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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended March 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from _____________ to _____________.
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
(612) 784-4995
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding 12 months and (2) has been subject to the filing requirements for the
past 90 days. [X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of May 18, 1999, was approximately $33,040,581.
The number of shares of Common Stock outstanding as of May 18, 1999 was
8,512,274.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the proxy statement for the annual shareholders meeting to
be held on August 18, 1999 ("Proxy Statement") are incorporated by
reference into Part III.
PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
From its founding in 1979, the Company has focused on leading edge
research in sophisticated optoelectronic and optical system areas with the
primary goal of developing advanced products for subsequent marketing and
fabrication. APA Optics, Inc. currently manufactures DWDM optical components,
offers a range of Nitride-based devices and services, and markets custom optics
products.
For the last several years the Company's goal has been to manufacture
and market products/components based on its technology developments. The Company
selected 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). These areas were selected due to significant potential markets and
the Company's expertise and/or patent positions. If the Company is successful in
manufacturing and marketing of these products, the Company expects to
significantly increase its revenues and achieve profitability.
In order to perform product development and production, the Company
needs to fully utilize its personnel and facilities. The Company could only
accomplish this by reducing its emphasis on R&D contracts, realizing that this
shift will significantly reduce revenues and increase losses until the Company
realizes revenues from its products. Although the Company has purchased a
significant amount of equipment in previous fiscal years, it will still need
additional equipment as well as additional personnel to meet its objectives.
(b) DESCRIPTION OF BUSINESS.
PRODUCTS AND SERVICES
(i) Optical Lens Systems. The Company designs and builds 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, alignment verification optics for dual
magnetic recording heads, and multi-magnification optics systems for optical
comparators.
(ii) Optical Thin Film Coatings. The Company custom designs, develops,
and fabricates optical thin film coatings for optical components of lasers,
laser systems, optical instruments, and optical devices. The Company uses its
optical thin film coating services in two major ways. Antireflective coatings
are deposited onto Company-fabricated lens components. The Company also uses its
thin film coating facility to design, develop and fabricate coating for lens
components supplied by customers.
(iii) Optoelectronics Devices. The Company is focusing its research and
development efforts on several optoelectronic devices. Optoelectronic devices
are vital components of communication systems and optical instruments.
Currently, the Company is developing the following devices:
Dense Wavelength Division Multiplexer (DWDM). Recently, the Company
demonstrated the feasibility of a DWDM capable of transmitting several
channels through a single optical fiber for communication applications.
APA Optics developed the DWDM based on its 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 halographic gratings. The DWDM developed recently
provides a major break-through in that information can travel on
several different channels within a single fiber (a simple analogy is
the expansion of a single lane highway to multi-lane throughway). As a
result, the DWDM provides higher speed, increased and regulated data
handling
2
capabilities as compared to a single channel modulator. The Company is
currently performing environmental packaging of the DWDM.
The Company filed the first patent related to the DWDM Optical
Modulator in June 1994, which was allowed on May 8, 1995. Since then,
the Company has filed for four additional patents related to DWD
Multiplexer/Demultiplexer devices. The Company was awarded two of these
patents in March 1997 and February 1998. The other two applications are
still pending.
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. The Company believes 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. The Company
has been awarded at least four patents in Nitride related technologies.
Other Products
The Company is in the process of introducing several other products by
packaging its 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
The Company has delivered a limited number of alpha units of DWDM to
customers during fiscal 1999 and 2000. The Company has sold several UV detectors
to more than 30 customers as well as a few detector/electronics packages. During
this time, the Company has been aggressively marketing both products by
advertising in relevant professional magazines, showcasing its products in trade
shows, direct mailing, personal visits, distributors in various countries, such
as Japan, Germany, Italy and France. The Company also maintains product
information on its Web Page. The Company has a sales manager who focuses on
sales of DWDM and two persons who work on marketing and sales of Nitride-based
products.
SOURCES OF RAW MATERIALS
Two principal materials used by the Company in its business are optical
glass and optical chips. Optical glass is commercially available through several
distributors. The Company currently uses at least two vendors for optical chips
and continuously looks for additional vendors for these parts. Certain chemicals
and other materials used by the Company are routinely available from several
sources.
ENVIRONMENTAL COMPLIANCE
Because the Company handles a number of chemicals in its operations, it
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, the Company provided research and development services
under contracts with various governmental agencies. Currently, the Company has
no material contracts with any of such agencies.
In its efforts to promote sales of new products, the Company has begun
to develop relationships with several potential new customers.
3
Revenues from the following unrelated customers constituted more than
ten percent of the Company's total operating revenues in the last three fiscal
years:
Year Ended March 31
-------------------
Name 1999 1998 1997
- ------------------------------------------ ---- ---- ----
Government Agencies* 67% 89% 93%
*REPRESENTS SERVICES TO SEVERAL OPERATING AGENCIES OF THE U.S. GOVERNMENT, AS
FOLLOWS:
1999 1998 1997
---- ---- ----
Air Force 23% 20% 42%
Army 0 25 22
Navy 19 38 36
ARPA 58 17 --
---- ---- ----
Total 100% 100% 100%
==== ==== ====
BACKLOG
The Company's backlog of uncompleted contracts at March 31, 1999, was
approximately $189,000, as compared to $1,300,000 at March 31, 1998, and
$3,200,000 at March 31, 1997. Of the current year's backlog, all contracts will
be completed within the next year. The reduced backlog is a direct result of the
Company's shift from contract R&D to product development and promotion.
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 those of the Company. The Company believes that it has a
competitive advantage due to its patents and the uniqueness of the device
characteristics. In particular, the Company believes its DWDM is the most
efficient (lowest insertion loss) and compact device currently available.
RESEARCH AND DEVELOPMENT
During the fiscal years ended March 31, 1999, 1998, and 1997 the
Company spent approximately $382,000, $339,000, and $375,000, respectively, on
research and development sponsored by the Company, all of which was related to
the DWDM, UV detector and related products. In addition, in each of those years,
the Company spent approximately $837,000, $1,431,000, and $1,610,000,
respectively, on research activities sponsored by customers.
EMPLOYEES
As of March 31, 1999, the Company employed 36 full-time employees
(including its executive officers).
ITEM 2. PROPERTIES.
The Company's corporate offices, manufacturing facilities, and
laboratories are located in an industrial building at 2950 N.E. 84th Lane,
Blaine, Minnesota. The Company currently leases 23,500 square feet of space in
the building under sublease from Jain-Olsen Properties, a partnership consisting
of Anil K. Jain and Kenneth A. Olsen, officers and directors of the Company. See
Note 9 of Notes to Financial Statements included under Item 8 hereof. The
Company owns land directly west of the Blaine facility that may be used for
future expansion.
The Company also has a 24,000 square foot production facility in
Aberdeen, South Dakota, which is used for manufacturing the Company's DWDM
components and UV detectors. The land upon which this facility is located was
granted to the Company as part of a financing package from the City of Aberdeen.
See Note 5 of Notes to Financial
4
Statements included under Item 8 hereof for further information regarding the
financing of this facility.
The Company believes that these two facilities will be adequate for its
needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently subject to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock is traded on The Nasdaq Small Cap Market.
The following table sets forth the quarterly high and low prices for the
Company's Common Stock for each quarter of the past two fiscal years as reported
by Nasdaq.
FISCAL 1999 HIGH LOW
- ----------- ---- ---
Quarter ended June 30, 1998......................... $6-3/4 $5-5/8
Quarter ended September 30, 1998.................... 6 4-1/4
Quarter ended December 31, 1998..................... 5 4
Quarter ended March 31, 1999........................ 10 4-3/4
FISCAL 1998
- -----------
Quarter ended June 30, 1997......................... $6-1/2 $5-1/4
Quarter ended September 30, 1997.................... 6-5/8 5-3/8
Quarter ended December 31, 1997..................... 9-1/4 6-1/8
Quarter ended March 31, 1998........................ 8 5-1/2
There were approximately 358 holders of record of the Company's Common
Stock as of March 31, 1999.
The Company has paid no cash dividends on its Common Stock. The loan
agreement relating to certain bonds issued by the South Dakota Economic
Development Finance Authority restricts the Company's ability to pay dividends
on its capital stock.
ITEM 6. SELECTED FINANCIAL DATA.
YEAR ENDED MARCH 31
-------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Statements of Operations Data
Revenues ................................................. $ 722,030 $ 2,190,637 $ 2,769,270 $ 2,485,833 $ 2,028,485
Net loss ................................................. (2,513,798) (967,767) (11,023) (92,474) (468,681)
Net loss per share, basic and diluted .................... (.30) (.12) -- (.01) (.06)
Weighted average number of shares, basic and diluted ..... 8,512,274 8,376,661 8,192,879 7,734,082 7,325,970
Balance Sheet Data
Total assets ............................................. $ 6,804,976 $ 9,629,912 $ 9,419,398 $ 4,756,349 $ 3,063,097
Long-term obligations, including current portion ......... 3,214,712 3,609,652 3,829,004 445,000 540,000
Shareholders' equity ..................................... 3,389,295 5,859,863 5,412,968 4,107,228 2,385,037
5
The above selected financial data should be read in conjunction with
the financial statements and related notes included under Item 8 of this Report
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in Item 7 hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company is engaged in the business of designing, manufacturing, and
marketing optical components and various optoelectronic products. For several
years, the Company also received significant revenues from providing research
and development services in connection with projects sponsored by various
government agencies. In fiscal 1998, the Company determined to shift its
emphasis from research and development to product development, with the intent
to eventually manufacture and market various products. Accordingly, revenues
from research and development contracts have decreased significantly during the
last two fiscal years.
For the last several years the Company's goal has been to manufacture
and market products/components based on its technology developments. The Company
selected 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). These areas were selected due to significant potential markets and
the Company's expertise and/or patent positions. If the Company is successful in
manufacturing and marketing these products, the Company expects to significantly
increase its revenues and achieve profitability.
In order to perform product development and production, the Company
needs to fully utilize its personnel and facilities. The Company could only
accomplish this by reducing its emphasis on R&D contracts, realizing that this
shift will significantly reduce revenues and increase losses until the Company
realizes revenues from its products. Although the Company has purchased a
significant amount of equipment in recent fiscal years, it will still need
additional equipment as well as additional personnel to meet its objectives.
RESULTS OF OPERATIONS
Fiscal 1999 Compared to Fiscal 1998. Operating revenues for fiscal 1999
were $722,030, a decrease of 67% from operating revenues of $2,190,637 in fiscal
1998. The decrease in revenues reflects the Company's decision to focus on
product development rather than contract research and development. Contract fees
decreased from $1,950,844 in fiscal 1998 to $484,329 in fiscal 1999, and the
Company's backlog of uncompleted contracts at March 31, 1999 was $189,000 as
compared to $1,200,000 at March 31, 1998. Revenues from sales of products
decreased by approximately 1% as compared to fiscal 1998. Sales of new products
in fiscal 1999 were minimal; however, the Company believes it has made
significant progress in developing its new products and the related
manufacturing processes and that there will be revenues from sales of such
products in fiscal 2000.
Cost of sales increased by approximately 52%, to $1,366,105, in fiscal
1999 from $901,538 in fiscal 1998. Cost of contract fees decreased by 41% in
fiscal 1999, reflecting the decreased revenues from contract research and
development. Gross margin for product sales was negative in both fiscal 1999 and
fiscal 1998, reflecting continued personnel and product development costs. Gross
margin for contract fees was negative in fiscal 1999 and 27% in fiscal 1998.
This deterioration is the result of decreased contract revenues. Research and
development expenses increased by approximately 13% in fiscal 1999, to $382,445
from $338,615, and selling, general and administrative expenses increased by 18%
to $727,988 in fiscal 1999 compared to $616,532 in fiscal 1998. The increase in
costs of sales, research and development and selling, general and administrative
expenses reflects the Company's focus on product development, including the
hiring of additional personnel for production, marketing, and sales.
The Company reported a loss from operations in fiscal 1999 of
$2,591,750, a substantial increase over the loss from operations of $1,096,626
in fiscal 1998. This loss results from the combination of significantly
decreased revenues without a corresponding decrease in costs and expenses.
The Company realized $228,195 in interest income in fiscal 1999, down
27% from $310,925 in fiscal 1998, reflecting lower average cash balances during
the year. Interest expense in fiscal 1999 totaled $149,243, down 18% from
$181,066 in fiscal 1998, reflecting reduced balances on outstanding obligations.
6
The Company's net loss in fiscal 1999 was $2,513,798 compared to
$967,767 in fiscal 1998. As noted above, this loss was primarily a result of
significantly decreased revenues and significantly higher cost of sales and
other operating expenses. Further losses can be expected until revenues from
production increase, or operating costs decrease, sufficiently to produce
positive cash flow.
Fiscal 1998 Compared to Fiscal 1997. Operating revenues for fiscal 1998
were $2,190,637, a decrease of 21% from operating revenues of $2,769,270 for
fiscal 1997. This decrease was primarily the result of decreased fees from
government contracts in fiscal 1998 ($1,950,844) as compared to fiscal 1997
($2,581,005). The Company had record contract fees during fiscal 1997 as
compared to prior years. Contract revenues were down for two reasons. First, the
Company decided to emphasize the product development, manufacturing and
marketing of its technology based products. This product emphasis also affected
the Company's backlog of research contracts, which was down to $1,200,000 at
March 31, 1998, as compared to $3,200,000 at March 31, 1997. APA's product
development efforts resulted in the start of operations at its Aberdeen, South
Dakota, facility, with the manufacture of GaN-based UV detectors. The second
reason for the decrease in contract revenues was the unilateral termination of
one contract by the contracting agency.
Cost of sales in fiscal 1998 increased by 182% to $901,538 as compared
to $319,626 in fiscal 1997. The greatest portion of these costs were associated
with the new production facility in Aberdeen. Cost of contract fees decreased by
approximately 11% in fiscal 1998 to $1,430,578 from $1,609,574, reflecting in
part reduced contract revenues. The decrease in gross margin for contract fees
(from 38% in fiscal 1997 to 27% in fiscal 1998) also results from decreased
contract revenues. Research and development and selling general and
administrative expenses both decreased in fiscal 1998 as compared to fiscal
1997.
The Company's loss from operations in fiscal 1998 was $1,096,626 as
compared to a loss of $128,768 in fiscal 1997. This significantly increased loss
reflected both the decrease in revenues and the increased expenses associated
with the production facility in Aberdeen.
In fiscal 1998 interest income increased by approximately 13%, to
$310,925 from $274,976 in fiscal 1997, and interest expense increased by
approximately 16%, to $181,066 in fiscal 1998 from $156,231 in fiscal 1997.
These increases reflected higher cash and cash equivalent balances and higher
balances on outstanding debt.
The Company's net loss in fiscal 1998 of $967,767, or $.12 per share,
as compared to the net loss in fiscal 1997 of $11,023, or $.00 per share,
results from the factors noted above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents balance at March 31, 1999, is
$2,812,849 as compared to $5,184,215 at March 31, 1998. This reduction primarily
results from the use of $1,974,790 net cash in operating activities, of which
the most significant cause was the Company's net loss of $2,513,798. The Company
used $236,891 net cash in investing activities in fiscal 1999, all for the
purchase of property and equipment. This compares to use of net cash of $925,494
and $1,347,358 in fiscal 1998 and fiscal 1997. In all three years, such property
and equipment was purchased primarily for the Aberdeen facility. During fiscal
1999, the Company used $159,685 net cash in financing activities. The Company
paid the $240,000 balance on a loan from the Minnesota Agricultural and Economic
Development Board. This loan had been funded in 1989 for the purchase of
equipment for the Company's manufacturing facility in Blaine. A portion of this
repayment was made with $125,000 held in a bond reserve account.
In connection with the construction of the manufacturing facility in
Aberdeen, the Company took advantage of certain economic incentive programs
offered by the State of South Dakota and the City of Aberdeen. At March 31,
1999, the total principal outstanding on the several loans obtained in
connection with these financing packages was $3,214,712. Interest on the loans
ranges from 0% to 6.75%, and the loans are due between 2003 and 2016. For
further information regarding these loans, see Note 5 of Notes to Financial
Statements included under Item 8 of this Report. These loans require that the
Company maintain certain minimum levels of net worth and income to outstanding
debt ratios. The Company was out of compliance with these covenants in fiscal
1999. Such noncompliance does not constitute an event of default but triggers
further covenants under the loan agreement, with which the Company was in
compliance at March 31, 1999.
The Company anticipates approximately $250,000 in capital expenditures
in fiscal 2000, primarily for equipment. The funds for these purchases will come
from funds available under the financing packages with the State of South Dakota
and the City of Aberdeen.
7
The Company's use of net cash in operating activities during fiscal
1999 and the related decrease in its cash balance emphasizes the Company's need
to increase sales in order to maintain its operations. The auditor's report on
the fiscal 1999 financial statements contain a qualification as to the
Company's ability to continue as a going concern in light of its low sales and
high costs. For the past several years, the Company has been working on the
design and development of new optoelectronic products, in particular a dense
wavelength division multiplexer and products based on Gallium Nitride
technology. In order to focus on these efforts, beginning in fiscal 1998 the
Company reduced its emphasis on contract research and development, resulting in
significantly reduced revenues. This shift in emphasis was necessary to utilize
the Company's personnel and facilities in the product development effort. The
Company believes that design of the new products and the manufacturing process
is now essentially complete, and it has stepped up its efforts to market these
products. A newly hired marketing team has identified several potential markets
and customers. The Company believes that it can generate sufficient revenues
from sales of these products to sustain its operations through the next fiscal
year. If the Company does not adequately increase revenues, it plans to decrease
expenses by reducing inventory and personnel and to discontinue one or more
products. In addition, the Company will investigate sources of additional
capital. There can be no assurance, however, that the Company will be successful
in achieving its plans or obtaining additional financing, if needed.
YEAR 2000 READINESS
The Company's year 2000 plan has been primarily directed toward
ensuring that the Company will be able to perform critical functions, such as
manufacturing, handling of all financial transactions, and maintaining integrity
of other business operations, controls, financial reporting, security and other
matters. The Company has engaged in an assessment of year 2000 readiness both
internally and with its various business partners, including vendors and service
providers. The Company has determined that substantially all software, operating
systems, and accounting systems have been corrected or are year 2000 compliant.
Its security system and telephone systems are year 2000 compliant. The Company
has contacted its various business partners to receive assurances that such
entities are year 2000 compliant. The cost associated with the Company's year
2000 readiness program has not been material to date and the Company expects
that any future costs will also not be material and will have no adverse effect
on the Company's earnings or financial position.
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 the Company's
control. These factors include, but are not limited to, the continued
development of the Company's products, acceptance of those products by potential
customers, the Company's ability to sell such products at a profitable price,
the Company's readiness for year 2000, and the Company's ability to fund its
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's operations are not currently subject to market risks for
interest rates, foreign currency exchange rates, commodity prices or other
market price risks of a material nature.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
APA OPTICS, INC.
Financial Statements
Years ended March 31, 1999, 1998 and 1997
Page
----
Report of Independent Auditors............................................... 9
Audited Financial Statements
Balance Sheets......................................................... 10
Statements of Operations............................................... 12
Statement of Shareholders' Equity...................................... 13
Statements of Cash Flows............................................... 14
Notes to Financial Statements.......................................... 15
8
Report of Independent Auditors
The Board of Directors and Shareholders
APA Optics, Inc.
We have audited the accompanying balance sheets of APA Optics, Inc. as of March
31, 1999 and 1998, and the related statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of APA Optics, Inc. at March 31,
1999 and 1998, and the results of its operations and its cash flows for each of
the three years in the period ended March 31, 1999, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company's accumulated
deficit and recurring losses from operations raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that may result from the outcome of this uncertainty.
May 14, 1999
9
APA Optics, Inc.
Balance Sheets
MARCH 31
1999 1998
------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,812,849 $ 5,184,215
Accounts receivable 85,091 236,284
Inventories:
Raw materials 54,208 11,965
Work-in-process 167,659 145,156
Prepaid expenses 18,911 22,975
Bond reserve funds 60,000 131,667
------------------------------
Total current assets 3,198,718 5,732,262
Property, plant and equipment 2,592,503 2,702,887
Other assets:
Bond reserve funds 533,100 653,458
Bond placement costs 212,012 260,012
Other 268,643 281,293
------------------------------
1,013,755 1,194,763
------------------------------
Total assets $ 6,804,976 $ 9,629,912
==============================
10
MARCH 31
1999 1998
-------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 53,416 $ 36,960
Accrued expenses 147,553 123,437
Current maturities of long-term debt 133,200 226,385
-------------------------------
Total current liabilities 334,169 386,782
Long-term debt 3,081,512 3,383,267
Shareholders' equity
Undesignated shares; 5,000,000 shares authorized,
none issued
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 8,512,274 85,123 85,123
Additional paid-in capital 9,700,258 9,657,028
Accumulated deficit (6,396,086) (3,882,288)
-------------------------------
Total shareholders' equity 3,389,295 5,859,863
-------------------------------
Total liabilities and shareholders' equity $ 6,804,976 $ 9,629,912
===============================
SEE ACCOMPANYING NOTES.
11
APA Optics, Inc.
Statements of Operations
YEAR ENDED MARCH 31
1999 1998 1997
------------------------------------------------
Revenues:
Net sales $ 237,701 $ 239,793 $ 188,265
Contract fees 484,329 1,950,844 2,581,005
------------------------------------------------
722,030 2,190,637 2,769,270
Costs and expenses:
Cost of sales 1,366,105 901,538 319,626
Cost of contract fees 837,242 1,430,578 1,609,574
Research and development 382,445 338,615 374,604
Selling, general and administrative 727,988 616,532 594,234
------------------------------------------------
3,313,780 3,287,263 2,898,038
------------------------------------------------
Loss from operations (2,591,750) (1,096,626) (128,768)
Interest income 228,195 310,925 274,976
Interest expense (149,243) (181,066) (156,231)
------------------------------------------------
Loss before income taxes (2,512,798) (966,767) (10,023)
Income taxes 1,000 1,000 1,000
------------------------------------------------
Net loss $(2,513,798) $ (967,767) $ (11,023)
================================================
Net loss per share:
Basic and diluted $ (.30) $ (.12) $ --
================================================
Weighted average shares outstanding:
Basic and diluted 8,512,274 8,376,661 8,192,879
================================================
SEE ACCOMPANYING NOTES.
12
APA Optics, Inc.
Statement of Shareholders' Equity
COMMON STOCK ADDITIONAL
--------------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
------------------------------------------------------------
Balance March 31, 1996 7,990,007 $ 79,900 $ 6,930,826 $(2,903,498)
Stock options exercised, net 2,000 20 3,605 --
Warrants exercised 24,625 246 81,017 --
Shares issued under private stock offering to
Aberdeen Group, net of issuance costs 289,992 2,900 1,197,100 --
Warrants issued for services in connection with bond
financing -- -- 31,875 --
Net loss -- -- -- (11,023)
------------------------------------------------------------
Balance March 31, 1997 8,306,624 83,066 8,244,423 (2,914,521)
Stock options exercised, net 3,500 35 7,871 --
Warrants exercised 202,150 2,022 1,343,861 --
Warrants issued in lieu of debt service payments -- -- 60,873 --
Net loss -- -- -- (967,767)
------------------------------------------------------------
Balance March 31, 1998 8,512,274 85,123 9,657,028 (3,882,288)
Warrants issued in lieu of debt service payments -- -- 43,230 --
Net loss -- -- -- (2,513,798)
------------------------------------------------------------
Balance March 31, 1999 8,512,274 $ 85,123 $ 9,700,258 $(6,396,086)
============================================================
SEE ACCOMPANYING NOTES.
13
APA Optics, Inc.
Statements of Cash Flows
YEAR ENDED MARCH 31
1999 1998 1997
------------------------------------------------
OPERATING ACTIVITIES
Net loss $(2,513,798) $ (967,767) $ (11,023)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization 443,275 426,362 457,173
Changes in operating assets and liabilities:
Accounts receivable 151,193 119,697 50,871
Inventories (64,746) (8,758) (17,564)
Costs in excess of billings on research contracts -- -- 210,658
Prepaid expenses and other assets (31,286) (31,548) (26,921)
Accounts payable and accrued expenses 40,572 (17,029) (26,695)
------------------------------------------------
Net cash (used in) provided by operating activities (1,974,790) (479,043) 636,499
INVESTING ACTIVITIES
Purchases of property and equipment (236,891) (925,494) (1,347,358)
------------------------------------------------
Net cash used in investing activities (236,891) (925,494) (1,347,358)
FINANCING ACTIVITIES
Proceeds from sales of common stock -- 1,353,789 1,284,888
Long-term debt proceeds -- -- 3,520,000
Repayment of long-term debt (351,710) (158,479) (135,996)
Bond placement costs -- -- (253,720)
Bond reserve funds 192,025 1,518,237 (2,085,417)
------------------------------------------------
Net cash (used in) provided by financing activities (159,685) 2,713,547 2,329,755
------------------------------------------------
(Decrease) increase in cash and cash equivalents (2,371,366) 1,309,010 1,618,896
Cash and cash equivalents at beginning of year 5,184,215 3,875,205 2,256,309
------------------------------------------------
Cash and cash equivalents at end of year $ 2,812,849 $ 5,184,215 $ 3,875,205
================================================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Warrants issued in lieu of debt service payments $ 43,230 $ 60,873 $ --
Warrants issued for services in connection with
bond financing -- -- 31,875
SEE ACCOMPANYING NOTES.
14
APA Optics, Inc.
Notes to Financial Statements
March 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
APA Optics, Inc. (the "Company") is engaged in the business of developing,
designing and fabricating optical components and optical systems for laser and
other industrial applications.
REVENUE RECOGNITION
Sales are recorded upon shipment of product.
Revenue on contract fees is recorded on the percentage of completion method of
accounting for long-term government contracts. A portion of the total contract
price is recognized on the basis of contract costs incurred to date as compared
to the expected total cost of the contract. Contract costs include direct
materials, labor and manufacturing overhead. Estimated losses on uncompleted
contracts are recorded in their entirety in the period in which they are
determined.
During 1999, the Company received a $75,000 grant from the State of South Dakota
when the Company hired its tenth employee at its Aberdeen, South Dakota
production facility. The grant was designed to offset the costs of training new
employees.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a majority of three
months or less when purchased to be cash equivalents. Investments classified as
cash equivalents consist primarily of certificates of deposit. The fair value of
investments approximates cost.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method for raw materials, actual cost for direct
labor and average cost for factory overhead in work-in-process.
15
APA Optics, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on the
straight-line method over the following estimated useful lives of the assets:
YEARS
---------
Building 20
Manufacturing equipment 7 - 10
Tools 3 - 7
Office equipment 5 - 10
Leasehold improvements 15
BOND PLACEMENT COSTS
Bond placement costs are amortized over 5 - 8 years.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of assets and liabilities and their respective tax basis.
16
APA Optics, Inc.
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with Financial
Accounting Standards Board (FASB) Statement No. 128, EARNINGS PER SHARE. Basic
and diluted earnings per share are the same as the effect of outstanding stock
options and warrants is antidilutive.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records losses on long-lived assets in operations when events and
circumstances indicate that the estimate of undiscounted future cash flows
expected to be generated by those assets are less than the assets' carrying
amount.
2. GOING CONCERN
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The
Company has an accumulated deficit of $6,396,086 at March 31, 1999. In order to
focus on the design and development of new optoelectronic products, the Company
has reduced its emphasis on contract research and development, resulting in
significantly reduced revenues over the last two fiscal years. The Company
believes that design of the new products and the manufacturing process is
essentially complete and has stepped up its efforts to market these products.
The Company believes that it can generate sufficient revenues from sales of
these products to sustain its operations through the next fiscal year. If the
Company does not adequately increase revenues, it plans to decrease expenses by
reducing inventory and personnel and to discontinue one or more products. In
addition, the Company will investigate sources of additional capital. There can
be no assurance, however, that the Company will be successful in achieving its
plans or obtaining additional financing.
Due to the uncertainty regarding the achievability of management's plans, no
assurance can be given as to the Company's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amount and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
3. ACCOUNTS RECEIVABLE
Accounts receivable includes $21,032 billed under retainage provisions of
government contracts in 1999 ($34,907 in 1998).
17
APA Optics, Inc.
Notes to Financial Statements (continued)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
MARCH 31
1999 1998
--------------------------
Land $ 60,000 $ 60,000
Building 1,679,424 1,679,424
Manufacturing equipment 3,899,744 3,665,116
Tools 88,092 88,092
Office equipment 188,884 186,621
Leasehold improvements 536,447 536,447
--------------------------
6,452,591 6,215,700
Less accumulated depreciation 3,860,088 3,512,813
--------------------------
$2,592,503 $2,702,887
=========================
5. LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31
1999 1998
--------------------------
7% Minnesota Agricultural and Economic
Development Board Bond, due in increasing serial
maturities through fiscal year ending March 31, 2000,
secured by manufacturing equipment. Fully redeemed
August 1998 $ -- $ 240,000
Debt associated with the production facility in
Aberdeen, South Dakota, secured by land and
buildings 3,214,712 3,369,652
--------------------------
3,214,712 3,609,652
Less current maturities 133,200 226,385
--------------------------
$3,081,512 $3,383,267
==========================
18
APA Optics, Inc.
Notes to Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
In December 1989, the Company entered into a loan agreement with the Minnesota
Agricultural and Economic Development Board to provide bond financing for the
expansion of manufacturing facilities. These bonds were fully redeemed August 1,
1998. At March 31, 1998, the Company had on deposit with trustees $211,417 in
reserve for future payments on these bonds of which $76,667 was held in escrow
for the payment of current bond maturities.
In June 1996, the Company began construction of its new production facility in
Aberdeen, South Dakota to fabricate wavelength division multiplexed modulators.
As part of its financing of the facility, the Company has received economic
assistance from the State of South Dakota Governor's Office of Economic
Development and the Aberdeen Development Corporation (the parties) as follows:
Proceeds:
Bond financing for building construction and equipment $1,895,000
Low interest loans 875,000
Forgivable loans 750,000
Equity investment - purchase of 288,992 shares of common stock 1,200,000
-------------
$4,720,000
=============
The following is a summary of the outstanding debt at March 31 related to the
Aberdeen facility:
1999 1998
----------------------------
South Dakota Governor's Office of Economic
Development and the Aberdeen Development
Corporation Bond, 5% to 6.75% due in various
installments through 2016 $1,840,000 $1,895,000
Low interest loans, 0% to 3% due in various
installments through 2016 586,107 601,573
Forgivable loans, 3% due in various installments
through 2003 788,605 873,079
----------------------------
$3,214,712 $3,369,652
============================
19
APA Optics, Inc.
Notes to Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
The forgivable loans are contingent upon employment levels at the facility
meeting preset criteria. In exchange for any loans forgiven, the Company will
grant warrants to purchase common stock of the Company based on the number of
job credits earned by the Company in the preceding 12 months divided by the
exercise price. As of March 31, 1999, 23,864 warrants have been issued for loans
forgiven totaling $104,103. The carrying value of the low interest loans and
forgivable loans, based on similar instruments, approximates market at March 31,
1999 and 1998.
At March 31, 1999 and 1998, the Company had on deposit with trustees $593,100
and $573,708 in reserve funds for current bond maturities of which $60,000 and
$55,000 are held in escrow. These funds are included in bond reserve funds in
the accompanying balance sheets. The loan agreement requires the Company to
maintain certain minimum levels of net worth and to maintain certain income to
outstanding debt ratios. The Company was out of compliance with these covenants
in fiscal 1999. Such noncompliance does not constitute an event of default, but
triggers further covenants under the loan agreement with which the Company is in
compliance at March 31, 1999. The carrying value of the bonds approximates
market value at March 31, 1999 and 1998.
In addition, the Company has available $300,000 in promissory notes, available
until July 1, 1999, to be used for the purchase of equipment in the new
facility. There were no outstanding borrowings under this arrangement at March
31, 1999 and 1998.
As partial payment of expenses related to the Aberdeen financing, the Company
issued warrants to purchase 31,875 shares of the Company's common stock at an
exercise price of $4.00 per share. The warrants expire in March 2002. The value
assigned to the warrants of $31,875 has been capitalized as bond placement costs
and is amortized over the life of the loan agreement.
As part of the Company's plan to construct this production facility, the city of
Aberdeen, South Dakota gave the Company land with an approximate fair market
value of $250,000. The gift was contingent upon the Company staying in the new
building through June 23, 2002.
Interest paid during fiscal year 1999, 1998 and 1997 was $149,243, $181,066 and
$156,231, respectively.
20
APA Optics, Inc.
Notes to Financial Statements (continued)
5. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows (assuming no debt is forgiven): 2000
- - $133,200; 2001 - $139,890; 2002 - $372,907; 2003 - $523,701; 2004 - $310,709;
thereafter - $1,734,305.
6. INCOME TAXES
As of March 31, 1999, the Company has net operating loss carryovers for federal
income tax purposes of approximately $6,616,000 expiring in fiscal years 2001 to
2018 and $43,000 in research and development credits expiring in fiscal
2001which can be used to offset federal income taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts used for financial reporting purposes and the
amounts used for income tax purposes. Significant components of the Company's
deferred taxes are as follows:
MARCH 31
1999 1998
-------------------------------
Net operating losses $ 2,113,000 $ 1,405,000
Depreciation 6,000 11,000
Research and development credits 43,000 43,000
Other 71,000 24,000
-------------------------------
Total deferred tax asset 2,233,000 1,483,000
Less valuation allowance (2,233,000) (1,483,000)
-------------------------------
Net deferred taxes $ -- $ --
===============================
Income tax expense consists of state taxes in 1999, 1998 and 1997.
7. SHAREHOLDERS' EQUITY
The Board of Directors may by resolution establish from the undesignated shares
different classes or series of shares and may fix the relative rights and
preferences of shares in any class or series.
21
APA Optics, Inc.
Notes to Financial Statements (continued)
8. STOCK OPTIONS AND WARRANTS
In fiscal 1998 and 1997, certain shareholders tendered 2,500 and 2,000 shares,
respectively, of common stock as substantial payment for 6,000 and 4,000 shares,
respectively, purchased upon exercise of their stock options.
Option activity is summarized as follows:
WEIGHTED
SHARES AVERAGE
AVAILABLE OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
----------------------------------------------
Balance March 31, 1996 236,338 10,000 $ 3.94
Additional shares reserved 500,000 -- --
Granted (75,000) 75,000 5.19
Exercised -- (4,000) 3.50
---------------------------
Balance March 31, 1997 661,338 81,000 5.20
Additional shares reserved 500,000 -- --
Granted (25,000) 25,000 6.19
Exercised -- (6,000) 4.22
Canceled 70,000 (70,000) 5.19
---------------------------
Balance March 31, 1998 1,206,338 30,000 6.10
Granted (252,500) 252,500 4.09
Canceled 20,000 (20,000) 6.24
---------------------------
Balance March 31, 1999 973,838 262,500 $ 4.18
===========================
The Company has various incentive and non-qualified stock option plans which are
used as an incentive for directors, officers and other employees, consultants
and technical advisors. Options are granted at fair market values determined on
the date of grant and vesting normally occurs over a four-year period.
The number of shares exercisable at March 31, 1999, 1998 and 1997 was 15,000,
5,000 and 6,000, respectively, at a weighted average exercise price of $5.70,
$5.65 and $4.88 per share, respectively.
22
APA Optics, Inc.
Notes to Financial Statements (continued)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The weighted average fair value of options granted in 1999, 1998 and 1997 was
$2.05, $2.83 and $2.99 per share, respectively. The exercise price of options
outstanding at March 31, 1999 ranged from $3.77 to $5.73 per share.
Pro forma information regarding net loss and net loss per share is required by
FASB Statement No. 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of Statement 123. The
fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
4.55%, 5.61% and 6.54%, volatility factor of the expected market price of the
Company's common stock of .48, .44 and .60 and a weighted-average expected life
of the options of 5 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value statement, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information is as follows:
1999 1998 1997
----------------------------------------
Pro forma net loss $(2,626,002) $(991,568) $(16,249)
Pro forma net loss per common share -
basic and diluted $(.31) $(.12) $ --
These pro forma amounts may not be indicative of future years' amounts.
23
APA Optics, Inc.
Notes to Financial Statements (continued)
8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following is a table of the warrants to purchase shares of the Company's
common stock:
WARRANTS EXERCISE PRICE EXPIRATION
OUTSTANDING PER SHARE DATE
-----------------------------------------------
Balance at March 31, 1996 415,000 $3.30 - $6.75 1996 - 2001
Granted 31,875 4.00 2000
Exercised (24,625) 3.30 2001
Expired (20,375) 3.30 1996
------------
Balance at March 31, 1997 401,875 3.30 - 6.75 1997 - 2002
Granted 15,218 4.00 2003
Exercised (202,150) 3.30 - 6.75 1997 - 1999
Expired (103,250) 6.75 1997
------------
Balance at March 31, 1998 111,693 3.30 - 4.00 1999 - 2003
Granted 8,646 5.00 2004
------------
Balance at March 31, 1999 120,339 $3.30 - $5.00 1999 - 2004
============
9. COMMITMENTS
The Company leases office and manufacturing facilities from a partnership whose
two partners are major shareholders and officers of the Company. The lease
agreement, classified as an operating lease, expires November 30, 1999 and
provides for periodic increases of the rental rate based on increases in the
consumer price index. Future minimum lease obligations under the lease as of
March 31, 1999 are as follows:
Year ending March 31:
2000 $77,000
=============
Rental expense, all of which was paid to the partnership, was $116,000 in fiscal
1999, $118,000 in fiscal 1998 and $118,000 in fiscal 1997.
24
APA Optics, Inc.
Notes to Financial Statements (continued)
10. MAJOR CUSTOMER
Several operating agencies of the U.S. Government account for more than 10% of
the Company's net sales and contract fees. Total revenues from the agencies were
$484,329 in 1999, $1,950,844 in 1998 and $2,581,005 in 1997 as follows:
1999 1998 1997
----------------------------------
Air Force 23% 20% 42%
Army - 25 22
Navy 18 38 36
ARPA 59 17 -
----------------------------------
Total 100% 100% 100%
==================================
25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of APA Optics, Inc. executive officers, their ages,
positions and offices as of March 31, 1999.
NAME AGE POSITION
Dr. Anil K. Jain 53 Chief Executive Officer, President,
Chief Financial Officer and Treasurer
Kenneth A. Olsen 55 Vice President and Secretary
Randal J. Becker 46 Principal Accounting Officer
DR. ANIL K. JAIN has been a Director and Chief Executive Officer,
President, Chief Financial Officer and Treasurer since March 1979. From 1973
until October 15, 1983, when Dr. Jain commenced full time employment with the
Company, he was employed at the Systems and Research Center at Honeywell Inc. as
a Senior Research Fellow, coordinating optics-related development.
KENNETH A. OLSEN has been a Director since 1980, Secretary since 1983,
and Vice President since 1992. Prior to joining the Company, he had been with 3M
Corp., St. Paul, Minnesota.
RANDAL BECKER has been Principal Accounting Officer since joining the
Company in 1987. Prior to joining the Company he was with Apache Corporation,
Minneapolis, Minnesota.
Information regarding Directors is incorporated herein by reference
from the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information requested by the above Items 11, 12, and 13 is included
in the Proxy Statement, which is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) The following financial statements are filed herewith
under Item 8.
(i) Balance Sheets as of March 31, 1998 and 1999
(ii) Statements of Operations for the years ended March
31, 1999, 1998 and 1997
(iii) Statement of Shareholders' Equity for the years ended
March 31, 1999, 1998 and 1997
(iv) Statements of Cash Flows for the years ended March
31, 1999, 1998 and 1997
(v) Notes to Financial Statements at March 31, 1999
(2) Financial Statement Schedules: None
(b) Reports filed on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of
the fiscal year ended March 31, 1999.
(c) Exhibits
See Exhibit Index on page 28 of this Report.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
APA Optics, Inc.
Date: June 25, 1999 By /s/ Anil K. Jain
--------------------------------------
Anil K. Jain
PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Anil K. Jain President, Chief Executive Officer, June 25, 1999
- ------------------------ Treasurer, Chief Financial Officer,
Anil K. Jain and Director
/s/ Kenneth A. Olsen Secretary, Vice President, and June 25, 1999
- ------------------------ Director
Kenneth A. Olsen
/s/ Randal J. Becker Principal Accounting Officer June 25, 1999
- ------------------------
Randal J. Becker
/s/ Gregory Von Wald Director June 25, 1999
- ------------------------
Gregory Von Wald
/s/ William R. Franta Director June 25, 1999
- ------------------------
William R. Franta
/s/ Larry Pressler Director June 25, 1999
- ------------------------
Larry Pressler
27
EXHIBIT INDEX
- ------------------------------------------------------------------------------------------------
PAGE NUMBER OR INCORPORATED
NUMBER DESCRIPTION BY REFERENCE TO
- ------------------------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation, as Exhibit 3.1 to Registrant's Report on
amended to date, and Statement regarding Form 10-KSB for the fiscal year ended
establishment of class of shares March 31, 1995
3.2 Bylaws, as amended and restated to date
4.1(a) State of South Dakota Board of Economic Exhibit 4.1(a) to the Report on 10-QSB
Development $300,000 Promissory Note, for the quarter ended June 30, 1996 (the
REDI Loan: 95-13-A "June 1996 10-QSB")
4.1(b) State of South Dakota Board of Economic Exhibit 4.1(b) to the June 1996 10-QSB
Development Security Agreement REDI Loan
No: 95-13-A dated May 28, 1996
4.2(a) $700,000 Loan Agreement dated June 24, Exhibit 4.2(a) to the June 1996 10-QSB
1996 by and between Aberdeen Development
Corporation and APA Optics, Inc.
4.2(b) $300,000 Loan Agreement dated June 24, Exhibit 4.2(b) to the June 1996 10-QSB
1996 between Aberdeen Development
Corporation and APA Optics, Inc.
4.2(c) $250,000 Loan Agreement dated June 24, Exhibit 4.2(c) to the June 1996 10-QSB
1996 by and between Aberdeen Development
Corporation and APA Optics, Inc.
4.2(d) $300,000 Loan Agreement dated June 24, Exhibit 4.2(d) to the June 1996 10-QSB
1996 by and between Aberdeen Development
Corporation and APA Optics, Inc.
4.3(a) Loan Agreement between South Dakota Exhibit 4.3(a) to the June 1996 10-QSB
Economic Development Finance and APA
Optics, Inc.
4.3(b) Mortgage and Security Agreement - One Exhibit 4.3(b) to the June 1996 10-QSB
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 Exhibit 4.4(a) to the June 1996 10-QSB
Representation Agreement of NE Venture,
Inc.
4.4(b) Form of Common Stock Purchase Warrant for Exhibit 4.4(b) to the June 1996 10-QSB
NE Venture, Inc.
10.1 Sublease Agreement between the Registrant Exhibit 10.1 to the Registration
and Jain-Olsen Properties and Sublease Statement on Form S-18 filed with the
Agreement and Option Agreement between Chicago Regional Office of the
the Registrant and Jain-Olsen Properties Securities and Exchange Commission on
June 26, 1986
*10.2a Stock Option Plan for Nonemployee Exhibit 10.3a to Registrant's Report on
Directors Form 10-KSB for the fiscal year ended
March 31, 1994 (the "1994 10-KSB")
*10.2b Form of option agreement issued under the Exhibit 10.3b to 1994 10-KSB
plan
*10.3 1997 Stock Compensation Plan Exhibit 10.3 Registrant's Report on Form
10-KSB for the fiscal year ended March
31, 1997
28
- ------------------------------------------------------------------------------------------------
PAGE NUMBER OR INCORPORATED
NUMBER DESCRIPTION BY REFERENCE TO
- ------------------------------------------------------------------------------------------------
*10.4 Insurance agreement by and between the Exhibit 10.5 to Registrant's Report on
Registrant and Anil K. Jain Form 10-K for the fiscal year ended
March 31, 1990
*10.5 Form of Agreement regarding Repurchase of Exhibit 10.1 to Registrant's Report on
Stock upon Change in Control Event with Form 10-QSB for the quarter ended
Anil K. Jain and Kenneth A. Olsen September 30, 1997 ("September 1997
10-QSB")
*10.6 Form of Agreement regarding Exhibit 10.2 to the September 1997
Employment/Compensation upon Change in 10-QSB
Control with Messrs. Jain and Olsen
27 Financial data schedule
*Indicates management contract or compensation plan or arrangements required to
be filed as an exhibit to this form.
29