AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON AUGUST 17, 2000 REGISTRATION NO. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------
APA OPTICS, INC.
(Exact Name of registrant as specified in its charter)
MINNESOTA 3827 41-1347235
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation)
-------------------------------
2950 N.E. 84TH LANE, BLAINE, MINNESOTA 55449 (763) 784-4995
(Address, including zip code and telephone number, including area code of
registrant's principal executive offices)
-------------------------------
ANIL K. JAIN, CHIEF EXECUTIVE OFFICER
APA OPTICS, INC.
2950 N.E. 84TH LANE
BLAINE, MINNESOTA 55449
TELEPHONE: (763) 784-4995 TELEFAX: (763) 784-2038
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------------
COPIES TO:
JANNA R. SEVERANCE, ESQ.
MOSS & BARNETT, A PROFESSIONAL ASSOCIATION
4800 WELLS FARGO CENTER, 90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402-4129
TELEPHONE: (612) 347-0367
-------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TOTHE PUBLIC:
From time to time, commencing as soon as practicable after the effective date
of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: [ ]
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
----------------------------------------------------------------------------------------------------
Common stock, $.01 par value $ 84,083 17.875 $1,502,984 $ 397
----------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares to be sold by the selling shareholder named herein that
may be acquired upon the exercise of warrants issued to the selling
shareholder for services as placement agent for the Company's common stock.
Also includes an indeterminate number of shares that the selling
shareholder may acquire as a result of a stock split, stock dividend or
similar transaction involving the common stock pursuant to the
anti-dilution provisions of the warrants.
(2) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) based upon the average of the high and low prices
per share of the Company's common stock on the Nasdaq National Market on
August 16, 2000.
<PAGE>
THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
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<PAGE>
84,083 SHARES
APA OPTICS, INC.
COMMON STOCK
This prospectus covers up to 84,083 shares of the common stock, par
value $.01 per share, of APA Optics, Inc., a Minnesota corporation, which may be
sold from time to time by the shareholder named in this prospectus. Effective
August 16, 2000, our common stock is traded on the Nasdaq National Market under
the symbol APAT. On August 16, 2000, the closing sale price for the common stock
as reported on the Nasdaq National Market was $17.25 per share.
The shares of common stock offered by this prospectus may be sold by
the selling shareholder from time to time in transactions on the open market or
in negotiated transactions, in each case at prices satisfactory to them.
SEE "RISK FACTORS" BEGINNING AT PAGE 6 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
No person has been authorized by us to give any information or to make
any representations about the offering of common stock made by this prospectus
other than the information and representations contained in this prospectus.
Accordingly, you should not rely on information outside of this prospectus. This
prospectus is not an offer to sell or buy any security other than the common
stock offered by this prospectus; it is not an offer to sell or buy securities
in any jurisdiction in which such offer is not qualified; and it is not an offer
to buy or sell securities to any person to whom such offer would be unlawful.
The information in this prospectus is current as of the date of this prospectus.
Your receipt of this prospectus does not mean that there has been no change in
the affairs of APA Optics, Inc. since the date of this prospectus or that the
documents which are incorporated by reference in this prospectus are correct as
of any date after the date of such documents.
THE DATE OF THIS PROSPECTUS IS _____________, 2000.
iii
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
iv
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
APA Optics is subject to the informational requirements of the
Securities Exchange Act of 1934, and files reports, proxy statements and other
information with the Securities and Exchange Commission. These reports, proxy
statements and other information can be inspected and copies can be made at:
o the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549
o the regional offices of the Commission located at 500 West
Madison Street, Chicago, Illinois 60601 and at 7 World Trade
Center, New York, New York 10048
o the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C.
These materials may also be accessed electronically by means of the
Securities and Exchange Commission's home page on the Internet
(http://www.sec.gov).
This prospectus is a part of a registration statement on Form S-3 that
APA Optics has filed with the Securities and Exchange Commission. You may obtain
copies of the registration statement from the Commission at the addresses in the
preceding paragraph. This prospectus does not contain all of the information set
forth in the registration statement and its exhibits. The registration statement
provides further information about us and the shares. While we believe this
prospectus provides the material information regarding the contracts and
documents described in it, the statements contained in this prospectus about the
contents of any contract or any other documents are not necessarily complete
and, in each such instance, you should inspect the copy of such contract or
document filed as an exhibit to the registration statement.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by APA Optics with the Commission
pursuant to the Securities Exchange Act of 1934 (File No. 0-16106) are
incorporated by reference in this prospectus, except as otherwise superseded or
modified herein:
Our annual report on Form 10-K for the fiscal year ended March 31,
2000.
Our quarterly report on Form 10-Q for the fiscal quarter ended June 30,
2000.
Our registration statement on Form 8-A, dated July 28, 1987,
registering our common stock under Section 12(g) of the Securities Exchange Act
of 1934.
Our proxy statement on Schedule 14A for our annual shareholders meeting
for the fiscal year ended March 31, 2000.
All other reports and documents filed by us pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act since March 31, 2000 and prior to the
termination of the offering of the common stock, are also deemed to be
incorporated by reference into this prospectus.
v
<PAGE>
Any statement in any document incorporated or deemed to be incorporated
by reference is modified or superseded to the extent that a statement in this
prospectus or in any other subsequently filed document incorporated by reference
modifies or supersedes such statement.
We will furnish you, without charge, with a copy of any or all of the documents
referred to above (other than exhibits to such documents). Requests for copies
should be directed, orally or in writing, to:
Anil K. Jain, Chief Executive Officer
APA Optics, Inc.
2950 N.E. 84th Lane
Blaine, MN 55434
Telephone: (763) 784-4995
vi
<PAGE>
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY...................................................1
THE COMPANY..........................................................2
RISK FACTORS.........................................................5
FORWARD-LOOKING STATEMENTS..........................................15
USE OF PROCEEDS.....................................................16
PRICE RANGE OF COMMON STOCK.........................................16
SELLING SHAREHOLDER.................................................16
PLAN OF DISTRIBUTION................................................17
INTERESTS OF NAMED EXPERTS AND COUNSEL..............................18
MATERIAL CHANGES....................................................18
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION................19
ANTITAKEOVER STATUTE................................................19
vii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY CONTAINS INFORMATION ABOUT APA OPTICS, INC.,
SOMETIMES REFERRED TO AS "APA OPTICS" OR THE "COMPANY." IT MAY NOT CONTAIN ALL
THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ THE ENTIRE
PROSPECTUS, THE DOCUMENTS WHICH ARE INCORPORATED BY REFERENCE IN THE PROSPECTUS,
INCLUDING THE FINANCIAL DATA AND RELATED NOTES, AND THE OTHER INFORMATION
CONTAINED IN THE FORM S-3 REGISTRATION STATEMENT BEFORE MAKING AN INVESTMENT
DECISION. THE REFERENCES TO "WE," "US," AND "OUR" MEAN APA OPTICS, EXCEPT WHERE
IT IS CLEAR BY THE CONTEXT THAT THE REFERENCE IS TO SOMEONE ELSE.
THE COMPANY
APA Optics is engaged in the business of designing, manufacturing, and
marketing optical components and various optoelectronic products. Currently, we
are 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). We selected these areas of concentration because we believe they have
significant potential markets and because we have significant expertise and/or
patent positions relating to them. In fiscal 1999 we significantly reduced our
R&D contracts (historically a significant source of revenue for us) to
concentrate on development and production of our own proprietary products. This
shift has significantly reduced our revenues and increased our losses, which
will continue until we realize significant revenues from these products. Until
such time, we will need additional funding to sustain our operations and to
acquire additional equipment and additional personnel to meet our objectives. If
we are successful in manufacturing and marketing our products, we expect to
significantly increase revenues and achieve profitability.
APA Optics was incorporated in Minnesota in March 1979 and became a
publicly owned company in 1986. Our principal offices are located at 2950 N.E.
84th Lane, Blaine, Minnesota 55434, and our telephone number is (763) 784-4995.
RISK FACTORS
An investment in our common stock involves a high degree of risk and is
not appropriate for persons who cannot afford to lose their entire investment.
See "Risk Factors."
THE OFFERING
The shares of common stock which are offered by this prospectus are
shares which will be issued to the selling shareholder named in this prospectus
if it chooses to exercise warrants for purchase of an aggregate of 84,083 shares
of common stock. The selling shareholder acquired the warrants in June 2000 for
services as placement agent for our common stock. The selling shareholder may
exercise the warrants, at its option, at a price of $17.84 per share (subject to
adjustments under certain circumstances) until close of business on June 23,
2003. Certain information about our common stock and this offering is summarized
below.
<PAGE>
Common stock to be issued upon
exercise of warrants...................84,083.shares
Common stock to be outstanding
exercise of warrants (1)(2)............11,977,943 shares
Use of proceeds........................We will receive approximately
$1.5 million if the warrants
are exercised in full. These
funds will be used for general
corporate purposes. We will not
receive any proceeds from the
sale of common stock by the
selling shareholder.
Nasdaq symbol..........................APAT
Transfer Agent and Registrar...........Wells.Fargo Shareowner Services,
South St. Paul, Minnesota
(1) Assumes no issuance of common stock other than in connection with
this offering and no exercise of any warrants or options for
common stock or conversion of any securities convertible to common
stock. As of August 15, 2000 we had reserved for issuance:
(a) 374,533 shares for various warrants, not including additional
warrants in an amount not currently calculable which may be
issued in connection with certain bond financing; and
(b) 1,336,338 shares under employee benefit plans, a directors
option plan, and other options.
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Quarter Ended Year Ended March 31
------------- -----------------------
Statement of operations data: June 30, 2000 2000 1999
------------- ---- ----
<S> <C> <C> <C>
Net revenues $ 51,517 $ 420,809 $ 722,030
Net income (loss) (909,675) (3,796,296) (2,513,798)
Net income (loss) per share (basic) (.10) (.43) (.30)
Net income (loss) per share (diluted) (.10) (.43) (.30)
March 31
-----------------------
Balance sheet data(1): June 30, 2000 2000 1999
------------- ---- ----
Working capital $20,223,050 $6,116,616 $2,864,549
Total assets 23,677,084 9,610,391 6,804,976
Shareholders' equity 20,506,590 6,306,049 3,389,295
</TABLE>
(1) Subsequent to March 31, 2000, we have sold an aggregate of 2,845,868
shares of our common stock and received gross proceeds of approximately
$41.5 million.
THE COMPANY
Since the founding of APA Optics, Inc. in 1979, we have focused on
leading edge research in sophisticated optoelectronics and optical systems, with
the primary goal of developing advanced products for subsequent marketing and
fabrication. We currently manufacture dense wavelength division multiplexer
(DWDM) optical components, offer a range of gallium nitride-based devices and
services, and market custom optics products.
For the last several years our goal has been to manufacture and market
products and components based on our technology developments. We have focused
our efforts on DWDM components for fiber optic communications and gallium
nitride-based ultraviolet (UV) detectors (both components and
2
<PAGE>
integrated detector/electronic/display packages) because we believe that these
two product areas have significant potential markets and because we have
expertise and/or patent positions relevant to them.. If we are successful in
manufacturing and marketing these products, we expect to significantly increase
our revenues and achieve profitability.
PRODUCTS
We currently offer the products described below:
o OPTICAL LENS SYSTEMS. We design and build multi-element lens
systems and components, including mounting structures, for
precision quality optical needs in many applications,
including laser-based systems, imaging systems, inspection
systems, display systems, display optics, focusing optics for
ultraviolet fire alarms, collimation and focusing optics for
fiber optics systems.
o OPTICAL THIN FILM COATINGS. We custom design, develop, and
fabricate optical thin film coatings for optical components of
lasers, laser systems, optical instruments, and optical
devices. Our antireflective coatings are deposited onto
Company-fabricated lens components. We also use our thin film
coating facility to design, develop and fabricate coating for
lens components supplied by customers.
Our research and development efforts are currently focused on the
optoelectronic products described below. Optoelectronic devices are vital
components of communication systems and optical instruments.
o DENSE WAVELENGTH DIVISION MULTIPLEXER (DWDM). We recently
demonstrated the feasibility of a DWDM capable of transmitting
several channels through a single optical fiber for communication
applications. We developed the DWDM based on our development of
optical modulator (single channel) technology during the early
1990s for fiber optic communication. These modulators have the
capability of direct high speed (several billion bits per second)
data loading and unloading on laser beams going through optical
fibers, either for short distance or long distance. The DWDM, a
small part of the modulator, utilizes high frequency holographic
gratings. Our DWDM enables transmission of data on several
different channels within a single fiber (a simple analogy is the
expansion of a single lane highway to a multi-lane throughway) and,
as a result, provides higher speed, increased and regulated data
handling capabilities as compared to a single channel modulator. We
are currently performing environmental packaging of the DWDM. We
filed the first patent related to the DWDM Optical Modulator in
June 1994, which was awarded on September 12, 1995. Since then, we
have filed for six additional patents related to DWD
Multiplexer/Demultiplexer devices. We were awarded two of these
patents in March 1997 and February 1998. The other four
applications are still pending.
o UV DETECTOR. The UV Detector is a high response solid state
detector based on single-crystal gallium nitride (GaN). The GaN
detector is expected to have applications in spectrometry, solar
radiation measurement, excimer-laser measurement and calibration,
biomedical instrumentation, and flame detection and monitoring. The
detector is visible blind, which allows detection of UV radiation
in the presence of room lights without a filter. We believe the GaN
detector has advantages over photomultiplier tubes because of its
ruggedness and chemical inertness, which suit it for application in
high-vibration and harsh environments as well as high-temperature
operation. We have been awarded several patents in GaN related
technologies.
3
<PAGE>
OTHER PRODUCTS
We are in the process of introducing several other products by
packaging our UV detectors with electronics and displays for many applications.
Among these are a solar sensing watch to detect potential cancer causing UV
radiation for consumer applications, UV radiation based flame sensors for
industrial applications, and UV radiation meters for laboratory and industrial
applications. All of these products have significant similarities and,
therefore, do not require significant financial resources for development.
MARKETING AND DISTRIBUTION
We delivered a limited number of alpha units of the DWDM to customers
during fiscal 1999 and 2000 and we have sold several UV detectors to more than
30 customers and a few detector/electronics packages. We aggressively market
both products by advertising in relevant professional magazines, showcasing them
in trade shows, direct mailing, personal visits, and by use of distributors in
various countries (including Japan, Germany, Italy and France). We also maintain
product information on our web page. We have a business manager who focuses on
sales of DWDM, along with two applications engineers, and two persons who work
on marketing and sales of GaN-based products.
SOURCE OF RAW MATERIALS
Optical glass and optical chips are two principal materials used in our
operations. optical glass is commercially available through several
distributors. We currently use at least two vendors for optical chips and
continuously look for additional vendors for these parts. Certain chemicals and
other materials used by us are routinely available from several sources.
ENVIRONMENTAL COMPLIANCE
Because we handle a number of chemicals in our operations, we must
comply with federal, state and local laws and regulations regarding the handling
and disposal of such chemicals. The cost of such compliance is not material.
MAJOR CUSTOMERS
In prior years, we provided research and development services under
contracts with various governmental agencies. Currently, we have no material
contracts with any such agencies. Revenues from the following unrelated
customers constituted more than ten percent of our total operating revenues in
fiscal years 2000, 1999 and 1998:
Year Ended March 31
-------------------
Name 2000 1999 1998
---- ---- ---- ----
Government Agencies* 38% 67% 89%
* REPRESENTS SERVICES TO SEVERAL OPERATING AGENCIES
OF THE U.S. GOVERNMENT, AS FOLLOWS:
Name 2000 1999 1998
---- ---- ---- ----
Air Force -- 15% 18%
Army 35% -- 22
Navy 3 12 34
ARPA -- 40 15
---- ---- ----
Total 38% 67% 89%
==== ==== ====
4
<PAGE>
BACKLOG
Our backlog of uncompleted contracts at March 31, 2000, was
approximately $28,400, as compared to $189,000 at March 31, 1999, and $1,300,000
at March 31, 1998. Of the current year's backlog, all contracts will be
completed within the next year. The reduced backlog is a direct result of our
shift from contract R&D to product development and production.
COMPETITION
Competition in the optoelectronics and optics fabrication businesses is
significant. Many of the companies engaged in these businesses are well-financed
and have significantly greater research, development, production, and marketing
resources than we do. However, we believe that we have a competitive advantage
due to our patents and the uniqueness of our devices. In particular, we believe
our DWDM is the most efficient (lowest insertion loss) and compact device
currently available.
RESEARCH AND DEVELOPMENT
During the fiscal years ended March 31, 2000, 1999, and 1998, we
spent approximately $327,000, $382,000, and $339,000, respectively, on research
and development, all of which was related to the DWDM, UV detector and related
products. In addition, in each of those years, we spent approximately $978,000,
$837,000, and $1,431,000, respectively, on research activities sponsored by
customers. As we shift our focus to development of our proprietary products, we
expect that customer-sponsored R&D will continue to decline.
EMPLOYEES
As of August 15, 2000, we employed 43 full-time employees (including
executive officers).
RISK FACTORS
BEFORE YOU INVEST IN THE COMMON STOCK YOU SHOULD CONSIDER THAT THE
VALUE OF THE SHARES IN THE SECONDARY MARKET IS SUBJECT TO VARIOUS RISKS,
INCLUDING THOSE DESCRIBED BELOW. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR,
OUR BUSINESS, RESULTS OF OPERATIONS OR CASH FLOWS COULD BE ADVERSELY AFFECTED.
IN THOSE CASES, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY
LOSE ALL OR PART OF YOUR INVESTMENT. THESE RISKS SHOULD BE EVALUATED TOGETHER
WITH ALL OF THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE YOU DECIDE TO
PURCHASE ANY OF THE SHARES WHICH ARE OFFERED. SPECIFIC RISK FACTORS WHICH YOU
SHOULD CONSIDER INCLUDE THE FOLLOWING:
WE HAVE LIMITED EXPERIENCE IN MANUFACTURING. Although we have been
involved in the manufacturing of optical components for several years, and have
manufactured limited quantities of UV detectors and alpha DWDMs, we have not
engaged in high volume manufacturing of these products. We may be unable to
manufacture products that satisfy the volume and quality requirements of our
customers, and, as a result, we may not achieve significant revenues or
profitability.
WE MAY NOT BE ABLE TO REDUCE OUR MANUFACTURING COSTS SUFFICIENTLY OR
PLAN OUR MANUFACTURING EXPANSION ACCURATELY. We expect the price of our existing
products to decline due to various factors, such as: increased competition,
including competition from companies with lower labor and production costs;
5
<PAGE>
a limited number of potential customers with significant bargaining leverage;
introduction of new products by competitors; and greater economies of scale for
higher volume manufacturers. To increase our revenues, we must increase our unit
volumes and our manufacturing capacity. Adding capacity increases our fixed
costs and the levels of unit shipments we must produce to achieve positive gross
margins. As a result, if we are unable to increase our revenues or continuously
reduce our manufacturing costs, our gross margins will not improve and we will
continue to incur losses.
We are increasing our manufacturing capacity at our existing facilities
in Aberdeen, South Dakota. Developing manufacturing capabilities involves
significant risks which could materially adversely affect our gross margins and
revenues, including:
o Our inability to qualify a new manufacturing line for all of our
customers;
o unanticipated cost increases;
o unavailability or late delivery of equipment;
o unforeseen environmental or engineering problems; and
o personnel recruitment delays.
Expanding our manufacturing capacity requires substantial time to build
out and equip facilities and train personnel. If we receive orders substantially
in excess of our planned capacity, we might not be able to fulfill them quickly
enough to meet customer requirements. Our inability to deliver products timely
could enable competitors to win business from our customers.
WE MAY NOT BE ABLE TO EFFECTIVELY INCREASE PRODUCTION AND MAINTAIN
ACCEPTABLE MANUFACTURING YIELDS, RESULTING IN DELAY OF PRODUCT SHIPMENTS AND
IMPAIRMENT OF OUR GROSS MARGINS. Manufacturing our products is highly complex
and labor intensive. As we rapidly increase production and hire more people, our
manufacturing yield, which is the percentage of our products which meet customer
specifications, could decline, resulting in product shipment delays, possible
lost revenue opportunities, higher customer returns, and impaired gross margins.
Some of our manufacturing lines have experienced lower than expected yields,
which could continue in the future. Rapid increases in production levels to meet
demand may also result in higher overtime costs and other expenses.
WE HAVE HAD LIMITED SALES AND EXPECT LOSSES. To date, we have had only
limited sales of UV detectors and DWDMs. As of June 30, 2000, we had an
accumulated deficit of $11,102,057. We expect operating losses to continue until
sales of these products reach a level sufficient to cover operating costs. We
may never generate sales at the required levels or become profitable.
Our ability to achieve profitability will depend on our ability to
develop and bring new proprietary products to market. Our ability to become
profitable will also depend upon a variety of other factors, including the
following:
o The price, volume and timing of sales of products;
o Variations in gross margins of our products, which may be affected
by sales mix and competitive pricing pressures;
o Changes in the level of our research and development; and
6
<PAGE>
o Acquisitions of products, technology or companies.
Our long-term success will also be affected by expenses, difficulties
and delays frequently encountered in developing and commercializing new
products, competition, and the regulatory environment in which we operate. We
cannot be certain that we will ever achieve significant revenues or profitable
operations.
WE MUST CONTINUE TO FUND PRODUCT DEVELOPMENT. The continued existence
and the growth and profitability of the Company depend upon the success of our
product manufacturing and marketing efforts. In order for new products to be
successfully marketed, they must satisfy the needs of potential customers by
performing under the conditions in which such customers intend to use the
products. We must continue development of these products and their packaging to
ensure that these products will meet such requirements. However, our products
may not perform as anticipated or as needed by customers.
OUR BUSINESS WILL SUFFER IF WE FAIL TO OBTAIN ADEQUATE FUNDING IN A
TIMELY MANNER. We expect that we will need substantial additional funding. Our
business, results of operations and cash flows will be adversely affected if we
fail to obtain adequate funding in a timely manner. Our funding requirements
will depend on many factors, including:
o The progress of our research and development programs;
o Revenue growth, if any;
o The amount of cash generated, if any, by our operations;
o The costs involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual
property rights;
o Competing technological and market developments; and
o The need for additional manufacturing facilities to accommodate
growth.
We anticipate that our existing capital resources as of the date of
this prospectus will be adequate to fund operations and capital expenditures at
least through March 31, 2001. However, if we experience unanticipated cash
requirements during this period, we could require additional funds much sooner.
We may receive funds from the sale of equity securities, or the exercise of
outstanding warrants and options to acquire common stock. However, we cannot
assure you that any of those fundings will occur, or if they occur, that they
will be on terms favorable to us. Also, the dilutive effect of those fundings
could adversely affect our results per share.
ASSERTING AND DEFENDING INTELLECTUAL PROPERTY RIGHTS WILL HARM OUR
RESULTS OF OPERATIONS REGARDLESS OF SUCCESS. Our business will be harmed if
competitors develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, if our trade secrets
are disclosed or if we cannot effectively protect our rights to unpatented trade
secrets.
WE ACTIVELY SEEK PATENT PROTECTION FOR OUR PROPRIETARY PRODUCTS AND
TECHNOLOGIES. We have a number of United States patents and also have licenses
to or assignments of numerous issued United States patents. However, litigation
may be necessary to protect our patent position, and we cannot be certain that
we will have the required resources to pursue the necessary litigation or
otherwise to protect our patent rights. Our efforts to protect our patents may
fail. In addition to pursuing patent protection in
7
<PAGE>
appropriate cases, we also rely on trade secret protection for unpatented
proprietary technology. However, trade secrets are difficult to protect.
CLAIMS MAY BE BROUGHT AGAINST US IN THE FUTURE BASED ON PATENTS HELD BY
OTHERS. These persons could bring legal actions against us claiming damages and
seeking to enjoin manufacturing and marketing of the affected product. If any of
these actions are successful, in addition to any potential liability for
damages, we could be required to obtain a license in order to continue to
manufacture or market the affected product. We cannot assure you whether we
would prevail in any of these actions or that we could obtain any licenses
required under any of these patents on acceptable terms, if at all.
We know of no pending patent infringement suits, discussions regarding possible
patent infringements or threats of patent infringement litigation either related
to:
o patents held by us; or
o our products or proposed products.
There could be significant litigation in our industry regarding patent
and other intellectual property rights. If we become involved in any litigation,
it could consume a substantial portion of our resources, regardless of the
outcome of the litigation.
WE EXPERIENCE STRONG COMPETITION AND CHANGES IN TECHNOLOGY COULD RESULT
IN MORE COMPETITION. The business in which we engage is highly competitive. Many
of our competitors include large, well-financed and established companies who
have far greater marketing, product development, and financial resources than we
do.
We may not be able to successfully anticipate changes in technology,
industry standards, customer requirements and product offerings, yet our ability
to develop and introduce new and enhanced products will impact our position as a
leader in the deployment of high-capacity solutions. The accelerating pace of
deregulation in the telecommunications industry will likely intensify the
competition for improved technology. There has been an increase in the funding
of new companies intending to develop new products for the rapidly evolving
telecom industry. These companies have time-to-market advantages due to the
narrow and exclusive focus of their efforts. New companies may provide
additional competition for our existing product lines as well as potential
future products. The introduction of new products embodying new technologies or
the emergence of new industry standards could render our existing products
uncompetitive from a pricing standpoint, obsolete or unmarketable. Any of these
outcomes would have a material adverse effect on our business, financial
condition and results of operations.
Because many of our competitors have greater financial and other
resources than we do, they may be able to more quickly:
o respond to new technologies or technical standards;
o react to changing customer requirements and expectations;
o manufacture, market and sell current products;
o develop new products or technologies; and
o deliver competitive products at lower prices.
8
<PAGE>
As a result of these factors, our customers could decide to purchase
products from our competitors and reduce their purchases from us.
Our customers may also develop their own internal sources of supply in
competition with us or may acquire our suppliers and potential suppliers. For
example, our customers and competitors may buy suppliers from whom we purchase
or could purchase raw materials and components necessary for our business, thus
limiting our supply options and possibly resulting in delays, price increases,
and inferior quality (all of which would adversely affect our business).
WE CURRENTLY HAVE LIMITED MARKETING EXPERTISE AND PERSONNEL AND EXPECT
TO INCUR SUBSTANTIAL MARKETING COSTS. Our growth is dependent upon our ability
to implement an aggressive, strong, and consistent marketing program for the
Company's new products. We currently have a business manager who focuses on
sales of DWDM, acting with two applications engineers, and two employees who
work on marketing and sales of GaN-based products. In addition, we currently
market our products through independent distributors in several foreign
countries. We believe that it is necessary to significantly expand our marketing
efforts to market our new products successfully. Accordingly, we expect to incur
substantial costs in connection with marketing and sales efforts. However, we
cannot be sure that our efforts will result in significantly greater product
recognition or market penetration, or significantly increased levels of
revenues.
ACCEPTANCE OF OUR NEW PRODUCTS IS UNCERTAIN. Although we have received
several indications of interest from potential customers, we have not received
any significant production orders. Because our products are relatively new in
the market and are still being evaluated by potential customers, we cannot
predict accurately the volume or timing of any orders.
WE MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE DEVELOPMENT AND ACHIEVE
COMMERCIAL ACCEPTANCE OF OUR NEW PRODUCTS. To date, we have delivered evaluation
units of our DWDM and UV detector products, and have sold a limited number of
our UV detector products. We have not yet widely distributed our products on a
commercial basis. The maturing process from laboratory prototype to commercial
acceptance involves a number of steps, including:
o successful completion of product development;
o validation of manufacturing methods;
o extensive quality assurance and reliability testing; and
o identification and qualification of component suppliers.
Each of these steps in turn presents serious risks of failure, rework
or delay, any one of which could materially and adversely affect the speed and
scope of product introduction and marketplace acceptance of the products. In
addition, unexpected intellectual property disputes, failure of critical design
elements, and a host of other execution risks may delay or even prevent the
introduction of these products. We have not yet demonstrated commercial
acceptance of these products and commercialization may require substantial sales
and marketing efforts over lengthy sales cycles. Our best efforts may not be
successful in attaining significant commercial acceptance and purchase of our
products.
PRODUCT PERFORMANCE PROBLEMS COULD LIMIT OUR SALES PROSPECTS. The
production of new fiberoptic systems with high technology content involves
occasional problems as the technology and manufacturing methods mature. If
significant reliability, quality or monitoring problems develop, a number of
material adverse effects could result, including:
9
<PAGE>
o manufacturing rework costs;
o high service and warranty expense;
o high levels of product returns;
o delays in collecting accounts receivable;
o reduced orders from existing customers; and
o declining interest from potential customers.
Although we maintain accruals for product warranties, actual costs
could exceed these amounts.
IF OUR NEW PRODUCT INTRODUCTIONS ARE DELAYED, OR IF OUR NEW PRODUCTS
HAVE DEFECTS, OUR REVENUES WOULD BE HARMED AND OUR COSTS COULD INCREASE. If we
do not introduce new products in a timely manner, we will not obtain incremental
revenues from these products or be able to replace more mature products with
declining revenues or gross margins. Customers could decide to purchase
components from our competitors, resulting in lost revenue over a longer term.
We could also incur unanticipated costs if new product introductions are delayed
or we need to fix defective new products.
IF WE ARE UNABLE TO DEVELOP NEW PRODUCTS AND PRODUCT ENHANCEMENTS THAT
ACHIEVE MARKET ACCEPTANCE, SALES OF OUR PRODUCTS COULD DECLINE, WHICH WOULD HARM
OUR OPERATING RESULTS. The communications industry is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. As a result, our products could
quickly become obsolete as new technologies are introduced and incorporated into
new and improved products. Our future success depends on our ability to
anticipate market needs and to develop products that address those needs. Our
failure to predict market needs accurately or to develop new products or product
enhancements in a timely manner will harm market acceptance and sales of our
products. In this regard, we are currently developing bandwidth creation
products, as well as bandwidth management products. If the development of these
products or any other future products takes longer than we anticipate, or if we
are unable to develop and introduce these products to market, our revenues could
suffer and we may not gain market share. Even if we are able to develop and
commercially introduce these new products, the new products may not achieve
widespread market acceptance.
WE DEPEND ON THE CONTINUED GROWTH AND SUCCESS OF THE COMMUNICATION
INDUSTRY, WHICH IS EXPERIENCING RAPID CONSOLIDATION AND REALIGNMENT AND MAY NOT
CONTINUE TO DEMAND FIBER OPTIC PRODUCTS, THEREBY REDUCING DEMAND FOR OUR
PRODUCTS AND HARMING OUR OPERATING RESULTS. We depend on the continued growth
and success of the communications industry, including the continued growth of
the Internet as a widely-used medium for commerce and communication and the
continuing demand for increased bandwidth over communications networks. Trends
that are currently driving growth in the communications industry may not
continue in a manner favorable to us and technological or other developments in
the communications industry may not favor growth in the markets served by our
products. Furthermore, the rate at which communication service providers and
other fiber optic network users have built new fiber optic networks or installed
new systems in their existing fiber optic networks has fluctuated in the past
and these fluctuations may continue in the future. These fluctuations may result
in reduced demand for new or upgraded fiber optic systems that utilize our
products and, therefore, may result in reduced demand for our products.
10
<PAGE>
The communications industry is also experiencing rapid consolidation
and realignment, as industry participants seek to capitalize on the rapidly
changing competitive landscape developing around the Internet and new
communications technologies such as fiber optic and wireless communications
networks. As the communications industry consolidates and realigns to
accommodate technological and other developments, our customers may consolidate
or align with other entities in a manner that harms our business.
WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE RAPID GROWTH. If we are
successful in marketing our products, and if we receive orders for volume
manufacturing, we will need to develop an infrastructure able to support growth,
including comprehensive and reliable management information systems and
additional manufacturing and other personnel. We may be unable to develop such
systems or locate, hire, train and retain necessary personnel.
WE ARE DEPENDENT ON KEY PERSONNEL. Although we have hired a business
manager for fiber optic products, as well as marketing and sales managers, we
are still dependent upon the continued services of Dr. Anil K. Jain. The loss of
his services could have a significant adverse impact upon the Company's
operations and development. We do not have an employment agreement or a
noncompete agreement with Dr. Jain, although we maintain $1,000,000 in key man
life insurance on him.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO
SUCCEED. If we cannot hire and retain technical personnel with advanced skills
and experience in the specialized field of fiber optics, our product development
programs may be delayed and our customer support efforts may be less effective.
If we are unable to hire the necessary managerial, sales and marketing
personnel, we may not be able to increase our revenues.
WE ARE DEPENDENT ON SUPPLIERS. We rely on outside vendors to supply
certain of the raw materials and other components of our products. To be
competitive, we must obtain from our suppliers, on a timely basis, sufficient
quantities of raw materials and components at acceptable prices. We obtain most
of our critical raw materials and components from a limited number of suppliers
and we do not yet have long-term supply contracts with any supplier. As a
result, our suppliers could terminate or limit the supply of a particular
material at any time.
Finding alternative sources of supply may involve significant expense
and delay, if these sources can be found at all. Consolidation within our
industry has included the purchase of suppliers by manufacturers, making it
increasingly difficult to obtain reliable, long-term sources of materials and
components. Our failure to obtain these materials could delay or reduce our
product shipments, which could result in lost orders, increase our costs, reduce
our control over quality and delivery schedules and require us to redesign our
products. If a significant supplier became unable or unwilling to continue to
manufacture or ship materials in required volumes, we would have to identify and
qualify an acceptable replacement. A material delay or reduction in shipments,
any need to identify and qualify replacement suppliers, or any significant
increase in our need for raw materials that cannot be met on acceptable terms
could harm our business.
We also depend on a limited number of manufacturers and vendors that
make and sell the complex equipment we use in our manufacturing process. In
periods of high market demand, the lead times from order to delivery of this
equipment could be as long as nine months. If there are delays in the delivery
of this equipment or if there are increases in the cost of this equipment, it
could harm our operating results. Delivery delays, quality problems and price
increases could hurt our ability to supply our customers with products in a
timely manner, which can cause our shipments and revenues to decline.
11
<PAGE>
OUR MARKETS ARE HIGHLY COMPETITIVE, AND IF WE ARE UNABLE TO COMPETE
SUCCESSFULLY OUR REVENUES COULD DECLINE. The market for fiber optic components
is intensely competitive. We believe that our principal competitors are the
major manufacturers of optical components and modules, including vendors selling
to third parties and business divisions within communication equipment
suppliers.
Many of our current and potential competitors have significantly
greater financial, technical, marketing, purchasing, manufacturing and other
resources than we do. As a result, these competitors may be able to respond more
quickly to new or emerging technologies and to changes in customer requirements,
to devote greater resources to the development, promotion and sale of products,
or to deliver competitive products at lower prices.
Several of our existing and potential customers are also current and
potential competitors of ours. These companies may develop or acquire additional
competitive products or technologies in the future and thereby reduce or cease
their purchases from us. In light of the consolidation in the optical networking
industry, we also believe that the size of the suppliers will be an increasingly
important part of a purchaser's decision-making criteria in the future. We
cannot assure you that we will be able to compete successfully with existing or
new competitors or that the competitive pressures we face will not result in
lower prices for our products, loss of market share, or reduced gross margins,
any of which could harm our business.
New technologies are emerging due to increased competition and customer
demand. The introduction of new products incorporating new technologies or the
emergence of new industry standards could make our existing products
noncompetitive. For example, new technologies are being developed in the design
of wavelength division multiplexers that compete with thin film filters.
Numerous patents in these industries are held by others, including our
competitors and academic institutions. We have no means of knowing that a patent
application has been filed until the patent is issued. Optical component
suppliers may seek to gain a competitive advantage or other third parties may
seek an economic return on their intellectual property portfolios by making
infringement claims against us.
Defending these lawsuits, and any additional litigation to which we may
become a party in the future as a result of alleged infringement or others'
intellectual property, will likely be costly and time consuming and will divert
the efforts and attention of our management and technical personnel. Patent
litigation is highly complex and can extend for a protracted period of time,
which can substantially increase the cost of litigation. Accordingly, the
expenses and diversion of resources associated with either of these matters, or
any other intellectual property litigation to which we may become a party, could
seriously harm our business and financial condition. Any intellectual property
litigation also could invalidate our proprietary rights and force us to do one
or more of the following:
o obtain from the owner of the infringed intellectual property right
a license to sell or use the relevant technology, which license may
not be available on reasonable terms, or at all;
o stop selling, incorporating or using our products that use the
challenged intellectual property;
o pay substantial money damages; or
o redesign the products that use the technology.
If we are forced to take any of these actions, it could result in a
substantial reduction in our revenue and could result in losses over an extended
period of time.
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<PAGE>
IF WE ARE UNABLE TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, OUR
BUSINESS MAY BE HARMED. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
hazardous materials and waste products. We currently maintain a supply of
several hazardous materials at our facilities. We might be required to incur
significant cost to comply with environmental laws and regulations. In the event
of an accident, we could be held liable for any damages that result, and the
liability could exceed our resources.
BECAUSE CURRENT OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR
STOCK, THESE SHAREHOLDERS MAY BE ABLE TO CONTROL APA OPTICS AND ALSO PREVENT
POTENTIALLY BENEFICIAL ACQUISITIONS OF APA OPTICS. As of August 15, 2000 our
officers and directors beneficially owned approximately 22% of the outstanding
shares of our common stock. Beneficial ownership includes shares of our common
stock subject to options exercisable within 60 days of August 15, 2000.
These shareholders, if acting together, may be able to elect all of our
directors, and otherwise significantly influence matters requiring approval by
our shareholders. This concentration of ownership and the lack of cumulative
voting may also delay or prevent a third party from acquiring us.
These shareholders may have interests that differ from other
shareholders of APA Optics, particularly in the context of potentially
beneficial acquisitions of APA Optics. For example, to the extent that these
stockholders are employees of APA Optics, they may be less inclined to vote for
acquisitions of APA Optics involving the termination of their employment or
diminution of their responsibilities or compensation.
WE DO NOT INTEND TO PAY DIVIDENDS. We intend to use any cash flows from
operations to finance further growth of the Company's business. Accordingly,
investors should not purchase the shares with a view towards receipt of
dividends.
OUR STOCK PRICE MAY EXHIBIT VOLATILITY AND THE TRADING PRICE OF OUR
STOCK MAY DECREASE DUE TO FACTORS BEYOND OUR CONTROL. Our common stock price has
experienced substantial volatility in the past and is likely to remain volatile
in the future. Volatility can arise as a result of the activities of short
sellers and risk arbitrageurs and may have little relationship to our financial
results or prospects. The trading prices of our common stock is also affected by
the following factors, among others:
o Variations in anticipated or actual results of operations;
o Announcements of new products or technological innovations by
competitors; and
o Changes in earnings estimates of operational results by analysts.
Volatility can also result from divergence between our actual or
anticipated financial results and/or status of product development or
commercialization, and published expectations of analysts and announcements we
may make. We attempt to address possible divergence through our public
announcements and reports; however, the degree of specificity we can offer in
such announcements, and the likelihood that any forward-looking statements we
make will prove correct in actual results, can and will vary.
Our revenues and operating results have fluctuated significantly from
quarter-to-quarter in the past and may fluctuate significantly in the future as
a result of several factors, some of which are outside of our control. These
factors include:
o the size and timing of customer orders;
13
<PAGE>
o our ability to manufacture and ship our products on a timely basis;
o our ability to obtain sufficient supplies to meet our product
manufacturing needs;
o our ability to meet customer product specifications and
qualifications;
o long and unpredictable sales cycles of up to a year or more;
o our ability to sustain high levels of quality across all product
lines; changes in our product mix;
o customer cancellations or delivery deferrals;
o seasonality of customer demand; and
o difficulties in collecting accounts receivable.
Due to these factors, results are difficult to predict and you should
not rely on quarter-to-quarter comparisons of our results of operations as an
indication of our future performance. It is possible that, in future periods,
our results of operations may be below the expectations of public market
analysts and investors.
Moreover, the stock market from time to time has experienced extreme
price and volume fluctuations, which have particularly affected the market
prices for emerging growth companies and which have often been unrelated to the
operating performance of these companies. These broad market fluctuations may
adversely affect the market price of our common stock.
During the past three years from the date of this prospectus, the
market price per share of our common stock has fluctuated between approximately
$3.50 and $60.
OUR BUSINESS MAY BE HARMED IF WE BECOME SUBJECT TO SECURITIES CLASS
ACTION LITIGATION. In the past, following periods of volatility in the market
price of a company's common stock, securities class action litigation has been
brought against the issuing company. This type of litigation could be brought
against us in the future. The litigation could be expensive and divert
management's attention and resources, which could adversely affect our business
and results of operations whether or not our defense is successful. If the
litigation is determined against us, we could also be subject to significant
liabilities.
THE MARKET PRICE OF OUR STOCK MAY FALL IF OTHER SHAREHOLDERS SELL THEIR
STOCK. If our shareholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. These sales also might make it more difficult for us to sell equity
or equity-related securities in the future at a price we deem appropriate.
As of August 15, 2000, 11,893,860 shares of our common stock were
outstanding. Substantially all of these shares are eligible for sale in the
public market. In addition, we are currently registering for public sale 144,091
shares of common stock which may be offered upon exercise of other warrants and
an indeterminate number of shares of common stock offered directly by the
Company.
THE VALUE OF YOUR STOCK MAY DECREASE IF OTHER SECURITY HOLDERS EXERCISE
THEIR OPTIONS OR WARRANTS OR CONVERT CONVERTIBLE SECURITIES. As of August 15,
2000 we had reserved 1,710,871 shares of our common stock for future issuance
upon exercise of outstanding options and warrants. If these securities
14
<PAGE>
are exercised, you may experience dilution in the book value and earnings per
share of your common stock. This may cause the market price of our common stock
to fall.
WE MAY ISSUE ADDITIONAL STOCK WITHOUT YOUR CONSENT. The Company has
authorized 50 million shares of common stock, of which 11,893,860 shares are
issued and outstanding as of August 15, 2000. The Board of Directors has
authority, without action or vote of the shareholders, to issue all or part of
the authorized but unissued shares. Additional shares may be issued in
connection with future financings, acquisitions, employee plans, or otherwise.
Any such issuance will dilute the percentage ownership interest of existing
shareholders, and may dilute the book value of the common stock. In April 2000,
we filed a registration statement for sale of up to $100 million in common stock
from time to time at prices related to current market prices (subject to
discount in some circumstances) to institutional investors. As of August 15,
2000 we had sold approximately 2,845,868 shares for total gross proceeds of
approximately $41.5 million. We do not know the number or price of additional
shares to be sold, or whether any additional shares will be sold. In addition,
the Company is authorized to issue up to 5 million undesignated shares, of which
1,500 were designated and issued as 2% Series A Convertible Preferred Stock. All
of these shares of Preferred Stock were redeemed by the Company in July 2000.
The Board of Directors can issue additional preferred stock in one or more
series and fix the terms of such stock without approval by shareholders.
Preferred stock may include the right to vote as a series on particular matters,
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions. The issuance of preferred stock could affect the
rights of the holders of common stock adversely and reduce the value of the
common stock. In addition, specific rights granted to holders of preferred stock
could be used to restrict the Company's ability to merge with or sell its assets
to a third party.
OUR DIRECTORS' LIABILITY IS LIMITED UNDER MINNESOTA LAW. Our Articles
of Incorporation, as amended and restated, state that our directors are not
liable for monetary damages for breach of fiduciary duty, except for a breach of
the duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Minnesota law, and for any transaction in which
the director derived an improper personal benefit. In addition, our bylaws
provide that we shall indemnify our officers and directors to the fullest extent
permitted by Minnesota law for all expenses incurred in the settlement of any
actions against them in connection with their service as officers or directors
of the Company.
ANTI-TAKEOVER PROVISIONS. Minnesota law provides Minnesota corporations
with anti-takeover protections. These protective provisions could delay or
prevent a change in control of the Company by requiring shareholder approval of
significant acquisitions of voting stock of the Company. These provisions
operate even when many shareholders may think a takeover would be in their best
interests.
FORWARD-LOOKING STATEMENTS
This prospectus and the information which is incorporated by reference
in this prospectus include "forward-looking statements" within the meaning of
the securities laws. Statements about us and our expected financial position,
business and financing plans are forward-looking statements. Forward-looking
statements can be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should," "seeks,"
"pro forma," "anticipates," "intends," or other variations or comparable
terminology, or by discussions of strategy or intentions. Although we believe
that the expectations reflected in our forward-looking statements are
reasonable, we cannot assure you that our expectations will prove to be correct.
Forward-looking statements are necessarily dependent upon assumptions, estimates
and data that may be incorrect or imprecise and involve known and unknown risks,
uncertainties and other factors. Accordingly, you should not consider our
forward-looking
15
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statements as predictions of future events or circumstances. A number of factors
could cause our actual results, performance, achievements or industry results to
be materially different from any future results, performance or achievements
expressed or implied by our forward-looking statements. These factors include,
but are not limited to: the competitive environment in our industry; changes in
economic conditions in general and in our business; changes in prevailing
interest rates and the availability of and terms of financing to fund our
business; our ability to attract and retain qualified personnel; changes in our
acquisition and capital expenditure plans; and other factors discussed in this
prospectus including, without limitation, those in our filings with the
Securities and Exchange Commission. Given these uncertainties, you should not
rely on our forward-looking statements in making an investment decision. We
disclaim any obligation to update you on any factors that may affect the
likelihood of realization of our expectations and we do not intend to announce
publicly the results of any revisions to any of our forward-looking statements
to reflect future events or developments. All written and oral forward-looking
statements attributable to us (including statements before and after the date of
this prospectus) are expressly qualified by these cautionary statements.
USE OF PROCEEDS
We will receive approximately $1,500,000 in payment of the exercise
price if the warrants are exercised in full. Warrant exercise proceeds, if any,
will be used for general corporate purposes. We will not receive any proceeds
from the sale of the common stock by the selling shareholder.
PRICE RANGE OF COMMON STOCK
Effective August 16, 2000, our common stock is listed and traded in the
Nasdaq National Market under the symbol "APAT." The following table shows the
high and low closing sale prices as reported by the Nasdaq SmallCap Market
during the last two fiscal years ended March 31, 1999 and 2000.
--------------------------------------------------------------------------------
FISCAL YEAR 1999 1999 2000 2000
SALE PRICE LOW HIGH LOW HIGH
--------------------------------------------------------------------------------
First Quarter $ 5.62 $ 6.75 $ 5.25 $ 8.50
--------------------------------------------------------------------------------
Second Quarter 4.25 6.00 3.50 7.93
--------------------------------------------------------------------------------
Third Quarter 4.00 5.00 3.88 19.50
--------------------------------------------------------------------------------
Fourth Quarter 4.75 10.00 11.31 64.00
--------------------------------------------------------------------------------
We have never declared or paid a dividend on our common stock and the
Board of Directors currently intends to retain all earnings, if any, for use in
the business for the foreseeable future. Any future determination as to
declaration and payment of dividends will be made at the discretion of the Board
of Directors, subject to covenants in any loan documents restricting the payment
of dividends. Our current loan agreements restrict our ability to pay dividends.
SELLING SHAREHOLDER
Ladenburg Thalmann & Co., the selling shareholder, has served and
continues to serve as our placement agent in connection with a $100 million
registered offering of our common stock to institutional investors. The shares
offered by Ladenburg consist of shares which it can acquire by exercising
warrants issued by us in connection with its services as placement agent. We may
be obligated to issue additional warrants to Ladenburg in the future in
connection with its services for future placements of our stock.
The warrants are exercisable at $17.84 and expire on June 20, 2003. The
exercise price is subject to adjustment pursuant to the anti-dilution provisions
set forth in the warrant.
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The following table sets forth the number of shares of common stock
offered by this prospectus, the number of shares of common stock now owned by
the selling shareholder, the number of shares of common stock that may be sold
in this offering, and the number of shares of common stock the selling
shareholder will own after the offering, assuming it sells all of the shares
offered.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
BENEFICIAL OWNERSHIP PRIOR SHARES TO BE SOLD IN BENEFICIAL OWNERSHIP
NAME TO OFFERING OFFERING AFTER OFFERING
------------------------------------------------------------------------------------------------------------------
SHARES PERCENTAGE SHARES PERCENTAGE
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ladenburg Thalmann & Co. 84,083(1) * 84,083 0 0
------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%.
(1) Consists of the shares of our common stock issuable upon exercise of
its warrants.
PLAN OF DISTRIBUTION
The selling shareholder has advised us that there are presently no
underwriting arrangements with respect to the sale of the shares; however, such
arrangements may exist in the future.
The selling shareholder and any of its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of the shares of
common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholder may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling shareholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling shareholder may also engage in short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The selling shareholder may pledge the shares to brokers
under
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the margin provisions of customer agreements. If the selling shareholder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares.
Broker-dealers engaged by the selling shareholder may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholder (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholder does not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling shareholder and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The selling shareholder may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling shareholder is required to pay all fees and expenses
incident to the registration of the shares.
EXPERTS AND LEGAL MATTERS
The financial statements of APA Optics, Inc. as of March 31, 2000 and
1999, and for each of the three years in the period ended March 31, 2000,
incorporated by reference in this prospectus and in the registration statement
of which this prospectus is a part have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon. Such financial
statements have been incorporated by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
The validity of the shares of common stock offered by this prospectus
has been passed upon for the Company by Moss & Barnett, A Professional
Association, Minneapolis, Minnesota.
MATERIAL CHANGES
There have been no material changes in the financial condition or
business of the Company since its Report on Form 10-K for the fiscal year ended
March 31, 2000 except for the registered placement of approximately 2,845,868
shares of common stock for gross proceeds of approximately $41.5 million in
common stock.
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DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation limit personal liability for breach of
the fiduciary duty of our directors, to the fullest extent provided by the
Minnesota Business Corporation Act. The Articles eliminate the personal
liability of directors for damages occasioned by breach of fiduciary duty,
except for liability based on the director's duty of loyalty to APA Optics,
liability for acts or omissions not made in good faith, liability for acts or
omissions involving intentional misconduct, liability based on payments of
improper dividends, liability based on violations of state securities laws, and
liability occurring prior to the date such provision was added. Any amendment to
or repeal of these provisions will not be applied retroactively to adversely
affect any right or protection of a director with respect to any acts or
omissions occurring prior to the amendment or repeal. In addition, the Minnesota
Business Corporation Act and our Bylaws provide that our officers and directors
have the right to indemnification from the Company for liability arising out of
certain actions to the fullest extent permissible by law.
This indemnification may be available for liabilities arising in
connection with this offering. However, in the opinion of the Securities and
Exchange Commission, indemnification for liabilities arising under the
Securities Act of 1933 is against public policy as expressed in the Act and is
therefore unenforceable.
ANTITAKEOVER STATUTE
Section 302A.671 of the Minnesota Business Corporation Act (the
"Minnesota Act") applies, with certain exceptions, to any acquisition of voting
stock of APA Optics, including the receipt of a proxy, from a person other than
APA Optics, and other than in connection with certain mergers and exchanges to
which APA Optics is a party, that results in the beneficial ownership by the
acquiring party of 20% or more of the Company's voting stock then outstanding.
Under Section 302A.671 any such acquisition must be approved by a majority vote
of our shareholders. In general, in the absence of such approval, shares
exceeding the threshold are denied voting rights and may be redeemed by us at
the then fair market value within 30 days after the acquiring person fails to
give a timely information statement to the Company or after the date that
shareholders vote not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Act generally prohibits any business
combination by a Minnesota company with any shareholder that purchases 10% or
more of the company's voting shares (an "interested shareholder") within four
years following the interested shareholder's share acquisition date, unless the
business combination is approved by a committee of all of the disinterested
members of the Board of Directors of the company before the share acquisition.
These statutory provisions could delay or prevent a change in control
of APA Optics.
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84,083 SHARES
APA OPTICS, INC.
COMMON STOCK
----------------------
PROSPECTUS
----------------------
________________, 2000
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution
of the Common Stock registered hereby, other than underwriting discounts and
fees, are set forth in the following table:
SEC registration fee........................ $ 397
Legal fees and expenses..................... 5,000
Accounting fees and expenses................ 2,000
Blue Sky fees and expenses.................. -0-
Printing and engraving expenses............. 100
Miscellaneous............................... 2,503
--------
Total................................... $ 10,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Unless prohibited in a corporation's articles or bylaws, Minnesota
Statutes ss.302A.521 requires indemnification of officers, directors, employees
and agents, under certain circumstances, against judgments, penalties, fees,
settlements and reasonable expenses (including attorneys' fees and
disbursements) incurred by such person in connection with a threatened or
pending proceeding with respect to the acts or omissions of such person in his
or her official capacity. The general effect of Minnesota Statutes ss.302A.521
is to reimburse (or pay on behalf of) directors and officers of the registrant
any personal liability that may be imposed for certain acts performed in their
capacity as directors and officers of the registrant, except where such persons
have not acted in good faith. The Bylaws of the Registrant provide for such
indemnification to the maximum extent permitted by Minnesota Statutes.
ITEM 16. EXHIBITS
Exhibit No. Description of Exhibit
* 3.1 Restated Articles of Incorporation,
as amended
* 3.2 Bylaws, as amended
**4.6 Form of common stock warrant issued to
Ladenburg Thalmann & Co.
5.1 Opinion and Consent of Counsel to APA Optics
23.1 Consent of Ernst & Young LLP
23.2 Consent of Counsel to APA Optics (filed as
part of Exhibit 5.1)
------------------------------
* Incorporated by reference to exhibit filed as a part of Form 10-KSB for
the fiscal year ended March 31, 1995.
** Incorporated by reference to exhibit filed as part of Form 10-K for the
fiscal year ended March 31, 2000.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers and controlling persons of the issuer pursuant to the foregoing
provisions or otherwise, the issuer has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the
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payment by the issuer of expenses incurred or paid by a director, officer or
controlling person of the issuer in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) Because the registration statement incorporates Exchange Act
documents filed subsequent to the effective date of the registration statement,
the Company hereby undertakes that, for purposes of determining any liability
under the Securities Act of 1933, each filing of the Company's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) If the Company relies upon Rule 430A under the Act, the
Company undertakes that, for determining any liability under the Act, it will:
(1) Treat the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed under Rule 424(b)(1) or (4)
or 497(h) under the Act as part of this registration statement as of
the time the Commission declared it effective.
(2) Treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities offered
in the registration statement, and that offering of the securities at
that time as the initial bona fide offering of those securities.
(d) Insofar as the Company is registering securities under Rule
415 of the Securities Act, the Company will:
(1) file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement
to include any additional or changed material information on the plan
of distribution.
(2) for determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
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SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly authorized this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Minneapolis, State of Minnesota, on August 16,
2000.
APA OPTICS, INC.
By: /s/ Anil K. Jain
------------------
Anil K. Jain, Chief Executive Officer
(Principal executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Anil K. Jain, his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, and to
sign any registration statement for the same offering covered by Rule 462(b)
promulgated under the Securities Act of 1933, as amended, and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that said attorney-in-fact and agent or his substitute, may lawfully
do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
/s/ Anil K. Jain Chief Executive Officer August 16, 2000
------------------------- Principal executive officer)
Anil K. Jain
/s/ Robert Ringstad Chief Financial Officer (Principal August 16, 2000
------------------------- financial and accounting officer)
Robert Ringstad
/s/ Kenneth A. Olsen Director August 16, 2000
-------------------------
Kenneth A. Olsen
/s/ Gregory J. Von Wald Director August 16, 2000
-------------------------
Gregory J. Von Wald
/s/ Michael A. Gort Director August 16, 2000
-------------------------
Michael A. Gort
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/s/ William R. Franta Director August 16, 2000
-------------------------
William R. Franta
*Executed by the undersigned as attorney-in-fact
for the named signatory
/s/ Anil K. Jain August 16, 2000
-------------------------
Anil K. Jain
5
