SOURCE: APA Enterprises, Inc.

February 13, 2007 13:04 ET

APA Enterprises, Inc. Reports Results for the Third Quarter of Fiscal Year 2007

APA Cables & Networks, Inc. Continues to Show Aggressive Growth in Its Fiber-to-the-Home Target Markets; Optronics Improves Performance Through Expense Controls

MINNEAPOLIS, MN -- (MARKET WIRE) -- February 13, 2007 -- APA Enterprises, Inc. (NASDAQ: APAT) today reported revenues of $4,429,117 for the third quarter of fiscal year 2007, up 1% from revenues of $4,379,192 for the same period of fiscal year 2006. The net loss in the third quarter of fiscal year 2007 decreased 57%, to $429,368, or $0.04 per share, as compared to a loss of $1,275,786, or $0.11 per share, for the third quarter of fiscal year 2006.

Consolidated revenues at APACN and Optronics for the first nine months of fiscal 2007 were $14,272,847, an increase of approximately 19% over the $11,961,122 reported in the first nine months of fiscal year 2006. The net loss for the nine months ended December 31, 2006 was $941,819, or $0.08 per share, down 71% from the net loss of $3,230,420, or $0.27 per share, for the nine months ended December 31, 2005.

Anil K. Jain, APA's president and CEO, commented, "We are very pleased with the increased revenues as well as substantial decrease in losses both for the 3rd quarter and the first 9 months of fiscal year 2007. Extrapolating these figures to an annualized basis, we believe that the yearly projected losses represent more that 50% improvement over the losses of the last several fiscal years dating back to fiscal year 2000. Clearly, the consolidation steps taken during the last two years are in the right direction. Fiscal year 2007 reduction in losses are also significant, because they include the APA Optronics as well."

APA Cables & Networks (APACN)

"Our continued growth in broadband markets further cements our confidence that APACN is making the right investments within the growing Fiber-to-the-Home marketplace," Cheri Beranek Podzimek, president of APACN, said. "However, we are disappointed in our performance within the OEM markets. The company is embarking on an aggressive operational program to streamline our manufacturing operation. This includes the introduction of demand-pull strategies aimed at increasing operational efficiencies while surpassing our customers' lead time expectations."

Specifically, sales for the third quarter of fiscal year 2007 were $4,415,034, compared to sales of $4,342,415 reported in the same quarter a year ago. Due to improved gross margins, operating income rose to $110,680 in comparison to $21,677 in the same period last year.

APACN reported a loss of $33,634 for the quarter ended December 31, 2006 as compared to a loss of $79,037 in the comparable period last year.

Revenues for the nine months ended December 31, 2006 were $14,174,845, up 19% from $11,908,543 in the prior-year period. Sales to the Broadband market were up 35% while sales to the OEM market were down 15% compared to last year. Net income was $52,863 for the nine-month period, versus a loss of $317,547 in the fiscal 2006 period.

Optronics

The Optronics division reduced its operating expenses through consolidation of operations and termination of the MOCVD activities.

Gross revenues at Optronics decreased 87% to $16,143 from $123,645 in the same quarter a year ago mainly due to the termination of manufacturing activities in Aberdeen, South Dakota. Gross revenues for the quarter ended September 30, 2005 reflect $86,868 of sales to APACN for subcontracted labor. Optronics did not provide any subcontract labor to APACN in the quarter ended September 30, 2006. Optronics recorded a net loss of $395,734, a decrease of $801,015 from a loss of $1,196,749 from the same period of fiscal 2006. The decrease in the loss is mainly due to the termination of MOCVD activities and reduced legal expenses from those of fiscal year 2006 related to EIT lawsuit.

Gross revenues at Optronics decreased 70% to $101,366 from $336,420 for nine months ended December 31, 2006 as compared to the same period a year ago mainly due to the termination of manufacturing activities in Aberdeen, South Dakota. Gross revenues for the months ended, 2005 reflect $283,841 of sales to APACN for subcontracted labor. Optronics did not provide any subcontract labor to APACN in the two quarters ended September 30, 2006. Optronics recorded a net loss of $992,932, a decrease of $1,918,191 or 66% from a loss of $2,912,123 from the same period of fiscal 2006. The decrease in the loss is mainly due to reduced operating expenses due to termination of MOCVD activities, the sale of two capitalized patents, and reduced legal expenses.

Cash Used in Operations

APA Enterprises used $1,186,193 cash in operating activities during the third quarter of fiscal year 2007, down $1,469,046 or 55% from the $2,655,239 cash used in operating activities during the same period in fiscal year 2006, mostly due to reduced net losses during the current fiscal year. The Company also used $869,175 in financing activities, including $901,643 toward the retirement bonds issued by the South Dakota Economic Development and Finance Authority, and $119,685 in investing activities during the first three quarters of fiscal year 2007. Overall, the Company used $1,933,760 cash during the third quarter of fiscal year 2007 as compared to $2,884,733 during the same period in fiscal 2006, resulting in cash and cash equivalents on hand of $7,014,017 at December 31, 2006.

Forward-Looking Statements

Forward-looking statements contained herein are made pursuant to the safe harbor provisions of the Private Litigation Reform Act of 1995. These statements are based upon the Company's current expectations and judgments about future developments in the Company's business. Certain important factors could have a material impact on the Company's performance, including, without limitation, delays in or increased costs of production, delays in or lower than anticipated sales of the Company's new products, the Company's ability to sell such products at a profitable price, the Company's ability to fund operations, and other factors discussed from time to time in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to update such statements to reflect actual events.

FINANCIAL RESULTS (unaudited)

Segment detail is summarized as follows (unaudited, in thousands):


                      Optronics       APACN     Eliminations  Consolidated
                    ------------  ------------  ------------  ------------

Three months ended
 December 31, 2006
   Revenues         $         16  $      4,415  $         (2) $      4,429
   Gross profit
    (loss)                  (128)        1,353             -         1,225
   Income (loss)
    from operations         (612)          110             -          (502)
   Depreciation and
    amortization              84            54             -           138
   Capital
    expenditures              12            21             -            33
   Assets                 16,712         7,829        (7,680)       16,861

Three months ended
 December 31, 2005
   Revenues         $        124  $      4,342  $        (87) $      4,379
   Gross profit
    (loss)                  (152)        1,178            (2)        1,024
   Income (loss)
    from operations       (1,346)           22             -        (1,324)
   Depreciation and
    amortization             195            68             -           263
   Capital
    expenditures              62            11             -            73
   Assets                 19,270         7,470        (7,635)       19,105

Nine months ended
 December 31, 2006
   Revenues         $        101  $     14,175  $         (3) $     14,273
   Gross profit
    (loss)                  (347)        4,261             -         3,914
   Income (loss)
    from operations       (1,629)          470             -        (1,159)
   Depreciation and
    amortization             256           179             -           435
   Capital
    expenditures             282            43             -           325
   Assets                 16,712         7,829        (7,680)       16,681

Nine months ended
 December 31, 2005
   Revenues         $        336  $     11,908  $       (283) $     11,961
   Gross profit
    (loss)                  (529)        3,188            (5)        2,654
   Loss from
    operations            (3,380)          (39)            -        (3,419)
   Depreciation and
    amortization             612           194             -           806
   Capital
    expenditures             191           116             -           307
   Assets                 19,270         7,470        (7,635)       19,105



FINANCIAL RESULTS (unaudited - continued)

                        Three Months Ended          Nine Months Ended
                            December 31                 December 31
                    --------------------------  --------------------------
                        2006          2005          2006          2005
                    ------------  ------------  ------------  ------------

REVENUES            $  4,429,117  $  4,379,192  $ 14,272,847  $ 11,961,122

COST OF REVENUES       3,204,504     3,354,859    10,358,670     9,307,609
                    ------------  ------------  ------------  ------------

  GROSS PROFIT         1,224,613     1,024,333     3,914,177     2,653,513

OPERATING EXPENSES
  Research and
   development           105,624       313,127       394,616       980,097
  Selling, general
   and
   administrative      1,624,576     2,035,215     5,030,770     5,185,989
  Loss on disposal
   of assets              (4,059)            -      (352,266)      (93,126)
                    ------------  ------------  ------------  ------------
                       1,726,141     2,348,342     5,073,120     6,072,960

                    ------------  ------------  ------------  ------------
LOSS FROM
 OPERATIONS             (501,528)   (1,324,009)   (1,158,943)   (3,419,447)

OTHER INCOME, net         98,680        48,973       286,894       191,477
                    ------------  ------------  ------------  ------------

LOSS BEFORE INCOME
 TAXES                  (429,368)   (1,275,786)     (872,049)   (3,227,970)

INCOME TAXES              26,520           750        69,770         2,450
                    ------------  ------------  ------------  ------------

NET LOSS            $   (429,368) $ (1,275,786) $   (941,819) $ (3,230,420)
                    ============  ============  ============  ============

NET LOSS PER SHARE:
  Basic and diluted $      (0.04) $      (0.11) $      (0.08) $      (0.27)
                    ============  ============  ============  ============

WEIGHTED AVERAGE
 SHARES
 OUTSTANDING:
   Basic and
    diluted           11,872,331    11,872,331    11,872,331    11,872,331
                    ============  ============  ============  ============


FINANCIAL RESULTS (unaudited - continued)

                                      December 31, 2006    March 31, 2006
                                      -----------------  -----------------

Assets:
  Cash and cash equivalents           $       7,014,017  $       8,947,777
  Other current assets                        3,600,956          4,028,751
  Property, plant and equipment,
   net                                        2,421,545          2,623,412
  Other assets                                3,824,388          3,993,631
                                      -----------------  -----------------

    Total assets                      $      16,860,906  $      19,593,571
                                      =================  =================

Liabilities:
  Current liabilities                 $       1,761,311  $       3,723,195
  Long-term liabilities                         419,230            290,934

Shareholders' equity:
  Common stock                                  118,723            118,723
  Additional-paid-in-capital                 52,008,955         51,966,213
  Accumulated deficit                       (37,447,313)       (36,505,494)
                                      -----------------  -----------------
    Total shareholders' equity               14,680,365         15,579,442
                                      -----------------  -----------------

      Total liabilities and
       shareholders' equity           $      16,860,906  $      19,593,571
                                      =================  =================
APA Enterprises, Inc. consists of an Optronics group and a Cables & Networks group (APACN). The Company develops, designs, manufactures and markets a variety of fiber optics, copper and Gallium Nitride (GaN) based components and devices for industrial, commercial, consumer and scientific applications. APACN designs, manufactures and markets a variety of fiber optic and copper components to the data communication and telecommunication industries. Optronics is active in the development, design, manufacture and marketing of ultraviolet (UV) detection and measurement devices for consumers and industrial customers, and Gallium Nitride (GaN) based transistors for power amplifiers and other commercial applications. Additional information about APA Enterprises is available at http://www.apaenterprises.com.

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