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 SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001, 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 January 31, 2002
Common stock, par value $.01 11,875,881
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APA OPTICS, INC.
CONDENSED BALANCE SHEETS
December 31, March 31,
2001 2001
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 32,813,014 $ 21,225,492
Short-term investments - 15,759,000
Accounts receivable 76,725 370,859
Inventories:
Raw materials 44,795 405,238
Work-in-process 13,892 10,078
Prepaid expenses 63,396 30,064
Bond reserve funds 52,500 65,000
-------------- -------------
Total current assets 33,064,322 37,865,731
Property, plant and equipment, net 3,784,027 3,248,191
Other assets 789,368 800,529
-------------- -------------
Total assets $ 37,637,717 $ 41,914,451
============== =============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 84,822 $ 495,410
Accrued expenses 285,678 301,911
Current portion of long-term debt 2,226,745 2,337,221
-------------- -------------
Total current liabilities 2,597,245 3,134,542
Long-term debt 246,944 499,610
Shareholders' equity:
Undesignated shares:
Authorized shares - 4,999,500
Issued - none - -
Common stock, $.01 par value:
Authorized shares - 50,000,000
Issued and outstanding shares:
11,875,881 shares on December 31, 2001 and
11,915,456 shares on March 31, 2001 118,759 119,155
Additional paid-in capital 51,560,161 51,614,972
Accumulated deficit (16,885,392) (13,453,828)
-------------- -------------
Total shareholders' equity 34,793,528 38,280,299
-------------- -------------
Total liabilities and shareholders' equity $ 37,637,717 $ 41,914,451
============== =============
2
APA OPTICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- --------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues $ 49,089 $ 280,945 $ 570,997 $ 455,924
Costs and expenses:
Cost of sales 1,026,341 737,063 2,926,509 1,752,855
Research and development 342,224 285,478 761,116 859,139
Selling, general and administrative 315,842 504,300 1,262,674 1,286,278
------------ ------------ ------------ ------------
1,684,407 1,526,841 4,950,299 3,898,272
Loss from operations (1,635,318) (1,245,896) (4,379,302) (3,442,348)
Interest income 244,499 642,187 1,046,760 1,394,029
Interest expense (30,933) (32,878) (97,385) (94,442)
------------ ------------ ------------ ------------
213,566 609,309 949,375 1,299,587
Loss before income taxes (1,421,752) (636,587) (3,429,927) (2,142,761)
Income taxes 250 250 1,637 750
------------ ------------ ------------ ------------
Net loss (1,422,002) (636,837) (3,431,564) (2,143,511)
Preferred stock dividend - - - (33,054)
Excess of preferred stock redemption
over carrying value - - - (275,000)
------------ ------------ ------------ ------------
Net loss applicable to common shareholders $(1,422,002) $ (636,837) $(3,431,564) $(2,451,565)
============ ============ ============ ============
Net loss per share:
Basic and diluted ($0.12) ($0.05) ($0.29) ($0.22)
============ ============ ============ ============
Weighted average shares outstanding:
Basic and diluted 11,875,881 11,913,287 11,903,496 10,940,216
============ ============ ============ ============
3
APA OPTICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
December 31
--------------------------
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net loss $(3,431,564) $(2,143,511)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 470,886 297,518
Deferred compensation expense 27,389 11,668
Changes in operating assets and liabilities:
Accounts receivable 294,134 (52,101)
Inventories and prepaid expenses 323,298 195,578
Accounts payable and accrued expenses (426,820) (93,235)
------------ ------------
Net cash used in operating activities (2,742,677) (1,784,083)
INVESTING ACTIVITIES
Purchases of property and equipment (938,722) (313,127)
Investment in patents (64,521) (93,321)
------------ ------------
Net cash used in investing activities (1,003,243) (406,448)
FINANCING ACTIVITIES
Proceeds from the sale of common stock 10,041 39,835,156
Proceeds from the sale of short-term investments 15,759,000 -
Repayment of long-term debt (363,140) (146,149)
Repurchase of common stock (92,639) -
Redemption of preferred stock - (5,033,054)
Bond reserve funds 20,180 (113,543)
------------ ------------
Net cash provided by financing activities 15,333,442 34,542,410
------------ ------------
Increase in cash and cash equivalents 11,587,522 32,351,879
Cash and cash equivalents at beginning of period 21,225,492 5,941,906
------------ ------------
Cash and cash equivalents at end of period $32,813,014 $38,293,785
============ ============
4
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, 2001.
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.
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ -------------
Numerator:
Net loss $(1,422,002) $ (636,837) $(3,431,564) $(2,143,511)
Preferred stock dividend - - - (33,054)
Excess of preferred stock redemption
over carrying value - - - (275,000)
------------ ------------ ------------ -------------
Numerator for basic and diluted
earnings per share-loss available
to common shareholders $(1,422,002) $ (636,837) $(3,431,564) $(2,451,565)
------------ ------------ ------------ -------------
Denominator for basic and diluted
earnings per share-weighted-
average shares 11,875,881 11,913,287 11,903,496 10,940,216
============ ============ ============ =============
Basic and diluted earnings per share ($0.12) ($0.05) ($0.29) ($0.22)
============ ============ ============ =============
NOTE 3. STOCK REPURCHASE PLAN
On November 19, 2001, the Board of Directors authorized the repurchase of
up to the greater of $2,000,000 or 500,000 shares of our common stock. No shares
were repurchased during the quarter ended December 31, 2001. During the nine
months ended December 31, 2001, we repurchased a total of 43,200 shares for
$92,639 at an average price of $2.14 per share.
5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Report about future sales prospects and other matters to
occur in the future are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
and Exchange Act of 1934, as amended. Forward-looking statements represent the
Company's expectations or beliefs regarding future events and can be identified
by the use of forward-looking words such as "believes," "expects," "may,"
"will," "should," "intends," "plans," "estimates," "anticipates" or other
similar terms. Forward-looking statements are subject to uncertainties that may
cause the Company's actual results to differ materially from the results
discussed in the forward-looking statements. Uncertainties that may cause these
differences include, but are not limited to:
- Fluctuation in the demand for our products;
- The level of market acceptance of our products;
- The development of technically superior products by our competitors;
- Our ability to sell our products at a profitable price; and
- Our ability to fund our operations through positive cash flow.
For further discussion regarding these and other uncertainties, see "Factors
That May Affect Future Results."
OVERVIEW
- --------
We are engaged in designing, manufacturing, and marketing various
optoelectronic products, ultraviolet (UV) detectors and related products and
optical components. For several years, we also received significant revenues
from research and development services projects sponsored by various government
agencies. In fiscal 1998, we shifted our emphasis from research and development
to product development, with the intent to eventually manufacture and market our
own proprietary products. We received no revenues from research and development
activity in fiscal 2001 and do not expect any revenues from this activity in
fiscal 2002.
For the last several years our goal has been to manufacture and market
products/components based on our technology developments. We have focused on
dense wavelength division multiplexer (DWDM) components for fiber optic
communications and gallium nitride (GaN) based ultraviolet (UV) detectors
comprising components and integrated detector/electronic/display packages for
both industrial and consumer applications. The consumer application is in the
form of a wristwatch marketed under the name SunUVWatch(R).
We chose these two product areas because we believe they have significant
potential markets and because we have expertise and/or patent positions related
to them. In addition to these products, we manufacture custom optics for various
industrial customers.
The telecommunications industry continues to experience reduced demand for
capital goods such as our DWDM components. We expect this period of reduced
demand to continue for several months. This weakness continues to put downward
pressure on component pricing, margins and profits. The presence of several
manufacturers of DWDMs pursuing this soft market has also added downward
pressure to component pricing. Aggressive pricing and declining requests for
quotes will likely have a negative impact on our financial performance for at
least the next few fiscal quarters.
Environmental performance is a key test factor for qualification of our
products under industry standards as promulgated by Telcordia. During the
quarter ended December 31, 2001, we continued to make improvements in the
environmental performance of our DWDMs. However, we have not yet begun formal
testing of our DWDM components for Telcordia compliance.
6
We have resolved most of problems related to mechanical and electronic
aspects of this product that previously delayed full release, we have launched a
promotional campaign, and we have an initial set of distributors in place. We
believe that awareness of the risks of excessive UV exposure continues to grow
and that this awareness should support demand for this product. However, we
still face the significant challenges of creating consumer awareness of the
SunUVWatch(R)'s usefulness in measuring UV exposure and increasing production at
our offshore assembler.
RESULTS OF OPERATIONS
- -----------------------
REVENUES
Revenues for the quarter ended December 31, 2001, were $49,089, reflecting
a 83% decrease from the comparable period in the preceding fiscal year, and were
$570,997 for the nine months ended December 31, 2001, an increase of 25% over
the revenues for the comparable period in the preceding fiscal year. Lack of
demand for DWDM components and problems in production that resulted in delayed
shipments and cancelled orders were the primary factors contributing to the
decline in revenues during the most recent fiscal period. The increase in
revenues for the nine months ended December 31, 2001, was largely the result of
sales of our DWDM components during the first quarter of fiscal 2002.
COST OF SALES
Cost of sales increased $289,278 to $1,026,341 for the quarter ended
December 31, 2001, reflecting a 39% increase over the comparable period in the
preceding fiscal year. For the nine months ended December 31, 2001, cost of
sales increased $1,173,654 or 67% to $2,926,509 over the comparable period in
the preceding fiscal year. The increases in the cost of sales were the result of
operating with increased production staff and facilities, increased sales during
the first quarter, expansion of quality programs and costs associated with
testing products for compliance with certain industry standards. 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 introduction of our products. We expect to
continue to experience negative gross margins until there is a significant
increase in sales and production levels.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses increased by $56,746 to $342,224 for the
quarter ended December 31, 2001. This represents an increase of 20% from
research and development expenses in the comparable period of the preceding
fiscal year. For the nine months ended December 31, 2001, research and
development expenses decreased $98,023 or 11% to $761,116 from the comparable
period in the preceding fiscal year. The increase during the quarter ended
December 31, 2001 reflects the strategic realignment of staff, part of which was
the increase in research and development efforts in GaN based power transistors.
For the nine months the decrease in research and development expenditures
reflects increased commitment to production during the first quarter of fiscal
2002. We expect research and development expenses to increase for the
foreseeable future with a gradual expansion of our research and product
development activities.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased $188,458 to $315,842
for the quarter ended December 31, 2001, reflecting a 37% decrease over the
comparable period in the preceding fiscal year. For the nine months ended
December 31, 2001, selling, general and administrative expenses decreased
$23,604 or 2% to $504,300 over the comparable period in the preceding fiscal
year. The decrease for the quarter is primarily the result of non-recurring
expenses related to adoption of a shareholders rights plan and incentive
compensation paid to management in the quarter ended December 31, 2000. There
were no similar expenses in the quarter ended December 31, 2001.
LOSS FROM OPERATIONS
7
The loss from operations was $1,635,318, an increase of $389,422 or 31% for
the quarter ended December 31, 2001 over the comparable period in fiscal 2001.
For the nine months ended December 31, 2001, the loss from operations increased
$936,954 or 27% to $4,379,302 over the comparable period in the preceding fiscal
year. The increased loss in the quarter ended December 31, 2001, was primarily
the result of the decline in revenues from the previous fiscal quarter. The lack
of demand for DWDM components and production problems related to DWDM components
were the major factors contributing to this decline.
OTHER INCOME AND EXPENSE
Other income decreased $395,743 or 65% to $213,566 for the quarter ended
December 31, 2001, from the comparable period in fiscal 2001. For the nine
months ended December 31, 2001, other income decreased $350,212 or 27% to
$609,309 over the comparable period in the preceding fiscal year. The decreases
for the quarter and for the nine months were due to the combination of a decline
in the rate of interest earned on short-term investments and a lower average
cash balance, as cash was consumed to fund operations and capital investment.
Interest rates have continued to decline and we anticipate continuing decreases
in interest income as a result of these declines and as a result of the use of
cash in operations and for capital expenditures.
NET LOSS
The net loss for the quarter ended December 31, 2001, was $1,422,002 (or
$0.12 per basic and diluted share), an increase of $785,165 or 123% from the net
loss reported for the same period in fiscal 2001. For the nine months ended
December 31, 2001, the net loss was $3,431,564 (or $0.29 per basic and diluted
share), a 40% increase over the net loss for the comparable period in the
preceding fiscal year. For the quarter, the increased loss was attributable to
the decline in revenues, the costs associated with increased staff and
facilities, and the decline in interest income. For the nine months ended
December 31, 2001, the increased loss was attributable to the continued negative
gross margin on product sales and the costs associated with increased staff and
production facilities.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
APA's cash and cash equivalents primarily consist of certificates of
deposits, US Government instruments or commercial paper with maturities of less
than three months. The balance of cash and cash equivalents at December 31, 2001
is $32,813,014 compared to $21,225,492 at March 31, 2001. The increase in cash
is primarily the result of the maturing of short-term investments.
Cash used in operating activities was $2,742,677 for the nine months ended
December 31, 2001, compared to $1,784,083 for the comparable period in the
preceding fiscal year. Our use of cash in operations was primarily the result of
our operating loss and the payment of outstanding accounts payable during the
period. Our use of cash was partially offset by non-cash charges related to
depreciation, amortization, a provision for obsolete inventory, and the
collection of accounts receivable.
We used net cash of $1,003,243 in investing activities in the nine months
ended December 31, 2001, compared to $406,448 for the same period of the
preceding fiscal year. The funds were used for the purchase of equipment,
facility repairs and leasehold improvements that had been deferred in prior
years and to maintain existing and pursue new patents related to our
technologies.
Net cash provided from financing activities in the nine months ended
December 31, 2001 totaled $15,333,422. The increase was primarily the result of
reclassification of $15,759,000 of short-term investments to cash and cash
equivalents as the time to maturity of these investments shortened to less than
three months. We used a net of $363,140 for the scheduled reduction of debt and
$92,639 for the repurchase of common stock. We repurchased a total of 43,200
shares at an average cost of $2.14 per share. For the nine months ended December
31, 2000, net cash provided by financing activities totaled $34,542,410. We
raised $39,835,156 from the sale of common stock, used $5,033,054 to retire
preferred stock and used a net of $146,149 for the scheduled reduction of debt.
8
We anticipate a total of approximately $1.5 million in capital expenditures
in fiscal 2002, primarily for equipment. The majority of the capital
expenditures relate to the expansion and automation of our production and
research and development facilities.
We believe we have sufficient funds for operations for at least the next 12
months. Our rate of consumption of cash could change depending upon our level of
research and development activity, our level of marketing and advertising
activities, and/or acquisition activities.
TRENDS AND OUTLOOK
- --------------------
We continue to experience performance issues related to environmental
specifications in our DWDM products and we are currently working to identify and
remedy the design and/or manufacturing deficiencies that are the cause of the
problems. Our industrial GaN products are still under development and have not
been distributed in any quantity that establishes commercial viability. As of
January 31, 2002, we have no order backlog or requests for quotes for any of our
products. In addition, the current costs of production of our products would
likely result in negative gross margins on any order for DWDM components under
current market conditions.
We are confident in the merit of our DWDM and GaN technologies and believe
that commercial viability can be established within the foreseeable future.
However, we do not anticipate achieving profitability unless and until 1)
production costs for DWDM's are reduced, the design and manufacturing processes
are demonstrated to repeatedly produce components meeting the Telcordia
qualification requirements, the demand for these components returns, and 2) we
can generate SunUVWatch(R) unit sales at production volumes.
FACTORS THAT MAY INFLUENCE FUTURE RESULTS
- ----------------------------------------------
Several factors will influence our future results including:
UNLESS WE GENERATE SIGNIFICANT REVENUE GROWTH, OUR INCREASING EXPENSES AND
NEGATIVE CASH FLOW WILL SIGNIFICANTLY HARM OUR FINANCIAL POSITION.
We have not been profitable since fiscal 1990. As of December 31, 2001, we
had an accumulated deficit of $16.9 million. We will incur operating losses for
the foreseeable future, and these losses may be substantial. Further, we may
continue to experience negative operating cash flow in the future. We have
funded our operations primarily through the sale of equity securities and
borrowings. During the last fiscal quarter, we did not generate any material
revenues from the sale of our DWDM or GaN based product offerings. We have
significant fixed expenses and we expect to continue to incur significant and
increasing manufacturing, sales and marketing, product development and
administrative expenses. As a result, we will need to generate significant
revenues while containing costs and operating expenses if we are to achieve
profitability.
WE MUST REDUCE OUR COST OF PRODUCTION IF WE ARE TO ACHIEVE ACCEPTABLE GROSS
- --------------------------------------------------------------------------------
MARGIN LEVELS.
- ---------------
From the time we began marketing our DWDM components in fiscal 1999,
average selling prices for these components have declined and we believe they
will continue to decline. We must continually find means of reducing our cost of
production if we are to achieve and maintain acceptable levels of gross margin
on these products. While we believe we will be able to reduce our DWDM
production costs in the foreseeable future, our competitors may reduce their
costs faster and more significantly than we can. Our inability to competitively
reduce production costs could seriously harm our results of operations and
financial condition.
WE HAVE RECENTLY EXPERIENCED QUALITY CONTROL PROBLEMS
Manufacturing of our products is a complex and precise process. We recently
experienced difficulty in delivering DWDM components in line with desired
environmental specifications and have not yet resolved all the problems that
prevented us from delivering the product.
9
WE MUST INCREASE OUR MANUFACTURING CAPACITY OR WE WILL NOT BE ABLE TO DELIVER
OUR PRODUCTS TO OUR CUSTOMERS IN A TIMELY MANNER.
We have limited experience in rapidly increasing our manufacturing capacity
or in manufacturing products at high volumes. In order to sell our products in
commercial volumes and to decrease our costs of production per unit, we will be
required to hire, train and manage additional manufacturing personnel and
improve our production processes. There are numerous risks associated with
rapidly increasing capacity, including:
- Difficulties in achieving adequate yields from new manufacturing
lines,
- Difficulty maintaining the precision manufacturing processes required
by our products while increasing capacity,
- The inability to timely procure and install the necessary equipment,
and
- Lack of availability of qualified manufacturing personnel.
The expansion and automation of our manufacturing facilities and related
capital expenditures are being made in anticipation of a level of customer
orders that may not be realized. If anticipated levels of customer orders are
not received, we will not be able to generate positive gross margins and
profitability.
OUR DEPENDENCE ON OUTSIDE MANUFACTURERS MAY RESULT IN PRODUCT DELIVERY DELAYS.
Some of the components incorporated into our products are purchased from
outside vendors. If these vendors fail to supply us with components on a timely
basis or fail to deliver components that meet our specifications, we could
experience significant delays in shipping our products. Any significant
interruption or deficiency in the supply or support of any components could
seriously harm our sales and our relationships with our customers.
OUR PRODUCTS MAY HAVE DEFECTS THAT ARE NOT DETECTED BEFORE DELIVERY TO OUR
CUSTOMERS.
Some of our products are designed to be deployed in large and complex
optical networks and must be compatible with other components of the customer's
system, both current and future. In addition, our products are relatively new
and may not operate as expected over long periods of time. Our customers may
discover errors or defects in our products only after they have been fully
deployed. If we are unable to fix errors or other problems, we could lose
customers, lose revenues, suffer damage to our brand and reputation, incur
liability for repair or replacement of defective parts or damage to customers,
and lose our ability to attract new customers or achieve market acceptance. Any
of these factors would negatively impact cash flow and would seriously harm our
business, financial condition and results of operations.
WE WILL NEED TO INTRODUCE NEW PRODUCTS AND PRODUCT ENHANCEMENTS TO INCREASE
REVENUE.
The successful operation of our business depends on our ability to
anticipate market needs and to develop and introduce new products and product
enhancements that respond to technological changes or evolving industry
standards on a timely and cost-effective basis. Our products are complex, and
new products may take longer to develop and require more capital to develop than
originally anticipated. In addition, products that we may develop may not
achieve commercial acceptance. Consequently the products we develop may be made
obsolete by competitive products before we generate revenue or profits from
their sale. Our products may contain defects or have unacceptable manufacturing
yields when first introduced or as new versions are released. We must continue
to develop leading-edge products and introduce them to the commercial market
quickly in order to be successful. This development activity is a lengthy
process and requires significant resources. Many of our competitors have greater
resources and technical staffs than we do. Our failure to produce
technologically competitive products in a cost-effective manner and on a timely
basis will seriously harm our business, financial condition and results of
operations.
10
OUR MARKETS ARE NEW AND ARE CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGES AND
EVOLVING STANDARDS.
The markets we serve are characterized by rapid technological changes,
frequent new product introductions, changes in customer requirements and
evolving industry standards. In developing our products, we have made, and will
continue to make, assumptions with respect to which standards will be adopted
within our industry. If the standards that are actually adopted are different
from those that we have chosen to support, our products may not achieve
significant market acceptance.
There are several existing standards in the communications industry
including the Telcordia GR1209 and GR1221 standards. Several of our existing and
potential customers require or will require compliance with these standards. We
continue to make progress in achieving compliance with these standards and have
produced DWDM components that achieve compliance with some but not all of the
requirements of these standards. During the quarter ended December 31, 2001 we
made significant improvements in the environmental performance of our DWDMs, but
are currently not able meet all Telcordia requirements and have not begun formal
testing under Telcordia specifications. If we are unable to achieve full
compliance with these and other standards, our business, financial condition and
results of operations will be adversely affected.
DEMAND FOR OUR PRODUCTS IS SUBJECT TO SIGNIFICANT FLUCTUATION.
Demand for our products is dependent on several factors including capital
expenditures in the communications industry. Capital expenditures can be
cyclical in nature and result in protracted periods of reduced demand for
component parts. Similarly, periods of slow economic expansion or recession can
result in periods of reduced demand for our products. The continuing slowdown of
the US economy and uncertainty related to the timing and extent of recovery has
contributed to the decline in demand for components used in the communications
industry. Periods of reduced demand will harm our business, financial condition
and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We invest in short-term securities of high credit
issuers with maturities ranging from overnight up to 24 months. The average
maturity of the portfolio does not exceed 12 months. The portfolio includes only
marketable securities with active secondary or resale markets to ensure
liquidity. We have no investments denominated in foreign country currencies and,
therefore, our investments are not subject to foreign exchange risk.
PART II
ITEMS 1 THROUGH 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Reports on Form 8-K.
A Report on Form 8-K dated November 19, 2001, reported the
adoption of a stock repurchase plan by the Company.
11
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
undersigned, thereunto duly authorized.
APA OPTICS, INC.
2/05/01 /s/ Anil K. Jain
- --------- ----------------------
Date Anil K. Jain
President and
Chief Executive Officer
2/05/01 /s/ Robert M. Ringstad
- --------- ----------------------
Date Robert M. Ringstad
Chief Financial Officer
12