESTING ACTIVITIES
(Purchases) Sales of property and
equipment (123,055 (855,310)
)
Net cash used in investing activities
(123,055 (855,310)
)
FINANCING ACTIVITIES
Proceeds from the sale of common stock
--- 1,353,789
Earnest money deposit on bond financing
--- 315,000
Repayment of long term debt
(272,543 (210,563)
)
Bond reserve funds
127,673 1,278,837
Net cash (used in) provided by financing
activities (144,870 2,737,063
)
Decrease in cash
(1,652,1 1,696,045
40)
Cash at beginning of period
5,184,21 3,875,205
5
Cash at end of period $ $
3,532,07 5,571,250
5
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 third quarter of fiscal 1999 ended
December 31,1998 were $134,128, a decrease of 71% from the
third quarter of fiscal 1998. The third quarter revenues of
fiscal 1999 are also down 46% as compared to the second
quarter of fiscal 1999. Revenues for the first three quarters
of fiscal 1999 are down 65% as compared to the first three
quarters of fiscal 1998. The decrease in revenues can be
attributed to a shift in work 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 1999, the Company
incurred a net loss of $616,980 as compared to a net loss of
$331,694 in the third quarter of fiscal 1998. For the first
nine months of fiscal 1999, the Company incurred a loss of
$1,755,353 as compared to a loss of $539,445 for the first
nine months of fiscal 1998. The Company's increased loss for
the third quarter and first nine months of fiscal 1999, as
compared to the third quarter and first nine months of fiscal
1998 is mainly due to decreased revenues. 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.
Liquidity and Capital Resources:
The Company's cash balance at December 31, 1998 is
$3,532,075 compared to $5,184,215 at March 31, 1998. The
decrease in cash during the first nine months ended December
31, 1998 is attributable primarily to the decreased revenues
and increased losses incurred in the first nine months of
fiscal 1999. The Company believes it has sufficient cash to
sustain operations through the end of fiscal 1999 and beyond.
However, if sales of products do not increase, the Company
may need to seek additional funding for operations. There can
be no assurance that such funding will be available on terms
favorable to the Company if at all.
Page 6 of 7
Forward-looking statements contained herein are made pursuant
to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These statements are based
upon the Company's current expectations and judgments 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, and believes that these entities will
be ready. The Company has updated its accounting software for
year 200 compliance and believes there will be no disruption
to its normal operations at the turn of the century. The
Company has spent approximately $5,000 on the year 2k issue
and believes this will be the total costs expensed. The
Company may develop a contingency plan in the event either it
or its various business partners encounters problems.
Page 7 of 7
ITEMS 1-5. Not Applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27: Financial Data Schedule
There were no reports on Form 8-K filed during the three
months ended December 31, 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.
February 15, 1999
/s/ Anil K. Jain
Date
Anil K. Jain
President
Principal Executive Officer
Treasurer & Principal Financial
Officer
February 15, 1999
/s/ Randal J. Becker
Date
Randal J. Becker
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 3,532,075
<SECURITIES> 0
<RECEIVABLES> 98,309
<ALLOWANCES> 0
<INVENTORY> 211,014
<CURRENT-ASSETS> 3,903,587
<PP&E> 6,338,755
<DEPRECIATION> 3,772,117
<TOTAL-ASSETS> 7,489,479
<CURRENT-LIABILITIES> 275,223
<BONDS> 0
0
0
<COMMON> 85,123
<OTHER-SE> 4,018,409
<TOTAL-LIABILITY-AND-EQUITY> 7,489,479
<SALES> 629,122
<TOTAL-REVENUES> 629,122
<CGS> 1,610,520
<TOTAL-COSTS> 1,610,520
<OTHER-EXPENSES> 832,503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (118,719)
<INCOME-PRETAX> (1,754,603)
<INCOME-TAX> 750
<INCOME-CONTINUING> (1,755,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,755,353)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
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