Page 1 of 6 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB X Quarterly report pursuant to Section 13 or 15(d) of the Securitie s Exchange Act of 1934 For the quarterly period ended December 31, 1996 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934 For the transition period from to . Commission File Number 0-16106 APA Optics, Inc. (exact name of 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, 1996 Common stock, par value $.01 8,304,624 Page 2 of 6 PART 1, FINANCIAL INFORMATION ITEM 1, FINANCIAL STATEMENTS APA OPTICS, INC. CONDENSED BALANCE SHEETS
ASSETS December 31 March 31 1996 1996 CURRENT ASSETS: (Unaudited) (Audited) * Cash and short-term investments $4,312,813 $2,256,309 Accounts receivable 779,565 406,852 Inventories: Raw materials 18,158 24,806 Work-in-process & finished goods 141,427 105,993 Costs in excess of billings on research contracts 0 210,658 Prepaid expenses 35,247 30,305 Bond reserve funds 43,750 66,667 TOTAL CURRENT ASSETS 5,330,960 3,101,590 PROPERTY AND EQUIPMENT, NET 1,394,095 1,157,570 OTHER ASSETS 2,826,666 497,189 $ 9,551,721 $ 4,756,349 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 152,517 $ 100,000 Accounts payable 75,579 112,857 Accrued expenses 106,861 91,264 TOTAL CURRENT LIABILITIES 334,957 304,121 LONG-TERM DEBT 3,938,575 345,000 SHAREHOLDERS' EQUITY Undesignated shares; 5,000,000 shares authorized; none issued - --- --- Common stock, $.01 par value; 15,000,000 shares authorized; 8,304,624 & 7,990,000 issued 83,046 79,900 Paid-in capital 8,208,943 6,930,826 Retained earnings (deficit) (3,013,800) (2,903,498) 5,278,189 4,107,228 $ 9,551,721 $ 4,756,349
* Derived from audited financial statements Page 3 of 6 APA OPTICS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Nine months ended December 31 December 31 1996 1995 1996 1995 REVENUES $ 666,014 $ 592,018 $1,877,068 $1,866,863 COSTS AND EXPENSES: Cost of sales and services 522,583 456,282 1,321,651 1,449,017 Selling, general & administrative 135,582 112,774 442,071 392,133 Research & development 86,115 0 312,121 2,467 744,280 569,056 2,075,843 1,843,617 Gain/Loss from Operations: (78,266) 22,962 (198,775) 23,246 INTEREST INCOME & EXPENSE: Interest Income 84,927 19,703 200,470 37,613 Interest Expense (45,753) (8,521) (110,567) (27,907) 39,174 11,182 89,903 9,706 INCOME (LOSS) BEFORE INCOME TAXES (39,092) 34,144 (108,872) 32,952 INCOME TAX EXPENSE (BENEFIT) 930 250 1,430 750 NET INCOME (LOSS) $ (40,022) $ 33,894 $ (110,302) $ 32,202 EARNINGS (LOSS) PER COMMON & COMMON EQUIVALENT SHARE (EXHIBIT 11) $ (.00) $ .00 $ (.01) $ .00 WEIGHTED AVERAGE SHARES OUTSTANDING 8,304,624 8,029,569 8,155,944 7,651,545
Page 4 of 6 APA OPTICS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended December 31 1996 1995 OPERATING ACTIVITIES Net income (loss) $ (110,302) $ 32,202 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 333,863 303,708 Changes in operating assets and liabilities: Accounts receivable (372,713) (63,009) Inventories and prepaid expenses (10,811) 1,622 Costs in excess of billings on research contracts 210,658 --- Accounts payable and accrued expenses 30,836 (15,271) Other assets (20,429) (194,534) Net cash provided by (used in) operating activities 61,102 64,718 INVESTING ACTIVITIES Purchases of property and equipment (284,388) (13,888) Net cash (used in) investing activities (284,388) (13,888) FINANCING ACTIVITIES Proceeds from the sale of common stock 1,281,263 1,810,991 Long-term debt proceeds 3,472,483 --- Earnest money deposit on bond financing (315,000) --- Debt placement costs (253,721) --- Bond reserve funds (1,776,327) --- Repayment of long-term debt (128,908) (95,000) Net cash provided by financing activities 2,279,790 1,715,991 Increase in cash 2,056,504 1,766,821 Cash at Beginning of Period 2,256,309 401,034 Cash at End of Period $ 4,312,813 $ 2,167,855 Supplemented schedule of non-cash transactions: Land and corresponding deferred revenue $ 250,000 $ ---
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 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: Revenues for the third quarter of fiscal 1997 ended December 31, 1996 were $666,014, an increase of 12% from the third quarter of fiscal 1997 ended December 31, 1995. The third quarter revenues of fiscal 1997 are down 1% as compared to the second quarter of fiscal 1997. Revenues for the first three quarters of fiscal 1997 are up one percent as compared to the first three quarters of fiscal 1996. For the third quarter of fiscal 1997, the Company is reporting a loss of $40,022 as compared to a loss of $6,763 in the second quarter of fiscal 1997. For the first three quarters of fiscal 1997, the Company is reporting a loss of $110,302 as compared to a profit of 32,202 for the first three quarters of fiscal 1996. Although the Company has a loss for the first nine months of fiscal 1997 as compared to a profit for the first nine months of fiscal 1996, the Company's gross profit margin increased from 22% in fiscal 1996 to 30% in fiscal 1997. The main reason for the increased losses in spite of the increased gross profit margin in 1997, is the significant increase in internal research and development and administrative costs relative to the move toward product manufacturing. Research and development costs have increased from $ 2,467 for the first nine months of fiscal 1996 to $312,121 for the first nine months of fiscal 1997. The Company plans to continue these IR&D costs attributed to further development of the WDM receiver in the following quarters. Liquidity and Capital Resources: The Company's cash balance at December 31, 1996 is $4,312,813 compared to $2,256,309 at March 31, 1996. The Company's account receivable balance has increased to $779,565 at December 31, 1996 compared to $406,852 at March 31, 1996, primarily due to the delay in payment on government contracts. These payments were received early in the fourth quarter of fiscal 1997. The cash increase can be attributed to the Company completing additional financing with Aberdeen, South Dakota. The Company continues construction of the Aberdeen facility and plans to complete construction by March 1997. Page 6 of 6 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, 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. February 7, 1997 s/s Anil K. Jain Date Anil K. Jain President Principal Executive Officer Treasurer & Principal Financial Officer February 7, 1997 s/s Randal J. Becker Date Randal J. Becker Principal Accounting Officer