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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, 1999 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 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 checkmark 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 December 31, 1999
Common stock, par value $.01
8,978,774
<PAGE.
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
APA OPTICS, INC.
CONDENSED BALANCE SHEETS
ASSETS December 31 March 31
1999 1999
<S> <C> <C>
CURRENT ASSETS: (Unaudited) (Audited)
*
Cash and short-term investments
$1,694,314 $2,812,849
Accounts receivable
180,791 85,091
Inventories:
Raw materials
132,833 54,208
Work-in-process & finished
goods 154,767 167,659
Prepaid expenses
25,500 18,911
Bond reserve funds
48,750 60,000
TOTAL CURRENT ASSETS
2,236,955 3,198,718
PROPERTY AND EQUIPMENT, NET
2,529,422 2,592,503
OTHER ASSETS
975,044 1,013,755
$ $
5,741,421 6,804,976
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILTIES:
Current portion of long-term debt $ $
139,462 133,200
Accounts payable
75,192 53,416
Accrued expenses
162,143 147,553
TOTAL CURRENT LIABILITIES
376,797 334,169
LONG-TERM DEBT
2,956,097 3,081,512
SHAREHOLDERS' EQUITY
Undesignated shares; 5,000,000
shares
Authorized; none issued
--- ---
Common stock, $.01 par value;
15,000,000
shares authorized; 8,978,774 &
8,512,274
issued
89,788 85,123
Paid-in-Capital
11,575,668 9,700,258
Retained earnings (deficit)
(9,256,929) (6,396,086)
2,408,527 3,389,295
$ $
5,741,421 6,804,976
</TABLE>
* Derived from audited financial statements
<PAGE>
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<TABLE>
<CAPTION>
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Nine months ended
December 31 December 31
1999 1998 1999
1998
<S> <C> <C> <C> <C>
REVENUES $ $ $ $
136,516 134,12 239,142 629,122
8
COSTS AND EXPENSES:
Cost of sales and
services 908,359 536,70 2,221,4 1,610,5
9 54 20
Selling, general &
administrative 166,192 143,71 590,556 527,752
0
Research & development
40,409 84,119 253,543 304,751
1,114,9 764,53 3,065,5 2,443,0
60 8 53 23
Gain/loss from (1,813,
operations: (978,44 (630,4 (2,826, 901)
4) 10) 411)
INTEREST INCOME &
EXPENSE:
Interest income
25,665 51,578 73,622 178,017
Interest expense
(35,711 (37,89 (107,30 (118,71
) 8) 3) 9)
(10,046 13,680 (33,681 59,298
) )
Loss before income taxes (1,754,
(988,49 (616,7 (2,860, 603)
0) 30) 092)
Income taxes
250 250 750 750
Net loss $ $ $(1,755
(988,74 (616,9 $(2,860 ,353)
0) 80) ,842)
Net loss per share-basic $ $ $ $
and diluted (.11) (.07) (.33) (.21)
Weighted average shares
outstanding-
Basic and diluted 8,512,
8,955,1 274 8,663,9 8,512,2
87 12 74
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</TABLE>
<TABLE>
<CAPTION>
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31
1999 1998
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $(2,860, $(1,755,3
842) 53)
Adjustments to reconcile net income to
net cash
provided by operating activities:
(loss)
Depreciation and amortization
312,703 331,304
Changes in operating assets and
liabilities:
Accounts receivable
(95,700) 137,975
Inventories and prepaid expenses
(61,072) 38,560
Accounts payable and accrued
expenses 36,366 (4,080)
Other
(24,271) (25,142)
Net cash used in operating activities (2,692,8
16) (1,276,73
6)
INVESTING ACTIVITIES
(Purchases) sales of property and
equipment (177,622 (123,055)
)
Net cash used in investing activities
(177,622 (123,055)
)
FINANCING ACTIVITIES
Proceeds from the sale of common stock
1,880,07 ---
5
Repayment of long term debt
(119,153 (380,022)
)
Bond reserve funds
(9,019) 127,673
Net cash (used in) provided by financing
activities 1,751,90 (252,349)
3
Decrease in cash (1,118,5
35) (1,652,14
0)
Cash at beginning of period
2,812,84 5,184,215
9
Cash at end of period $1,694,3
14 $3,532,07
5
</TABLE>
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>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company is engaged in the business of designing,
manufacturing, and marketing optical components and various
optoelectronic products. For the last several years the
Company's goal has been to manufacture and market
products/components based on its technology developments. The
Company is focused on two product areas: dense wavelength
division multiplexer (DWDM) components for fiber optic
communications and gallium nitride-based ultraviolet (UV)
detectors (both components and integrated
detector/electronic/display packages), both selected due to
significant potential markets and the Company's expertise
and/or patent positions.
In order to perform product development and production,
the Company must devote its personnel and facilities to that
effort. For several years, the Company received significant
revenues from providing research and development services in
connection with projects sponsored by various government
agencies. In fiscal 1998, the Company determined to shift its
emphasis from research and development to product
development, realizing that this shift would significantly
reduce revenues and increase losses until the Company
realized revenues from its products. If the Company is
successful in manufacturing and marketing these products, the
Company expects to significantly increase its revenues and
achieve profitability. Although the Company has purchased a
significant amount of equipment in recent fiscal years, it
will still need additional equipment as well as additional
personnel to meet its objectives.
Results of Operations:
Revenues for the third quarter and the first nine months
of fiscal year 2000, ended December 31, 1999, were $136,516
and $239,142, respectively, as compared to revenues of
$134,128 and $629,122 for the same periods in the prior year.
Although sales of new products have been minimal, the Company
believes it has made significant progress in developing its
new products and the related manufacturing process.
Cost of sales increased by approximately 69% and 38% to
$908,359 and $2,221,454, respectively, in the third quarter
and first nine months of fiscal 2000 from $536,709 and
$1,610,520 in the same periods of fiscal 1999. Research and
development expenses decreased by 52% and 17% to $40,409 and
$253,543, respectively, for the third quarter and the first
nine months of fiscal 2000 as compared to $84,119 and
$304,751 in the same periods of the prior year.
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The Company reported a loss from operations for the
third quarter and first nine months of fiscal 2000 of
$978,444 and $2,826,411, respectively, substantially
increased over the loss from operations of $630,410 and
$1,813,901 in the comparable periods of the prior year. This
loss resulted mainly from increased production costs.
The Company realized interest income of $25,665 and
$73,622, respectively, during the third quarter and the first
nine months of fiscal 2000, down 50% and 59%, respectively,
from $51,578 and $178,017 in the same periods of the prior
year, reflecting lower average cash balances during fiscal
2000. Interest expense in the third quarter and the first
nine months of fiscal 2000 totaled $35,711 and $107,303,
respectively, decreases of 6% and 10%, respectively, from
$37,898 and $118,719 in the comparable prior periods,
primarily as a result of lower average borrowing in fiscal 2000.
Liquidity and Capital Resources:
The Company's cash and equivalents at December 31, 1999
is $1,694,314 as compared to $2,812,849 at March 31, 1999.
This reduction primarily results from the use of $2,692,816
net cash in operating activities, of which the most
significant cause was the Company's net loss of $2,860,842.
The Company used $177,622 net cash in investing
activities during the first nine months, all for purchases of
property and equipment. This compares to use of net cash of
$123,055 in the first nine months of fiscal 1999. In both
periods, the property and equipment was purchased primarily
for the Aberdeen facility.
During the first nine months of fiscal 2000, the Company
received $1,751,903 from financing activities, the principal
portion of which was $1,880,075 from a private placement of
the Company's Common Stock, offset by debt repayment of
$119,153.
In connection with the construction of the manufacturing
facility in Aberdeen, the Company took advantage of certain
economic incentive programs offered by the State of South
Dakota and the City of Aberdeen. At December 31, 1999, the
total principal outstanding on the several loans obtained in
connection with these financing packages was $3,095,559.
Interest on the loans ranges from 0% to 6.75%, and the loans
are due between 2003 and 2016. These loans require that the
Company maintain certain levels of net worth and income to
outstanding debt ratios. The Company was out of compliance
with these covenants in fiscal 1999. Such noncompliance does
not constitute an event of default but triggers further
covenants under the loan agreement, with which the Company
was in compliance at December 31, 1999.
<PAGE>
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The Company anticipates approximately $250,000 in
capital expenditures in fiscal 2000, primarily for equipment.
The funds for these purchases will come from funds available
under the financing packages with the State of South Dakota
and the City of Aberdeen. The Company also expects to receive
reimbursement from certain bond funds for purchases of
equipment made in fiscal 1999.
The Company's use of net cash in operating activities
during fiscal 1999 and the first three quarters of fiscal
2000 and the related decrease in its cash balance emphasize
the Company's need to increase sales in order to maintain
operations. The auditor's report on the fiscal 1999 financial
statements contained a qualification as to the Company's
ability to continue as a going concern in light of its low
sales and high costs. For the past several years, the Company
has been working on the design and development of new
optoelectronic
products, in particular a dense wavelength division
multiplexer and products based on Gallium Nitride technology.
In order to focus on these efforts, beginning in fiscal 1998
the Company reduced its emphasis on contract research and
development, resulting in significantly reduced revenues.
This shift in emphasis was necessary to utilize the Company's
personnel and facilities in the product development effort.
The Company believes that design of the new products and the
manufacturing process is now essentially complete, and it has
stepped up its efforts to market these products. During
September and October 1999, the Company raised approximately
$1,800,000 in a private placement of its common stock. These
funds should enable the Company to keep operating through
fiscal year 2000. There can be no assurance, however, that
the Company will be successful in increasing sales of its new
products, or obtaining additional financing, if needed.
Year 2000 Readiness
The Company's year 2000 plan was primarily directed
toward ensuring that the Company be able to perform critical
functions, such as manufacturing, handling of all financial
transactions, and maintaining integrity of other business
operations, controls, financial reporting, security and other
matters. The Company engaged in an assessment of year 2000
readiness both internally and with its various business
partners, including vendors and service providers. The
Company determined that substantially all software, operating
systems, and accounting systems were corrected or year 2000
ready. Its security system and telephone systems were year
2000 compliant. The Company contacted its various business
partners to receive assurances that such entities are year
2000 ready. The cost associated with the Company's year 2000
readiness program was not material and had no adverse effect
on the Company's earnings or financial position.
To date, the Company has not experienced any problems
related to year 2000 issues. There can be no assurance,
however, that the Company will not encounter problems as yet
undetected.
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Forward-Looking Statements
Statements in this report with respect to future sales
prospects and other matters to occur in the future are
forward looking statements and are subject to uncertainties
from many factors, some of which are beyond the Company's
control. These factors include, but are not limited to, the
continued development of the Company's products, acceptance
of those products by potential customers, the Company's
ability to sell such products at a profitable price, the
Company's readiness for year 2000, and the Company's ability
to fund its operations.
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk.
The Company's operations are not currently subject to
market risks for interest rates, foreign currency exchange
rates, commodity prices or other market price risks of a
material nature.
Part II
ITEMS 1, 3 4 and 5. Not Applicable
ITEM 2. Changes in Securities and Use of Proceeds.
The Company recently completed a private placement of
its common stock, par value $.01 per share (the "Stock"). On
September 28, 1999, the Company sold 310,000 shares, and on
October 15, 1999 the Company sold 155,000 shares of the
Stock. The shares were sold at a price of $4.375 per share,
or an aggregate consideration of $2,034,375. The shares were
purchased only by accredited investors and were exempt from
registration pursuant to Rule 506 of Regulation D of the
Securities and Exchange Commission. Broker-dealers involved
in placing the Stock will receive up to 8% of the placement
price of the shares, plus three-year warrants to purchase, at
a price of $4.875 per share, not more than 10% of the number
of shares sold.
<PAGE>
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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 December 31,
1999.
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 14, 2000
/s/ Anil K. Jain
Date
Anil K. Jain
President
Principal Executive Officer
Treasurer & Principal Financial
Officer
February 14, 2000
/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-31-2000
<PERIOD-END> DEC-31-1999
<CASH> 1,694,314
<SECURITIES> 0
<RECEIVABLES> 180,791
<ALLOWANCES> 0
<INVENTORY> 287,600
<CURRENT-ASSETS> 2,236,955
<PP&E> 6,630,213
<DEPRECIATION> 4,100,791
<TOTAL-ASSETS> 5,741,421
<CURRENT-LIABILITIES> 376,797
<BONDS> 0
0
0
<COMMON> 89,788
<OTHER-SE> 2,318,739
<TOTAL-LIABILITY-AND-EQUITY> 5,741,421
<SALES> 239,142
<TOTAL-REVENUES> 239,142
<CGS> 2,221,454
<TOTAL-COSTS> 2,221,454
<OTHER-EXPENSES> 844,099
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (107,303)
<INCOME-PRETAX> (2,860,092)
<INCOME-TAX> 750
<INCOME-CONTINUING> (2,860,842)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,860,842)
<EPS-BASIC> (.33)
<EPS-DILUTED> (.33)
</TABLE>
