SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,
2000
or
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from NA to NA.
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)
(763) 784-4995
(Registrant's telephone number, including area
code)
Indicate by check mark whether the registrant (1) has filed all
reports
required to be filed by Section 13 or 15 (d) of the Securities
Exchange
Act of 1934 during the preceding 12 months (or for such shorter
period
that the registrant was required to file such reports), and (2)
has
been
subject to the filing requirement for the past 90 days.
Yes _X_ No ____
Indicate the number of shares outstanding of each of the
issuer's
classes
of common stock, as of the latest practicable date:
Class: Outstanding at
October
23, 2000
Common stock, par value $.01
11,908,506
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APA OPTICS, INC.
CONDENSED BALANCE SHEETS
September 30,
March
31,
2000
2000
ASSETS
CURRENT ASSETS:
Cash and short-term investments $39,280,873
$5,941,906
Accounts receivable 87,179
209,337
Inventories:
Raw materials 172,841
146,841
Work-in-process & finished goods 127,174
129,684
Prepaid expenses 12,036
19,803
Bond reserve funds 32,500
65,000
TOTAL CURRENT ASSETS 39,712,603
6,512,571
PROPERTY AND EQUIPMENT NET 2,406,881
2,459,760
OTHER ASSETS 640,588
638,060
TOTAL ASSETS $42,760,072
$9,610,391
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $379,483
$140,871
Accounts payable 89,681
82,412
Accrued expenses 175,815
172,672
TOTAL CURRENT LIABILITIES 644,979
395,955
LONG-TERM DEBT 2,538,238
2,908,387
SHAREHOLDERS' EQUITY:
Undesignated shares; 4,999,500 shares
authorized - none issued
Preferred stock; $.01 par value,
500 shares authorized:
Issued and outstanding shares -
none on September 30, 2000
and 500 on March 31, 2000 -
5
Common stock, $.01 par value;
50,000,000 shares authorized:
Issued & outstanding shares -
11,908,506 shares on
September 30, 2000 and 8,997,992
shares on March 31, 2000 119,085
89,980
Paid-in capital 51,189,880
16,408,446
Retained earnings (deficit) (11,732,110)
(10,192,382)
TOTAL SHAREHOLDERS' EQUITY 39,576,855
6,306,049
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $42,760,072
$9,610,391
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Six
Months
Ended September 30,
September 30,
2000 1999
2000
1999
REVENUES $123,462 $36,029
$174,979
$102,626
COSTS AND EXPENSES:
Cost of sales 609,720 531,771
1,015,792
1,029,549
Research and development 293,303 212,579
573,661
421,749
Selling, administrative
and general 414,092 227,011
781,978
499,295
1,317,115 971,361
2,371,431
1,950,593
LOSS FROM OPERATIONS (1,193,653) (935,332)
(2,196,452)
(1,847,967)
OTHER INCOME (EXPENSE):
Interest income 615,440 15,744
751,842
47,957
Interest expense (18,536) (35,674)
(61,564)
(71,592)
596,904 (19,930)
690,278
(23,635)
LOSS BEFORE INCOME TAXES (596,749) (955,262)
(1,506,174)
(1,871,602)
INCOME TAXES 250 250
500
500
NET LOSS $(596,999) $(955,512)
$(1,506,674)$(1,872,102)
NET LOSS PER SHARE:
Basic and diluted ($0.05) ($0.11)
($0.14)
($0.22)
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic and diluted 11,694,715 8,522,741
10,451,022
8,517,508
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
September 30,
2000 1999
OPERATING ACTIVITIES:
Net income (loss) $(1,506,674)
$(1,872,102)
Adjustments to reconcile
net income to net cash
used in operating activities:
Depreciation and amortization 192,563
214,157
Changes in operating assets
and liabilities:
Accounts receivable 122,158
3,184
Inventories and prepaid
expenses (15,723)
(129,513)
Accounts payable and
accrued expenses 10,412
25,117
Other (67,472)
(10,509)
Net cash used in
operating activities (1,264,736)
(1,769,666)
INVESTING ACTIVITIES:
Property and equipment
additions, net (97,685)
(89,164)
Net cash used in investing activities (97,685)
(89,164)
FINANCING ACTIVITIES:
Proceeds from the sale of
common stock 39,810,534
1,252,700
Redemption of preferred stock (5,000,000)
-
Repayment of long term debt (131,537)
(105,191)
Dividend on preferred stock (33,054)
-
Bond reserve funds 55,445
(3,718)
Net cash provided by
financing activities 34,701,388
1,143,791
INCREASE (DECREASE) IN CASH 33,338,967
(715,039)
CASH AND CASH EQUIVALENTS,
beginning of period 5,941,906
2,812,849
CASH AND CASH EQUIVALENTS,
end of period $39,280,873
$2,097,810
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying condensed financial statements have been
prepared
pursuant to the rules and regulations of the Securities and
Exchange
Commission. Accordingly, they do not include all of the
information
and
footnotes required by generally accepted accounting principles
for
complete financial statements. For further information, refer
to
the
financial statements and footnotes thereto included in the
Company's
annual report on Form 10-K for the year ended March 31, 2000.
In the opinion of management, all adjustments (consisting of
normal
recurring accruals) considered necessary for a fair
presentation
have
been included. Certain reclassifications of previously
reported
amounts
have been made to conform that presentation to the current
period
presentation. The reclassifications had no impact on losses
previously
reported.
Note 2. Shareholders' Equity
On July 18, 2000 the Company redeemed all 500 shares of its
outstanding
2% preferred stock for a total of $5,000,000 plus $33,055 in
accrued
dividends.
During the three-month period ended September 30, 2000, the
Company
sold
1,757,778 shares of its common stock to various institutional
investors
under a Registration Statement on Form S-3. Net proceeds from
the
sales
totaled $24,689,657. During the six months ended September 30,
2000, the
Company sold a total of 2,845,868 shares of its common stock.
Net
proceeds to the company were $39,585,257.
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Prior to 1998, APA Optics, Inc. ("APA") generated
significant
revenues by providing research and development services in
connection
with projects sponsored by various government agencies. In
fiscal
1998,
APA determined to shift its emphasis from research and
development
to
product development in an effort to capitalize on the
proprietary
technology it had developed. In
so doing, APA realized this shift would significantly reduce
revenues and
increase losses until APA generates revenues from the sale of
its
products.
APA focuses on two product areas for development:
Fiber Optic Components. APA manufactures and markets DWDM
(Dense
Wavelength Division Multiplexing) multiplexer/demultiplexer
components.
These components enable DWDM systems to increase the bandwidth
of
a
single optical fiber between 8 and 80 times its original
capacity.
Based on patented and patent pending diffraction grating
technology,
these products address current and next generation DWDM
networking
requirements including:
o High channel counts (up to 80 in a single component),
o Narrow channel spacing (to 50 GHz),
o High data transmission rates (10 Gb/sec),
o Add/drop multiplexing (patent pending), and
o Fiber free communications (single mode and multimode).
Gallium Nitride (GaN) Semiconductors. APA is a research
pioneer
in
GaN,
a next generation semiconductor material. APA manufactures GaN
Ultraviolet Radiation (UV) detectors and has integrated this
technology
into products including the UV Power Meter, UV Lamp monitor,
Detector/Amplifier module and SunUVWatchTM.
Results of Operations
Operating revenues for the three-month and six-month
periods
ended
September 30, 2000, were $123,462 and $174,979, reflecting 243%
and
71%
increases, respectively, over the comparable periods in fiscal
2000.
The
majority of the increase occurred in sales of DWDM components
that
totaled $88,950 and $103,150 for the three-month and six-month
periods
ended
September 30, 2000, respectively.
Cost of sales increased for the three-month period ended
September
30, 2000 to $609,720, reflecting a 15% increase over the
comparable
period in fiscal 2000. For the six-month period ended September
30,
2000,
cost of sales decreased $13,757 or 1% from the comparable
period
in
fiscal 2000. Gross margins for sales were negative in both
periods.
The
fluctuation in cost of sales and the negative gross margins are
influenced by the low unit production and sales levels relative
to
the
capital equipment and personnel committed to production in the
early
phases of market penetration of the Company's products. The
Company
expects to continue to experience negative gross margins until
there
is a
significant increase in sales and production levels.
Research and development expenses increased by $80,724 and
$151,912
for
the three and six-month periods ended September 30, 2000.
These
amounts
represent increases of 38% and 36% over research and
development
expenses
in the comparable periods of fiscal 2000. The increases result
from
the
Company's continued investment in the development of its DWDM
and
GaN
technologies. The Company plans to continue to pursue research
and
product development and will continue to incur expenses related
to
these
activities.
Selling, general and administrative expenses increased
$187,081 and
$282,683 for the three-month and six-month periods ended
September
30,
2000, reflecting 82% and 57% increases, respectively, over the
comparable
periods in fiscal 2000. The increases were primarily due to an
increase
in personnel as the Company prepares to meet anticipated demand
for
its
products and costs associated with moving the listing of the
Company's
stock from the NASDAQ Small Cap Market to the NASDAQ National
Market.
Other income and expense increased $616,834 and $713,913
for
the
three-month and six-month periods ended September 30, 2000,
respectively,
over the comparable periods in fiscal 2000. The increases were
due
to
the increased cash balance over the periods resulting from the
issuance
of common stock by the Company that netted $39.6 million. See
Note
2 to
the Financial Statements.
The net loss was $596,999 (or $.05 per basic and diluted share)
for
the
three months ended September 30, 2000, a decrease of $358,513
or
38%
from
the loss reported for the same period in fiscal 2000. For the
six
months
ended September 30, 2000, the net loss was $1,506,674 (or $.14
per
basic
and diluted share), a decrease of $365,428 or 20% from the loss
reported
for the same period in fiscal 2000. The smaller net loss is
attributable
to the increase in interest income partially offset by the
increase
in
the operating expenses described above.
Liquidity and Capital Resources
APA's cash and short-term investments primarily consist
of
certificates of deposits, US Government instruments or
commercial
paper
with maturities of less than one year. The balance of cash and
short-
term investments at September 30, 2000 is $39,280,873 compared
to
$5,941,906 at March 31, 2000. The increase in cash and short-
term
investments primarily results from the sale of 2,845,868 shares
of
APA's
common stock under a Registration Statement on Form S-3 for
$100
million
worth of common stock, of which approximately $41.5 million had
been
sold
on or before September 30, 2000. The funds will be used for the
capital
expenditures described below, product development and
marketing,
the
addition of personnel and to fund operations. APA believes that
it
has
sufficient funds for operations in fiscal 2001 and beyond.
For the six months ended September 30, 2000, APA used
$1,264,736
of
cash
for
operating activities, of which the most significant cause was
the
net
loss of $1,506,674. APA used $97,865 net cash in investing
activities in
the same period, all for the purchase of equipment, primarily
for
the
Aberdeen facility.
APA anticipates a total of approximately $4 million in
capital
expenditures in fiscal 2001, primarily for equipment. This is
an
increase
of $2 million over the amount previously reported by APA. The
majority
of the capital expenditures relate to the expansion and
automation
of the
Company's production facilities and will be made in phases to
meet
demand
for its products and to allow the Company to respond to new
business
opportunities.
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 factors, many of which
are
beyond
APA's control. These factors include, but are not limited to,
the
continued development of APA's products, acceptance of those
products by
potential customers, APA's ability to sell such products at a
profitable
price, and APA's ability to fund its operations.
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk.
APA's operations are not currently subject to market
risks
for
interest rates, foreign rates, commodity prices or other market
price
risks of a material nature.
Part II
ITEM 1. Not applicable
ITEM 2. Changes in Securities and Use of Proceeds.
During the six months ended September 30, 2000, the
Company
issued
an aggregate of 64,646 shares of common stock to four investors
upon
the
exercise of outstanding warrants. Three of these warrants, for
56,000
shares, had been issued to the placement agent as consideration
for
services in a private placement of the Company's securities and
the
fourth, for 8,646 shares, had been issued to NE Venture, Inc.
as
consideration for the partial forgiveness of
a loan made to the Company as part of the financing of its
Aberdeen
facility. The Company received net proceeds of $253,230. No
underwriter
was involved in these sales. The Company relied upon the
exemptions
provided by Section 4(2) and 4(6) of the Securities Act of 1933
in
connection with these sales.
ITEM 3. Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Shareholders' meeting on
August
16,
2000.
(b) (1) The election of 5 directors to serve for one-year
terms
was
approved.
Name Affirmative Votes Voting
Authority
Withheld
Anil K. Jain 8,889,999
7,056
Kenneth A. Olsen 8,888,599
7,056
Gregory J. Von Wald 8,890,099
7,056
William R. Franta 8,890,099
7,056
Michael A. Gort 8,890,099
7,056
(2) The amendment and restatement of the Company's Articles of
Incorporation to
increase the authorized common stock from 15,000,000 to
50,000,000
shares
was approved. The vote was 8,773,474 shares in favor, 94,991
shares
against and 13,790 abstentions. There were no broker non-
votes.
ITEM 5. Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K.
Exhibits:
3.1 Restated Articles of Incorporation, including all
amendments
to
date.
27 Financial Data Schedule
Reports:
There were no reports on Form 8-K filed during the three months
ended
September 30, 2000.
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
APA OPTICS, INC.
11/10/00 /s/ Anil K. Jain
Date Anil K. Jain
President and
Principal Execut
undersigned, thereunto duly authorized.ive
Officer 11/10/00 /s/ Robert M.
Ringstad
Date Robert M. Ringstad
Chief Financial
Officer
