Page 1 of 7 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended December 31, 1995 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ____________ Commission File Number 0-16106 APA OPTICS, INC. (exact name of small business issuer as specified in its charter) Minnesota 41-1347235 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2950 N.E. 84th Lane, Blaine, Minnesota 55449 (Address of principal executive offices and zip code) Issuer's telephone number, including area code: (612) 784-4995 Indicate whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to the filing requirement for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class: Outstanding at December 31, 1995 Common stock, par value $.01 7,986,007 Page 2 of 7 PART 1, FINANCIAL INFORMATION ITEM 1, FINANCIAL STATEMENTS APA OPTICS, INC. CONDENSED BALANCE SHEETS
ASSETS Decmeber 31 March 31 1995 1995 CURRENT ASSETS: (Unaudited) (Audited)* Cash and short-term investments $2,167,855 $ 401,034 Accounts receivable 484,952 421,943 Inventories: Raw Materials 24,244 61,791 Work-in-process & finished goods 199,253 146,414 Prepaid expenses 35,977 31,225 Bond reserve funds 41,667 63,333 TOTAL CURRENT ASSETS 2,953,948 1,125,740 PROPERTY AND EQUIPMENT, NET 1,238,461 1,492,282 OTHER ASSETS 603,609 445,075 $ 4,796,018 $ 3,063,097 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current Portion of Long-Term Debt $ 100,000 $ 95,000 Accounts payable 42,065 97,584 Accrued expenses 80,723 40,476 TOTAL CURRENT LIABILITIES 222,788 233,060 LONG TERM DEBT 345,000 445,000 SHAREHOLDERS' EQUITY Undesignated shares; 5,000,000 shares authorized; none issued --- --- Common stock, $.01 par value; 15,000,000 shares authorized; 7,986,007 & 7,376,923 issued 79,860 73,769 Paid-in-capital 6,927,192 5,122,292 Retained earnings (deficit) (2,778,822) (2,811,024) 4,228,230 2,385,037 $ 4,796,018 $ 3,063,097
* Derived from audited financial statements Page 3 of 7 APA OPTICS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Nine months ended December 31 December 31 1995 1994 1995 1994 REVENUES $ 592,018 $ 568,971 $ 1,866,863 $ 1,464,872 COSTS AND EXPENSES: Cost of sales and services 456,282 488,124 1,449,017 1,170,170 Selling, general & administrative 112,774 117,879 392,133 392,057 Research & development 0 19,688 2,467 183,914 569,056 625,691 1,843,617 1,746,141 Gain/Loss from Operations 22,962 (56,720) 23,246 (281,269) INTEREST INCOME & EXPENSE: Interest Income 19,703 5,467 37,613 10,015 Interest Expense (8,521) (10,279) (27,907) (32,891) 11,182 ( 4,812) 9,706 (22,876) INCOME (LOSS) BEFORE INCOME TAXES 34,144 (61,532) 32,952 (304,145) INCOME TAX EXPENSE (BENEFIT) 250 500 750 750 NET INCOME (LOSS) $ 33,894 $ (62,032) $ 32,202 $(304,895) EARNINGS (LOSS) PER COMMON & COMMON EQUIVALENT SHARE (EXHIBIT 11) $ .00 $(.01) $ .00 $(.04) WEIGHTED AVERAGE SHARES OUTSTANDING 8,029,569 7,376,575 7,651,545 7,309,294
Page 4 of 7 APA OPTICS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended December 31 1995 1994 OPERATING ACTIVITIES Net Income (loss) $ 32,202 $ (304,895) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 303,708 330,168 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (63,009) (102,270) (Increase) decrease in inventories and prepaid expenses 1,622 (30,282) Increase (decrease) in accounts payable and accrued expenses (15,271) (94,492) Other (194,534) (47,715) Net cash provided by (used in) operating activities 64,718 (249,486) INVESTING ACTIVITIES Purchases of property and equipment (13,888) * 54,629 Net cash provided by (used in) investing activities (13,888) 54,629 FINANCING ACTIVITIES Proceeds from the sale of common stock 1,810,991 242,920 Repayment of long-term debt (95,000) (85,000) Net cash provided by (used in) financing activities 1,715,991 157,920 Increase (decrease) in cash 1,766,821 (36,937) Cash at Beginning of Period 401,034 274,204 Cash at End of Period $2,167,855 $ 237,267
NOTE TO CONDENSED FINANCIAL STATEMENTS 1. In the opinion of management, the information furnished reflects all adjustments which are necessary to a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. The results of any interim period are not necessarily indicative of results for the full year. * Includes $125,000 from the sale of used equipment. Page 5 of 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Both revenues and profits improved for the third quarter of fiscal 1996 ended December 31, 1995 as compared to the third quarter of fiscal 1995. Revenues for the third quarter of fiscal 1996 increased 4% as compared to the third quarter of fiscal 1995. Revenues for the third quarter were, however, 13% lower as compared to the revenues for the second quarter of 1996 due mainly to: i) annual shut down during the year end holidays and ii) delays in billing on a government contract due to delays in funding authorization. The profits for the third quarter of fiscal 1996 increased 129% as compared to the profits for second quarter of fiscal 1996, despite the reduction in revenues. Revenues of $1,866,863 for the first nine months of fiscal 1996 are 27% higher than the revenues of $1,464,872 for the same period of fiscal 1995, due mainly to increase in contract revenues. Whereas the contract revenues increased by $635,109, the Company experienced a reduction in production revenues of $233,117 during the first nine months of fiscal 1996 as compared to the same period of fiscal 1995. The Company continues to work towards its goal of improving production revenues by manufacturing and marketing of products based on its own technology. The Company is reporting a net profit of $33,894 for the third quarter of fiscal 1996 as compared to a net loss of ($62,032) for the third quarter of fiscal 1995. For the first nine months of fiscal 1996 the Company is reporting a profit of $32,202 as compared to losses of ($304,895) for the first nine months of fiscal 1995. The high cash balance has contributed to the Company's profit, through interest income. The Company's backlog of uncompleted contracts continues to improve, approximately $4.6 million at December 31, 1995. The Company continues to win new government contracts. Also, development continues on the new product to be manufactured in our planned Aberdeen facility. Liquidity and Capital Resources: The Company's cash balance at December 31, 1995 is $2,167,855. The Company's current ratio is over thirteen to one. The Company raised approximately $1.8 million in a private placement of 600,000 shares of the Company's common stock late in the second quarter of fiscal 1996. These funds will be used to supplement the $6.5 million of assistance from the State of South Dakota and the City of Aberdeen for the construction of a new optoelectronic product manufacturing facility in Aberdeen, South Dakota. Page 6 of 7 PART II. OTHER INFORMATION ITEMS 1 - 5. Not Applicable. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibit 11: Statement RE: Computation of per share earnings. (b) Exhibit 27: Financial Data Schedules There were no reports on Form 8-K filed during the three months ended December 31, 1995. Signatures In accordance with the requirements of the Securities Exchange Act of 1934, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. APA OPTICS, INC. 2/07/96 s/s Anil K. Jain Date Anil K. Jain President Principal Executive Officer Treasurer & Principal Financial Officer 2/07/96 s/s Randal J. Becker Date Randal J. Becker Principal Accounting Officer