Clearfield, Inc. - Annual Report: 2006 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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x
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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For
the
fiscal year ended March 31, 2006.
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o
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Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934
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For
the
transition period from _______________________ to
_______________________.
Commission
File Number 0-16106
APA
ENTERPRISES, INC.
(Exact
Name of Registrant as Specified in its Charter)
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Minnesota
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41-1347235
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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2950
N.E. 84th
Lane
Blaine,
Minnesota 55449
(763)
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)
Series
B Preferred Share Purchase Rights
(Title
of class)
Indicate
by check mark if the registrant is a well-seasoned issuer, as defined in Rule
405 of the Securities Act.
o
YES x
NO
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or section 15(d) of the Exchange Act.
o
YES x
NO
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 o
NO
1
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.
x
YES
o
NO
Indicate
by check mark whether the registrant is a large accelerated filer, and
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of
the
Exchange Act).
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer x
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Indicate
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o
YES x
NO
The
aggregate market value of the voting and non-voting equity held by
non-affiliates of the registrant, as of the last business day of the
registrant’s most recently completed second fiscal quarter computed by reference
to the price at which the common equity was last sold was approximately
$15,196,584.
The
number of shares of common stock outstanding as of June 17, 2006 was
11,872,331.
Documents
Incorporated by Reference:
Portions
of our proxy statement for the annual shareholders meeting to be held in August
2006 are incorporated by reference into Part III.
2
APA
ENTERPRISES, INC.
ANNUAL
REPORT ON FORM 10-K
TABLE
OF CONTENTS
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PART
I
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ITEM
1.
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BUSINESS.
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General
Development of Business.
APA
Enterprises, Inc. (“APA” or the “Company”), formerly APA Optics, Inc., is a
Minnesota corporation which was founded in 1979. Our corporate headquarters
is
located at 2950 84th
Lane
N.E., Blaine, MN and our corporate website is www.apaenterprises.com.
The
information available on our website is not part of this Report.
Since
the
founding of the Company, we have focused on leading edge research in gallium
nitride (GaN), sophisticated optoelectronics, and optical systems, with the
primary goal of developing advanced products for subsequent fabrication and
marketing. Based on this research we have developed multiple products including
fiber optic components for metro and access communications networks, a range
of
GaN based devices, and precision optical products. We believe that gallium
nitride based devices have significant potential markets and we have developed
specific expertise and/or patent positions relevant to them. During fiscal
year
2004 we ceased the design and manufacturing of precision optical components
due
to intense competition from Asian manufacturers primarily based on lower labor
rates and sold this product line in April 2004 (see Note C to the Consolidated
Financial Statements included in Item 8 of this Report). The Company acquired
the assets of two companies in calendar 2004 and has deployed them in a wholly
owned subsidiary of the Company known as APA Cables and Networks, Inc.
(“APACN”). APACN is a manufacturer and seller of telecommunications equipment.
In
fiscal
year 2005 we formed a wholly-owned subsidiary in India, APA Optronics (India)
Private Limited (“APA India”), to take advantage of lower manufacturing costs in
India. While the prime focus of the subsidiary will be support of manufacturing
activities across the Company’s products, it will also support other business
activities, including software development. The Company has already started
the
supporting activities in most of these areas. The Company plans to significantly
increase its manufacturing activities once the construction of a larger facility
in India is completed and manufacturing operations are located in the new
facility some time during the calendar year 2006.
In
fiscal
year 2006 we sold certain equipment and intellectual property related to our
research and development work surrounding gallium nitride based heterojunction
field effect transistors. The sale to an unrelated third party for consideration
including $1.9 million in cash enables us to focus our R&D efforts on power
amplifiers built using GaN technology by using commercially available parts,
rather than building our own transistors. This is expected to decrease our
operating costs and shorten our time to market for power amplifiers.
In
fiscal
year 2006, the Company also terminated its manufacturing operations, mostly
related to fiber optic communication components, in Aberdeen, South Dakota.
The
associated assets were designated as not being utilized in manufacturing. Most
of the assets, if not utilized within the company, will potentially be sold
in
future.
The
Company reports its operations activities in two segments, Optronics (comprising
the activities in Blaine, Minnesota, Aberdeen, South Dakota and India) and
APACN
(comprising the activities in Plymouth, Minnesota).
APACN
focuses on custom-engineered products for telecommunications customers,
primarily related to cabling management requirements of the Fiber-to-the-Home
(“FTTH”) marketplace and in designing and terminating custom cable assemblies
for commercial and industrial original equipment manufacturers (“OEM’s”). In
June 2003, APACN purchased the assets of Americable, Inc. The Americable
acquisition allowed APACN to add its own brand of fiber distribution equipment
to its full-line of standard and custom copper and fiber optic cable assemblies
for broadband service providers and OEM’s. The Americable acquisition
diversified our product offerings, expanded our opportunities for cross-selling
our products to former Computer System Products (CSP) and Americable customers,
and enabled us to offer a more complete technology solution to all of our
customers. To date, APACN has been able to successfully establish itself as
a
value-added supplier to its target market of independent telephone companies
and
cable television operators as well as OEM’s who value a high level of
engineering services as part of their procurement process. APACN has expanded
its product offerings and broadened its customer base since its inception two
years ago.
APACN
also invested in expanding its sales and engineering expenditures by 32% during
fiscal 2006 to increase its potential revenues during fiscal year 2007 and
beyond. APACN is already realizing the impact of these efforts in terms of
increased sales, particularly during the last two quarters of the fiscal year
2006. The increase in revenues is due to additional customers and product
acceptance, mainly in the Fiber-to-the-Premise market, as well as an increase
in
revenue generated from a new supply agreement to an existing customer serving
the test equipment market.
Optronics
continues to focus upon Gallium Nitride (GaN) related activities.
Additional
information regarding operations in the segments is set forth in Note Q in
the
Notes to the Consolidated Financial Statements under Item 8 herein.
Description
of Business -Optronics Segment
Optronics
develops manufactures
and markets advanced products for UV (ultraviolet) detection, nitride epitaxial
layers and wide band-gap transistors. These operations began with the inception
of the Company in 1979 and are located principally in our facility in
Blaine,
Minnesota. Certain products are purchased from contract
manufacturers.
Products
Our
current products are described below.
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·
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Ultraviolet
(UV) Detector-Based Products
We
currently manufacture value-added products built around UV detectors
fabricated by Optronics and procured externally. These products
are:
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·
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SunUV®
Personal UV Monitor
The SunUV®
Personal UV Monitor (formerly, SunUVWatch®)
is a personal ultraviolet (UV) radiation monitor that also incorporates
a
time/day/date function. It detects UV radiation that is hazardous
to human
health. It keeps track of the total UV exposure of the user and
estimates
a maximum exposure time according to government guidelines based
on skin
type and widely-accepted research on UV exposure limits. The product
has
been introduced and is being sold through retail channels, catalogs
and
Internet sites in the USA and Europe.
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In
fiscal
year 2006, we developed and introduced an attractive new PUVM plastic/metal
model that offers two key advantages for the product line. This model,
manufactured in-house by our off-shore supplier, potentially eliminates most
of
the manufacturing issue of some of the earlier models. The new
model
also can be color-matched to the SunUVStationTM
described below, which allows us to market the two products together in a
pairing that retailers and other channels find attractive.
The
new
SunUVStation consumer product complements the Personal UV Monitor, and together
they give Optronics a product line in the sun protection area. The SunUVStation
offers a larger display that indicates the UV Index on a colorful 7” diameter
analog face for backyard, pool, patio, campground, or other locations where
groups of people are exposed to the sun. This product, complementing the small
format personalized UV monitor, will be manufactured at the new APA Optronics
India facility and marketed in FY2007 through selected channels.
Industrial
Products: Profiler M UV Meter
Optronics’ Profiler
M
radiometer was created for the printing and coating industries that use UV
curing. The instrument measures the intensity and distribution of four UV bands
inside curing chambers. Data from the instrument can be transferred to a
computer for analysis using proprietary CureControl
software
supplied as part of the purchase. Periodic upgrades of the software will be
offered, providing the potential for increased utility for the user and an
ongoing revenue stream for Optronics. Marketing and sales activities for the
Profiler M are now focused on expanding our group of domestic and international
distributors. Currently, there are four companies distributing the product
- 2
general UV industries suppliers, a UV equipment manufacturer, and a UV coatings
and adhesives manufacturer and we are seeking additional representatives in
all
these areas. Supporting marketing activities include exhibiting at trade shows
for the industry and participation in technical conferences and journals that
can showcase the advantages of the Profiler
M.
Research
and development efforts at Optronics are described below.
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·
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In
the 4th
quarter of fiscal year 2006 we completed the sale of our epitaxial
foundry
to an unrelated, third party for total consideration of $1.9 million
in
cash and a license back of the technology within a specified field
of use.
The transaction included sale of APA’s multi-wafer metal organic chemical
vapor deposition system, the technical know-how associated with the
growth
of state-of-the-art epitaxial layers, two heterojunction field effect
transistor patents (United States patent 5,192,987 and United States
patent 5,296,395), an additional pending patent (now allowed, United
States patent application claiming priority of United States provisional
application No. 60/428,856), and associated intellectual property.
Terms
of the transaction allow APA to market and sell products for applications
greater than 1 GHz and provide revenue sharing based on future licensing
agreements regarding these patents. The transaction allowed APA to
terminate the lease of an off-site facility utilized by the epi foundry
and resulted in termination of three employees associated with the
development and growth of epi-layers.
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·
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The
sale described in the immediately preceding paragraph should decrease
operating costs while enabling early entry into power amplifier markets
utilizing GaN power transistors procured from outside sources. Such
transistors have demonstrated impressive performance while maintaining
excellent reliability. Our goal is to manufacture amplifiers that
utilize
these transistors - simplifying amplifier architecture, improving
amplifier efficiency and increasing bandwidth and power. Such amplifiers
will initially target test and measurement and later cellular base
station
applications.
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·
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Opportunities
to team with companies offering complementary capabilities to our
own are
being evaluated based on relevance to our long term strategic interests.
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Marketing
and Distribution
We
do not
maintain a large internal sales force. We have one sales person dedicated to
the
SunUV(C)
Personal
UV Monitor and we also maintain product information on our website. Additionally
we use manufacturer’s representative and distributors domestically.
Competition
The
optoelectronics and compound semiconductor electronic device markets are
evolving rapidly and, therefore, the competitive landscape changes continually.
The opportunities presented by these markets have fostered a highly competitive
environment. This competition has resulted in price reductions and lower profit
margins for the companies serving this market. Many of the companies engaged
in
these businesses are well financed and have significantly greater research,
development, production, and marketing resources than we do. Some of these
companies have long operating histories, well-established distribution channels,
broad product offerings and extensive customer bases. Our ability to compete
with these companies across our product lines will depend largely on the
performance of our devices, our ability to innovate and develop competitive
solutions for our customers, our intellectual property, our ability to convince
customers to adopt our technology early in their design cycle, and our ability
to control costs.
We
are
not aware of any companies currently marketing a personal UV monitor with a
combination of features, style and packaging equivalent to ours, although there
are other manufacturers of this type of product in the United States, Japan
and
Korea. Our SunUVStation product is unique to the best of our
knowledge.
Electronic
Instrumentation and Technology, Inc. (“EIT”), Apprise Technologies, UV Process
Supply and International Light offer UV curing control instruments that perform
similar functions to the Profiler M, although we believe that our product offers
a very competitive combination of features and price.
There
are
no currently available GaN/AlGaN power amplifiers; however, we anticipate that
there will be several US, Japanese and European firms announcing products in
the
next calendar year.
Description
of Business - APACN
APACN
offers a broad range of telecommunications equipment and products developed
from
over 20 years of product expertise acquired in each of the CSP and Americable
acquisitions. Its broad range of product offerings include the design and
manufacture of standard and custom connectivity products such as fiber
distribution systems, optical components, Outside Plant (OSP) cabinets, and
fiber and copper cable assemblies that serve the communication service provider
including FTTH, large enterprise, and OEM markets. APACN maintains a range
of
engineering and technical knowledge in-house that works closely with customers
to develop, customize and enhance products from design through production.
Most
products are produced at APACN’s plant in Plymouth, Minnesota with support from
a corporate network of global manufacturing partners. APACN produces these
products on both a quick-turn and scheduled delivery basis.
Products
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·
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Fiber
Distribution Central Office Frame Systems
APACN Fiber Distribution Systems (“FDS”) are high density, easy access
fiber distribution panels and cable management systems that are designed
to reduce installation time, guarantee bend radius protection and
improve
traceability. In the 144-port count configuration, APACN is the industry
leader for density, saving the customer expensive real estate in
the
central office. The product line fully supports a wide range of panel
configurations, densities, connectors, and adapters that can be utilized
on a stand-alone basis or integrated into the panel system. The unique
interchangeable building block design delivers feature rich solutions
which are able to meet the needs of a broad range of network deployments.
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·
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Fiber
Distribution Outside Plant Cabinets APACN’s
Fiber Scalability Center (“FSC”) is a modular and scalable fiber
distribution platform designed for “grow-as-you-go cost containment” as
fiber goes beyond the control of a central office and closer to the
user.
This allows rollout of FTTH services by communication service providers
without a large initial expense. Each outside plant cabinet stores
feeder
and distribution splices, splitters, connectors and slack cable neatly
and
compactly, utilizing field-tested designs to maximize bend radius
protection, connector access, ease of cable routing and physical
protection, thereby minimizing the risk of fiber damage. The FSC
product
has been designed to scale with the application environment as demand
requires and to reduce service turn-up time for the
end-user.
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·
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Optical
Components
APACN packages optical components for signal coupling, splitting,
termination, multiplexing, demultiplexing and attenuation to seamlessly
integrate with the APACN FDS. This value-added packaging allows the
customer to source from a single supplier and reduce space requirements.
The products are built and tested to meet the strictest industry
standards
ensuring customers trouble-free performance in extreme outside plant
environments.
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·
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Cable
Assemblies
APACN manufactures high quality fiber and copper assemblies with
an
industry-standard or customer-specified configuration. Industry-standard
assemblies built include but are not limited to: single mode fiber,
multimode fiber, multi-fiber, CATV node assembly, DS1 Telco, DS 3
(734/735) coax, Category 5e and 6, SCSI, Token Ring, and V.35. In
addition, APACN’s engineering services team works alongside the
engineering design departments of our OEM customers to design and
manufacturer custom solutions for both in-the-box as well as network
connectivity assemblies specific to that customer’s product line.
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Marketing
and Distribution
APACN
markets its products in the United States through a direct sales team with
limited support from a network of manufacturer representative organizations.
In
addition, during fiscal 2006, the company significantly expanded its use of
a
two-tier distribution channel allowing the product line to penetrate a broader
field of broadband service providers. APACN works closely with its target
customers to adapt the company’s product platform to the client’s unique
requirements. APACN offers a high level of customer service and principally
brings new products to markets based upon the specific requests of its
customers.
Competition
Competitors
for the APACN FDS and FSC include but are not limited to ADC Telecommunications,
Inc., Corning Cabling Systems, Inc., OFS (Furukawa Electric North America,
Inc.), Telect Inc., Fiber Optic Network Solutions (FONS) Corporation (acquired
by ADC Telecommunications during fiscal 2006), Alcatel, Inc., and Tyco
Electronics, Inc. Nearly all of these firms are substantially larger than APACN
and as a result may be able to procure pricing for necessary components and
labor at much lower prices. Competition for the custom fiber and copper
termination services for cable assemblies is intense. Competitors range from
small, family-run businesses to very large contract manufacturing
facilities.
Sources
of Materials and Outsourced Labor
Numerous
purchased materials, components, and labor, are used in the manufacturing of
the
Company’s products. Most of these are readily available from multiple suppliers.
However, some critical components and outsourced labor are purchased from a
single or a limited number of suppliers. The loss of access to some components
and outsourced labor would have a material adverse effect on our ability to
deliver products on a timely basis and on our financial
performance.
Patents
and Intellectual Property
As
of
March 31, 2006, we had 14 patents issued in the United States and two pending
patent applications inside and outside the United States. During the last fiscal
year the following 2 patents and a patent in process were sold:
US
Patent
5,192,987 “High electron mobility transistor with GaN/AlGaN
heterojunction”
US
Patent
5,2196,395 “ Method of making a high electron mobility transistor”
US
Patent
application from provisional No. 60/428,856 (since allowed).
Terms
of
the sale of these patents allow APA to market and sell products for applications
greater than 1 GHz
All
of
our patents relate to the business of our Optronics segment. We believe our
success heavily depends upon technology we develop internally and we anticipate
additional patent application filings this year. We have made significant
progress toward improving the active, strategic management of our intellectual
property portfolio. The markets for our products are characterized by rapid
change and continual innovation that could render our technology and patents
obsolete before their statutory protection expires. Several of the companies
we
compete with have greater research and development resources than we do and
could develop technologies and products that are similar or even superior to
ours without infringing on our intellectual property. It is possible that sale
or license of part of our patent portfolio could be helpful to our business
plans.
Environmental
Compliance
Because
we handle a number of chemicals in our operations, we must comply with federal,
state and local laws and regulations regarding the handling and disposal of
such
chemicals. To date the cost of such compliance has not been material.
Major
Customers
No
single
customer accounted for more than 10% of the Company’s sales in fiscal 2006,
2005, or 2004.
Backlog
Backlog
reflects purchase order commitments for our products received from customers
that have yet to be fulfilled. Backlog orders are generally shipped within
three
months. Optronics had no backlog as of March 31, 2006, a backlog of $7,200
as of
March 31, 2005 and a backlog of $6,490 as of March 31, 2004. APACN had backlogs
of $1,383,206
as of
March 31, 2006, $429,180 as of March 31, 2005, and $856,700 as of March 31,
2004.
Research
and Development
During
the fiscal years ended March 31, 2006, 2005, and 2004, Optronics spent
approximately $1,409,000, $1,104,000, and $949,000, respectively, on research
and development, mainly for the development of compound semiconductor electronic
devices. This segment had no research activities sponsored by customers in
fiscal years 2006, 2005 or 2004. We operate in highly competitive and rapidly
evolving markets and plan to commit significant resources for research and
development for the foreseeable future. We could locate research and development
facilities in locations other than our current facilities in Minnesota based
on
several factors, including accessibility to qualified personnel and facility
costs. APACN has made no significant expenditures for research and development
from its inception through March 31, 2006.
Employees
As
of
March 31, 2006, Optronics had 36 full-time employees in the combined locations
of Blaine, MN, Aberdeen, SD, and India. As of March 31, 2006, APACN had 92
full-time employees, mainly in Plymouth, MN. Our future performance is dependent
on our ability to attract, train, and retain highly qualified personnel. We
have
no employment agreements with our employees. The loss of one or more key
employees could negatively impact the Company.
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ITEM
1A.
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RISK
FACTORS.
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Factors
That May Affect Future Results
The
statements contained in this Report on Form 10-K that are not purely historical
are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including, without
limitations, statements regarding the Company’s expectations, hopes, beliefs,
anticipations, commitments, intentions and strategies regarding the future.
Forward-looking statements include, but are not limited to, statements contained
in “Item 1. Business” and “Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.” Actual results could differ from
those projected in any forward-looking statements for the reasons, among others,
detailed below. We believe that many of the risks detailed here are part of
doing business in the industry in which we compete and will likely be present
in
all periods reported. The fact that certain risks are characteristic to the
industry does not lessen the significance of the risk. The forward-looking
statements are made as of the date of this Report as Form 10-K and we assume
no
obligation to update the forward-looking statements or to update the reasons
why
actual results could differ from those projected in the forward-looking
statements.
Our
Results of Operations
Unless
we generate significant revenue growth, our expenses and negative cash flow
will
significantly harm our financial position.
We
have
not been profitable since fiscal 1990. As of March 31, 2006, we had an
accumulated deficit of $36.5 million. We may incur operating losses for the
foreseeable future, and these losses may be substantial. Further, we may
continue to incur negative operating cash flow in the future. We have funded
our
operations primarily through the sale of equity securities and borrowings.
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 significantly
higher revenues while containing costs and operating expenses if we are to
achieve profitability.
Acquisitions
or investments could have an adverse affect on our business.
We
acquired the assets of Americable in June 2003 and integrated them with the
assets of APACN. We acquired assets in India in March 2005 as part of a strategy
to take advantage of lower manufacturing costs in India. We intend to continue
reviewing acquisition and investment prospects. There are inherent risks
associated with making acquisitions and investments including but not limited
to:
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·
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Challenges
associated with integrating the operations, personnel, etc., of an
acquired company;
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·
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Potentially
dilutive issuances of equity
securities;
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·
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Reduced
cash balances and or increased debt and debt service
costs;
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·
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Large
one-time write-offs of intangible
assets;
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·
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Risks
associated with geographic or business markets different than those
we are
familiar with; and
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·
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Diversion
of management attention from current
responsibilities.
|
Our
Products and Introduction of New Products
We
must introduce new products and product enhancements to increase
revenue.
The
successful operation of our business depends on our ability to anticipate market
needs and 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 than originally anticipated. These products may contain defects
or
have unacceptable manufacturing yields when first introduced or as new versions
are released. Our products could quickly become obsolete as new technologies
are
introduced or as other firms introduce lower cost alternatives. We must continue
to develop leading-edge products and introduce them to the commercial market
quickly in order to be successful. 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.
Our
products may infringe on the intellectual property rights of
others.
Our
products are sophisticated and rely on complicated manufacturing processes.
We
have received multiple patents on aspects of our design and manufacturing
processes and we have applied for several more. Third parties may still assert
claims that our products or processes infringe upon their intellectual property.
Defending our interests against these claims, even if they lack merit, may
be
time consuming, result in expensive litigation and divert management attention
from operational matters. If such a claim were successful, we could be prevented
from manufacturing or selling our current products, be forced to redesign our
products, or be forced to license the relevant intellectual property at a
significant cost. Any of these actions could harm our business, financial
condition or results of operations.
We
may make additional strategic changes in our product portfolio, but our
strategic changes and restructuring programs may not yield the benefits that
we
expect.
In
connection with the downturn in the communications industry we have divested
or
closed product lines and businesses that either were not profitable or did
not
match our new strategic focus. As necessary, we may make further divestitures
or
closures of product lines and businesses. We may also make strategic
acquisitions.
The
impact of potential changes to our product portfolio and the effect of such
changes on our business, operating results and financial condition, are unknown
at this time. If we acquire other businesses in our areas of strategic focus,
we
may have difficulty assimilating these businesses and their products, services,
technologies and personnel into our operations. These difficulties could disrupt
our ongoing business, distract our management and workforce, increase our
expenses and adversely affect our operating results and financial condition.
In
addition to these integration risks, if we acquire new businesses, we may not
realize all of the anticipated benefits of these acquisitions, and we may not
be
able to retain key management, technical and sales personnel after an
acquisition. Divestitures or elimination of existing businesses or product
lines
could also have disruptive effects and may cause us to incur material
expenses.
Manufacturing
and Operations
Our
dependence on outside manufacturers may result in product delivery
delays.
We
purchase components and labor that are incorporated into our products from
outside vendors. In the case of the SunUV®
Personal
UV Monitor, we supply components to an outside assembler who delivers the
completed product. If these vendors fail to supply us with components or
completed assemblies on a timely basis, or if the quality of the supplied
components or completed assemblies is not acceptable, we could experience
significant delays in shipping our products. Any significant interruption in
the
supply or support of any components or completed assemblies could seriously
harm
our sales and our relationships with our customers. In addition, we have
increased our reliance on the use of contract manufacturers to make our
products. If these contract manufacturers do not fulfill their obligations
or if
we do not properly manage these relationships, our existing customer
relationships may suffer.
We
may be required to rapidly increase our manufacturing capacity to deliver our
products to our customers in a timely manner.
Manufacturing
of our products is a complex and precise process. We have limited experience
in
rapidly increasing our manufacturing capacity or in manufacturing products
at
high volumes. If demand for our products increases, we will be required to
hire,
train and manage additional manufacturing personnel and improve our production
processes in order to increase our production capacity. There are numerous
risks
associated with rapidly increasing capacity, including:
|
·
|
Difficulties
in achieving adequate yields from new manufacturing
lines,
|
|
·
|
Difficulty
maintaining the precise 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.
|
If
we
apply our capital resources to expanding our manufacturing capacity in
anticipation of increased customer orders, we run the risk that the projected
increase in orders will not be realized. If anticipated levels of customer
orders are not received, we will not be able to generate positive gross margins
and profitability.
We
are dependent upon skilled employees; if we lose the services of our key
personnel our ability to execute our operating plan, and our operating results,
may suffer.
Our
future performance depends in part upon the continued service and contributions
of key management, engineering, sales and marketing personnel, many of whom
would be difficult to replace quickly. If we lose any of these key personnel,
our business, operating results and financial condition could be materially
adversely affected or delay the development or marketing of existing or future
products. Competition for these personnel is intense and we may not be able
to
retain or attract such personnel. Our success will depend in part upon our
ability to attract and retain additional personnel with the highly specialized
expertise necessary to generate revenue and to engineer, design and support
our
products and services.
Markets
and Market Conditions
Demand
for our products is subject to significant fluctuation. Adverse market
conditions in the communications equipment industry and any slowdown in the
United States economy may harm our financial condition.
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. Such periods of reduced demand will harm
our
business, financial condition and results of operations. Changes to the
regulatory requirements of the telecommunications industry could also affect
market conditions, which could also reduce demand for our products.
Our
industry is highly competitive and subject to pricing pressure.
Competition
in the communications equipment market is intense. We have experienced and
anticipate experiencing increasing pricing pressures from current and future
competitors as well as general pricing pressure from our customers as part
of
their cost containment efforts. Many of our competitors have more extensive
engineering, manufacturing, marketing, financial and personnel resources than
we
do. As a result, these competitors may be able to respond more quickly to new
or
emerging technologies and changes.
Declining
average selling prices for our fiber optic products will require us to reduce
production costs to effectively compete and market these
products.
Since
the
time we first introduced our fiber optic components to the marketplace we have
seen the average selling price of fiber optic components decline. We expect
this
trend to continue. To achieve profitability in this environment we must
continually decrease our costs of production. In order to reduce our production
costs, we will continue to pursue one or more of the following:
|
·
|
Seek
lower cost suppliers of raw materials or
components.
|
|
·
|
Work
to further automate our assembly
process.
|
|
·
|
Develop
value-added components based on integrated
optics.
|
|
·
|
Seek
offshore sources for manufacturing and assembly
services.
|
We
will
also seek to form strategic alliances with companies that can supply these
services. Decreases in average selling prices also require that we increase
unit
sales to maintain or increase our revenue. There can be no guarantee that we
will achieve these objectives. Our inability to decrease production costs or
increase our unit sales could seriously harm our business, financial condition
and results of operations.
Our
markets are characterized by rapid technological changes and evolving
standards.
The
markets we serve are characterized by rapid technological change, 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.
Conditions
in global markets could affect our operations.
We
have
acquired facilities in India which will support design and production of our
products. We also source products and labor from off shore suppliers. We expect
that our foreign operations and reliance on off shore sourcing will increase
in
the future. As such we are subject to the risks of conducting business
internationally. Those risks include but are not limited to:
|
·
|
local
economic and market conditions;
|
|
·
|
political
and economic instability;
|
|
·
|
fluctuations
in foreign currency exchange rates;
|
|
·
|
tariffs
and other barriers and
restrictions;
|
|
·
|
geopolitical
and environmental risks; and
|
|
·
|
changes
in diplomatic or trade relationships and natural
disasters.
|
We
cannot
predict whether our business operations and reliance in these markets will
be
affected adversely by these conditions.
Our
Customers
Our
sales could be negatively impacted if one or more of our key customers
substantially reduce orders for our products.
If
we
lose a significant customer, our sales and gross margins would be negatively
impacted. In addition, the loss of sales may require us to record impairment,
restructuring charges or exit a particular business or product
line.
Consolidation
among our customers could result in our losing a customer or experiencing a
slowdown as integration takes place.
It
is
likely that there will be increased consolidation among our customers in order
for them to increase market share and achieve greater economies of scale.
Consolidation is likely to impact our business as our customers focus on
integrating their operations and choosing their equipment vendors. After a
consolidation occurs, there can be no assurance that we will continue to supply
the surviving entity.
Customer
payment defaults could have an adverse effect on our financial condition and
results of operations.
As
a
result of competitive conditions in the telecommunications market, some of
our
customers may experience financial difficulties. It is possible that customers
from whom we expect to derive substantial revenue will default or that the
level
of defaults will increase. Any material payment defaults by our customers would
have an adverse effect on our results of operations and financial
condition.
Performance
Requirements and Performance of our Products
Our
products may have defects that are not detected before delivery to our
customers.
Some
of
the Company’s products are designed to be deployed in large and complex networks
and must be compatible with other components of the system, both current and
future. Our customers may discover errors or defects in our products only after
they have been fully deployed. In addition, our products may not operate as
expected over long periods of time. In the case of the SunUV®
Personal
UV Monitor, a consumer product, customers could encounter a latent defect not
detected in the quality inspection. If we are unable to fix errors or other
problems, we could lose customers, lose revenues, suffer damage to our brand
and
reputation, and lose our ability to attract new customers or achieve market
acceptance. Each of these factors would negatively impact cash flow and would
seriously harm our business, financial condition and results of
operations.
Product
defects could cause us to lose customers and revenue or to incur unexpected
expenses.
If
our
products do not meet our customers’ performance requirements, our customer
relationships may suffer. Also, our products may contain defects. Any failure
or
poor performance of our products could result in:
|
·
|
delayed
market acceptance of our products;
|
|
·
|
delays
in product shipments;
|
|
·
|
unexpected
expenses and diversion of resources to replace defective products
or
identify the source of errors and correct
them;
|
|
·
|
damage
to our reputation and our customer
relationships;
|
|
·
|
delayed
recognition of sales or reduced sales;
and
|
|
·
|
product
liability claims or other claims for damages that may be caused by
any
product defects or performance
failures.
|
Intellectual
Property
If
we
are unable to adequately protect our intellectual property, third parties may
be
able to use our technology, which could adversely affect our ability to compete
in the market.
Our
success will depend in part on our ability to obtain patents and maintain
adequate protection of the intellectual property related to our technologies
and
products. The patent positions of technology companies, including our patent
position, are generally uncertain and involve complex legal and factual
questions. We will be able to protect our intellectual property rights from
unauthorized use by third
parties only to the extent that our technologies are covered by valid and
enforceable patents or are effectively maintained as trade secrets. The laws
of
some foreign countries do not protect intellectual property rights to the same
extent as the laws of the U.S., and many companies have encountered significant
problems in protecting and defending such rights in foreign jurisdictions.
We
will apply for patents covering our technologies and products as and when we
deem appropriate. However, these applications may be challenged or may fail
to
result in issued patents. Our existing patents and any future patents we obtain
may not be sufficiently broad to prevent others from practicing our technologies
or from developing competing products. Furthermore, others may independently
develop similar or alternative technologies or design around our patents. In
addition, our patents may be challenged, invalidated or fail to provide us
with
any competitive advantages.
We
rely
on trade secret protection for our confidential and proprietary information.
We
have taken security measures to protect our proprietary information and trade
secrets, but these measures may not provide adequate protection. While we seek
to protect our proprietary information by entering into confidentiality
agreements with employees, collaborators and consultants, we cannot assure
you
that our proprietary information will not be disclosed, or that we can
meaningfully protect our trade secrets. In addition, our competitors may
independently develop substantially equivalent proprietary information or may
otherwise gain access to our trade secrets.
Our
business will suffer if we are unable to protect our patents or our proprietary
rights.
Our
success depends to a significant degree upon our ability to develop proprietary
products. However, patents may not be granted on any of our pending patent
applications in the United States or in other countries. In addition, the scope
of any of our issued patents may not be sufficiently broad to offer meaningful
protection. Furthermore, our issued patents or patents licensed to us could
potentially be successfully challenged, invalidated or circumvented so that
our
patent rights would not create an effective competitive barrier.
Intellectual
property litigation could harm our business.
It
is
possible that we may have to defend our intellectual property rights in the
future. In the event of an intellectual property dispute, we may be forced
to
litigate or otherwise defend our intellectual property assets. Disputes could
involve litigation or proceedings declared by the United States Patent and
Trademark Office or the International Trade Commission. Intellectual property
litigation can be extremely expensive, and this expense, as well as the
consequences should we not prevail, could seriously harm our
business.
If
a
third party claimed an intellectual property right to technology we use, we
might be forced to discontinue an important product or product line, alter
our
products and processes, pay license fees or cease certain activities. We may
not
be able to obtain a license to such intellectual property on favorable terms,
if
at all.
Litigation
or third party claims of intellectual property infringement could require us
to
spend substantial time and money and adversely affect our ability to develop
and
commercialize products.
Our
commercial success depends in part on our ability to avoid infringing patents
and proprietary rights of third parties, and not breaching any licenses that
we
have entered into with regard to our technologies. Other parties have filed,
and
in the future are likely to file, patent applications covering genes and gene
fragments, techniques and methodologies relating to model systems, and products
and technologies that we have developed or intend to develop. If patents
covering technologies required by our operations are issued to others, we may
have to rely on licenses from third parties, which may not be available on
commercially reasonable terms, or at all.
Third
parties may accuse us of employing their proprietary technology without
authorization. In addition, third parties may obtain patents that relate to
our
technologies and claim that use of such technologies infringes these patents.
Regardless of their merit, such claims could require us to incur substantial
costs, including the diversion of management and technical personnel, in
defending ourselves against any such claims or enforcing our patents. In the
event that a successful claim of infringement is brought against us, we may
be
required to pay damages and obtain one or more licenses from third parties.
We
may not be able to obtain these licenses at a reasonable cost, or at all.
Defense of any lawsuit or failure to obtain any of these licenses could
adversely affect our ability to develop and commercialize products.
Executive
Officers
The
following is a list of our executive officers, their ages, positions and offices
as of March 31, 2006.
|
Name
|
Age
|
Position
|
|
Dr.
Anil K. Jain
|
60
|
Chief
Executive Officer/President/Chief Financial Officer of APA Enterprises,
Inc.
|
|
Cheri
Beranek Podzimek
|
43
|
President,
APACN
|
Dr.
Anil K. Jain
has been
a Director, Chief Executive Officer and President since March 1979. He also
currently serves as Chief Financial Officer. 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.
Cheri
Beranek Podzimek
joined
APACN in July 2003 as President. Ms. Podzimek was previously President of
Americable, which was acquired by APACN in June 2003. She served as President
of
Americable from 2002 to 2003. From 2001 to 2002 Ms. Podzimek was Chief Operating
Officer of Americable. Previously, Ms. Podzimek held a variety of lead marketing
positions with emerging high-growth technology companies. She served as Vice
President of Marketing from 1996-2001 at Transition Networks, a manufacturer
of
network connectivity products, Director of Marketing from 1992 to 1996 at
Tricord Systems, an early stage multi-processor based super server manufacturer,
and Director of Marketing from 1988 to 1992 at Digi International, a designer
and manufacturer of connectivity products. Earlier in her career Ms. Podzimek
held marketing positions for non-profit organizations, including the City of
Fargo, the Metropolitan Planning Commission of Fargo/Moorhead and North Dakota
State University.
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS.
|
None
|
ITEM
2.
|
PROPERTIES.
|
We
have
corporate offices, manufacturing facilities, and laboratories located in an
industrial building at 2950 N.E. 84th
Lane,
Blaine, Minnesota. We currently lease 23,500 square feet of space under a lease
from Jain-Olsen Properties, a partnership consisting of Anil K. Jain and Kenneth
A. Olsen, the former being officer and director of the Company. See Note O
of
Notes to the Consolidated Financial Statements included under Item 8 of this
Report. We own land directly west of the Blaine facility that may be used for
future expansion.
We
own a
24,000 square foot production facility in Aberdeen, South Dakota, which was
used
mainly for assembly of products for APACN customers and to a lesser extent
for
assembly of our DWDM components and UV detectors. During the fiscal year 2006
the Company terminated all the manufacturing activities at this facility and
put
the facility for potential lease or sale. The land upon which this facility
is
located (approximately 12 acres) was granted to us as part of a financing
package from the city of Aberdeen. See Note I of Notes to the Consolidated
Financial Statements included under Item 8 in this Report for further
information regarding the financing of this facility. This land was sub-divided
into two parcels of approximately 10 and 2 acres, and the latter was sold to
Aberdeen Development Corporation. The Company contemplates further sub-dividing
the balance 10 acre land in to two parts of approximately 5 acres each with
the
intention of selling or leasing the building along with 5 acre land and
retaining the other 5 acre parcel for future use.
APA
signed a lease agreement in June of 2004 with Veeco Compound Semiconductor,
Inc.
to locate APA’s multi-wafer MOCVD unit, purchased in fiscal 2004, in Veeco’s
facilities in White Bear Lake, Minnesota, which is near APA’s Blaine facility.
The lease term commenced on December 1, 2004 and was terminated March 10, 2006
coinciding with the sale of the epi foundry operation to an unrelated third
party.
APA
India
currently leases, on a month to month basis, a 500 square meter facility in
a
special export zone near New Delhi, India. The Company is planning to relocate
in to its own 1,000 square meter facility, under construction at present in
the
same general location, some time in calendar year 2006.
APACN
subleases a 37,000 square foot facility in Plymouth, Minnesota consisting of
office, manufacturing and warehouse space. This lease runs through June, 2006.
Subsequent to year end, the company has renewed the lease of this facility
through November 2013 on 30,000 square feet.
|
ITEM
3.
|
LEGAL
PROCEEDINGS.
|
On
May
23, 2005 APA Enterprises, Inc. ("APA") was served with a complaint filed in
U.S.
District Court, District of Virginia by Electronic Instrumentation and
Technology, Inc. ("EIT"). EIT alleged that APA obtained certain confidential
information from EIT and used such information for unauthorized purposes.
EIT requested money damages of unspecified amount and equitable relief.
This matter was tried to a jury in December 2005. APA defeated EIT's
claims of fraud and misappropriation of trade secrets. APA was ordered to
pay EIT $35,000 for breach of contract. EIT filed certain post-trial
motions, all of which were denied by the court. EIT did not appeal the verdict
and this matter is concluded.
|
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
Our
common stock is traded on The NASDAQ National Market under the symbol “APAT.”
The following table sets forth the quarterly high and low sales prices for
our
common stock for each quarter of the past two fiscal years as reported by
NASDAQ.
|
Fiscal
2006
|
High
|
Low
|
|||||
|
Quarter
ended June 30, 2005
|
$
|
1.62
|
$
|
1.20
|
|||
|
Quarter
ended September 30, 2005
|
1.48
|
1.18
|
|||||
|
Quarter
ended December 31, 2005
|
1.35
|
1.10
|
|||||
|
Quarter
ended March 31, 2006
|
2.01
|
1.17
|
|||||
|
Fiscal
2005
|
High
|
Low
|
|||||
|
Quarter
ended June 30, 2004
|
$
|
3.75
|
$
|
2.22
|
|||
|
Quarter
ended September 30, 2004
|
2.28
|
1.37
|
|||||
|
Quarter
ended December 31, 2004
|
2.48
|
1.37
|
|||||
|
Quarter
ended March 31, 2005
|
2.21
|
1.36
|
There
were approximately 329 holders of record of our common stock as of March 31,
2006.
We
have
never paid cash dividends on our common stock. The loan agreement relating
to
certain bonds issued by the South Dakota Economic Development Finance Authority
restricts our ability to pay dividends.
|
SELECTED
FINANCIAL DATA.
|
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
Statements
of Operations Data:
|
||||||||||||||||
|
Revenues
|
$
|
15,717,837
|
$
|
13,886,486
|
$
|
11,909,465
|
$
|
436,157
|
$
|
595,955
|
||||||
|
Net
loss
|
(3,348,848
|
)
|
(3,420,038
|
)
|
(6,535,147
|
)
|
(5,009,434
|
)
|
(4,738,199
|
)
|
||||||
|
Net
loss per share, basic and diluted
|
(.28
|
)
|
(.29
|
)
|
(.55
|
)
|
(.42
|
)
|
(.40
|
)
|
||||||
|
Weighted
average number of shares, basic and diluted
|
11,872,331
|
11,872,331
|
11,872,331
|
11,873,914
|
11,896,976
|
|||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||
|
Total
assets
|
$
|
19,593,571
|
$
|
22,074,014
|
$
|
26,083,516
|
$
|
31,884,526
|
$
|
36,396,410
|
||||||
|
Long-term
obligations, including current portion
|
1,360,961
|
1,578,836
|
1,811,759
|
2,173,682
|
2,461,363
|
|||||||||||
|
Shareholders’
equity
|
15,579,442
|
18,922,161
|
22,363,061
|
28,918,943
|
33,504,917
|
|||||||||||
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 of this Report.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
General
Optronics
is, at present, engaged in designing, manufacturing, and marketing of various
optoelectronic products, ultraviolet (“UV”) detectors and related products. For
the last several years our goal has been to manufacture and market
products/components based on our technology developments. Previously, we focused
on DWDM components for fiber optic communications and GaN based UV detectors
(both components and integrated detector/electronic/display packages) because
we
believe that these two product areas have significant potential markets and
because we have expertise and/or patent positions related to them. Optronics
terminated the fiber optic communication activities at the end of fiscal year
2006.
APACN,
which is a wholly owned subsidiary of APA Enterprises, is engaged in the design,
manufacture, distribution, and marketing of a variety of fiber optics and copper
components to the data communication and telecommunication industries. APACN’s
primary manufactured products include standard and custom fiber optic cable
assemblies, copper cable assemblies, Outside Plant (OSP) cabinets, value-added
fiber optics frames, panels and modules. APACN acquired certain assets of
Americable on June 27, 2003. Several items discussed under the “Results of
Operations” show significant changes from the comparable periods in the
preceding fiscal year as a result of the acquisitions of Americable.
Application
of Critical Accounting Policies
In
preparing our consolidated financial statements, we make estimates, assumptions
and judgments that can have a significant impact on our revenues, loss from
operations and net loss, as well as on the value of certain assets and
liabilities on our consolidated balance sheet. We believe that there are several
accounting policies that are critical to an understanding of our historical
and
future performance, as these policies affect the reported amounts of revenues,
expenses and significant estimates and judgments applied by management. While
there are a number of accounting policies, methods and estimates affecting
our
consolidated financial statements, areas that are particularly significant
include:
|
·
|
Accounting
for income taxes; and
|
|
·
|
Valuation
and evaluating impairment of long-lived assets and
goodwill.
|
Accounting
for Income Taxes
As
part
of the process of preparing our consolidated financial statements, we are
required to estimate our income tax liability in each of the jurisdictions
in
which we do business. This process involves estimating our actual current tax
expense together with assessing temporary differences resulting from differing
treatment of items for tax and accounting purposes. These differences result
in
deferred tax assets and liabilities. We must then assess the likelihood that
these deferred tax assets will be recovered from future taxable income and,
to
the extent we believe that recovery is not more likely than not or unknown,
we
must establish a valuation allowance.
Significant
management judgment is required in determining our provision for income taxes,
our deferred tax assets and liabilities and any valuation allowance recorded
against our deferred tax assets. At March 31, 2006, we have recorded a full
valuation allowance of $13,390,433 against our deferred tax assets, due to
uncertainties related to our ability to utilize our deferred tax assets,
consisting principally of certain net operating losses carried forward. The
valuation allowance is based on our estimates of taxable income by jurisdiction
and the period over which our deferred tax assets will be recoverable. The
Company had U.S. federal and state net operating loss (NOL) carry
forwards of approximately $33,782,000 which expire in fiscal years 2007 to
2026.
To date the Company has not completed a section 382 analysis. If certain
ownership changes occurred under section 382, there may be further limitations
on the usage of the net operating loss carry forwards.
During
the fourth quarter of fiscal year 2006, the Company recorded a deferred income
tax liability of $272,000 for the book and income tax basis difference in
goodwill on acquisitions.
Realization
of the NOL carry forwards and other deferred tax temporary differences are
contingent on future taxable earnings. The deferred tax asset was reviewed
for
expected utilization using a “more likely than not” approach as required by
SFAS No. 109, “Accounting for Income Taxes,” by assessing the
available positive and negative evidence surrounding its recoverability.
We
will
continue to assess and evaluate strategies that will enable the deferred tax
asset, or portion thereof, to be utilized, and will reduce the valuation
allowance appropriately at such time when it is determined that the “more likely
than not” approach is satisfied.
Valuation
and evaluating impairment of long-lived assets and goodwill
Goodwill
represents the excess of the purchase price over the fair value of net assets
acquired. Goodwill is not amortized, but reviewed for impairment annually or
whenever conditions exist that indicate an impairment could exist. The Company
performed the annual impairment test in fiscal years 2006, 2005 and 2004 and
concluded that no impairment had occurred.
The
Company evaluates the recoverability of its long-lived assets in accordance
with
SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
SFAS 144 requires recognition of impairment of long-lived assets in the
event that events or circumstances indicate an impairment may have occurred
and
when the net book value of such assets exceeds the future undiscounted cash
flows attributed to such assets. We assess the impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying value
may
not be recoverable. No impairment of long-lived assets has occurred through
the
year ended March 31, 2006.
New
Accounting Pronouncement
In
December 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004)(SFAS 123R), Share-Based
Payment.
This
statement requires the compensation cost relating to share-based payment
transactions to be recognized in a company’s financial statements. That cost
will be measured based on the fair value of the equity or liability instruments
issued. Statement 123(R) covers a wide range of share-based compensation
arrangements including share options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase plans. The
Company will be required to apply Statement 123(R) effective April 1, 2006.
For
fiscal year 2007, management estimates the expense to be approximately
$103,000.
Contractual
Obligations
Our
contractual obligations and commitments are summarized in the table below (in
000’s):
|
Total
|
Less
than 1 Year
|
1-3
years
|
4-5
years
|
After
5 years
|
||||||||||||
|
Long-term
debt (1)
|
$
|
1,361
|
$
|
1,343
|
$
|
18
|
$
|
0
|
$
|
0
|
||||||
|
Operating
leases
|
568
|
193
|
261
|
89
|
25
|
|||||||||||
|
Total
Contractual Cash
|
||||||||||||||||
|
Obligations
|
$
|
1,929
|
$
|
1,536
|
$
|
279
|
$
|
89
|
$
|
25
|
||||||
|
(1)
|
Includes
fixed interest ranging from 0.62 to
10.00%.
|
Results
of Operations
2006
Compared to 2005
REVENUES
Consolidated
revenues for the fiscal year ended 2006 increased 13% to $15,718,000 from sales
of $13,886,000 in 2005. Consolidated cost of sales decreased from 81% in 2005
to
78% in 2006 resulting in improved gross margin of $3,517,000 in 2006 as compared
to $2,688,000 in 2005, an increase of 31%. Consolidated operating losses,
however increased to $4,655,000 in 2006 compared to $3,795,000 in 2005.
Consolidated net losses, however, decreased somewhat to $3,349,000 in 2006
or
$.28 per diluted share compared to $3,420,000 or $.29 in 2005. The losses
in fiscal 2006 were impacted by significantly increased legal expenses and
non-operating activities related to the sale of Metal Organic Chemical Vapor
Deposition (MOCVD) operations and a non-cash deferred tax liability related
to
goodwill on acquisitions. Increased legal expenses related to the defense of
a
lawsuit brought by EIT, a Virginia corporation, and a non-cash tax expense
accrual related to goodwill were offset by a gain on the sale of Metal Organic
Chemical Vapor Deposition (MOCVD) operations.
APACN’s
revenues for the year ended 2006 were $15,641,000 versus $13,801,000 in the
year
ended 2005, an increase of 13%. The increase is primarily attributable to an
increased acceptance of the Company’s products within the FTTH market resulting
from increased sales and marketing activities during the fiscal year 2006.
Sales
to broadband service providers and commercial data networks, which include
APACN
custom fiber distribution systems, associated cable assemblies and optical
components, were $10,488,000 or 67% of revenue. Sales to OEM’s, consisting
primarily of fiber optic and copper cable assemblies produced to customer design
specifications, were $5,152,000, or 33% of revenue. This compares to 69% for
broadband and commercial data networks and 31% for OEM’s in the prior year.
APACN’s revenue growth is dependent upon capital expenditures in the
communications equipment industry, our ability to develop and introduce new
products, and our ability to acquire and retain business in a competitive
industry. We expect sales at APACN in fiscal 2007 to continue to increase as
a
result of our investment in market development activities and the acceptance
of
the product line within our target customers.
Gross
revenues at Optronics for the year ended 2006 were $400,000, compared to
$489,000 in 2005, a decrease of 24%. Gross revenues reflect approximately
$323,000 of sales to APACN for fiber optics products and subcontracted labor
versus $404,000 last year. These sales are eliminated as intercompany sales
in
the consolidated financial statements. Sales of UV monitors were $39,000 versus
$29,000 in the prior year period, and sales of foundry services were $60,000
in
2006 versus $41,000 in 2005. Optronics’ revenue growth is dependent upon our
ability to successfully establish manufacturing reliability for our GaN products
and successful selling into our targeted market segments.
COST
OF SALES AND GROSS PROFIT
APACN’s
gross profit for the year ended in 2006 was $4,195,000 as compared to $3,821,000
in 2005. Gross profit percent for APACN for the year ended March 31, 2006 was
27% versus 28% in the prior year. The decrease in margin percentage reflects
continued downward price pressure. The company expects to experience continued
downward price pressure throughout fiscal 2007 and is continuing on its ongoing
program to reduce the cost of its products through a combination of product
re-design, process improvement and global sourcing of components and outside
manufacturing. We expect gross margin percentage for APACN in fiscal 2007 to
be
about the same as in fiscal 2006.
Optronic’s
net cost of sales for the year ended 2006 were $755,000 as compared to
$1,218,000 in 2005. Personnel related expenses decreased approximately $250,000
due to staff reductions in our GaN product line and the termination of our
Aberdeen manufacturing facility.
RESEARCH
AND DEVELOPMENT EXPENSES
Research
and development (“R&D”) expenses consist solely of the research and
development expense at Optronics. There have been no research and development
expenses at APACN. R&D expenses increased by approximately $305,000, to
$1,409,000 for the year ended March 31, 2006 as compared to $1,104,000 for
the
year ended March 31, 2005. This represents an increase of 28% from 2005. The
majority of the increase reflects additional rental and depreciation costs
associated with operating a semiconductor machine for the entire year fiscal
year of 2006 as compared to only the last two quarters in fiscal 2005. We expect
these R&D expenses to reduce significantly during fiscal 2007 due mainly to
the sale of the operations of the semiconductor machine.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated
selling, general and administration (“S, G & A”) expenses increased
approximately $1,384,000, or 26%, to $6,763,000 in 2006 from $5,379,000 in
2005.
S,
G
& A expenses at APACN were $4,248,000 for the year ending March 31, 2006 as
compared to $3,487,000 in 2005, an increase of $761,000 or 22% mainly due to
increased sales and marketing activities. As a percentage of revenue, we expect
S, G & A expenses to be comparable in fiscal year 2007 to fiscal year
2006.
S,
G
& A expenses at Optronics increased $626,000 to $2,519,000 for the year
ending March 31, 2006, from $1,893,000 in the prior period. The increase is
mainly due to $443,000 increased legal costs primarily associated with the
defense of a law suit from Electronic Instrumentation and Technology, Inc.
(EIT), a Virginia corporation. We expect S, G, & A in fiscal 2007 to
decrease significantly as compared to S, G & A in fiscal 2006.
GAIN
ON DISPOSAL OF ASSETS (net)
Gains
on
disposal of assets at APACN were $4,000 in fiscal year ending March 31, 2006.
There were no gains in the prior fiscal year.
Gains
on
disposal of assets at Optronics were $1,195,000 in fiscal year ended March
31,
2006 as compared to $209,000 in fiscal year ended March 31, 2005. A gain of
approximately $1,163,000 was recognized on the sale of the MOCVD equipment
and
licensing of two patents during March 2006. In the prior fiscal year, the
company realized a gain of approximately $196,000 on the sale of the optics
product line in April 2004
OTHER
INCOME AND EXPENSE
Other
income at APACN increased approximately $114,000 to $122,000 in fiscal 2006
as
compared to $8,000 in fiscal 2005. The difference is due mainly to significant
contingent goodwill earn out of approximately $119,000, during fiscal year
2006,
from Crescent Electric during the 3rd
and
final year of agreement acquired as a direct result of CSP acquisition. Other
expense at APACN increased $83,000 to $386,000 for the year ending March 31,
2006 versus $303,000 in the prior year period. Interest expense increased
$83,000 due to a higher debt balance outstanding and increasing interest rates
over the year.
Other
income at Optronics increased approximately $251,000 to $808,000 in fiscal
2006
from $557,000 in 2005. Interest income increased approximately $183,000 due
mainly to higher interest income earned on cash equivalents. Other expenses
increased approximately $69,000 to $160,000 from $91,000 in 2005, due mainly
to
the expenses related to the EIT judgment and write-down of fiber optic assets
during the fiscal year 2006.
NET
LOSS
Consolidated
net loss decreased $71,000 to $3,349,000, or $.28 cents per share in fiscal
2006, as compared to a net loss of $3,420,000, or $.29 cents per share, in
fiscal 2005.
Net
loss
for APACN for the year ending 2006 was $588,000 versus a profit of $36,000
in
fiscal 2005. The increased losses during the fiscal 2006 were mainly due to
the
expansion of its sales and marketing activities and an accrual for taxes on
goodwill.
Net
loss
for Optronics for the year ending 2006 was $2,760,000, a decrease of $696,000,
or 20%, from $3,456,000 in 2005. The decreased losses are primarily the result
of sale of its MOCVD operations and licensing of two patents.
2005
Compared to 2004
REVENUES
Consolidated
revenues for the fiscal year ended 2005 increased 17% to $13,886,000 from sales
of $11,909,000 in 2004. Consolidated cost of sales decreased to $11,198,000
in
2005 from $11,914,000 in 2004. Consolidated operating losses decreased to
$3,795,000 in 2005 compared to $6,558,000 in 2004. Consolidated net losses
decreased to $3,420,000 in 2005 or $.29 per diluted share compared to $6,535,000
or $.55 in 2004.
APACN’s
revenues for the year ended 2005 were $13,801,000 versus $11,691,000 in the
year
ended 2004, an increase of 18%. The increase is primarily attributable to higher
revenues in the first quarter of fiscal 2005 generated by the acquisition of
Americable, Inc., which occurred at the end of the first quarter of fiscal
2004.
The Americable assets contributed no corresponding revenues for the first
quarter of fiscal 2004. Sales to broadband service providers and commercial
data
networks, which include APACN custom fiber distribution systems, associated
cable assemblies and optical components, were $9,483,000 or 69% of revenue.
Sales to OEM’s, consisting primarily of fiber optic and copper cable assemblies
produced to customer design specifications, were $4,317,000, or 31% of revenue.
This compares to 60% for broadband and commercial data networks and 40% for
OEM’s in the prior year. The change in mix is partially a result of an increased
acceptance of the Company’s products within the FTTH market, offset by lower
demand from some OEM customers. APACN’s revenue growth is dependent upon capital
expenditures in the communications equipment industry, our ability to develop
and introduce new products, and our ability to acquire and retain business
in a
competitive industry.
Gross
revenues at Optronics for the year ended 2005 were $490,000, compared to
$409,000 in 2004, an increase of 20%. Gross revenues reflect approximately
$404,000 of sales to APACN for fiber optics products and subcontracted labor
versus $191,000 last year. These sales are eliminated as intercompany sales
in
the consolidated financial statements. The Company had no sales of its optics
products in 2005 versus $92,000 in the prior year due to the sale of that
product line in April 2004. Sales of UV monitors were $28,000 versus $23,000
in
the prior year period, and sales of foundry services were $41,000 in 2005.
Optronics’ revenue growth is dependent upon our ability to successfully
establish manufacturing reliability for our GaN products and successful selling
into our targeted market segments.
COST
OF SALES AND GROSS PROFIT
APACN’s
gross profit for the year ended in 2005 was $3,821,000 as compared to $2,660,000
in 2004. The increase is due mainly to higher margins generated in the first
quarter of fiscal 2005 generated by the acquisition of Americable assets. Gross
profit percent for APACN for the year ended March 31, 2005 was 28% versus 23%
in
the prior year. The increase in margin percentage reflects reduced production
costs, resulting from consolidating multiple facilities, and a focus on selling
higher margin products.
Optronic’s
net cost of sales for the year ended 2005 were $1,218,000 as compared to
$2,883,000 in 2004. Personnel related costs decreased approximately $780,000
due
to staff reductions in response to demand and the sale of the optics product
line in April 2004. In addition, inventory writeoffs decreased approximately
$125,000 and other production expenses decreased approximately $140,000 due
to
cost reductions implemented in fiscal 2004 and 2005 in the optics and GaN
product lines.
RESEARCH
AND DEVELOPMENT EXPENSES
Research
and development (“R&D”) expenses consist solely of the research and
development expense at Optronics. There have been no research and development
expenses at APACN. R&D expenses increased by approximately $155,000, to
$1,104,000 for the year ended March 31, 2005 as compared to $949,000 for the
year ended March 31, 2004. This represents an increase of 16% from 2004. The
majority of the increase reflects additional rental and depreciation costs
associated with operating a semiconductor machine, beginning in the third
quarter of fiscal 2005, as well as personnel costs associated with this start
up
and HFET development.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
Consolidated
selling, general and administration (“S, G & A”) expenses decreased
approximately $226,000, or 4%, to $5,379,000 in 2005 from $5,605,000 in 2004.
S,
G & A expenses at APACN were $3,487,000 for
the year ending March 31, 2005 as compared to $3,615,000 in 2004. The majority
of the difference is attributable to expenses generated by the assets acquired
from Americable which occurred at the end of the first quarter of fiscal 2004.
Consolidation of facilities beginning in fiscal 2004 also contributed to lower
costs in fiscal 2005.
S,
G
& A expenses at Optronics decreased $97,000 to $1,893,000 for the year
ending March 31, 2005, from $1,990,000 in the prior period. The decrease is
attributable to a reduction in personnel expense of $260,000 in 2005, which
was
offset in part by higher outside services in 2005 related to India development
expenses, along with higher facility expenses in 2005 (which consists of
facility expenses included in cost of sales in 2004 but reclassified as S,
G,
& A in 2005) as this portion of the facility is no longer used for
manufacturing operations.
GAIN
ON DISPOSAL OF ASSETS (net)
Gains
on
disposal of assets were only recognized at Optronics. These gains were $209,000
in fiscal year ended March 31, 2005. There were no gains recognized in the
prior
fiscal year. The company realized a gain of approximately $196,000 on the sale
of the optics product line in April 2004.
OTHER
INCOME AND EXPENSE
Other
income at APACN decreased approximately $15,000 to $8,000 in fiscal 2005 as
compared to $23,000 in fiscal 2004. The difference is due mainly to higher
income for management fees earned in fiscal 2004 related to the CSP acquisition.
Other expense at APACN decreased $9,000 to $303,000 for the year ending March
31, 2005 versus $312,000 in the prior year period. Interest expense increased
$64,000 due to a higher debt balance outstanding over the year. That was offset
by a reduction of $77,000 in asset disposal charges absorbed in the prior year.
Other
income at Optronics increased approximately $127,000 to $557,000 in fiscal
2005
from $430,000 in 2004. Interest income increased approximately $100,000 due
mainly to higher interest income earned on cash equivalents. In addition $39,000
in facility related rental was also generated due to the sale of the fiber
optics product line in April 2004. Other expenses decreased approximately
$24,000 to $91,000 from $115,000 in 2004, due mainly to the absence of expenses
related to assets disposed of in the prior year.
NET
LOSS
Consolidated
net loss decreased $3,115,000 to $3,420,000, or $.29 cents per share, as
compared to a net loss of $6,535,000, or $.55 cents per share, in fiscal 2004.
Net
income for APACN for the year ending 2005 was $36,000 versus a loss of
$1,245,000 in fiscal 2004. The income is due mainly to increased revenue,
reduced duplicate and one time expenses, lower personnel costs and more
efficient operations achieved in the consolidation of the CSP and Americable
assets.
Net
loss
for Optronics for the year ending 2005 was $3,456,000, a decrease of $1,834,000,
or 35%, from $5,290,000 in 2004. The decreased losses are primarily the result
of lower personnel and production expenses from cost reduction efforts
implemented in fiscal 2004 and 2005, combined with the gain on sale of the
optics business and the related savings of expense related to that product
line.
Liquidity
and Capital Resources
As
of
March 31, 2006, our principal source of liquidity was our cash, cash equivalents
and short-term investments, which totaled $8,948,000 compared to $10,813,000
at
March 31, 2005.
We
used
$3,276,000 to fund operating activities during fiscal 2006 compared to
$2,247,000 in fiscal 2005, and $5,596,000 in fiscal 2004. In all three years
the
largest use of cash in operating activities was the funding of the net losses.
The net loss for fiscal 2006 decreased to $3,349,000 from $3,420,000 in fiscal
2005. The primary factor contributing to the decreased loss from fiscal 2005
to
2006 was the sale of the MOCVD equipment and licensing of two patents which
was
mostly negated by increased S, G&A costs. The primary factors contributing
to the decreased loss from fiscal 2004 to 2005 were the profitable operations
at
APACN and reduced expenses at Optronics.
In
fiscal
2006 we netted approximately $1,629,000 in positive cash flows from investing
activities after accounting for the purchase of property and equipment of
$428,000 and $2,057,000 proceeds from the sale of assets, including proceed
of
$1,900,000 of MOCVD equipment and licensing of two patents. In fiscal 2005
we
used $249,000 in investing activities, including $49,000 used to purchase assets
through APA Optronics (India) Private Limited (See Note B of Notes to the
Consolidated Financial Statements included under Item 8 of this Report). We
also
invested $429,000 to purchase property and equipment, mainly for production
equipment at Optronics. In fiscal 2004 we used $2,753,000 in investing
activities including $1,960,000 used to purchase the assets of Americable.
We
also invested $786,000 to purchase property and equipment, mainly for the
purchase of the MOCVD system
In
fiscal
2006, we used $219,000 in financing activities, primarily to pay down long-term
debt relating to our facility in Aberdeen, South Dakota. In fiscal 2005, we
used
$235,000 in financing activities, primarily to pay down long-term debt relating
to our facility in Aberdeen, South Dakota. In fiscal 2004, we used $342,000
in
financing activities primarily to pay down long-term debt relating to our
facility in Aberdeen, South Dakota.
Construction
of our manufacturing facility in Aberdeen utilized certain economic incentive
programs offered by the State of South Dakota and the City of Aberdeen. At
March
31, 2006, the total principal outstanding under bonds issued by the State of
South Dakota was $1,320,000. Interest on the bonds ranges from 5.8% to 6.75%,
and the bonds are due in various installments between 2005 and 2016. These
bonds
require compliance with certain financial covenants. We were out of compliance
with these covenants during all of fiscal 2004, 2005 and 2006. For further
information regarding these bonds, see Note I of Notes to the Consolidated
Financial Statements included under Item 8 of this Report. On April 14, 2004
the
Company sold its optics manufacturing operations, as discussed in Note C to
the
Consolidated Financial Statements included under Item 8 of this Report, to
PNE,
Inc. dba IRD. The terms of the sale required the Company to prepay $89,000
of a
loan with the Aberdeen Development Corporation (“ADC”) in South Dakota and to
accelerate the loan payment schedule to maturity in fiscal 2011 from 2016.
In
June 2005, the Company sold a portion of the land in Aberdeen acquired from
ADC
back to ADC in consideration of cancellation of the remaining $120,000 due
on
the loan. Accordingly, the loan from ADC is fully satisfied. See Note D to
the
Consolidated Financial Statements included under Item 8 of this
Report.
Our
capital requirements are dependent upon several factors, including market
acceptance of our products, the timing and extent of new product introductions
and delivery, and the costs of marketing and supporting our products on a
worldwide basis. See “Item 1. Business.” Although we believe that our current
cash, cash equivalents, and short-term investments will be sufficient to fund
our operations for more than the next 12 months, we cannot assure you that
we
will not seek additional funds through public or private equity or debt
financing or from other sources within this time frame, or that additional
funding, if needed, will be available on terms
acceptable to us, or at all. We
may
also consider the acquisition of, or evaluate investments in, products and
businesses complementary to our business. Any acquisition or investment may
require additional capital.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
Our
exposure to market risk for changes in interest rates relates primarily to
our
cash equivalents. 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. See “Cash and Equivalents” under Note A of
the Consolidated Financial Statements.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA.
|
Quarterly
Results of Operations. The following tables present our unaudited quarterly
operating results for the eight quarters ended March 31, 2006:
|
Quarter
Ended
|
|||||||||||||
|
June
30, 2004(1)
|
September
30, 2004
|
December
31, 2004
|
March
31, 2005
|
||||||||||
|
Statement
of Operations Data
|
|||||||||||||
|
Net
revenue
|
$
|
3,687,718
|
$
|
3,668,068
|
$
|
3,305,299
|
$
|
3,225,401
|
|||||
|
Gross
profit
|
600,875
|
782,264
|
601,140
|
704,031
|
|||||||||
|
Net
loss
|
(702,836
|
)
|
(883,047
|
)
|
(928,510
|
)
|
(905,645
|
)
|
|||||
|
Net
loss per share, basic and diluted
|
$
|
(0.06
|
)
|
$
|
(0.07
|
)
|
$
|
(0.08
|
)
|
$
|
(0.08
|
)
|
|
|
Quarter
Ended
|
|||||||||||||
|
June
30, 2005
|
September
30, 2005
|
December
31, 2005
|
March
31, 2006(2)
|
||||||||||
|
Statement
of Operations Data
|
|||||||||||||
|
Net
revenue
|
$
|
3,512,563
|
$
|
4,069,367
|
$
|
4,379,192
|
$
|
3,756,715
|
|||||
|
Gross
profit
|
725,110
|
904,070
|
1,024,333
|
863,591
|
|||||||||
|
Net
loss
|
(891,006
|
)
|
(1,063,628
|
)
|
(1,275,786
|
)
|
(118,428
|
)
|
|||||
|
Net
loss per share, basic and diluted
|
$
|
(0.08
|
)
|
$
|
(0.09
|
)
|
$
|
(0.11
|
)
|
$
|
(0.01
|
)
|
|
|
(1)
|
In
January, 2004 the Company announced the discontinuance of optics
manufacturing at its Blaine, Minnesota facility. The closure was
the
result of aggressive off-shore pricing and continued lower demand
for this
product line. The Company sold its optics manufacturing operations
on
April 14, 2004 for $220,000.
|
|
(2)
|
During
the fourth quarter of fiscal year 2006, the Company recorded a deferred
income tax liability of $272,000 related to goodwill from
acquisitions.
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Shareholders
APA
Enterprises, Inc.
We
have
audited the accompanying consolidated balance sheets of APA Enterprises, Inc.
and subsidiaries as of March 31, 2006 and 2005, and the related
consolidated statements of operations, shareholders’ equity, and cash flows for
each of the three years in the period ended March 31, 2006. These consolidated
financial state-ments are the responsibility of the Com-pany’s management. Our
responsibility is to express an opinion on these consolidated financial
state-ments based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assur-ance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
controls over financial reporting. Our audit included consideration of internal
controls over financial reporting as a basis for designing audit procedures
that
are appropriate in the circumstances, but not for the purpose of expressing
an
opinion of the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, 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 consolidated financial statements referred to above pre-sent
fairly, in all material respects, the consolidated financial position of APA
Enterprises, Inc. and subsidiaries as of March 31, 2006 and 2005 and the
consolidated results of their operations and their consolidated cash flows
for
each of the three years in the period ended March 31, 2006, in con-formity
with
accounting principles generally accepted in the United States of
America.
/s/
Grant
Thornton LLP
Minneapolis,
Minnesota
May
12,
2006
APA
Enterprises, Inc.
CONSOLIDATED
BALANCE SHEETS
March
31,
|
ASSETS
|
2006
|
2005
|
|||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
8,947,777
|
$
|
10,813,492
|
|||
|
Accounts
receivable, net of allowance for uncollectible accounts of $77,831
and
$57,107 at March 31, 2006 and 2005
|
1,892,483
|
1,446,248
|
|||||
|
Inventories
|
1,836,843
|
1,270,653
|
|||||
|
Prepaid
expenses
|
173,040
|
264,372
|
|||||
|
Bond
reserve funds
|
126,385
|
131,548
|
|||||
|
Total
current assets
|
12,976,528
|
13,926,313
|
|||||
|
PROPERTY,
PLANT AND EQUIPMENT, net
|
2,623,412
|
3,946,998
|
|||||
|
OTHER
ASSETS
|
|||||||
|
Bond
reserve funds
|
343,241
|
337,091
|
|||||
|
Goodwill
|
3,422,511
|
3,422,511
|
|||||
|
Other
|
227,879
|
441,101
|
|||||
|
3,993,631
|
4,200,703
|
||||||
|
$
|
19,593,571
|
$
|
22,074,014
|
||||
The
accompanying notes are an integral part of these financial
statements.
APA
Enterprises, Inc.
CONSOLIDATED
BALANCE SHEETS -
Continued
March
31,
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
2006
|
2005
|
|||||
|
CURRENT
LIABILITIES
|
|||||||
|
Current
maturities of long-term debt
|
$
|
1,342,481
|
$
|
1,471,036
|
|||
|
Accounts
payable
|
1,353,828
|
814,005
|
|||||
|
Accrued
compensation
|
815,046
|
568,950
|
|||||
|
Accrued
expenses
|
211,840
|
190,062
|
|||||
|
Total
current liabilities
|
3,723,195
|
3,044,053
|
|||||
|
LONG-TERM
DEBT, net of current maturities
|
18,480
|
107,800
|
|||||
|
DEFERRED
INCOME TAXES
|
272,454
|
-
|
|||||
|
Total
liabilities
|
4,014,129
|
3,151,853
|
|||||
|
COMMITMENTS
AND CONTINGENCIES
|
-
|
-
|
|||||
|
SHAREHOLDERS’
EQUITY
|
|||||||
|
Undesignated
shares, 4,999,500 authorized shares; no shares issued and
outstanding
|
-
|
-
|
|||||
|
Preferred
stock, $.01 par value; 500 authorized shares; no shares issued and
outstanding
|
-
|
-
|
|||||
|
Common
stock, $.01 par value; 50,000,000 authorized shares; 11,872,331 shares
issued and outstanding at March 31, 2006 and 2005
|
118,723
|
118,723
|
|||||
|
Additional
paid-in capital
|
51,966,213
|
51,960,084
|
|||||
|
Accumulated
deficit
|
(36,505,494
|
)
|
(33,156,646
|
)
|
|||
|
Total
shareholders equity
|
15,579,442
|
18,922,161
|
|||||
|
$
|
19,593,571
|
$
|
22,074,014
|
||||
The accompanying notes are an integral part of these financial
statements.
APA
Enterprises, Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
ended March 31,
|
2006
|
2005
|
2004
|
||||||||
|
Revenues
|
$
|
15,717,837
|
$
|
13,886,486
|
$
|
11,909,465
|
||||
|
Cost
of sales
|
12,200,733
|
11,198,176
|
11,914,050
|
|||||||
|
Gross
profit (loss)
|
3,517,104
|
2,688,310
|
(4,585
|
)
|
||||||
|
Operating
expenses
|
||||||||||
|
Research
and development
|
1,408,778
|
1,103,972
|
948,737
|
|||||||
|
Selling,
general and administrative
|
6,763,068
|
5,379,483
|
5,605,177
|
|||||||
|
Gain
on sale of assets (net)
|
(1,198,295
|
)
|
(208,837
|
)
|
-
|
|||||
|
6,973,551
|
6,274,618
|
6,553,914
|
||||||||
|
Loss
from operations
|
(3,456,447
|
)
|
(3,586,308
|
)
|
(6,558,499
|
)
|
||||
|
Other
income
|
547,878
|
275,661
|
225,719
|
|||||||
|
Other
expense
|
(164,708
|
)
|
(105,253
|
)
|
(200,314
|
)
|
||||
|
383,170
|
170,408
|
25,405
|
||||||||
|
Loss
before income taxes
|
(3,073,277
|
)
|
(3,415,900
|
)
|
(6,533,094
|
)
|
||||
|
Income
taxes
|
275,571
|
4,138
|
2,053
|
|||||||
|
Net
loss
|
$
|
(3,348,848
|
)
|
$
|
(3,420,038
|
)
|
$
|
(6,535,147
|
)
|
|
|
Net
loss per share
|
||||||||||
|
Basic
and diluted
|
$
|
(0.28
|
)
|
$
|
(0.29
|
)
|
$
|
(0.55
|
)
|
|
|
Weighted
average shares outstanding
|
||||||||||
|
Basic
and diluted
|
11,872,331
|
11,872,331
|
11,872,331
|
|||||||
The
accompanying notes are an integral part of these
financial statements.
APA
Enterprises, Inc.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
Years
ended March 31,
|
Undesignated
|
Additional
|
Total
|
|||||||||||||||||||||||
|
shares
|
Preferred
stock
|
Common
stock
|
paid-in
|
Accumulated
|
shareholders’
|
||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
capital
|
deficit
|
equity
|
|||||||||||||||||||
|
Balance
at March 31, 2003
|
-
|
-
|
$
|
-
|
11,872,331
|
$
|
118,723
|
$
|
52,001,681
|
$
|
(23,201,461
|
)
|
$
|
28,918,943
|
|||||||||||
|
Options
issued as compensation
|
-
|
-
|
-
|
-
|
-
|
(20,735
|
)
|
-
|
(20,735
|
)
|
|||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(6,535,147
|
)
|
(6,535,147
|
)
|
|||||||||||||||
|
Balance
at March 31, 2004
|
-
|
-
|
-
|
11,872,331
|
118,723
|
51,980,946
|
(29,736,608
|
)
|
22,363,061
|
||||||||||||||||
|
Options
issued as compensation
|
-
|
-
|
-
|
-
|
-
|
(20,862
|
)
|
-
|
(20,862
|
)
|
|||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,420,038
|
)
|
(3,420,038
|
)
|
|||||||||||||||
|
Balance
at March 31, 2005
|
-
|
-
|
-
|
11,872,331
|
$
|
118,723
|
$
|
51,960,084
|
$
|
(33,156,646
|
)
|
$
|
18,922,161
|
||||||||||||
|
Change
in options issued as compensation
|
-
|
-
|
-
|
-
|
-
|
6,129
|
-
|
6,129
|
|||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,348,848
|
)
|
(3,348,848
|
)
|
|||||||||||||||
|
Balance
at March 31, 2006
|
-
|
-
|
$
|
-
|
11,872,331
|
$
|
118,723
|
$
|
51,966,213
|
$
|
(36,505,494
|
)
|
$
|
15,579,442
|
|||||||||||
The
accompanying notes are an integral part of these
financial statements.
APA
Enterprises, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
ended March 31,
|
2006
|
2005
|
2004
|
||||||||
|
Cash
flows from operating activities:
|
||||||||||
|
Net
loss
|
$
|
(3,348,848
|
)
|
$
|
(3,420,038
|
)
|
$
|
(6,535,147
|
)
|
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities, net of acquisitions:
|
||||||||||
|
Depreciation
and amortization
|
1,061,199
|
1,003,573
|
971,194
|
|||||||
|
Deferred
tax liability
|
272,454
|
-
|
-
|
|||||||
|
Gain
on sale of assets
|
(1,198,295
|
)
|
(208,837
|
)
|
-
|
|||||
|
Compensation
expense
|
6,129
|
(20,862
|
)
|
(20,735
|
)
|
|||||
|
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||
|
Accounts
receivable, net
|
(446,235
|
)
|
341,293
|
(678,686
|
)
|
|||||
|
Inventories
|
(566,190
|
)
|
303,535
|
(179,293
|
)
|
|||||
|
Prepaid
expenses and other assets
|
136,111
|
(134,910
|
)
|
(44,909
|
)
|
|||||
|
Accounts
payable and accrued expenses
|
807,697
|
(110,679
|
)
|
891,795
|
||||||
|
Net
cash used in operating activities
|
(3,275,978
|
)
|
(2,246,925
|
)
|
(5,595,781
|
)
|
||||
|
Cash
flows from investing activities:
|
||||||||||
|
Purchases
of property and equipment
|
(427,631
|
)
|
(429,457
|
)
|
(785,870
|
)
|
||||
|
Proceeds
from sale of assets
|
1,936,756
|
229,000
|
-
|
|||||||
|
Cash
paid for business acquisitions
|
-
|
(48,772
|
)
|
(1,960,000
|
)
|
|||||
|
Other
|
-
|
-
|
(7,376
|
)
|
||||||
|
Net
cash provided by (used in) investing activities
|
1,509,125
|
(249,229
|
)
|
(2,753,246
|
)
|
|||||
|
Cash
flows from financing activities:
|
||||||||||
|
Payment
of long-term debt
|
(97,875
|
)
|
(232,923
|
)
|
(361,923
|
)
|
||||
|
Bond
reserve funds
|
(987
|
)
|
(2,341
|
)
|
20,174
|
|||||
|
Net
cash used in financing activities
|
(98,862
|
)
|
(235,264
|
)
|
(341,749
|
)
|
||||
|
Decrease
in cash and cash equivalents
|
(1,865,715
|
)
|
(2,731,418
|
)
|
(8,690,776
|
)
|
||||
|
Cash
and cash equivalents at beginning of year
|
10,813,492
|
13,544,910
|
22,235,686
|
|||||||
|
Cash
and cash equivalents at end of year
|
$
|
8,947,777
|
$
|
10,813,492
|
$
|
13,544,910
|
||||
|
Supplemental
cash flow information:
|
||||||||||
|
Cash
paid during the year for:
|
||||||||||
|
Interest
|
$
|
90,816
|
$
|
99,337
|
$
|
109,251
|
||||
|
Income
taxes
|
3,117
|
4,138
|
2,053
|
|||||||
|
Noncash
investing and financing transactions:
|
||||||||||
|
Debt
relieved in exchange for land
|
$
|
120,000
|
$
|
-
|
$
|
-
|
||||
|
Capital
expenditure included in accounts payable
|
$
|
-
|
$
|
-
|
$
|
225,000
|
||||
The accompanying notes are an integral part of these financial
statements.
APA
Enterprises, Inc.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2006, 2005 and 2004
NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
APA
Enterprises, Inc., formerly APA Optics, Inc., (the Company) is a manufacturer
of
custom cable assemblies and supplier of premise cabling components and
networking products to customers throughout the United States with a
concentration in Minnesota. The Company also manufactures and markets a range
of
gallium nitride-based devices.
Principles
of Consolidation
The
consolidated financial statements include the accounts of APA Enterprises,
Inc.
and its wholly-owned subsidiaries. All significant inter-company accounts and
transac-tions have been eliminated in consolidation.
Foreign
Currency Translation
The
Company uses the United States dollar as its functional currency for its
subsidiary in India. India’s financial statements were translated into U.S.
Dollars at the year end exchange rate, while income and expenses are translated
at the average exchange rates during the year. There was no significant foreign
exchange translation gain or losses during fiscal years ended March 31, 2006
and
2005. There were no foreign currency operations during fiscal year ended March
31, 2004.
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an arrangement exists, the product
has
been delivered, the fee is fixed, acceptance by the customer is reasonably
certain and collection is probable.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Investments classified as cash
equivalents at March 31, 2006 and 2005 consist entirely of short-term money
market accounts. Cash equivalents are stated at cost, which approximates fair
value.
Cash
of
approximately $104,000 and $145,000 was on deposit in foreign financial
institutions at March 31, 2006 and 2005. The Company maintains cash balances
at
several financial institutions, and at times, such balances exceed insured
limits. The Company has not experienced any losses in such accounts and believes
it is not exposed to any significant credit risk on cash.
NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Accounts
Receivable
Credit
is
extended based on the evaluation of a customer’s financial condition and,
generally, collateral is not required. Accounts outstanding longer than the
contractual payment terms are considered past due. The Company determines its
allowance by considering a number of factors, including the length of time
trade
receivables
are past due, the Company’s previous loss history, the customer’s current
ability to pay its obligation to the Company, and the condition of the general
economy and the industry as whole. The Company writes off accounts receivable
when they become uncollectible; payments subsequently received on such
receivables are credited to the allowance for doubtful accounts.
Inventories
Inventories
consist of finished goods, raw materials and work in process and are stated
at
the lower of average cost (which approximates the first-in, first-out method)
or
market. Cost is determined using material costs, labor charges, and allocated
factory overhead charges.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost, less accumulated depreciation and
amortiza-tion. Depreciation and amortization are provided on the straight-line
method for book and tax purposes over the follow-ing estimated useful lives
of
the assets:
|
Years
|
||||
|
Building
|
20
|
|||
|
Equipment
|
3
- 7
|
|||
|
Leasehold
improvements
|
7
- 10 or life of lease
|
|||
Goodwill
Goodwill
represents the excess of the purchase price over net assets
acquired. Goodwill
is not amortized. Goodwill is tested for impairment annually or whenever
conditions exist that indicate an impairment could exist. The Company performed
the annual impairment test in fiscal years 2006 and 2005 and concluded that
no
impairment had occurred.
Stock-Based
Compensation
The
Company has various incentive and non-qualified stock option plans which are
used as an incentive for directors, officers, and other employees, as described
more fully in Note N. The Company uses the intrinsic value method to value
stock
options issued to employees. Under this method, compensation expense is
recognized for the amount by which the market price of the common stock on
the
date of grant exceeds the exercise price. The Company’s stock based compensation
income also reflects the benefit of the cancellation of previously unvested
expensed options. The Company rec-ognized compensation expense of $6,129 for
the
year ended March 31, 2006 and compensation income of $20,862 and $20,735 for
the
years ended March 31, 2005 and 2004. For those stock options granted where
the exercise price was equal to the market value of the underlying common stock
on the date of grant, no stock-based employee compensation cost is reflected
in
the net loss. Had the fair value method been applied, our compensation expense
would have been different. The following table illustrates the effect on net
loss and net loss per share if the Company had applied the fair value
method,
to
stock-based employee compensation for the following fiscal years:
NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
|
March
31, 2006
|
March
31, 2005
|
March
31, 2004
|
||||||||
|
Net
loss to common shareholders - as reported
|
$
|
(3,348,848
|
)
|
$
|
(3,420,038
|
)
|
$
|
(6,535,147
|
)
|
|
|
Less:
Total stock-based employee compensation expense determined under
fair
value method for all awards, net of related tax effects
|
108,472
|
129,914
|
158,936
|
|||||||
|
Net
loss - pro forma
|
$
|
(3,457,320
|
)
|
$
|
(3,549,952
|
)
|
$
|
(6,694,083
|
)
|
|
|
Basic
and diluted net loss per common share - as reported
|
$
|
(.28
|
)
|
$
|
(.29
|
)
|
$
|
(.55
|
)
|
|
|
Basic
and diluted net loss per common share - pro forma
|
$
|
(.29
|
)
|
$
|
(.30
|
)
|
$
|
(.56
|
)
|
|
The
weighted average fair value of options granted in 2006, 2005 and 2004 was $1.39,
$1.79, and $2.62. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions used for grants in 2006, 2005 and 2004; zero
dividend yield, risk-free interest rate of 3.9%, 3.4% and 3.3%; volatility
of
75%, 75% and 75%, and a weighted-average expected term of the options of five
years. No adjustment was made to the Black Scholes calculation to reflect that
the options are not freely traded.
Fair
Value of Financial Instruments
Due
to
their short-term nature, the carrying value of current financial assets and
liabilities approximates their fair values. The fair value of long-term
obligations, if recalculated based on current interest rates, would not
significantly differ from the recorded amounts.
Net
Loss Per Share
Basic
net
loss per share is computed by dividing net loss by the weighted average number
of common shares outstanding. Diluted net loss per share is computed by dividing
net loss by the weighted average number of common shares outstanding and common
share equivalents related to stock options and warrants, when
dilutive.
Common
stock options and warrants to purchase 633,780, 683,361 and 975,937 shares
of
com-mon stock with a weighted average exercise price of $2.96, $4.99 and $6.35
were out-standing during the years ended March 31, 2006, 2005 and 2004, but
were excluded from the calculation of net loss per share because they were
antidilutive. Had we not incurred net losses during the fiscal years ended
March
31, 2006, 2005 and 2004, we would not have assumed any conversion of stock
options in fiscal 2006 and 2005, and we would have assumed conversion of stock
options into 18,031 common shares in fiscal 2004.
NOTE
A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Use
of
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assump-tions that affect the reported amounts
of assets and liabilities, related revenues and expenses and disclo-sure about
contingent assets and liabilities at the date of the financial statements.
Actual results may differ from those estimates used by management.
Impairment
of Long-Lived Assets
The
Company evaluates the recoverability of its long-lived assets and requires
recognition of impairment of long-lived assets if events or circumstances
indicate an impairment may have occurred and when the net book value of such
assets exceeds the future undiscounted cash flows attributed to such assets.
The
Company assesses the impairment of long-lived assets whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. No
impairment of long-lived assets has occurred through the year ended March 31,
2006.
Income
Taxes
The
Company records income taxes in accordance with the liability method of
accounting. Deferred taxes are recognized for the estimated taxes ultimately
payable or recoverable based on enacted tax law. The Company establishes a
valuation allowance to reduce the deferred tax asset to an amount that is more
likely than not to be realizable. Changes in tax rates are reflected in the
tax
provision as they occur.
Reclassifications
Certain
reclassifications have been made to the 2005 financial statements to conform
with the presentation used in 2006. These reclassifications had no effect on
net
loss or shareholders’ equity as previously reported.
Newly
Adopted Accounting Standards
In
December 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004) (SFAS 123R), Share-Based
Payment.
This
statement requires the compensation cost relating to share-based payment
transactions to be recognized in a company’s financial statements. That cost
will be measured based on the fair value of the equity or liability instruments
issued. Statement 123(R) covers a wide range of share-based compensation
arrangements including share options, restricted share plans, performance-based
awards, share appreciation rights, and employee share purchase plans. The
Company will be required to apply Statement 123(R) effective April 1, 2006.
For
fiscal year 2007, management estimates the expense to be approximately
$103,000.
NOTE
B - ACQUISITIONS
Americable,
Inc.
On
June
27, 2003, the Company acquired certain assets of Americable, Inc. The
acquisition was accounted for as a purchase and, accordingly, results of
operations relating to the purchased assets have been included in the statement
of operations from the date of acquisition. There are no contingent payments
related to the acquisition.
NOTE B - ACQUISITIONS -
Continued
In
accordance with SFAS 141, the Company reclassified certain balances from the
original Americable purchase price allocation as part of an asset valuation
adjustment. The adjustment was made after determining the fair value of the
assets purchased. The result of the change was a decrease in inventory and
property, an increase in accounts receivable, and an increase in goodwill
recorded. This did not change the purchase price of the transaction. The
purchase price and assets acquired with purchase price adjustments are as
follows:
|
Original
Purchase Price Allocation
|
Purchase
Price Adjustment
|
Net
Purchase Price Allocation
|
||||||||
|
Accounts
receivable
|
$
|
594,000
|
$
|
46,279
|
$
|
640,279
|
||||
|
Inventory
|
638,000
|
(13,944
|
)
|
624,056
|
||||||
|
Property,
plant and equipment
|
450,000
|
(49,186
|
)
|
400,814
|
||||||
|
Assets
purchased
|
1,682,000
|
(16,851
|
)
|
1,665,149
|
||||||
|
Goodwill
|
278,000
|
16,851
|
294,851
|
|||||||
|
Purchase
price
|
$
|
1,960,000
|
$
|
-
|
$
|
1,960,000
|
||||
Goodwill
is expected to be fully deductible for tax purposes.
NOTE
C - SALE OF OPTICS MANUFACTURING OPERATIONS
In
January, 2004 the Company announced the discontinuance of optics manufacturing
at its Blaine, Minnesota facility. The closure was the result of aggressive
off-shore pricing and continued lower demand for this product line. This
resulted in a charge of $171,000 taken in the 4th
quarter
ended March 31, 2004. The Company sold its optics manufacturing operations
on
April 14, 2004 for $220,000. The terms of the sale required the Company to
restructure a loan with the City of Aberdeen, South Dakota, which included
an
upfront loan payment of $89,305 and payment of the remaining $140,000 loan
amount in seven annual installments of $20,000 each beginning June 30, 2004.
The
Company recorded a gain of approximately $208,000 on the sale in the first
quarter of fiscal 2005.
NOTE
D - SALE OF LAND
In
June
2005 the Company sold approximately 2 acres of its land in Aberdeen, South
Dakota to the Aberdeen Development Corporation (ADC) in exchange for the
retirement of its remaining $120,000 debt on its loan with ADC. The land was
granted to APA in conjunction with building a facility in Aberdeen and is part
of a single parcel of approximately 12 acres on which the Company has
constructed and operates its manufacturing facility. The Company recognized
a
gain of approximately $109,000 on the sale of the land in the first quarter
of
fiscal 2006.
NOTE
E - CLOSING OF THE ABERDEEN FACILITY
The
Company ceased all of its operations during the later part of fiscal year 2006
as a part of its consolidation of manufacturing operations. The Company owned
facility, located approximately on a 10-acre parcel, is designated for lease
or
sale after sub-division of the land in approximately two 5-acre parcels. The
Company does not have a formal plan for leasing or selling the facility and
thus
the building remains classified as property, plant and equipment as of March
31,
2006. The company plans to retain the 5-acre vacant land for potential future
use. The facility, built using proceeds from a South Dakota assisted bond,
currently has a long-term debt balance of approximately $1.0 Million, after
adjusting the proceeds from the reserve funds. Note I provides more detailed
financial information about the long-term debt and reserve
funds.
NOTE
F - SALE OF METAL ORGANIC CHEMICAL VAPOR DEPOSITION (MOCVD)
OPERATIONS
In
March,
2006 the Company sold certain equipment and related intellectual property
related to its MOCVD operations to an unrelated party for a total consideration
of $1.9 million in cash and a license back of the technology within a specified
field of use. The asset purchase agreement includes an additional consulting
agreement for up to $100,000 over the course of one year. The company recorded
a
gain of approximately $1.2 million on the sale in the fourth quarter of fiscal
2006. The company does not track discrete financial information, therefore
this
has not been presented as a discontinued operation.
NOTE
G - INVENTORIES
Inventories
consist of the following at March 31:
|
2006
|
2005
|
||||||
|
Raw
materials
|
$
|
429,954
|
$
|
266,051
|
|||
|
Work-in-process
|
48,474
|
9,661
|
|||||
|
Finished
goods
|
1,358,415
|
994,941
|
|||||
|
$
|
1,836,843
|
$
|
1,270,653
|
||||
NOTE
H - PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consist of the following at March 31:
|
2006
|
2005
|
||||||
|
Land
|
$
|
116,195
|
$
|
127,760
|
|||
|
Buildings
|
1,809,881
|
1,682,205
|
|||||
|
Manufacturing
equipment
|
4,802,514
|
5,895,170
|
|||||
|
Office
equipment
|
863,131
|
699,839
|
|||||
|
Vehicles
|
10,648
|
-
|
|||||
|
Leasehold
improvements
|
1,135,728
|
1,132,651
|
|||||
|
8,738,097
|
9,537,625
|
||||||
|
Less
accumulated depreciation and amortization
|
6,114,685
|
5,590,627
|
|||||
|
$
|
2,623,412
|
$
|
3,946,998
|
||||
NOTE
I - LONG-TERM DEBT
The
following is a summary of the outstanding debt at March 31:
|
2006
|
2005
|
||||||
|
South
Dakota Governor’s Office of Economic Development and the Aberdeen
Development Corporation Bond, 5.8% to 6.75%, due in various installments
through 2016
|
$
|
1,320,000
|
$
|
1,405,000
|
|||
|
Low
interest economic development loans, 0%, due in various installments
through fiscal 2011
|
-
|
120,000
|
|||||
|
Other
|
40,961
|
53,836
|
|||||
|
1,360,961
|
1,578,836
|
||||||
|
Less
current maturities
|
1,342,481
|
1,471,036
|
|||||
|
$
|
18,480
|
$
|
107,800
|
||||
At
March 31, 2006 and 2005, the Company had on deposit with trustees $469,626
and $468,639 in reserve funds for bond maturities, of which $126,385 and
$131,548 are for current bond maturities. These funds are included in bond
reserve funds in the accompanying balance sheets.
The
loan
agreement requires the Company to maintain compliance with certain cove-nants.
The Company was out of compliance with certain of these covenants in fiscal
2006. All debt, except for other long term debt, has been classified as current
due to the Company’s covenant violation.
All
of
the above debt is secured by land, buildings, and certain equipment of
the
Company.
Scheduled
maturities of the Company’s long-term debt are as follows:
|
Years
ending March 31,
|
||||
|
2007
|
$
|
1,342,481
|
||
|
2008
|
14,773
|
|||
|
2009
|
3,707
|
|||
|
$
|
1,360,961
|
|||
NOTE
J - EMPLOYEE BENEFIT PLAN
The
Company maintains a contributory 401(k) profit sharing benefit plan covering
all
employ-ees. The Company matches 50% of the first 6% of the employee’s salary
that was contributed by the employee to the plan. The Company’s contributions
under this plan were $114,000, $97,000, and $72,000 for the years ended
March 31, 2006, 2005 and 2004.
NOTE
K - INCOME TAXES
Deferred
taxes recognize the impact of temporary differences between the amounts of
the
assets and liabilities recorded for financial statement purposes and such amount
measured in accordance with tax laws. Realization of net operating loss carry
forward and other deferred tax temporary differences are contingent upon future
taxable earnings. The Company’s deferred tax asset was reviewed for expected
utilization using a “more likely than not” approach as required by SFAS 109 by
assessing the available positive and negative factors surrounding its
recoverability. Accordingly, the Company has recorded a full valuation allowance
at March 31, 2006 and 2005.
Significant
components of deferred income tax assets and liabilities are as follows at
March
31:
|
2006
|
2005
|
||||||
|
Current
deferred income tax assets:
|
|||||||
|
Inventories
|
$
|
160,129
|
$
|
116,156
|
|||
|
Accrued
expenses
|
194,841
|
163,338
|
|||||
|
354,970
|
279,494
|
||||||
|
Long-term
deferred income tax asset:
|
|||||||
|
Intangibles
|
12,766
|
33,130
|
|||||
|
Net
operating loss carryforward
|
13,173,801
|
12,296,918
|
|||||
|
13,186,567
|
12,330,048
|
||||||
|
Total
deferred income tax assets
|
13,541,537
|
12,609,542
|
|||||
|
Long-term
deferred income tax liabilities:
|
|||||||
|
Property
and equipment depreciation
|
151,104
|
288,639
|
|||||
|
Goodwill
|
272,454
|
153,696
|
|||||
|
423,558
|
442,335
|
||||||
|
Total
net deferred income taxes
|
13,117,979
|
12,167,207
|
|||||
|
Valuation
allowance
|
(13,390,433
|
)
|
(12,167,207
|
)
|
|||
|
Total
|
$
|
(272,454
|
)
|
$
|
-
|
||
As
of
March 31, 2006, the Company has net operating loss carry forwards for federal
and state income tax purposes of approximately $33,782,000 which expire in
fiscal years 2007 to 2026. To date the Company has not completed a Section
382
analysis. If certain ownership changes occurred under Section 382, there may
be
further limitations on the usage of the net operating loss carry
forwards.
The
following is a reconciliation of the federal statutory income tax rate to the
consolidated effective tax rate for March 31:
|
Percent
of Pre-tax Income
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
Federal
statutory rate
|
(34
|
%)
|
(34
|
%)
|
(34
|
%)
|
||||
|
State
income taxes
|
(5
|
%)
|
(5
|
%)
|
(5
|
%)
|
||||
|
Permanent
differences
|
7
|
%
|
1
|
%
|
0
|
%
|
||||
|
Other
|
1
|
%
|
0
|
%
|
0
|
%
|
||||
|
Change
in valuation allowance
|
40
|
%
|
38
|
%
|
39
|
%
|
||||
|
Tax
Rate
|
9
|
%
|
0
|
%
|
0
|
%
|
||||
NOTE
K - INCOME TAXES -
Continued
Components
of the (benefit) provision for income taxes are as follows for the years ended
March 31:
|
2006
|
2005
|
2004
|
||||||||
|
Current:
|
||||||||||
|
Federal
|
$
|
272,454
|
$
|
-
|
$
|
-
|
||||
|
State
|
3,117
|
4,138
|
2,053
|
|||||||
|
Deferred:
|
||||||||||
|
Federal
|
1,064,207
|
869,866
|
2,106,637
|
|||||||
|
State
|
159,019
|
127,921
|
309,799
|
|||||||
|
Valuation
allowance
|
(1,223,226
|
)
|
(997,787
|
)
|
(2,416,436
|
)
|
||||
|
Income
tax expense
|
$
|
275,571
|
$
|
4,138
|
$
|
2,053
|
||||
During
the fourth quarter of fiscal year 2006, the Company recorded a $272,000 deferred
income tax liability for the book and income tax basis difference in goodwill.
Income tax expense consists primarily of state taxes in 2005 and
2004.
On
June
1, 2006, the Treasury issued final regulations concerning the deduction for
income attributable to domestic production activities under Section 199. Section
199 was enacted as part of the American Jobs Creation Act of 2004. The company
examined the effect of these regulations and concluded the impact to be
immaterial until all net operating losses have been fully utilized.
NOTE
L - 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. The Company is authorized to
issue
500 shares of preferred stock and 50,000,000 shares of common stock at $.01
par
value. The Company has not issued any shares of preferred stock.
NOTE
M - SHAREHOLDER RIGHTS PLAN
Pursuant
to the Shareholder Rights Plan each share of com-mon stock has attached to
it a
right, and each share of common stock issued in the future will have a right
attached until the rights expire or are redeemed. Upon the occurrence of certain
change in control events, each right entitles the holder to purchase one
one-hundredth of a share of Series B Junior Preferred Participating Share,
at an
exercise price of $80 per share, subject to adjustment. The rights expire on
November 10, 2010 and may be redeemed by the Company at a price of $.001
per right prior to the time they become exercisable.
NOTE
N - STOCK OPTIONS AND WARRANTS
Stock
Options
The
Company has various incentive and non-qualified stock option plans which are
used as an incentive for directors, officers, and other employees. Options
are
generally granted at fair market values determined on the date of grant and
vesting normally occurs over a six-year period. The plans had 673,530 shares
of
common stock available for issue at March 31, 2006.
Option
transactions under these plans during the three years ended March 31, 2006
are summa-rized as follows:
|
Number of
shares
|
Weighted
average exercise price
|
||||||
|
Outstanding
at March 31, 2003
|
408,375
|
|
$4.27
|
||||
|
Granted
|
140,000
|
2.62
|
|||||
|
Canceled
|
(163,260
|
)
|
5.65
|
||||
|
Outstanding
at March 31, 2004
|
385,115
|
3.74
|
|||||
|
Granted
|
72,000
|
1.79
|
|||||
|
Canceled
|
(220,485
|
)
|
3.60
|
||||
|
Outstanding
at March 31, 2005
|
236,630
|
3.28
|
|||||
|
Granted
|
65,000
|
1.39
|
|||||
|
Cancelled
|
(25,160
|
)
|
3.75
|
||||
|
Outstanding
at March 31, 2006
|
276,470
|
2.80
|
|||||
The
number of shares exercisable at March 31, 2006, 2005 and 2004 was 113,510,
72,255, and 176,815, respectively, at a weighted average exercise price of
$3.83, $4.47, and $4.21 per share, respectively.
The
following table summarizes information concerning currently outstanding and
exercisable stock options at March 31, 2006:
|
Options
outstanding
|
Options
exercisable
|
|||||||||||||||
|
Range
of exercise
prices
|
Number
outstanding
|
Weighted
average remaining contractual
life
|
Weighted
average exercise
price
|
Number
outstanding
|
Weighted
average exercise
price
|
|||||||||||
|
$1.30-$2.91
|
236,470
|
3.93
years
|
$
|
1.99
|
78,510
|
$
|
2.23
|
|||||||||
|
5.53-8.90
|
40,000
|
0.94
years
|
7.55
|
35,000
|
6.49
|
|||||||||||
|
276,470
|
3.50
years
|
2.80
|
113,510
|
3.83
|
||||||||||||
NOTE
N - STOCK OPTIONS AND WARRANTS -
Continued
Stock
Warrants
The
following is a table of the warrants to purchase shares of the Company’s common
stock:
|
Warrants
outstanding
|
Exercise
price per
share
|
Expiration
date
|
||||||||
|
Balance
at March 31, 2003
|
590,822
|
$
|
3.00
- 17.84
|
2005
- 2008
|
||||||
|
Issued
|
-
|
-
|
-
|
|||||||
|
Expired
|
-
|
-
|
-
|
|||||||
|
Balance
at March 31, 2004
|
590,822
|
3.00
-17.84
|
2005
- 2008
|
|||||||
|
Issued
|
-
|
-
|
-
|
|||||||
|
Expired
|
(144,091
|
)
|
14.72
|
2005
|
||||||
|
Balance
at March 31, 2005
|
446,731
|
3.00
- 17.84
|
2006
- 2008
|
|||||||
|
Issued
|
-
|
-
|
-
|
|||||||
|
Expired
|
(89,421
|
)
|
$
|
6.00-17.84
|
2006
|
|||||
|
Balance
at March 31, 2006
|
357,310
|
3.00-7.00
|
2007-2008
|
|||||||
All
warrants are exercisable upon date of grant.
NOTE
O - COMMITMENTS
The
Company leases office and manufacturing facilities from a partnership whose
two
partners are major shareholders, officers and directors of the Company. The
Company has determined FIN 46 (R), Consolidation
of Variable Interest Entities
(VIE’s),
does not require the consolidation of the partnership with APA’s financial
statements. The lease agreement, classified as an operating lease, expires
November 30, 2009 and provides for periodic increases of the rental rate
based on increases in the consumer price index. Rental expense was $585,000,
$478,000 and $485,000 for the years ended March 31, 2006, 2005 and 2004, of
which $160,000, $155,000 and $149,000 was paid to the partnership, respectively.
The
following is a schedule of approximate minimum payments required under the
capital and operating leases:
|
Year
ending March 31
|
Operating
leases
|
|||
|
2007
|
$
|
193,354
|
||
|
2008
|
133,402
|
|||
|
2009
|
128,022
|
|||
|
2010
|
86,190
|
|||
|
2011
|
2,526
|
|||
|
Thereafter
|
25,260
|
|||
|
Total
minimum lease payments
|
$
|
568,754
|
||
NOTE
P - CONCENTRATIONS
Suppliers
The
Company purchases raw materials, component parts and outsourced labor from
many
suppliers. Although many of these items are single-sourced, the Company
has
experienced no significant difficulties to date in obtaining adequate
quantities. These circumstances could change, however, and the Company
cannot
guarantee that sufficient quantities or quality of raw materials, component
parts and outsourced labor will be as readily available in the future or,
if
available, that we will be able to obtain them at favorable prices.
NOTE
Q - SEGMENTS OF BUSINESS
The
Company has identified two reportable segments based on its internal
organizational structure, management of operations, and performance evaluation.
These segments are Optronics and Cables and Networks (APACN). Optronic’s revenue
is generated in the design, manufacture and marketing of ultraviolet (UV)
detection and measurement devices. APACN’s revenue is derived primarily from
standard and custom fiber optic cable assemblies, copper cable assemblies,
value
added fiber optics frames, panels and modules. Expenses are allocated between
the companies based on detailed information contained in invoices. In addition,
corporate overhead costs for management’s time and other expenses are allocated
to each segment. Segment detail is summarized as follows (unaudited, in
thousands):
|
Optronics
|
Cables
& Networks
|
Eliminations
|
Consolidated
|
||||||||||
|
Year
ended March 31, 2006
|
|||||||||||||
|
External
sales
|
$
|
400
|
$
|
15,641
|
$
|
(323
|
)
|
$
|
15,718
|
||||
|
Gross
profit (loss)
|
(674
|
)
|
4,195
|
(4
|
)
|
3,517
|
|||||||
|
Operating
loss
|
(3,407
|
)
|
(49
|
)
|
-
|
(3,456
|
)
|
||||||
|
Depreciation
and amortization
|
798
|
263
|
-
|
1,061
|
|||||||||
|
Capital
expenditures
|
289
|
138
|
-
|
427
|
|||||||||
|
Assets
|
19,333
|
7,879
|
(7,618
|
)
|
19,594
|
||||||||
|
Year
ended March 31, 2005
|
|||||||||||||
|
External
sales
|
$
|
489
|
$
|
13,801
|
$
|
(404
|
)
|
$
|
13,886
|
||||
|
Gross
profit (loss)
|
(1,133
|
)
|
3,821
|
-
|
2,688
|
||||||||
|
Operating
profit (loss)
|
(3,920
|
)
|
334
|
-
|
(3,586
|
)
|
|||||||
|
Depreciation
and amortization
|
774
|
230
|
-
|
1,004
|
|||||||||
|
Capital
expenditures
|
397
|
79
|
-
|
476
|
|||||||||
|
Assets
|
22,253
|
7,188
|
(7,367
|
)
|
22,074
|
||||||||
|
Year
ended March 31, 2004
|
|||||||||||||
|
External
sales
|
$
|
409
|
$
|
11,691
|
$
|
(191
|
)
|
$
|
11,909
|
||||
|
Gross
profit (loss)
|
(2,665
|
)
|
2,660
|
-
|
(5
|
)
|
|||||||
|
Operating
loss
|
(5,604
|
)
|
(955
|
)
|
-
|
(6,559
|
)
|
||||||
|
Depreciation
and amortization
|
797
|
174
|
-
|
971
|
|||||||||
|
Capital
expenditures
|
695
|
91
|
-
|
786
|
|||||||||
|
Assets
|
26,187
|
7,310
|
(7,413
|
)
|
26,084
|
||||||||
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
None.
|
CONTROLS
AND PROCEDURES.
|
The
Company’s chief executive officer and chief financial officer (the same person)
has evaluated the Company’s disclosure controls and procedures (as defined in
Exchange Act Rule 13a-15(e) as of the end of the period covered by this report,
and based on such evaluation has concluded that they are effective.
During
the fiscal quarter ended March 31, 2006, there was no change in the Company’s
internal controls over financial reporting that materially affected, or is
reasonably likely to materially affect, the Company’s controls over financial
reporting.
|
OTHER
INFORMATION
|
There
were no events during the quarter ended March
31,
2006 required to be disclosed on Form 8-K which were not so
disclosed.
PART
III
|
DIRECTORS
AND EXECUTIVE OFFICERS OF THE
REGISTRANT.
|
Information
regarding executive officers is included in Part I of this Report and is
incorporated in this Item 10 by reference.
Information
regarding directors and the information required by Items 11, and 13, below,
is
incorporated in this Report by reference to the proxy statement for our annual
meeting of shareholders to be held in August 2006.
|
EXECUTIVE
COMPENSATION.
|
Information
required by Item 11 is incorporated in this Report by reference to the proxy
statement for our annual meeting of shareholders to be held in August
2006.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
Certain
information required by Item 12 is incorporated in this Report by reference
to
the proxy statement for annual meeting of shareholders to be held in August
2006.
The
following table provides information about the Company’s equity compensation
plans (including individual compensation arrangements) as of March 31,
2006.
|
(a)
|
(b)
|
(c)
|
|
|
Plan
category
|
Number
of securities to be issued upon exercise of options, warrants or
rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
Equity
compensation plans approved by security holders
|
276,470
|
$2.80
|
673,530
|
|
Equity
compensation plans not approved by security holders
|
357,310
|
$3.08
|
Not
applicable*
|
|
Total
|
633,780
|
$2.96
|
673,530
|
*
These
securities are comprised solely of warrants that were not issued pursuant to
any
formal plan with an authorized number of securities available for issuance.
|
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS.
|
Information
required by Item 13 is incorporated in this Report by reference to the proxy
statement for our annual meeting of shareholders to be held in August
2006.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
Information
required by Item 14 is incorporated in this Report by reference to the proxy
statement for our annual meeting of shareholders to be held in August
2006.
PART
IV
|
EXHIBITS
AND FINANCIAL STATEMENT
SCHEDULES.
|
|
(a)
|
(1) The
following financial statements are filed herewith under Item
8.
|
|
Page
|
||
|
(i)
|
Report
of Independent Registered Public Accounting Firm for the years
ended March
31, 2006, 2005 and 2004
|
F1
|
|
(ii)
|
Consolidated
Balance Sheets as of March 31, 2006 and 2005
|
F2
|
|
(iii)
|
Consolidated
Statements of Operations for the years ended March 31, 2006, 2005
and
2004
|
F3
|
|
(iv)
|
Consolidated
Statement of Shareholders’ Equity for the years ended March 31, 2006, 2005
and 2004
|
F4
|
|
|
||
|
(v)
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2006, 2005
and
2004
|
F6
|
|
|
||
|
(vi)
|
Notes
to the Consolidated Financial Statements for the years ended March
31,
2006, 2005 and 2004
|
F7
|
|
(2)
|
Financial
Statement Schedules: See Schedule II on page following
signatures.
|
|
(b)
|
Exhibits.
See Exhibit Index.
|
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
Enterprises, Inc.
|
||||
|
Date:
June 28, 2006
|
By
|
/s/
Anil K. Jain
|
||
|
Anil
K. Jain
|
||||
|
President
and Chief Executive Officer
|
||||
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 28 , 2006 | ||
|
Anil
K. Jain
|
Chief
Financial Officer and Director (principal executive officer and principal
financial officer)
|
|
||
|
/s/
Chris M. Goettl
|
Controller
|
June
28 , 2006
|
||
|
Chris
M. Goettl
|
|
|||
|
/s/
John G. Reddan
|
Director
|
June 28 , 2006 | ||
|
John
G. Reddan
|
|
|||
|
/s/
Ronald G. Roth
|
Director
|
June
28, 2006
|
||
|
Ronald
G. Roth
|
|
|||
|
/s/
Stephen L. Zuckerman MD
|
Director
|
June
28, 2006
|
||
|
Stephen
L. Zuckerman
|
|
SCHEDULE
II - VALUATION AND QUALIFYING ACCOUNTS
|
Additions
|
||||||||||||||||
|
Description
|
Balance
at Beginning of
Period
|
Charged
to: Cost and Expenses
|
Charged
to: Other Accounts
|
Deductions
|
Balance
at End
of Period
|
|||||||||||
|
Allowance
for doubtful accounts
|
||||||||||||||||
|
March
31, 2006
|
$
|
57,107
|
$
|
18,000
|
$
|
6,121
(1
|
)
|
$
|
3,397
(2
|
)
|
$
|
77,831
|
||||
|
March
31, 2005
|
49,038
|
33,000
|
10,692
(1
|
)
|
35,623
(2
|
)
|
57,107
|
|||||||||
|
March
31, 2004
|
20,644
|
31,500
|
2,562
(1
|
)
|
5,668
(2
|
)
|
49,038
|
|||||||||
(1)
Represents recovery of bad debt and other adjustments
(2)
Represents writeoffs of bad debt
REPORT
OF INDEPENDENT REGISTERED CERTIFIED
PUBLIC
ACCOUNTING FIRM ON SCHEDULE
To
the
Board of Directors and Shareholders
APA
Enterprises, Inc.
We
have
audited in accordance with the standards of the Public Company Accounting
Oversight Board (United States) the consolidated financial statements of APA
Enterprises, Inc. and subsidiaries referred to in our report dated May 12,
2006,
which is included in the annual report to security holders. Our audit was
conducted for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying Schedule II is presented for
purposes of complying with the rules of the Securities and Exchange Commission
and is not a required part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit
of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein, in
relation to the basic financial statements taken as a whole.
/s/
GRANT
THORNTON LLP
Minneapolis,
Minnesota
May
12,
2006
|
EXHIBIT
INDEX
|
||||
|
Number
|
Description
|
Page
Number or Incorporated by Reference to
|
||
|
2.1
|
Asset
Purchase Agreement between APACN and CSP, Inc.
|
Exhibit
2.1 to Form 8-K filed March 31, 2003
|
||
|
2.1
|
Asset
Purchase Agreement between APACN and Americable, Inc.
|
Exhibit
2.1 to Form 8-K filed July 2, 2003
|
||
|
2.2
|
Agreement
Not to Compete with Peter Lee as part of CSP asset
purchase
|
Exhibit
2.2 to Form 8-K filed March 31, 2003
|
||
|
2.3
|
Asset
Purchase Agreement between APA Enterprises, Inc. and Software Moguls
India
Private Limited and S M Infoexpert Private Limited
|
Exhibit
2.3 to Registrant’s Report on Form 10-K for the fiscal year ended March
31, 2005
|
||
|
3.1
|
Restated
Articles of Incorporation, as amended to date
|
Exhibit
3.1 to Registrant’s Report on Form 10-Q for the quarter ended September
30, 2000
|
||
|
3.1
(a)
|
Restated
Articles of Incorporation, as amended to date thru August 25,
2004
|
Exhibit
3.1 to Registrant’s Report on Form 10-Q for the quarter ended September
30, 2004
|
||
|
3.2
|
Bylaws,
as amended and restated to date
|
Exhibit
3.2 to Registrant’s Report on Form 10-KSB for the fiscal year ended March
31, 1999
|
||
|
4.1(a)
|
State
of South Dakota Board of Economic Development $300,000 Promissory
Note,
REDI Loan: 95-13-A
|
Exhibit
4.1(a) to the Report on 10-QSB for the quarter ended June 30, 1996
(the
“June 1996 10-QSB”)
|
||
|
4.1(b)
|
State
of South Dakota Board of Economic Development Security Agreement
REDI Loan
No: 95-13-A dated May 28, 1996
|
Exhibit
4.1(b) to the June 1996 10-QSB
|
||
|
4.2(a)
|
$700,000
Loan Agreement dated June 24, 1996 by and between Aberdeen Development
Corporation and APA Enterprises, Inc.
|
Exhibit
4.2(a) to the June 1996 10-QSB
|
||
|
4.2(b)
|
$300,000
Loan Agreement dated June 24, 1996 between Aberdeen Development
Corporation and APA Enterprises, Inc.
|
Exhibit
4.2(b) to the June 1996 10-QSB
|
||
|
4.2(c)
|
$250,000
Loan Agreement dated June 24, 1996 by and between Aberdeen Development
Corporation and APA Enterprises, Inc.
|
Exhibit
4.2(c) to the June 1996 10-QSB
|
||
|
Number
|
Description
|
Page
Number or Incorporated by Reference to
|
||
|
4.2(d)
|
$300,000
Loan Agreement dated June 24, 1996 by and between Aberdeen Development
Corporation and APA Enterprises, Inc.
|
Exhibit
4.2(d) to the June 1996 10-QSB
|
||
|
4.2(e)
|
Amended
Loan Agreement with Aberdeen Development Corporation and APA Enterprises,
Inc.
|
Exhibit
4.2(e) to Registrants Report on Form 10-K for fiscal year ended
March 31,
2004
|
||
|
4.2(f)
|
Purchase
Agreement for land with Aberdeen Development Corporation and APA
Enterprises, Inc.
|
Exhibit
4.2(f) to Registrant’s Report on Form 10-K for the fiscal year ended March
31, 2005
|
||
|
4.3(a)
|
Loan
Agreement between South Dakota Economic Development Finance and
APA
Enterprises, Inc.
|
Exhibit
4.3(a) to the June 1996 10-QSB
|
||
|
4.3(b)
|
Mortgage
and Security Agreement - One Hundred Day Redemption from APA Enterprises,
Inc. to South Dakota Economic Development Finance Authority dated
as of
June 24, 1996
|
Exhibit
4.3(b) to the June 1996 10-QSB
|
||
|
4.4(a)
|
Subscription
and Investment Representation Agreement of NE Venture,
Inc.
|
Exhibit
4.4(a) to the June 1996 10-QSB
|
||
|
4.4(b)
|
Form
of Common Stock Purchase Warrant for NE Venture, Inc.
|
Exhibit
4.4(b) to the June 1996 10-QSB
|
||
|
4.5(a)
|
Certificate
of Designation for 2% Series A Convertible Preferred Stock
|
Exhibit
4.5(a) filed as a part of Registration Statement on Form S-3 (Commission
File No. 333-33968)
|
||
|
4.5(b)
|
Form
of common stock warrant issued in connection with 2% Series A Convertible
Preferred Stock
|
Exhibit
4.5(b) filed as a part of Registration Statement on Form S-3 (Commission
File No. 333-33968)
|
||
|
4.6
|
Common
Stock Purchase Warrant issued to Ladenburg Thalmann & Co. Inc. to
purchase 84,083 shares
|
Exhibit
4.6 to Registrant’s Report on Form 10-K for fiscal year ended March 31,
2000 (“2000 10-K”)
|
||
|
4.7
|
Share
Rights Agreement dated October 23, 2000 by and between the Registrant
and
Wells Fargo Bank Minnesota NA as Rights Agent
|
Exhibit
1 to the Registration Statement on Form 8-A filed November 8,
2000
|
||
|
4.8
|
Common
Stock Warrant Purchase Agreement with Peter Lee as part of CSP
asset
purchase
|
Exhibit
4.8 to Form 8-K filed March 31, 2003
|
||
|
10.1(a)
|
Sublease
Agreement between the Registrant and Jain-Olsen Properties and
Sublease
Agreement and Option Agreement between the Registrant and Jain-Olsen
Properties
|
Exhibit
10.1 to the Registration Statement on Form S-18 filed with the
Chicago
Regional Office of the Securities and Exchange Commission on June
26, 1986
|
|
Number
|
Description
|
Page
Number or Incorporated by Reference to
|
||
|
10.1(b)
|
Amendment
and Extension of Sublease Agreement dated August 31, 1999
|
Exhibit
10.1(b) to 2000 10-K
|
||
|
10.1(c)
|
Lease
Agreement between Registrant and Jain-Olsen Properties
|
Exhibit
10.1(c) to Registrant’s Form 10Q-SB for quarter ended September 30,
2004
|
||
|
*10.2(a)
|
Stock
Option Plan for Nonemployee Directors
|
Exhibit
10.3a to Registrant’s Report on Form 10-KSB for the fiscal year ended
March 31, 1994 (the “1994 10-KSB”)
|
||
|
*10.2(b)
|
Form
of option agreement issued under the Nonemployee Directors
Plan
|
Exhibit
10.3b to 1994 10-KSB
|
||
|
*10.3
|
1997
Stock Compensation Plan
|
Exhibit
10.3 to Registrant’s Report on Form 10-KSB for the fiscal year ended
March 31, 1997
|
||
|
*10.4
|
Insurance
agreement by and between the Registrant and Anil K. Jain
|
Exhibit
10.5 to Registrant’s Report on Form 10-K for the fiscal year ended March
31, 1990
|
||
|
*10.5
|
Form
of Agreement regarding Repurchase of Stock upon Change in Control
Event
with Anil K. Jain and Kenneth A. Olsen
|
Exhibit
10.1 to Registrant’s Report on Form 10-QSB for the quarter ended September
30, 1997 (“September 1997 10-QSB”)
|
||
|
*10.6
|
Form
of Agreement regarding Employment/Compensation upon Change in Control
with
Messrs. Jain and Olsen
|
Exhibit
10.2 to the September 1997 10-QSB
|
||
|
*10.7
|
Form
of Agreement regarding Indemnification of Directors and Officers
with
Messrs. Jain, Olsen, Ringstad, Roth, Von Wald and
Zuckerman
|
Exhibit
10.7 to Registrant’s Report on From 10-K for the fiscal year ended March
31, 2002.
|
||
|
10.8
|
Sublease
agreement between Newport and APACN
|
Exhibit
10.8 to Registrant’s Report of Form 10-QSB for the quarter ended June 30,
2003
|
||
|
10.9
|
Sublease
agreement between Veeco Compound Semiconductor and APA Enterprises,
Inc.
|
Exhibit
10.9 to Registrant’s Report of Form 10-K for the fiscal year ended March
31, 2004
|
||
|
10.9(b)
|
Amendment
to sublease between Veeco Compound Semiconductor and APA Enterprises,
Inc.
|
Exhibit
10.9 (b) to Registrant’s Report on Form 10-QSB for the quarter ended
September 30, 2004
|
||
|
*10.10
|
Ken
Olsen Separation Agreement
|
Exhibit
10.10 to Registrant’s Report on Form 10-K for the fiscal year ended March
31, 2004
|
||
|
*10.11
|
Stock
option agreement with Cheri Podzimek, President of APACN
|
Exhibit
10.11 to Registrant’s Report on Form 10-K for the fiscal year ended March
31, 2005
|
|
Number
|
Description
|
Page
Number or Incorporated by Reference to
|
||
|
10.12
|
Agreements
on sale of MOCVD Assets
|
Exhibit
10.12 to Registrant’s Report on for 8-K filed March 10,
2006
|
||
|
10.13
|
Patent
and Technology and Revenue Sharing License Agreement
|
Exhibit
10.13 to Registrant’s Report on for 8-K filed March 10,
2006
|
||
|
Lease
agreement between Bass Lake Realty, LLC and APACN
|
**
|
|||
|
14
|
Code
of Ethics
|
Exhibit
14 to Registrant’s Report on Form 10-K for the fiscal year ended March 31,
2004
|
||
|
List
of Subsidiaries
|
**
|
|||
|
Consent
of Grant Thornton LLP
|
**
|
|||
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
**
|
|||
|
Certification
of Chief Executive Officer and Principal Financial Officer Pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002
|
**
|
*Indicates
management contract or compensation plan or arrangements required to be filed
as
an exhibit to this form.
**
Filed
with this Report.
57