Page 1 of 8 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 June 30, 1996 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 June 30, 1996 Common stock, par value $.01 8,146,360 Page 2 of 8 PART 1, FINANCIAL INFORMATION ITEM 1, FINANCIAL STATEMENTS APA OPTICS, INC. CONDENSED BALANCE SHEETS
ASSETS June 30 March 31 1996 1996 CURRENT ASSETS: (Unaudited) (Audited)* Cash and short-term investments $3,829,920 $2,256,309 Accounts receivable 384,597 406,852 Inventories: Raw Materials 31,805 24,806 Work-in-process & finished goods 143,407 105,993 Costs in excess of billings on research contracts 218,433 210,658 Prepaid expenses 18,589 30,305 Bond reserve funds 91,667 66,667 TOTAL CURRENT ASSETS 4,718,418 3,101,590 PROPERTY AND EQUIPMENT, NET 1,309,050 1,157,570 OTHER ASSETS 2,850,482 497,189 $ 8,877,950 $ 4,756,349 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current Portion of Long-Term Debt $ 135,638 $ 100,000 Accounts payable 65,691 112,857 Accrued expenses 101,470 91,264 TOTAL CURRENT LIABILITIES 302,799 304,121 LONG TERM DEBT 4,004,362 345,000 SHAREHOLDERS' EQUITY Undesignated shares; 5,000,000 shares authorized; none issued --- --- Common stock, $.01 par value; 15,000,000 shares authorized; 8,146,360 & 7,990,007 issued 81,464 79,900 Paid-in-capital 7,456,339 6,930,826 Retained earnings (deficit) (2,967,014) (2,903,498) 4,570,789 4,107,228 $ 8,877,950 $ 4,756,349
* Derived from audited financial statements Page 3 of 8 APA OPTICS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended June 30, 1996 1995 REVENUES $ 538,388 $ 592,017 COSTS AND EXPENSES: Cost of sales and services 356,740 445,326 Selling, general & administrative 149,226 152,627 Research & development 108,356 2,467 614,322 600,420 Gain/Loss from Operations (75,934) (8,403) INTEREST INCOME & EXPENSE: Interest Income 21,188 2,445 Interest Expense (8,521) (10,279) 12,667 (7,834) INCOME (LOSS) BEFORE INCOME TAXES (63,267) (16,237) INCOME TAX EXPENSE (BENEFIT) 250 250 NET INCOME (LOSS) $ (63,517) $ (16,487) EARNINGS (LOSS) PER COMMON & COMMON EQUIVALENT SHARE (EXHIBIT 11) $(.01) $(.00) WEIGHTED AVERAGE SHARES OUTSTANDING 8,000,784 7,381,792
Page 4 of 8 APA OPTICS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 1996 1995 OPERATING ACTIVITIES Net Income (loss) $ (63,517) $ (16,487) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 109,294 103,193 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 22,255 (38,953) (Increase) decrease in inventories and prepaid expenses (65,472) (18,424) Increase (decrease) in accounts payable and accrued expenses (1,322) (60,324) Other 24,028 (38,003) Net cash provided by (used in) operating activities 25,266 (68,998) INVESTING ACTIVITIES (Purchases) Sales of property and equipment (248,773) (23,376) Net cash used in investing activities (248,773) (23,376) FINANCING ACTIVITIES Proceeds from the sale of common stock 527,077 4,492 Long term debt proceeds 3,659,362 --- Ernest money deposit on bond financing (315,000) --- Debt placement costs (277,182) --- Bond reserve funds (1,797,139) --- Net cash provided by financing activities 1,797,118 4,492 Increase (decrease) in cash 1,573,611 (87,882) Cash at Beginning of Period 2,256,309 401,034 Cash at End of Period $3,829,920 $ 313,152
NOTE TO CONDENSED FINANCIAL STATEMENTS 1. In the opinion of management, the information furnished reflects all adjustments which are necessary to a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. The results of any interim period are not necessarily indicative of results for the full year. Page 5 of 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Revenues for the first quarter of fiscal 1997 ended June 30, 1996 were $538,388, a decrease of 9% from the first quarter of fiscal 1996 ended June 30, 1995. While the production revenues increased by $21,665 during the first quarter of fiscal year 1997 as compared to the first quarter of fiscal year 1996, the contract revenues decreased by $75,294 resulting in an overall decrease of $53,629 for the period. The decrease in revenues for the first quarter of fiscal 1997 as compared to revenues of the first quarter of fiscal 1996 can be attributed to a substantial increase in internal research & development funded by the Company, by personnel who would otherwise be generating revenues working on government paid contracts. Also, the Company has experienced significant administration costs associated with the Aberdeen project. The increase in IR&D results from continuing efforts in the modulator production plans for our Aberdeen facility. Internal research and development expenses were $108,356 during the first quarter of fiscal year 1997 as compared to $2,467 for the first quarter of fiscal year 1996. The Company's backlog of unfinished government contracts is approximately $3.6 million at the end of the first quarter of fiscal 1997. The Company has hired additional research scientists in the first quarter, which is expected to result in increased contract revenues in the second quarter of fiscal 1997. For the first quarter of fiscal 1997, the Company is reporting a net loss of ($63,517) as compared to a net loss of ($16,487) for the first quarter of fiscal 1996. This increase in losses of $47,030 is mainly due to an increase of $105,889 in company paid research and development expenses. The Company anticipated it would initially lose money on the Aberdeen project, as reported previously in our fiscal 1996 annual report. The Company's combined research & development activities (contract and internal) increased by $30,595 for the first quarter of fiscal 1997 as compared to the first quarter of fiscal 1996. Liquidity and Capital Resources: The Company's cash balance at June 30, 1996 is $3,829,920, an increase of $1,573,611 from the year ended March 31, 1996. The Company's current ratio is over fifteen to one. The Company believes that it has sufficient cash to maintain its normal operations through the balance of fiscal 1997 and beyond. During Page 6 of 8 the first quarter of fiscal 1997 the Company closed on the financial assistance programs from the State of South Dakota and Aberdeen, South Dakota. The total financing is not complete at this time, but the Company has acquired funding of $3,445,000 along with equity proceeds of $500,000, and a land grant of $250,000. The facility in Aberdeen will begin construction during the second quarter of fiscal 1997. Page 7 of 8 PART II. OTHER INFORMATION ITEMS 1 - 5. Not Applicable. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibit 4.1(a) State of South Dakota Board of Economic Development $300,000 Promissory Note, REDI Loan No: 95-13-A 4.1(b) State of South Dakota Board of Economic Development Security Agreement, REDI Loan No: 95-13-A dated May 28, 1996 4.2(a) $700,000 Loan Agreement dated June 24, 1996 by and between Aberdeen Development Corporation and APA Optics, Inc. 4.2(b) $300,000 Loan Agreement dated June 24, 1996 by and between Aberdeen Development Corporation and APA Optics, Inc. 4.2(c) $250,000 Loan Agreement dated June 24, 1996 by and between Aberdeen Development Corporation and APA Optics, Inc. 4.2(d) $300,000 Loan Agreement dated June 24, 1996 by and between Aberdeen Development Corporation and APA Optics, Inc. 4.3(a) Loan Agreement between South Dakota Economic Development Finance Authority and APA Optics, Inc. 4.3(b) Mortgage and Security Agreement - One Hundred Day Redemption from APA Optics, Inc. to South Dakota Economic Development Finance Authority dated as of June 24, 1996 4.4(a) Subscription and Investment Representation Agreement of NE Venture, Inc. 4.4(b) Form of Common Stock Purchase Warrant for NE Venture, Inc. 11: Statement RE: Computation of per share earnings. 27: Financial Data Schedule Page 8 of 8 (b) Reports on Form 8-K There were no reports on Form 8-K filed during the three months ended June 30, 1996. 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. 08/13/96 s/s Anil K. Jain Date Anil K. Jain President Principal Executive Officer Treasurer & Principal Financial Officer 08/13/96 s/s Randal J. Becker Date Randal J. Becker Principal Accounting Officer