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<SEC-DOCUMENT>0001015402-04-004642.txt : 20041105
<SEC-HEADER>0001015402-04-004642.hdr.sgml : 20041105
<ACCEPTANCE-DATETIME>20041105172653
ACCESSION NUMBER:		0001015402-04-004642
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		6
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041105
DATE AS OF CHANGE:		20041105

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			APA OPTICS INC /MN/
		CENTRAL INDEX KEY:			0000796505
		STANDARD INDUSTRIAL CLASSIFICATION:	OPTICAL INSTRUMENTS & LENSES [3827]
		IRS NUMBER:				411347235
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-16106
		FILM NUMBER:		041123727

	BUSINESS ADDRESS:	
		STREET 1:		2950 NE 84TH LANE
		CITY:			BLAINE
		STATE:			MN
		ZIP:			55434
		BUSINESS PHONE:		6127844995

	MAIL ADDRESS:	
		STREET 1:		2950 NE 84TH LN
		CITY:			BLAINE
		STATE:			MN
		ZIP:			55449
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>doc1.txt
<TEXT>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 SECURITIES EXCHANGE ACT OF 1934

              For the quarterly period ended September 30, 2004, or

[_]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                         Commission File Number 0-16106

                              APA ENTERPRISES, INC.
             (Exact name of Registrant as specified in its charter)

                 MINNESOTA                               41-1347235
      (State or other jurisdiction of                 (I.R.S. Employer
       incorporation or organization)                Identification No.)

                  2950 N.E. 84TH LANE, BLAINE, MINNESOTA 55449
              (Address of principal executive offices and zip code)

                                 (763) 784-4995
              (Registrant's telephone number, including area code)

                         FORMER NAME:  APA OPTICS, INC.
  (FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR END IF CHANGED SINCE LAST
                                     REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to  be  filed  by  Section  13  or 15 (d) of the Securities Exchange Act of 1934
during  the  preceding 12 months (or for such shorter period that the registrant
was  required  to  file  such  reports),  and (2) has been subject to the filing
requirement  for  the  past  90  days.

                              Yes  [X]     No  [_]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
                              Yes  [_]     No  [X]

Indicate  the  number  of  shares outstanding of each of the issuer's classes of
common  stock,  as  of  the  latest  practicable  date:

                 Class:                     Outstanding at November 3, 2004
       Common stock, par value $.01                   11,872,331


<PAGE>
<TABLE>
<CAPTION>
                                APA ENTERPRISES, INC.
                                       FORM 10Q
                                  TABLE OF CONTENTS

<S>                                                                                <C>
PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
  ITEM 1. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .   3
    CONSOLIDATED CONDENSED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . .   3
    CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . .   4
    CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . .   5
    NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. . . . . . . . . . . . .   6
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . . . . . .  19
  ITEM 4.  CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . .  19

PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
  ITEMS 1 THROUGH 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19
  ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . .  21
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>
                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                APA ENTERPRISES, INC.
                        CONSOLIDATED CONDENSED BALANCE SHEETS
                                     (UNAUDITED)

                                                       September 30,     March 31,
                                                           2004            2004
                                                      ---------------  -------------
<S>                                                   <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents                           $   12,363,455   $ 13,544,910
  Accounts receivable, net of allowance for
  uncollectible accounts of $48,107 at September 30,
  2004 and $49,038 at March 31, 2004                       1,540,890      1,787,541
  Inventories                                              1,577,271      1,574,188
  Prepaid expenses                                           140,059        174,503
  Bond reserve funds                                          88,368        133,865
                                                      ---------------  -------------
Total current assets                                      15,710,043     17,215,007

Property, plant and equipment, net                         4,213,792      4,550,956

Other assets:
  Bond reserve funds                                         334,238        332,433
  Goodwill                                                 3,422,511      3,422,511
  Other                                                      490,692        562,609
                                                      ---------------  -------------
                                                           4,247,441      4,317,553
                                                      ---------------  -------------

Total assets                                          $   24,171,276   $ 26,083,516
                                                      ===============  =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt                   $    1,475,827   $  1,637,923
  Accounts payable                                           990,865      1,050,690
  Accrued compensation                                       586,281        645,293
  Accrued expenses                                           239,749        212,713
                                                      ---------------  -------------
Total current liabilities                                  3,292,722      3,546,619

Long-term debt                                               130,284        173,836

Shareholders' equity:
  Undesignated shares                                              -              -
  Preferred stock                                                  -              -
  Common stock                                               118,723        118,723
  Additional paid-in capital                              51,952,038     51,980,946
  Accumulated deficit                                    (31,322,491)   (29,736,608)
                                                      ---------------  -------------
Total shareholders' equity                                20,748,270     22,363,061
                                                      ---------------  -------------

Total liabilities and shareholders' equity            $   24,171,276   $ 26,083,516
                                                      ===============  =============
</TABLE>

      SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


                                        3
<PAGE>
<TABLE>
<CAPTION>
                               APA ENTERPRISES, INC.
                  CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                                    (UNAUDITED)


                                 Three Months Ended          Six Months Ended
                                   September 30,               September 30,
                            --------------------------  --------------------------

                                2004          2003          2004          2003
                            ------------  ------------  ------------  ------------
<S>                         <C>           <C>           <C>           <C>
Revenues                    $ 3,668,068   $ 3,557,586   $ 7,355,786   $ 5,128,562

Costs and expenses:
  Cost of sales               2,885,804     3,358,169     5,972,647     5,230,034
  Research and                  220,595       210,861       411,803       408,964
  development
  Selling, general and        1,476,049     1,686,796     2,816,858     2,754,958
  administrative
                            ------------  ------------  ------------  ------------
                              4,582,448     5,255,826     9,201,308     8,393,956
                            ------------  ------------  ------------  ------------

Loss from operations           (914,380)   (1,698,240)   (1,845,522)   (3,265,394)

Gain on sale of operations            -             -       208,314             -
Other income                     57,062        31,502       104,256       108,087
Other expense                   (24,979)            -       (50,231)      (54,580)
                            ------------  ------------  ------------  ------------
                                 32,083        31,502       262,339        53,507
                            ------------  ------------  ------------  ------------

Loss before income taxes       (882,297)   (1,666,738)   (1,583,183)   (3,211,887)

Income taxes                        750           750         2,700         1,000
                            ------------  ------------  ------------  ------------

Net loss                    $  (883,047)  $(1,667,488)  $(1,585,883)  $(3,212,887)
                            ============  ============  ============  ============

Net loss per share:
  Basic and diluted              ($0.07)       ($0.14)       ($0.13)       ($0.27)
                            ============  ============  ============  ============

Weighted average shares
outstanding:
  Basic and diluted          11,872,331    11,872,331    11,872,331    11,872,331
                            ============  ============  ============  ============
</TABLE>

      SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


                                        4
<PAGE>
<TABLE>
<CAPTION>
                                    APA ENTERPRISES, INC.
                      CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                        (UNAUDITED)


                                                                      Six Months Ended
                                                                        September 30,
                                                                 --------------------------

                                                                     2004          2003
                                                                 ------------  ------------
<S>                                                              <C>           <C>
OPERATING ACTIVITIES
Net loss                                                         $(1,585,883)  $(3,212,887)
Adjustments to reconcile net loss to net cash used in operating
activities, net of acquisition:
      Depreciation and amortization                                  471,791       451,852
      Stock based compensation                                       (28,908)       29,879
    Changes in operating assets and liabilities:
      Accounts receivable                                            246,651      (797,873)
      Inventories                                                     (3,083)     (145,819)
      Prepaid expenses and other                                      36,131       (99,956)
      Accounts payable and accrued expenses                          133,199       729,934
                                                                 ------------  ------------
Net cash used in operating activities                               (730,102)   (3,044,870)

INVESTING ACTIVITIES
Purchases of property and equipment                                 (289,397)     (234,176)
Acquisition of business                                                    -    (1,960,000)
Other                                                                      -        (7,375)
                                                                 ------------  ------------
Net cash used in investing activities                               (289,397)   (2,201,551)

FINANCING ACTIVITIES
Repayment of long-term debt                                         (205,648)     (340,028)
Increase in bond reserve funds                                        43,692         4,248
                                                                 ------------  ------------
Net cash used in financing activities                               (161,956)     (335,780)
                                                                 ------------  ------------

Decrease in cash and cash equivalents                             (1,181,455)   (5,582,201)

Cash and cash equivalents at beginning of period                  13,544,910    22,235,686
                                                                 ------------  ------------

Cash and cash equivalents at end of period                       $12,363,455   $16,653,485
                                                                 ============  ============

Noncash investing and financing activities
  Capital expenditure included in accounts payable               $  (225,000)            -
</TABLE>

      SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS


                                        5
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NOTE 1.  BASIS OF PRESENTATION

     The accompanying condensed financial statements have been prepared pursuant
to  the  rules  and  regulations  of  the  Securities  and  Exchange Commission.
Accordingly,  they  do not include all of the information and footnotes required
by  accounting principles generally accepted in the United States of America for
complete  financial  statements. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K  for  the  year  ended  March  31,  2004.

     In  the  opinion  of  management,  all  adjustments  (consisting  of normal
recurring  accruals)  considered  necessary  for  a  fair presentation have been
included.  Certain  reclassifications  of  previously reported amounts have been
made to conform that presentation to the current period presentation.


NOTE 2.  NET LOSS PER SHARE

     The  following  table  sets  forth the computation of basic and diluted net
loss  per  share:

<TABLE>
<CAPTION>
                                          Three Months Ended          Six Months Ended
                                             September 30,              September 30,
                                      --------------------------  --------------------------

                                          2004          2003          2004          2003
                                      ------------  ------------  ------------  ------------
<S>                                   <C>           <C>           <C>           <C>
Numerator for basic and diluted net
loss                                  $  (883,047)  $(1,667,488)  $(1,585,883)  $(3,212,887)
                                      ============  ============  ============  ============

Denominator for basic and diluted
net loss per share- weighted-
  average shares outstanding           11,872,331    11,872,331    11,872,331    11,872,331
                                      ============  ============  ============  ============

Basic and diluted net loss per share       ($0.07)       ($0.14)       ($0.13)       ($0.27)
                                      ============  ============  ============  ============
</TABLE>

Common  stock  options  and warrants to purchase 873,742 and 1,014,197 shares of
common  stock  with  a  weighted  average exercise price of $6.65 and $6.70 were
outstanding at September 30, 2004 and 2003, respectively, but were excluded from
calculating diluted net loss per share because they were antidilutive.


NOTE  3.  ACQUISITION

     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.  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


                                        6
<PAGE>
in  goodwill.  This  did  not  change the purchase price of the transaction. The
purchase  price  and  assets  acquired  with  purchase  price adjustments are as
follows:

<TABLE>
<CAPTION>
                                  Original        Purchase        Revised
                               Purchase Price      Price      Purchase Price
                                 Allocation      Adjustment     Allocation
                               ---------------  ------------  ---------------
<S>                            <C>              <C>           <C>
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
                               ===============  ============  ===============
</TABLE>

Goodwill is expected to be fully deductible for tax purposes.

NOTE 4.  SEGMENT REPORTING

          The  Company  has  identified  two  reportable  segments  based on its
internal  organizational  structure,  management  of operations, and performance
evaluation.  These  segments  are Optronics (historically referred to as the APA
Optics,  Inc.  segment) and Cables and Networks (historically referred to as the
APACN  segment).  Optronic's revenue is generated in the design, manufacture and
marketing  of  ultraviolet  (UV)  detection  and measurement devices and optical
components.  Cables  &  Network'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.  Segment
detail is summarized as follows (unaudited, in thousands):

<TABLE>
<CAPTION>
                                                      Cables &
                                         Optronics    Networks    Eliminations    Consolidated
                                        -----------  ----------  --------------  --------------
<S>                                     <C>          <C>         <C>             <C>
THREE MONTHS ENDED SEPTEMBER 30, 2004
  External sales                        $      149   $   3,623   $        (104)  $       3,668
  Cost of sales                                389       2,601            (104)          2,886
  Operating income (loss)                   (1,025)        111               -            (914)
  Depreciation and amortization                179          53               -             232
  Capital expenditures                           2          26               -              28
  Total assets                              24,056       7,506          (7,391)         24,171

THREE MONTHS ENDED SEPTEMBER 30, 2003
  External sales                        $       61   $   3,497               -   $       3,558
  Cost of sales                                680       2,678               -           3,358
  Operating loss                            (1,432)       (266)              -          (1,698)
  Depreciation and amortization                185          54               -             239
  Capital expenditures                          31         127               -             158
  Total assets                              28,428       7,652          (7,039)         29,041


                                        7
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 2004
  External sales                        $      292   $   7,295   $        (231)  $       7,356
  Cost of sales                                961       5,243            (231)          5,973
  Operating income (loss)                   (2,062)        216               -          (1,846)
  Depreciation and amortization                364         108               -             472
  Capital expenditures                         236          53               -             289
  Total assets                              24,056       7,506          (7,391)         24,171

SIX MONTHS ENDED SEPTEMBER 30, 2003
  External sales                        $      122   $   5,014              (7)  $       5,129
  Cost of sales                              1,359       3,878              (7)          5,230
  Operating loss                            (2,796)       (469)              -          (3,265)
  Depreciation and amortization                368          84               -             452
  Capital expenditures                         101         133               -             234
  Total assets                              28,428       7,652          (7,039)         29,041
</TABLE>


NOTE 5. SALE OF OPTICS MANUFACTURING OPERATIONS

     In  January,  2004  the  Company  announced  the  discontinuance  of optics
manufacturing  at  its Blaine 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 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.

NOTE 6. 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.
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 expense also reflects the
benefit  of  the  cancellation  of  previously  unvested  expensed options.  The
Company  recognized compensation income of $15,446 and $28,908 for the three and
six months ended September 30, 2004, and compensation expense of $29,879 for the
three  and six months ended September 30, 2003.  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


                                        8
<PAGE>
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  three  months  ended:

<TABLE>
<CAPTION>
                                    Three Months Ended          Six Months Ended
                                       September 30,              September 30,
                                -------------------------  --------------------------

                                   2004          2003          2004          2003
                                -----------  ------------  ------------  ------------
<S>                             <C>          <C>           <C>           <C>

Net loss to common
shareholders - as reported      $ (883,047)  $(1,667,488)  $(1,585,883)  $(3,212,887)
Less: Total stock-based
employee compensation
expense  determined under
fair value based method for        (37,980)      (50,318)      (86,322)     (100,635)
all awards, net of related tax
effects
                                -----------  ------------  ------------  ------------
Net loss - pro forma            $ (921,027)  $(1,717,806)  $(1,672,205)  $(3,313,522)
                                ===========  ============  ============  ============

Basic and diluted net loss
per common share - as
reported                            ($0.07)       ($0.14)       ($0.13)       ($0.27)
Basic and diluted net loss
per common share - pro
forma                               ($0.08)       ($0.15)       ($0.14)       ($0.28)
</TABLE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


     Statements in this Report about future sales prospects and other matters to
occur  in  the  future  are  forward  looking  statements  and  are  subject  to
uncertainties  due  to many factors, many of which are beyond our control. These
factors  include,  but  are  not  limited  to,  the continued development of our
products,  acceptance  of  those products by potential customers, our ability to
sell  such  products  at  a  profitable  price,  and  our  ability  to  fund our
operations.  For  further  discussion regarding these factors, see "Factors That
May  Influence  Future  Results."


OVERVIEW


     APA  Enterprises,  Inc., (formerly known as APA Optics, Inc.) consisting of
the  Optronics  group  and  the  Cables  &  Networks  group,  develops, designs,
manufactures  and  markets  fiber optics, copper and gallium nitride (GaN) based
components  and  devices  for  industrial,  commercial,  consumer and scientific
applications.  Optronics  is  active in the development, design, manufacture and
marketing  of  ultraviolet  (UV)  measurement  instruments  for  consumers  and
industrial  customers,  and  gallium  nitride  (GaN) based transistors for power
amplifiers  and  other  commercial  applications.  Cables  &  Networks  designs,
manufactures  and  markets a variety of fiber optic and copper components to the
data  communication  and  telecommunication  industries. Both groups also source
from  third  parties  components and devices for direct and value-added sales to
our  customers  in  all  these  technology  areas.


                                        9
<PAGE>
     Cables  &  Networks'  internally  manufactured products primarily include a
broad  line  of  standard  and custom fiber optic cable assemblies, copper cable
assemblies,  optical  components,  value  added fiber optic distribution frames,
panels  and  modules.  These  products are manufactured at the Cables & Networks
plant  in Plymouth, Minnesota and Optronics' facility in Aberdeen, South Dakota,
and  marketed  to  broadband  service  providers,  commercial data networks, and
original  equipment  manufacturers. Cables & Networks acquired certain assets of
Computer  System  Products, Inc. ("CSP") on March 14, 2003 and certain assets of
Americable, Inc. ("Americable") on June 27, 2003. Several of the items discussed
under  "Results  of  Operations"  show  significant  changes from the comparable
periods in the preceding fiscal year as a result of these acquisitions.

     In  January  2004  Optronics terminated its optics manufacturing in Blaine,
Minnesota  as  described  in  Note  5.  Additionally  in  January 2004 Optronics
consolidated  its  fiber  optics  operations  within Blaine.  Optronics plans to
continue to market and sell fiber optic products using mainly Cables & Network's
sales  team  and  channels.  We  outsource several components from third parties
including  passive  optical  splitters, arrayed waveguides (AWGs) and wavelength
division  multiplexers  (WDMs) based on Thin Film Filter (TFF) technology, which
we  combine  with  our  internally  manufactured  products to create value added
components  for  our customers. The majority of our outsourced product providers
are  located  offshore.

     Most  companies  in  the  communications industry have been affected by the
slowdown  in  telecommunications equipment spending over the past several years.
Decreased  demand  and  competition  have  continued to put downward pressure on
margins. This downward pressure is likely to continue and we will need to reduce
operating  costs  and  improve  efficiencies  to  remain  competitive  in  the
marketplace.

     Optronic's  consumer  UV detection product, the SunUVTM Personal UV Monitor
(PUVM,  formerly  SunWatch) continues in low volume production.  We are shipping
small  quantities  to  retailers and catalog customers on an ongoing basis.  The
offshore  manufacturer  is  maintaining  a flow of product, but low yield caused
primarily  by  mechanical  and cosmetic issues has limited our ability to pursue
larger orders from our distribution channels. High volume manufacturing is being
addressed  with  the current supplier. We have selected another supplier for our
PUVM's.  Our  goal  is  to  qualify  this  supplier  prior  to the initiation of
production  runs.  We  anticipate  production  samples for qualification will be
available during the early part of the fourth quarter of fiscal 2005.

     In addition to the UV consumer product line, Optronics has reconfigured its
TrUVMeterTM  for monitoring UV radiation printing and curing systems, which is a
growing  segment  of  the  printing and coating industries. This reconfiguration
involves  detection  and  analysis  of  four light bands (all in the UV spectral
range)  using  four separate detector assemblies, as compared to only one in the
TrUVMeterTM.  We  have completed the design and major development tasks for this
product,  called  Profiler  M.  We  introduced  the  Profiler M at the Specialty
Graphics  and  Imaging  trade  show  held  in  Minneapolis  in  October  2004.
Subsequently  we have shipped test units for customer evaluation. Our plans call
for  integrating  customers'  feedback in the final configuration and initiating
manufacturing of the Profiler M.  We anticipate units will be available for sale
during  the  fourth  quarter  of  fiscal  2005.

     Optronics  continues  to  develop  transistors  based on GaN/AlGaN (gallium
nitride/aluminum  gallium  nitride) for base transceiver station power amplifier
applications  while  assessing  other  commercialization  opportunities.  With
assistance  from  outside  foundries  we  are  processing, packaging and testing
transistors  built  from  our  material.  Our plan is to continue characterizing
demonstration  power  amplifiers  built  using AlGaN/GaN based transistors while
qualifying  the  long  term  reliability  of  these  devices.

     During the latter part of fiscal 2004 we purchased a multi-wafer (6 wafers,
2  inches in diameter) metal organic chemical vapor deposition (MOCVD) system to
supply  high  performance  epitaxial wafers for internal requirements as well as
for  other  potential  customers.  Installation of this system will be completed
within  the  third  fiscal  quarter  of  2005 at a leased facility that provides
state-of-the-art  characterization  equipment.  Included in the reactor purchase
was  a  quantity  of  wafers,  grown  at  the  vendor's application lab to APA's
specifications.  These  wafers  were  grown to demonstrate the capability of the
tool and to serve as a bridge until the reactor is brought on-line. These wafers
are  currently  being  processed  and  evaluated.

     We  will be working with potential epi-wafer customers to initially qualify
our material during the third quarter of fiscal 2004. This qualification process
is  dependent  on  the  customer  fabrication and testing schedule and typically
ranges  from  several  weeks  to  several months. We expect to work toward wafer
supply  agreements  with  these potential customers, leveraging our cutting edge
material  and  fundamental  patent  position.


                                       10
<PAGE>
RESULTS OF OPERATIONS
- ---------------------

THREE MONTHS ENDED SEPTEMBER 30, 2004 VS. THREE MONTHS ENDED SEPTEMBER 30, 2003

     Consolidated  revenues  for  the  three  months  ended  September  30, 2004
increased $110,482, or 3%, to $3,668,068 from $3,557,586 in 2003.

     Revenues  at  Cables  &  Networks  were  $3,622,735,  compared  to sales of
$3,497,188 reported in the same quarter a year ago, an increase of 4%. Sales for
the  current  quarter to broadband service provider and commercial data networks
were  $2,478,000  versus  $2,031,000.  The  increase  was  due  to  revenue from
additional  customers  in  the  Fiber-to-the-Home  market.  Sales  to OEM's were
$1,145,000  versus  $1,466,000  in the year ago period. The decrease is due to a
focus away from lower margin products as well as lower demand in the market.  We
expect  that future sales of Cables & Networks products will continue to account
for  a  substantial  portion  of our revenue. We anticipate revenues may decline
slightly due to seasonality in the third quarter of fiscal 2005, consistent with
the  decline  experienced  by Cables & Networks during the prior year's quarter.

     Gross  revenues  at  Optronics increased $88,796, or 147%, to $149,194 from
$60,398  in  the same quarter a year ago.  Gross revenues for the second quarter
ended  reflect  approximately  $103,800  of sales to Cables & Networks for fiber
optics  products  and  subcontracted  labor versus none in the comparable period
last  year.   These  sales  are  eliminated  as  intercompany  sales  in  the
consolidated  financials  in  each quarter. The net decrease in revenues for the
quarter  was  due  primarily to lower sales of fiber optics and optics products,
offset  by  additional  sales  for  foundry  services.

COST OF SALES AND GROSS PROFIT

     Cables  &  Network's gross profit increased $202,445, or 25%, to $1,021,683
from $819,238. Gross margins as a percent of revenues increased from 23% to 28%.
The increase in margins reflects reduced production costs in the current quarter
for  duplicate  overhead  and  personnel  costs absorbed in the prior year while
operating  and  consolidating multiple facilities, as well as an increased focus
on  selling  higher  margin  products.

      Gross  cost  of sales at Optronics decreased $291,606, or 43%, to $388,613
from  $680,219.  Gross  cost of sales reflects approximately $103,800 related to
cost  of  sales to Cables & Networks for fiber optics products and subcontracted
labor versus none last year.  These costs are eliminated as intercompany cost of
sales  in the consolidated financials in each quarter.  The net decrease in cost
of sales is due to lower material and production expenses related to the closure
of  the  optics  manufacturing  line as well as lower personnel costs associated
with  cost  reduction  efforts.

      We  anticipate  comparable  gross  margins  and cost of sales for Cables &
Networks  and  Optronics  for  the  third  quarter.

RESEARCH AND DEVELOPMENT EXPENSES

     Research  and  development expenses consist of the research and development
expense  at  Optronics.  There have been no research and development expenses at
Cables & Networks. Expenses were $220,595, relatively unchanged between periods.
We  expect  research  and  development  expenses  to  grow slightly in the third
quarter.

SELLING, GENERAL AND ADMINISTRATIVE

     Consolidated  S,  G  & A expenses decreased $210,747, or 12%, to $1,476,049
from  $1,686,796  in  2003.

     Selling, general and administrative expenses at Cables & Networks decreased
$174,391,  or 16%, to $910,771 from $1,085,162.  The majority of the decrease is
attributable  to  the  elimination of duplicate and one time expenses related to
operating multiple facilities and consolidating them in the fiscal 2004 quarter,
offset  by  slightly  higher  administration  and  professional  costs.


                                       11
<PAGE>
     Selling,  general  and  administrative  expenses  at  Optronics  decreased
$36,356,  or  6%,  to  $565,278  from  $601,634.  The  decrease  is due to lower
personnel  and  related  costs  associated with cost reductions implemented over
fiscal  year  2004,  offset  slightly  by  higher  professional  fees.

INCOME  (LOSS)  FROM  OPERATIONS

     Consolidated losses from operations decreased $783,860, or 46%, to $914,380
from  $1,698,240  in  2003.

     The  income from operations at Cables & Networks was $110,912 versus a loss
of  $265,924  in  the fiscal 2004 quarter.   The increased income in the quarter
was  mainly  the  result  of  a  combination  of increased gross margins and the
reduction  in duplicate expenses relating to multiple facilities absorbed in the
prior  year  period.

     The  loss  from  operations  at  Optronics  was  $1,025,292,  a decrease of
$407,024,  or 28%.  The decrease in the loss is primarily the result of the cost
reductions  implemented  over  the  prior  fiscal  year,  mainly  for  personnel
reductions  and  the  elimination  of the optics line of business.  We expect to
incur  losses  at Optronics until we realize significant revenues from the sales
of  our  PUVM  and  GaN  related  products.

OTHER INCOME AND EXPENSE

     Consolidated  other  income  and  expense  increased  $581  to $32,083 from
$31,502.

     Other  expense  at  Cables  &  Networks  increased approximately $8,500 for
interest expense due to a larger outstanding debt balance in the current period.

     Other  income  at Optronics increased $32,976 to $128,166.  Interest income
increased  approximately  $23,000  due  to a higher outstanding debt balance due
from Cables & Networks and higher amount earned on short term investments, while
other  income  increased  approximately  $10,000  from  facility  rental.

NET INCOME (LOSS)

     Consolidated  net  loss  for  the  quarter  decreased  $784,441, or 47%, to
$883,047,  or  $.07 cents per share, from $1,667,488, or $.14 cents per share in
the  year  ago  period.

     Cables  &  Networks had net income of $37,160 in the quarter, compared to a
loss  of $331,103 in the year ago quarter.  The increase reflects improved gross
margins  through  reduced  production  costs  and  reduced  S,  G,  & A expenses
attributable  to  operating  multiple  facilities  in  the  year  ago  period.

     Optronics  recorded a net loss of $920,207, a decrease of $416,178, or 31%,
from  the  loss  of  $1,336,385  reported in the same period of fiscal 2004. The
decrease is due mainly to cost reductions implemented over the past year.  While
cost  reductions  implemented  so  far  at Optronics will help lower the overall
losses  for  the  Company,  achieving  profitability in the future will strongly
depend  upon  Optronic's  ability  to  manufacture  and  market  gallium-nitride
products.

SIX MONTHS ENDED SEPTEMBER 30, 2004 VS. SIX MONTHS ENDED SEPTEMBER 30, 2003

     Consolidated revenues for the six months ended September 30, 2004 increased
$2,227,224,  or  43%,  to  $7,355,786  from  $5,128,562  in  2003.

     Revenues  at  Cables  & Networks increased $2,281,007, or 45% to $7,294,547
from  $5,013,540.  The  increase is attributable to higher revenues in the first
quarter  of  fiscal  2005  quarter generated by the acquisition from 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 provider and commercial data networks
were $4,961,000 or 68% of revenue, and sales to OEM's were $2,334,000, or 32% of
revenue. This compares to 60% for broadband and commercial data networks and 40%
for  OEM's  in  the  prior  period.  The  change  reflects  higher demand in the
Fiber-to-the-Home  market,  offset  by  lower  demand  from  OEM's.


                                       12
<PAGE>
     Gross  revenues  at Optronics increased $169,496, or 139%, to $291,688 from
$122,192  in  the  same period a year ago.  Gross revenues reflect approximately
$230,000  of  sales  to  Cables  &  Networks  for  fiber  optics  products  and
subcontracted  labor  versus  $7,100  last  year.  These sales are eliminated as
intercompany  sales  in  the  consolidated  financials  in each quarter. The net
decrease  in revenues is due primarily to lower sales of fiber optics and optics
products.

COST OF SALES AND GROSS PROFIT

     Cables  &  Network's gross profit increased $915,821, or 81%, to $2,051,623
from $1,135,802. The increase is mainly to higher margins generated in the first
quarter  of  fiscal  2005 generated by the acquisition of Americable, Inc. Gross
margins  as  a  percent  of  revenues increased from 23% to 28%. The increase in
margin  percentage  reflects reduced production costs for overhead and personnel
costs  absorbed  in  the  prior  year  while  operating  and  combining multiple
facilities, as well as an increased focus on selling higher margin products.

      Gross  cost  of sales at Optronics decreased $399,294, or 29%, to $960,172
from $1,359,466.  Gross cost of sales reflects $230,000 related to cost of sales
to  Cables  &  Networks for fiber optics products and subcontracted labor versus
$7,100  last  year.  These costs are eliminated as intercompany cost of sales in
the  consolidated financials in each quarter.  The net decrease in cost of sales
is  due  to lower material and production expenses related to the closure of the
optics  manufacturing line as well as lower personnel costs associated with cost
reduction  efforts.

RESEARCH AND DEVELOPMENT EXPENSES

     Research  and  development expenses consist of the research and development
expense  at  Optronics.  There have been no research and development expenses at
Cables & Networks. Expenses were $411,803, relatively unchanged between periods.

SELLING, GENERAL AND ADMINISTRATIVE

     Consolidated S, G & A expenses increased $61,900, or 2%, to $2,816,858 from
$2,754,958  in  2003.

     Selling, general and administrative expenses at Cables & Networks increased
$231,453,  or  14%, to $1,836,030 from $1,604,577.  The majority of the increase
is  attributable  to expenses generated by the acquisition from Americable, Inc.
which  occurred  at  the  end  of  the  first  quarter of fiscal 2004 and had no
expenses  in  the  fiscal  2004  first  quarter.

     Selling,  general  and  administrative  expenses  at  Optronics  decreased
$169,553,  or  15%,  to  $980,828  from $1,150,381. The decrease is due to lower
personnel  and  related  costs  associated with cost reductions implemented over
fiscal  year  2004.

INCOME  (LOSS)  FROM  OPERATIONS

     Consolidated  losses  from  operations  decreased  $1,419,872,  or  43%, to
$1,845,522  from  $3,265,394  in  2003.

     The  income from operations at Cables & Networks was $215,593 versus a loss
of $468,775 in the year ago period.   The increased income was mainly the result
of  a  combination of increased revenues and gross margins as well as reductions
in  S,  G,  &  A  expenses relating to multiple facilities absorbed in the prior
year.

     The  loss  from  operations  at  Optronics  was  $2,061,115,  a decrease of
$735,504,  or 26%.  The decrease in the loss is primarily the result of the cost
reductions  implemented  over  the  prior  fiscal  year,  mainly  for  personnel
reductions,  and  the  elimination  of  the  optics  line  of  business.

OTHER INCOME AND EXPENSE


                                       13
<PAGE>
     Consolidated  other  income and expense increased $208,832 to $262,339 from
$53,507.

      Higher  income  at  Cables & Networks in fiscal 2004 was due to management
fee  income earned in relation to the acquisition from CSP.  Interest expense at
Cables & Networks increased $42,773. The increase is due to a larger outstanding
debt  balance mainly related to the acquisition of Americable late in the second
quarter  in  fiscal  2004.

     Other  income  at  Optronics  increased $268,179, or 147%, to $451,035 from
$182,856.  The  sale  of  the  optics manufacturing operations in April 2004 and
related facility income accounted for $230,000 of the increase.  Interest income
increased  slightly  due  to a higher outstanding debt balance due from Cables &
Networks.  Interest  expense  was $45,662, relatively unchanged between periods.

NET INCOME (LOSS)

     Consolidated  net loss decreased $1,627,004, or 51%, to $1,585,883, or $.13
cents  per  share,  from  $3,212,887,  or  $.27  cents per share in the year ago
period.

     Cables  &  Networks  had net income of $70,359 versus a loss of $548,482 in
the  year  ago  period.  The  increase  reflects  improved gross margins, mainly
through reduced production costs, and reduced S, G, & A expenses attributable to
operating  multiple  facilities  in  the  prior  year.

     Optronics  recorded  a net loss of $1,656,242, a decrease of $1,008,163, or
38%, from the loss of $2,664,405 reported in the same period of fiscal 2004. The
decrease is due mainly to cost reductions relating to personnel implemented over
the  past  year as well as the gain on sale of the optics manufacturing business
and  the  elimination  of  its  related  expenses.

LIQUIDITY  AND  CAPITAL  RESOURCES
- ----------------------------------

     The  Company's  cash and cash equivalents consist primarily of money market
funds, U.S. Government instruments or other government instruments with original
maturities  of  less  than  three  months.

     Cash  used  in  operating  activities was $730,102 for the six month period
ending  September  30,  2004  compared  to $3,044,870 used in the same period in
fiscal  2004.  The  decrease in the cash used between the two periods reflects a
decrease  in  loss  from  operations of $1,419,872, achieved by a combination of
increased  revenue  and profitable operations at Cables & Networks and decreased
costs  at  Optronics due to cost reduction efforts and a gain on the sale of the
optics  manufacturing  business  at  Optronics  in  April  2004.

     We  used  net  cash  of $289,397 in investing activities for the six months
ended  September  30, 2004 compared to $2,201,551 used in the same period of the
preceding  fiscal  year.  The  use of cash in the six months ended September 30,
2004 reflects capital expenditures mainly for production equipment at Optronics.
For the six months ended September 30, 2003, $1,960,000 was used to purchase the
assets  of Americable, Inc.  We anticipate approximately $600,000 to $800,000 in
capital  expenditures  in  fiscal  2005.

     Net  cash  used  in financing activities for the six months ended September
30,  2004 totaled $161,956. We used $205,648 for the scheduled reduction of debt
and  generated $43,692 from the reduction of bond reserve funds. During the same
period  in  fiscal  2004  we  used  $335,780  in  financing activities, of which
$340,028  was  used for the scheduled reduction of debt and $4,248 was generated
from  the  reduction  of  bond  reserve  funds.

     We  believe  we  have sufficient funds for operations for at least the next
twelve  months.

     Our  contractual  obligations  and  commitments are summarized in the table
below  (in  000's):

<TABLE>
<CAPTION>
                                Less than                            After
                        Total     1 Year    1-3 years   4-5 years   5 years
                        ----------------------------------------------------
<S>                     <C>     <C>         <C>         <C>         <C>
Long-term debt          $1,606  $    1,476  $       70  $       40  $     20
Leases                   1,285         527         730          28         -
                        ----------------------------------------------------

Total Contractual Cash
  Obligations           $2,891  $    2,003  $      800  $       68  $     20
                        ====================================================
</TABLE>


                                       14
<PAGE>
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:

     -     Revenue recognition;

     -     Accounting for income taxes; and

     -     Valuation and evaluating impairment of long-lived assets and goodwill

Revenue  Recognition
- --------------------

     Revenue  is  recognized  when persuasive evidence of an arrangement exists,
the  product  has been shipped, acceptance by the customer is reasonably certain
and  collection  is  probable.

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, 2004, we
recorded  a  full  valuation  allowance  of $11,075,084 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.  net operating loss (NOL) carryforwards of
approximately $27,899,000 which expire in fiscal years 2004 to 2024.

     Realization  of  the  NOL  carryforwards  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 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
- ---------------------------------------------------------------------


                                       15
<PAGE>
     Goodwill represents the excess of the purchase price over the fair value of
net  assets  acquired.  Goodwill  should  not  be  amortized  but  reviewed  for
impairment  at the fiscal year end or whenever conditions exist that indicate an
impairment  could  exist.  The  Company  performed the annual impairment test in
fiscal  years  2004  and  2003  and  concluded  that no impairment had occurred.

     The  Company  evaluates  the  recoverability  of  its long-lived assets and
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 September
30,  2004.


FACTORS THAT MAY INFLUENCE FUTURE RESULTS
- -----------------------------------------

     The  statements  contained  in this report on Form 10-Q 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
limitation,  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  2.  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 Form 10-Q 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.

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 September 30, 2004, we
had  an  accumulated deficit of $31.3 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.

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  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.


                                       16
<PAGE>
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. The current U.S. economic
slowdown has been more profound in the telecommunications market, resulting in a
significant  reduction in capital expenditures for the Company's products. It is
impossible  to  predict how long the slowdown will last. 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.
Moreover, some of our customers have experienced serious financial difficulties,
which  in  certain  cases  have  resulted  in bankruptcy filings or cessation of
operations.

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 in customer
requirements  or  to  offer  more  aggressive  price  reductions.

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.

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.

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(R) 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


                                       17
<PAGE>
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.

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(R)
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.

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.

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 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.

Customer  payment  defaults  could  have  an  adverse  effect  on  our financial
condition  and  results  of  operations.

     As a result of adverse conditions in the telecommunications market, some of
our  customers  have  and may continue to experience financial difficulties.  In
the future, if customers experiencing financial problems default and fail to pay
amounts  owed  to  the  Company,  we may not be able to collect these amounts or
recognize expected revenue. In the current environment in the telecommunications
industry  and  in  the  United  States and global economies, 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.

Our products may infringe on the intellectual property rights of others.


                                       18
<PAGE>
     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.

Acquisitions or investments could have an adverse affect on our business.

     In March 2003, we completed the acquisition of the assets of CSP as part of
our  strategy  to  expand  our  product  offerings,  develop internal sources of
components  and  materials, and acquire new technologies. We acquired the assets
of  Americable, Inc. in June 2003 and integrated them with the assets of CSP. We
intend  to  continue  reviewing  acquisition and investment prospects. There are
inherent risks associated with making acquisitions and investments including but
not  limited  to:

     -    Challenges  associated  with  integrating  the  operations, personnel,
          etc.,  of  an  acquired  company;
     -    Potentially  dilutive  issuances  of  equity  securities;
     -    Reduced  cash  balances  and or increased debt and debt service costs;
     -    Large  one-time  write-offs  of  intangible  assets;
     -    Risks  associated  with  geographic or business markets different than
          those  we  are  familiar  with;  and
     -    Diversion  of  management  attention  from  current  responsibilities.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Our exposure to market risk for changes in interest rates relates primarily
to  our  investment portfolio. We invest in short-term securities of high credit
issuers  with  maturities  ranging  from  overnight up to 24 months. The average
maturity of the portfolio does not exceed 12 months. The portfolio includes only
marketable  securities  with  active  secondary  or  resale  markets  to  ensure
liquidity. We have no investments denominated in foreign country currencies and,
therefore,  our  investments  are  not  subject  to  foreign  exchange  risk.

ITEM 4.  CONTROLS AND PROCEDURES.

     a.   Evaluation  of disclosure controls and procedures. The Company's chief
          executive  officer  and chief financial officer have concluded that as
          of  the  end of the fiscal period covered by this report the Company's
          disclosure  controls  and  procedures (as defined in Exchange Act Rule
          13a-14(c))  were sufficiently effective to ensure that the information
          required  to  be  disclosed by the Company in the report was gathered,
          analyzed  and  disclosed  with  adequate  timeliness,  accuracy  and
          completeness.

     b.   Changes  in  internal controls. There were no changes in the Company's
          internal  controls  over  financial reporting during the fiscal period
          covered  by  this  report  that  materially affected, or are likely to
          materially  affect,  the  Company's  control over financial reporting.


                                     PART II

ITEMS 1 THROUGH 3. NOT APPLICABLE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


                                       19
<PAGE>
     (a)  The  annual  meeting of shareholders of the Company was held on August
          19,  2004.  As of the record date, July 6, 2004, there were 11,872,331
          shares  of Common Stock issued and outstanding. There were present and
          voting  at  the  meeting,  in person or by proxy, 10,506,044 shares of
          Common  Stock (approximately 88% of the total issued and outstanding).

     (b)  (1)  The  election  of  5  directors  to  serve for one-year terms was
          approved.  The individual results are as follows. There were no broker
          non-votes.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
                                             Voting Authority
      Name                Affirmative Votes      Withheld      Abstain
- ----------------------------------------------------------------------
<S>                       <C>                <C>               <C>

- ----------------------------------------------------------------------
Anil K. Jain                     10,422,290            83,754        -
- ----------------------------------------------------------------------
Kenneth A. Olsen                 10,402,290           103,754        -
- ----------------------------------------------------------------------
John G. Reddan                   10,437,190            68,854        -
- ----------------------------------------------------------------------
Ronald G. Roth                   10,453,890            52,154        -
- ----------------------------------------------------------------------
Stephen L. Zuckerman, MD         10,452,290            53,754        -
- ----------------------------------------------------------------------
</TABLE>

     (c)  The  change  of company name to APA Enterprises, Inc. from APA Optics,
          Inc.  was  approved. The individual results are as follows. There were
          no  broker  non-votes.

<TABLE>
<CAPTION>
- ---------------------------------------------
For Name Change  Against Name Change  Abstain
- ---------------------------------------------
<S>              <C>                  <C>
10,380,245              92,344         30,544
- ---------------------------------------------
</TABLE>

ITEM 5. NOT APPLICABLE


                                       20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a)    Exhibits.


               Exhibit  3.1  -  Restated  Articles  of Incorporation, as amended

               Exhibit  10.1  (c)  -  Lease Agreement with Jain-Olsen Properties

               Exhibit  10.9  (b)  -  Amendment of Sublease Agreement with Veeco
               Compound  Semiconductor

               Exhibit 31.1 - Certification of Chief Executive Officer and Chief
               Financial  Officer  pursuant to Section 302 of the Sarbanes-Oxley
               Act  of  2002

               Exhibit  32.1 - Certification required of Chief Executive Officer
               and  Chief Financial Officer by Section 906 of the Sarbanes Oxley
               Act  of  2002


     (b)    Reports on Form 8-K.

               None.

                                   Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                              APA ENTERPRISES, INC.


 11/5/04                                  /s/ Anil K. Jain
- ----------                                ----------------

   Date                                   Anil K. Jain
                                          President,
                                          Chief Executive Officer and Chief
                                          Financial Officer (Principal Executive
                                          and Principal Financial Officer)


 11/5/04                                  /s/ Daniel Herzog
- ----------                                -----------------

   Date                                   Comptroller
                                          (Principal Accounting Officer)


                                       21
<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>2
<FILENAME>doc2.txt
<DESCRIPTION>EXHIBIT 3.1
<TEXT>
                               STATE OF MINNESOTA
                        OFFICE OF THE SECRETARY OF STATE

                              ARTICLES OF AMENDMENT
                                       OF
                                APA OPTICS, INC.


     Pursuant to the provisions of Minn. Stat. Sec. 302A.135, the following
amendment to the Articles of Incorporation of APA OPTICS, INC., a Minnesota
corporation, was approved and adopted pursuant to Minn. Stat. Chapter 302A.

     Paragraph 1.01 of Article 1 of the Articles of Incorporation of APA OPTICS,
INC., is hereby amended in its entirety to read as follows:

          1.01 The name of this Corporation is APA ENTERPRISES, INC.

     I swear the foregoing is true and accurate and that I have the authority to
sign these Articles of Amendment on behalf of the Corporation.



Dated: August 20, 2004           APA OPTICS, INC.
       ---------


                                 /s/ Anil K. Jain
                                 ---------------------------
                                 Anil K. Jain
                                 Its: President


<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1(C)
<SEQUENCE>3
<FILENAME>doc4.txt
<DESCRIPTION>EXHIBIT 10.1(C)
<TEXT>
                      AMENDED AND RESTATED LEASE AGREEMENT

<TABLE>
<CAPTION>
<S>                  <C>
LANDLORD:            Jain-Olsen Properties, a Minnesota general partnership.  Landlord is a
                     limited liability general partnership under Minn. Stat. 323A.10-03.

TENANT:              APA Optics, Inc., a Minnesota corporation

LEASE DATE:          June 23, 2004

LEASE TERM:          December 1, 2004 ("Commencement Date") to and including
                     November 30, 2009.  Tenant may extend the Lease Term for two (2)
                     five- (5) year extension terms ("Extension Terms") as provided in
                     Section 5 below of this Lease.

USE:                 Industrial, Warehouse, and Office

BASE RENT:           Determined as provided in Section 4 below

ADDITIONAL RENT:     All sums payable by Tenant pursuant to this Lease, except Base Rent

RENT:                Base Rent plus Additional Rent

RENT PAYMENT
ADDRESS:             2950 NE 84th Lane, Blaine, Minnesota, or such other place as Landlord
                     from time to time designates in writing

SECURITY DEPOSIT:    None

PREMISES:            The property located in Ramsey County, Minnesota, legally described
                     as follows and commonly known as:  Lot 4, Block 3, North Star
                     Industrial Park (the "Land"), the building located on the Land (the
                     "Building") and the surface parking lot on the Land surrounding the
                     Building.

PRIOR LEASE:         This Amended and Restated Lease replaces the Sublease dated
                     December 1, 1984, the Sublease Amendment and Option Agreement
                     dated March 11, 1985, and the Amendment and Extension of Sublease
                     dated August 31, 1999 (collectively, the "Prior Lease").  The Prior
                     Lease is terminated effective as of the Commencement Date and
                     Landlord and Tenant hereby release each other from any and all claims
                     under the Prior Lease.

OPTION TO PURCHASE:  Tenant has the right to purchase the Premises during the Lease Term
                     as described in Schedule A, attached.
</TABLE>

IN CONSIDERATION OF the lease for the Premises, the Rent agreed to be paid, and
all other covenants and agreements herein contained,

LANDLORD AND TENANT agree as follows:


<PAGE>
1.   PREMISES. Landlord hereby leases to Tenant the Premises identified above
     and Tenant hereby takes such Premises from Landlord subject to the terms
     and conditions of this Lease (including as set forth above) and for the
     Lease Term set forth above.

2.   USE. The Premises shall be used by Tenant only for the Use identified
     above, in compliance with all applicable federal, state and local laws,
     ordinances, codes, rules, regulations and orders. Tenant shall, at its
     expense, make any alterations and improvements required at any time in
     order for the Premises and the use thereof to comply with such laws,
     ordinances, codes, rules, regulations and orders. No part of the Premises
     shall be used for any purpose which constitutes a nuisance or which is
     dangerous, illegal or offensive. Tenant shall indemnify and hold harmless
     Landlord, and Landlord's partners, agents, and employees, against all
     claims, costs, and liabilities arising out of the storage, use, generation
     or disposal of any such materials on the Premises by or at the sufferance
     of Tenant, including all costs of removal, cleanup and restoration.

3.   OCCUPANCY OF PREMISES. Tenant hereby accepts the Premises in their "as-is"
     condition at the Commencement Date. Tenant acknowledges that Landlord has
     made no other representations as to the repair of the Premises, nor
     promises to alter, remodel or improve the Premises.

4.   BASE RENT. Tenant agrees to pay to Landlord the Base Rent in equal monthly
     installments in advance on or before the first day of each month during the
     Lease Term, without demand, deduction or set-off. Payment shall be made at
     the Rent Payment Address set forth above. If the Lease Term begins on other
     than the first day of the month or ends on other than the last day of the
     month, the Base Rent for that month shall be pro-rated. Base Rent shall be
     determined as follows:

     a.   Base Rent during the period from the Commencement Date through
          December 31, 2004 shall be $117,487.80, annually, payable in equal
          monthly installments of $9,790.65.

     b.   On January 1 of each year through the Lease Term, including any
          Extension Term, the Base Rent shall be increased by 100% of the
          increase, if any, in the Consumer Price Index during the preceding
          calendar year.

5.   EXTENSION. Tenant may extend the Lease Term by five (5) years ("First
     Extension Term") by giving written notice to Landlord no later than one
     hundred twenty (120) days before the last day of the initial Lease Term,
     Tenant may extend the Lease Term for an additional five (5) years ("Second
     Extension Term") by giving written notice to Landlord no later than 120
     days before the last day of the First Extension Term. The term "Lease Term"
     as used in this Lease shall include any such Extension Term provided that
     Tenant has exercised the extension rights granted herein. The terms and
     conditions of this Lease during any Extension Term shall be the terms and
     conditions provided herein except that Base Rent shall be adjusted as
     provided in Section 4 of this Lease. Tenant shall not be entitled to extend
     the Lease Term at any time when Tenant is in default under this Lease.

6.   CERTAIN ADDITIONAL RENT. Tenant agrees to pay to Landlord as Additional
     Rent, upon demand, all attorneys' fees and other fees and out-of-pocket
     costs and expenses, if any, incurred by Landlord in connection with any
     delinquencies or defaults by Tenant


                                        2
<PAGE>
     hereunder or enforcing the provisions hereof, and the amount of any gross
     receipts tax, sales tax or similar tax (but excluding therefrom any income
     tax) paid or which will be payable by Landlord by reason of the receipt
     hereunder of Base Rent or any other amounts, the renting of the Premises to
     Tenant or Tenant's occupancy of the Premises.

7.   MAINTENANCE OF PREMISES. Tenant, at its expense, shall keep the Premises,
     including the building, all fixtures and facilities related thereto, and
     leasehold improvements, and all trade fixtures, personal property,
     equipment and signs thereon, including those owned by Tenant, in good order
     and condition, ordinary wear and tear excepted, and make all repairs and
     replacements, whether structural or otherwise, which may become necessary
     to keep the Premises in the condition required by this Lease, or which may
     be ordered by any governmental authority during the Lease Term. Tenant
     shall pay for all utilities used within the Premises during the Lease Term,
     including all taxes, penalties, surcharges, and maintenance costs
     pertaining thereto.

8.   RELEASE AND INDEMNITY.

     a.   Neither Landlord nor Tenant, nor their respective partners, officers,
          directors, agents and employees, shall be liable to the other, or
          those claiming through or under the other, for injury, death, property
          damage, burglary, theft or disappearance occurring in, on or about the
          Premises and appurtenances thereto, unless due to gross negligence or
          willful misconduct.

     b.   Landlord and Tenant each hereby expressly release each other and their
          respective partners, officers, directors, agents, and employees, from
          any claim or cause of action for any loss or damage whatsoever arising
          from or in the Premises or the business conducted therefrom, except as
          noted in 8a above. It is the intention of the parties that they shall
          look only to their insurance carrier, if any, for payment of such
          loss.

     c.   Notwithstanding the foregoing, Tenant hereby agrees to indemnify
          Landlord and its partners, agents and employees, and to hold them
          harmless against any claim, damage, cost, and expense (including
          attorney's fees) and liability (collectively, "loss") arising out of
          any claim by any third party for personal injury or property damage
          arising from the Premises or the business conducted at the Premises,
          to the extent that such loss is not covered by insurance, but only if
          the claim does not involve gross negligence or willful misconduct of
          Landlord.

9.   INSURANCE.

     a.   Tenant, at its sole cost and expense, shall maintain in effect at all
          times during the Lease Term the following insurance:

          (i)  A Commercial General Liability Insurance policy providing
               coverage on an "occurrence" rather than on a "claims made" basis,
               which policy shall include coverage for bodily injury, property
               damage, personal injury, and contractual liability (applicable to
               this Lease). Such policy shall provide coverage of at least
               $6,000,000 for each occurrence and annual aggregate coverage of
               at least $6,000,000.


                                        3
<PAGE>
          (ii) Insurance on the Building against loss by fire and other hazards
               covered by the Special Form policy or equivalent, and including
               contingent liability from operation of building laws coverage, in
               an amount not less than the full insurable replacement value.
               Such policy shall have an "agreed amount" endorsement or
               otherwise exclude co-insurance participation by the insured, and
               may include a deductible in an amount not greater than $10,000.
               While any building or other improvement is in the course of being
               constructed or rebuilt on the Land, such insurance shall be in
               builder's risk, completed value form.

         (iii) Equipment Breakdown insurance on Landlord's equipment in the
               Building for risks not covered by the Special Form insurance
               described in clause 9a(ii) above in an amount not less than the
               full insurable replacement value of such equipment.

          (iv) If the Land or any part thereof is located in a designated
               flood-hazardous area, flood insurance insuring the Building in an
               amount equal to the maximum limit of coverage made available with
               respect to the Premises under the Federal Flood Disaster
               Protection Act of 1973, as amended, and the regulations issued
               thereunder.

          (v)  Rent loss and rental value insurance insuring Landlord against
               loss of rental under this Lease in amount equal to at least the
               total Base Rent and Additional Rent payable hereunder for a
               period of 12 months.

          (vi) Worker's compensation and disability insurance with limits at
               least as great as required by law.

     b.   All property insurance policies shall name Landlord as the insured
          party. All liability insurance policies shall name both Landlord and
          Tenant as insured parties. If Landlord so elects, such policies shall
          also include the holders of any mortgages now or hereafter encumbering
          the Premises. In the event that the holder of such a mortgage is named
          as an insured under any of the foregoing property insurance policies,
          the proceeds under such policies shall be made payable to such
          mortgagee or mortgagees pursuant to standard mortgagee clauses. Each
          of the foregoing policies shall contain the agreement of the insurer
          that:

          (i)  Such policies shall not be cancelled except upon 30 days' prior
               notice to each named insured;

          (ii) The coverage afforded thereby shall not be affected by the
               performance of any work or alterations in or about the Premises;

         (iii) The insurer waives all rights of subrogation against all named
               insureds;

          (iv) The insurance provided to Landlord thereunder shall not be
               affected by any defense the insurer may have against Tenant or
               any other person; and


                                        4
<PAGE>
          (v)  Such policies waive contribution from any other insurance carried
               by Tenant or any other person.

     c.   All policies required by this Section shall be carried in such
          companies and upon such forms as Landlord and Landlord's mortgagee
          from time to time approve. Evidence of the insurance required to be
          furnished hereunder shall be deposited with the Landlord prior to the
          commencement of the Lease Term, and renewals thereof, and evidence of
          the payment of premium to continue coverage in force shall all be
          deposited with Landlord not less than 30 days prior to the date on
          which such insurance would otherwise expire. Tenant shall provide
          copies of all policies and certificates of insurance to Landlord upon
          request. At Landlord's option, exercised in writing, in the event
          Tenant shall fail to provide such policies, Landlord may obtain such
          insurance and the entire cost thereof shall be due and payable as
          Additional Rent upon billing by Landlord.

     d.   Whenever appropriate, the property insurance required to be maintained
          during the Lease Term shall be endorsed or supplemented, at Tenant's
          sole cost and expense, during any period when alterations are in
          progress, to provide for builder's risk insurance written on a
          so-called completed value form. Workman's compensation insurance
          covering all persons employed in connection with the work and with
          respect to whom death or bodily injury claims could be asserted
          against Landlord, Tenant or the Premises, and comprehensive general
          public liability insurance, providing full coverage with respect to
          any accident, injury or occurrence involving, relating to, or arising
          during or as a result of such alteration, naming Landlord and Tenant
          as insureds, with limits of not less than those required for
          commercial general liability insurance hereunder, shall be maintained
          by Tenant (or Tenant's independent contractor) at Tenant's (or at such
          contractor's) sole cost and expense at all times when any work is in
          progress in connection with any such alteration.

     e.   Tenant shall likewise at Tenant's sole expense observe and comply with
          the requirements of all policies of public liability and property
          insurance, and all other policies of insurance at any time in force
          with respect to the Premises, and Tenant shall, in the event of any
          violation or any attempted violation of the provisions of this Article
          by any subtenant or occupant, take all required steps, immediately
          upon knowledge of such violation or attempted violation, to remedy or
          prevent the same, as the case may be.

     f.   Tenant, at its sole expense, shall obtain and maintain in effect
          insurance covering its personal property, including equipment,
          fixtures, furnishings and leasehold improvements (except for leasehold
          improvements which are deemed Landlord's property under this Lease and
          are insured as a part of the Building).

     g.   Tenant shall be responsible for payment of all retentions,
          deductibles, self-insured amounts, and other similar payments which
          are conditions precedent to payment by the insurer.

10.  PROTECTION OF COVERAGE. Tenant shall not do or permit to be done, or keep
     or permit to be kept on the Premises, anything that will contravene any
     insurance against loss by fire or other causes. Under no circumstances
     shall Tenant keep or permit to be kept; or do or permit to be done, in or
     about the Premises anything of a character so


                                        5
<PAGE>
     hazardous as to render it difficult, impracticable or impossible to secure
     such insurance in companies acceptable to the Landlord. Further,
     immediately upon notice, Tenant shall remove from the Premises and/or
     desist from any practice deemed to affect the insurance risk by the
     insurance companies or by any authority which administers applicable
     national or local fire codes or standards.

11.  WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives any and all
     rights of recovery against the other, its officers, partners, directors,
     officers, agents and employees, occurring on or arising out of the use and
     occupation of the Premises or the Building to the extent such loss or
     damage is covered by proceeds received from insurance required under this
     Lease to be carried by the other party. Landlord and Tenant shall each
     indemnify the other against any loss or expense, including reasonable
     attorneys' fees, resulting from the failure to obtain such waiver. This
     mutual waiver shall be in addition to, and not in limitation or derogation
     of, any other waiver or release contained in this Lease with respect to any
     loss of, or damage to, property of the parties hereto. Inasmuch as the
     above mutual waivers will preclude the assignment of any aforesaid claim by
     way of subrogation to an insurance company, Landlord and Tenant agree
     immediately to give to each insurance company providing a policy described
     in Section 9 of this Lease, written notice of the terms of said mutual
     waivers, and to have said insurance policies properly endorsed, if
     necessary, to prevent the invalidation of said insurance coverages by
     reason of said waivers. This Section shall not apply to workers'
     compensation insurance.

12.  FIRE AND CASUALTY. If all or any part of the Premises is damaged by fire,
     the elements or any other casualty, Tenant shall give immediate written
     notice thereof to Landlord.

     a.   Except as provided in this Section 12, if fire or other casualty
          renders the whole or any material part of the Premises untenantable
          and Landlord determines (in Landlord's reasonable discretion) that it
          can make the Premises tenantable within 180 days after the date of the
          casualty, then Landlord will notify Tenant that Landlord will repair
          and restore the Premises to as near their condition prior to the
          casualty as is reasonably possible within the 180-day period (subject
          to delays caused by Tenant or matters not within the reasonable
          control of Landlord). Landlord will provide the notice within 45 days
          after the date of the casualty. In such case, this Lease shall remain
          in full force and effect, but Base Rent for the period during which
          the Premises are untenantable shall abate proportionately.

     b.   If fire or other casualty renders the whole or any material part of
          the Premises untenantable and Landlord determines (in Landlord's
          reasonable discretion) that it cannot make the Premises tenantable
          within 180 days after the date of the casualty, then Landlord will so
          notify Tenant within 45 days after the date of the casualty and may,
          in such notice, terminate this Lease effective on the date of
          Landlord's notice.

     c.   If Landlord does not terminate this Lease as provided in this
          subsection, or if Landlord fails to notify Tenant of its election to
          rebuild or repair under Section 12a within 45 days after the casualty,
          Tenant may terminate this Lease by notifying Landlord within 60 days
          after the date of the casualty.


                                        6
<PAGE>
     d.   Notwithstanding any contrary language in this Section 12, if this
          Section 12 obligates Landlord to repair damage to the Premises caused
          by fire or other casualty and Landlord does not receive sufficient
          insurance proceeds to repair all of the damage, or if Landlord's
          lender does not allow Landlord to use sufficient proceeds to repair
          all of the damage, then Landlord, at Landlord's option, by notifying
          Tenant within 90 days after the casualty, may terminate this Lease
          effective on the day of Landlord's notice.

     e.   If this Lease is not terminated under Sections 12.b. through 12.d.
          following a fire or other casualty, then Landlord will repair and
          restore the Premises to as near their condition prior to the fire or
          other casualty as is reasonably possible with all commercially
          reasonable diligence and speed (subject to delays caused by Tenant or
          matters not within the reasonable control of Landlord).

     f.   In the event such destruction or damage shall make the Premises
          uninhabitable, all Base Rent paid in advance shall be apportioned and
          rebated as of the date of the destruction or damage and the Base Rent
          thereafter accruing shall be equitably and proportionately suspended
          and adjusted according to the nature, extent and duration of the
          destruction or damage, pending completion of repairs, except that in
          the event the destruction or damage is so extensive as to make it
          unfeasible for Tenant to conduct its business on the Premises, Base
          Rent shall be completely abated until Tenant resumes the conduct of
          its business on the Premises or 30 days after the repairs are
          complete, whichever event first occurs. Such adjustment, suspension or
          abatement of Base Rent shall not extend beyond the period of coverage
          nor reduce the amount otherwise payable hereunder by more than the
          amount of the rent-loss and rental value insurance then in effect
          pursuant to Section 9 hereof, it being the intention that Landlord
          shall continue to receive full rental payments from Tenant or such
          insurer throughout the period of any such work. In no event shall
          Additional Rent be abated.

     g.   Landlord shall not be responsible for repairing or restoring Tenant's
          leasehold improvements, personal property, machinery or equipment.

13.  CONDEMNATION. If all or a substantial part of the Premises are taken for
     any public purpose or purchased under threat of such taking and the taking
     or purchase prevents or materially interferes with the Use of the Premises,
     this Lease shall terminate and the rent abate as of the date of taking for
     the remainder of the Lease Term. If part of the Building is so taken or
     purchased and this Lease is not terminated thereby, the rent payable from
     the date of taking for the remainder of the Lease Term shall be reduced
     proportionately. The entire award for the taking of the fee and leasehold
     shall belong to Landlord, but Landlord shall not be entitled to any award
     made to Tenant for Tenant's trade fixtures or for relocation and moving
     expenses.

14.  TAXES. Tenant shall pay before delinquency all taxes, assessments, license
     fees, and other charges levied, assessed or charged by any authority upon
     or on account of the Premises for any period all of which is within the
     Lease Term, and its pro-rata share of such taxes, assessments, license fees
     and charges for any period part of which is within the Lease Term. In any
     calendar year, the real estate taxes and special assessments for that year
     are deemed to be those due and payable in such year. Receipts for any
     taxes, assessments, license fees and charges paid shall be delivered to
     Landlord not


                                        7
<PAGE>
     less than 30 days prior to their due date. However, Tenant shall have no
     responsibility to pay any tax upon the income, profit, or business of
     Landlord, or any franchise, inheritance or estate tax which may be levied
     against the estate or interest of Landlord, except to the extent the tax is
     levied in lieu of taxes, assessments, fees or charges upon or on account of
     the Premises.

15.  ASSIGNMENT.

     a.   Tenant shall not assign, sublease, mortgage, pledge or in any manner
          transfer the Premises or any part thereof or this Lease without the
          prior written consent of Landlord. If Tenant is a partnership,
          corporation or other legal entity, any change in the partnership
          interest, stock or legal or beneficial ownership of such partnership,
          corporation or other entity which changes the effective control of
          Tenant shall be deemed an assignment of this Lease for purposes of
          this Section.

     b.   Landlord is not restricted in its ability to sell or encumber the
          Land, the Building, or the Premises as a whole or to assign its
          interest in this Lease; provided, however, that any transferee shall
          take subject to, and must agree to be bound by, the terms of this
          Lease.

16.  ALTERATIONS BY TENANT. Tenant shall not make any alterations or
     improvements to the Premises costing more than $20,000 without the prior
     written approval of the Landlord, which consent shall not be unreasonably
     withheld or delayed. Landlord's approval may be conditioned on the Tenant's
     compliance with such requirements with respect to such alterations as
     Landlord may impose, including without limitation the furnishing of a bond
     or other security satisfactory to Landlord against mechanics' liens and
     claims therefore. Any such work approved by Landlord shall be done in a
     good, skillful manner in conformance with applicable building codes, free
     and clear of mechanics' liens and claims therefore. Any alterations and
     improvements shall unless otherwise agreed become the property of Landlord
     upon being affixed to the Premises and all right, title and interest of the
     Tenant therein shall immediately cease; but if directed by Landlord,
     Tenant, at its expense, shall remove any such alterations and improvements
     from the Premises at the expiration or earlier termination of this Lease,
     and repair any damage to the Premises caused by the installation or removal
     of such alterations and improvements.

17.  MECHANICS' LIENS. Tenant will not permit any mechanics', laborers' material
     supplier's or other liens to stand against the Premises or any part thereof
     for any labor, skill, material or equipment furnished or claimed to be
     furnished to or an account of Tenant in connection with any work in or
     about the Premises. Tenant shall give Landlord immediate notice of the
     filing of any such lien and shall cause the lien to be discharged within 10
     days of its filing.

18.  SURRENDER. Upon expiration or earlier termination of this Lease, Tenant
     shall peaceably surrender the Premises broom-clean, in good condition and
     repair, reasonable wear and tear excepted. Tenant shall, at its expense,
     remove all leasehold improvements, trade fixtures, personal property,
     equipment and signs owned by Tenant from the Premises. Any property not
     removed on or before the expiration or termination of this Lease shall be
     deemed to have been abandoned. Any damage to the Premises


                                        8
<PAGE>
     caused in the removal of such items shall be repaired by and/or at the
     expense of Tenant.

19.  DEFAULT OF TENANT AND REMEDIES.

     a.   EVENTS OF DEFAULT AND REMEDIES. If Tenant fails to pay any Rent,
          Additional Rent, or other monies when due hereunder or within 10 days
          after notice from Landlord to perform any other of the terms,
          covenants, conditions or obligations of this Lease to be performed by
          Tenant, or if Tenant abandons or vacates the Premises, or if any
          proceeding is commenced by Tenant for the purpose of subjecting the
          assets of Tenant to any law relating to bankruptcy or insolvency or
          for an appointment of a receiver of Tenant or any of Tenant's assets,
          or if any such proceeding commenced against Tenant is not discharged
          within 60 days thereafter, or if Tenant makes a general assignment of
          Tenant's assets for the benefit of creditors, then in any such event,
          Tenant shall be in default hereunder and Landlord may at its option,
          in addition to any other rights and remedies it may have hereunder or
          at law or in equity or by statute or otherwise, terminate this Lease
          as to all future rights of Tenant, and/or regain, repossess and enjoy
          the Premises. If Landlord at any times terminates this Lease or
          regains and repossesses the Premises for any such default, in addition
          to any other remedies Landlord may have, Landlord may recover from
          Tenant, and Tenant shall indemnify Landlord against, all loss of rents
          and other damages Landlord may incur by reason of such default,
          including the cost of recovering and reletting the Premises, and
          reasonable attorneys' fees.

     b.   RIGHT OF LANDLORD TO CURE DEFAULT OF TENANT. Landlord may, at its
          option, instead of exercising any other rights or remedies available
          to it under this Lease or otherwise, enter into the Premises and
          perform such acts or spend such sums of money as is reasonably
          necessary to cure any default of Tenant herein, and the amount spent
          and cost incurred, including reasonable attorneys' fees, in curing
          such default shall be paid by Tenant as additional rent upon demand.

     c.   LEGAL AND OTHER EXPENSES. If suit is successfully brought for recovery
          of possession of the Premises, for the recovery of rent or any other
          amount due under the provisions of this Lease, or because of the
          breach of any other covenant herein contained on the part of Tenant to
          be kept or performed, Tenant shall pay Landlord all expenses incurred
          therefore, including reasonable attorneys' fees.

     d.   CUMULATIVE REMEDIES. No remedy herein or elsewhere in this Lease or
          otherwise by law, statute or equity conferred upon or reserved to
          Landlord shall be exclusive of any other remedy, but shall be
          cumulative, and may be exercised from time to time and as often as the
          occasion may arise.

     e.   OVERDUE PAYMENTS. All rents and other amounts due under this Lease
          from Tenant to Landlord shall be due on demand, unless otherwise
          specified, and if not paid within 10 days after the date when due,
          shall bear interest from the date when due at the rate of 4% per annum
          in excess of the then-current prime rate of interest as published in
          The Wall Street Journal (or, if such periodical no longer exists or no
          longer publishes the prime rate, a comparable rate designated by
          Landlord), or the highest rate permitted by law, whichever is less,
          until paid in full.


                                        9
<PAGE>
20.  SUBORDINATION. Tenant agrees that this Lease shall be subordinate to any
     mortgage which may now or hereafter encumber the Premises and to any and
     all advances to be made thereunder and to the interest thereon and all
     renewals, replacements, and extensions thereof, and shall also be
     subordinate to all existing recorded restrictions, covenants, easements and
     agreements with respect to the Premises. Landlord is hereby irrevocably
     vested with full power and authority to subordinate Tenant's interest under
     this Lease to any mortgage lien hereafter placed on the Premises, and
     Tenant agrees upon demand to execute additional instruments subordinating
     this Lease as Landlord may reasonably require. If the interests of Landlord
     under this Lease shall be transferred by reason of foreclosure or other
     proceedings for enforcement or termination of any first mortgage on the
     Premises, Tenant shall be bound to the transferee (sometimes called the
     "Purchaser") under the terms, covenants and conditions of this Lease for
     the balance of the remaining Lease Term, including any extensions or
     renewals, with the same force and effect as if the Purchaser were the
     landlord under this Lease, and, if requested by the Purchaser, Tenant
     agrees to attorn to the Purchaser, including the mortgagee under any such
     mortgage if it be the Purchaser, as its Landlord.

21.  ACKNOWLEDGMENT. Tenant shall, within 10 days after receipt of any request
     from Landlord therefor, execute and deliver to Landlord, or to any holder
     or proposed holder of a security interest in the Premises or to any
     proposed purchaser of the Premises, a certificate in recordable form,
     certifying that this Lease is in full force and effect and that there are
     no offsets against rent nor defenses to performance of Tenant under this
     Lease, or setting forth any such offsets or defenses claimed by Tenant, as
     the case may be, and as to such other matters as is reasonably requested.
     Tenant shall make no charge for executing and delivering such certificate.

22.  HOLDING OVER. If Tenant remains in possession of the Premises after the
     expiration or termination of this Lease, Tenant shall be deemed to be
     occupying the Premises as a tenant at its sufferance, subject to all the
     conditions, provisions and obligations of this Lease insofar as the same
     can be applicable; provided, however, that the Base Rent required to be
     paid by Tenant during any holdover period shall be twice the amount of the
     Base Rent set forth above. No unauthorized holding over shall operate to
     renew or extend this Lease and Tenant shall indemnify Landlord against all
     claims for damages of any kind resulting from the holdover.

23.  NOTICES. Any notice required or permitted under this Lease shall be deemed
     sufficiently given or served if sent by registered or certified mail,
     return receipt requested, postage prepaid, to Tenant at the Premises and to
     Landlord at the Rent Payment Address, and either party may be written
     notice at any time designate a different address to which notices shall
     subsequently be sent. Such notices shall be deemed received by the party to
     whom they are sent on the third day following the date of delivery to the
     United States Postal Service.

24.  ENTRY BY LANDLORD. Landlord and any authorized representatives of Landlord
     may enter the Premises at any time during usual business hours upon
     reasonable notice or any time in case of emergency to inspect the same, to
     make any repairs or perform any work deemed necessary or desirable by
     Landlord. During the progress of any such work, Landlord may keep and store
     upon the Premises all necessary materials, tools and equipment. Landlord
     and any authorized representative of Landlord may also enter the Premises
     at any time during usual business hours to show the Premises to prospective
     purchasers or mortgagees, and may erect on the Premises suitable signs


                                       10
<PAGE>
     indicating the Premises are available for sale. Landlord shall not
     interfere with Tenant's operations in the Premises any more than reasonably
     necessary under the circumstances, but shall not in any event be liable for
     inconvenience, annoyance, disturbance, loss of business or other damage to
     the Tenant.

25.  SUCCESSORS AND ASSIGNS. The terms, covenants and conditions hereof are
     binding upon and inure to the benefit of Landlord and its successors and
     assigns, and are binding upon and inure to the benefit of Tenant and any of
     its successors and assigns as may be approved by Landlord or otherwise
     permitted under this Lease.

26.  ENVIRONMENTAL MATTERS. Tenant agrees that Tenant, its agents and
     contractors shall not use, manufacture, store or dispose of any flammable
     explosives, radioactive materials, hazardous wastes or materials, toxic
     wastes or materials, polychlorinated biphenyls, asbestos, urea
     formaldehyde, petroleum products or related substances, or other similar
     substances as defined pursuant to the Comprehensive Environmental Response,
     Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Statute
     Section 9601-9657, as amended), the Resource Conservation and Recovery Act
     of 1976 ("RCRA"), 42 U.S.C. Statute Section 6901, et. seq., Federal Water
     Pollution Control Act, 33 U.S.C. Statute Section 1251 et. seq., or the
     Clean Air Act, 42 U.S.C. Statute 7401 Et. Seq., Minnesota Environmental
     Response and Liability Act Minn. Stat. 115B ("MERLA") and the Minnesota
     Petroleum Tank Release Cleanup Act, Minn. Stat. 115C (collectively
     "Hazardous Materials") on, under or about the Premises, provided that
     Tenant may handle, store, use or dispose of products containing small
     quantities of Hazardous Materials, which products are of a type customarily
     found in businesses similar to that of Tenant, provided further that Tenant
     shall handle, store, use and dispose of any such Hazardous Materials in a
     safe and lawful manner and shall not allow such Hazardous Materials to
     contaminate the Premises or the environment.

     If Landlord, in its sole discretion, believes that the Premises or the
     environment have become contaminated with Hazardous Materials, in breach of
     the provisions of this Lease, Landlord, in addition to its other rights
     under this Lease, may enter upon the Premises and obtain samples from the
     Premises, including the soil and groundwater under the building, for the
     purposes of analyzing the same to determine whether and to what extent the
     Premises or the environment have become so contaminated, Tenant shall
     reimburse Landlord for the costs of such inspection, sampling and analysis.

     Without limiting the above, Tenant hereby indemnifies and holds Landlord
     harmless from and against any and all claims, losses, liabilities, damages,
     costs and expenses, including without limitation, attorneys' fees and
     costs, arising out of or in any way connected with the use, manufacture,
     storage, or disposal of Hazardous Materials by Tenant, its agents or
     contractors on, under or about the Premises including, without limitation,
     the cost of any required or necessary repair, cleanup or remediation and
     the preparation of any closure or other required plans in connection
     herewith. The indemnity obligations to Tenant under this clause shall
     survive any termination or expiration of this Lease.

27.  DOCUMENT PREPARATION. Members of the firm of Moss & Barnett, A Professional
     Association ("Moss & Barnett"), drafted this Lease among the parties hereto
     and other agreements related to the ownership of Landlord and Tenant. Moss
     & Barnett has previously and currently represents Landlord and Tenant, the
     partners of Landlord ("Owners"), and may represent Landlord, Tenant and one
     or more of the Owners in the


                                       11
<PAGE>
     future. The parties acknowledge and understand that this past and present
     legal representation by Moss & Barnett of such persons represents a
     potential or actual conflict of interest on the part of Moss & Barnett in
     drafting this Lease and any other documents or agreements arising out of
     this Lease. Owners, Landlord and Tenant consent to such representation and
     acknowledge and agree that they have either sought out separate legal
     counsel to advise them in connection with the Lease, or if they have not
     done so, have been given the opportunity to do so and have voluntarily
     chosen not to do so. The parties, by executing this Lease and with full
     knowledge of the past, present and future legal representation by Moss &
     Barnett of the persons and entities described herein, hereby consent to the
     drafting of the Lease by Moss & Barnett and waive (a) the right to object
     to Moss & Barnett's continued representation of the Owners, Landlord and/or
     Tenant, and (b) the right to assert this conflict or potential conflict of
     interest as the basis for making a claim against the other parties to this
     Lease, their affiliates or Moss & Barnett.

28.  GENERAL.

     a.   No waiver of any default hereunder shall be implied from any failure
          by the non-defaulting party to take action on account of such default
          if such default persists or is repeated, and no express waiver shall
          affect any default other than the default specified in the express
          waiver and that only for the time and to the extent therein stated.
          One or more waivers by Landlord or Tenant shall not be construed as a
          waiver of a subsequent breach of the same covenant, term or condition.

     b.   This Lease and the Exhibits identified above, attached to and forming
          a part of this Lease, set forth all the covenants, promises,
          agreements, conditions and understandings between Landlord and Tenant
          affecting the Premises and there are no covenants, promises,
          agreements, conditions or understandings, either oral or written,
          between them other than are herein set forth.

     c.   The singular of all terms used herein shall include the plural, the
          plural s hall include the singular, and the use of any gender herein
          shall include all other genders, where the context so requires.

     d.   Tenant agrees to indemnify and hold harmless Landlord from all claims
          by any broker or agent of Tenant for compensation, commissions or
          charges arising out of this Lease or the negotiation of it. Landlord
          agrees to indemnify and hold harmless Tenant from all claims by any
          broker or agent of Landlord for compensation, commissions or charges
          arising out of this Lease or the negotiation of it.

     e.   Landlord and Tenant disclaim any intention to create a joint venture,
          partnership, or agency relationship.

     f.   This Lease is a Minnesota contract and all of its terms shall be
          construed according to the laws of Minnesota. Time is of the essence
          of each obligation of this Lease in which time is a factor.

     g.   Landlord and its partners, officers, agents and employees shall have
          no personal liability as to any of the obligations of Landlord under
          this Lease. Tenant agrees


                                       12
<PAGE>
          to look solely to the estate and property of Landlord in the Premises
          for the collection of any judgment or other judicial proceeding
          requiring the payment of money by Landlord, and no other property or
          asset shall be subject to levy, execution or other procedure for
          satisfaction of Tenant's remedies.

     IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the Lease Date set forth above.


                               LANDLORD:

                               JAIN-OLSEN PROPERTIES,
                               a Minnesota limited liability general partnership


                               By___/s/ Anil Jain___________

                                 ---------------------------
                                 Its Managing General Partner


                               TENANT:

                               APA OPTICS, INC.,
                               a Minnesota corporation


                               By ___/s/ Anil Jain__________
                                 Anil K. Jain
                                 Its President


                                       13
<PAGE>
                                                                      SCHEDULE A
                                                                      ----------

                           Option to Purchase Premises
                           ---------------------------

Right to Purchase
- -----------------

Tenant or its assigns may purchase the Premises by delivering to Landlord its
written notice of its exercise within the Lease Term, provided that at the time
of closing of the purchase Tenant must cure all monetary defaults (if any) under
the Lease.  If Tenant exercises its option to purchase the Premises within the
last ninety (90) days of the Lease Term, and a closing on the purchase is not
held before the Lease Term has expired, then Tenant will be allowed to stay in
possession of the Premises pursuant to the terms and conditions of the Lease
until closing on the purchase of the Premises.

Purchase Price
- --------------

If Tenant exercises its option to purchase the Premises, Landlord and Tenant
shall attempt to agree upon a purchase price for the Premises.  If they are
unable to agree within 30 days after the date of written notice of exercise of
the option, each party hereto shall appoint one appraiser not more than 20 days
after the expiration of said 30 day period.  The two appraisers shall, within 10
days after such 20 day period, appoint a third appraiser.  Within 20 days after
the appointment of the third appraiser, the three appraisers shall execute in
duplicate a report stating the fair market value of the Premises.  The report of
the three appraisers shall be conclusive upon the parties, and in the event the
three appraisers cannot agree, the report of the majority shall be conclusive
upon the parties.  In the event the third appraiser is not appointed within the
time allowed, either party may apply to the Senior Judge of the Ramsey County
District Court, and such judge shall appoint the third appraiser within 10 days
after application is made.  In the event the appraisers are unable to formulate
a majority opinion within the time herein specified, either party may make
application to the Senior Judge of the Ramsey County District Court and such
judge shall prepare a report after taking such evidence as he deems necessary
and proper, and in such event, the report of such judge shall be conclusive upon
the parties.  Each appraiser appointed shall be a M.A.I. appraiser and shall,
before entering upon the performance of his duties, take an oath to honestly,
fairly and impartially perform his duties as an appraiser and shall subscribe
this oath before an officer then authorized by the laws of the State of
Minnesota to administer oaths.  The costs and fees of the single appraiser
appointed by each party shall be paid by such party, but the fee of the third
appraiser shall be paid equally by Landlord and Tenant.  If either party makes
application to the Senior Judge of Ramsey County District Court either to
appoint a third appraiser or to make an appraiser's report, Landlord and Tenant
shall share the expense of such application.

The parties may agree to use only one or two appraisers, rather than three, and
to allocate the costs among themselves as they deem appropriate.

In setting the purchase price, the parties shall disregard any decreases in
value due to Tenant's defaults under the Lease (including, without limitation,
conditions of disrepair) and any increases in value attributable to improvements
by Tenant which are not required by the Lease.

The purchase price, as determined by negotiation or by the appraisal report,
shall be paid in cash upon delivery of a proper Warranty Deed to the Premises.


<PAGE>
Title
- -----

Within a reasonable time after receipt of notice of exercise of the option,
Landlord shall furnish Tenant with an Abstract of Title or Registered Property
Abstract with proper searches to all lands included in the Premises.  Tenant
shall be allowed 30 days after receipt of the Abstract for examination of and
objection to title.  Objections shall be made in writing or deemed to be waived.
If any objections are made, Landlord shall be allowed 120 days to make the title
marketable.  All required performance of Tenant under any purchase agreement for
the Premises (a "PA") shall be suspended pending correction of title, but upon
correction of title and within 20 days after written notice to Tenant, Tenant
shall perform the PA according to its terms.

If title is not marketable and is not made so within 120 days from the date of
written objections, any PA resulting from the exercise of this option shall, at
the option of Tenant, be null and void.  In such event, neither party shall be
liable for damages to the other party under the PA.  Tenant shall exercise its
option to declare the PA null and void by delivering to Landlord a written
notice to such effect within 10 days after the expiration of the 120-day cure
period.  If Tenant fails to deliver such a notice, the transaction shall proceed
to closing as if there had been no title objections.

If title to said property is marketable or is made marketable within 120 days
from the date of written objections, or if Tenant fails to declare the PA null
and void, and Tenant then defaults in its agreement to pay the purchase price
and continues in default for a period of 20 days after notice from Landlord to
close, then Landlord may declare the exercise of the option null and void, time
being of the essence hereof, and may retain all monies paid in the exercise of
such option; but this provision shall not deprive either party of the right of
enforcing specific performance, provided that such action for specific
performance shall be commenced within six months after such right of action
arises.

Closing
- -------

Subject to performance by Tenant, Landlord agrees to execute and deliver a
Warranty Deed conveying marketable title to the Premises, subject only to the
following exceptions:

(a)  Governmental building and zoning laws and ordinances and state and federal
     regulations;

(b)  Rights of subtenants of Tenant, its successors and assigns;

(c)  Streets and highway rights-of-way as they now exist or may then exist;

(d)  Real estate taxes, special assessments or installments thereof which are
     due and payable following the date of sale;

(e)  Liens or encumbrances suffered or caused to be suffered by or through
     Tenant;

(f)  Reservation of any minerals or mineral rights to the State of Minnesota;
     and

(g)  Utility and drainage easements of record.

The closing shall be within 120 days of the determination of the purchase price,
unless the closing is extended because of title defects.  All rents accruing to
the Premises prior to closing


                                        2
<PAGE>
shall be paid to Landlord until such time as the full purchase price (less
amounts deposited in escrow, if any, for title defects) has been paid to
Landlord and Landlord has delivered the Warranty Deed. The parties further agree
that pro rata adjustments for rents, insurance premiums and other matters shall
be made as of the date of delivery of the Warranty Deed.

Revocation
- ----------

The parties hereto hereby agree that, notwithstanding anything contained in the
Lease to the contrary, Tenant shall have the right at its option to unilaterally
revoke its exercise of the option to purchase the Premises at any time prior to
determination of the purchase price or within 120 days after determination of
the purchase price, but only if the purchase price is determined by the
appraisal method provided above.  Notice of revocation shall be given to
Landlord in writing within the period of time specified in the preceding
sentence.


                                        3
<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9(B)
<SEQUENCE>4
<FILENAME>doc5.txt
<DESCRIPTION>EXHIBIT 10.9(B)
<TEXT>
                                                                       18-AUG-04

                            AMENDMENT NO. 1 TO LEASE

     This Amendment No. 1 to Lease is entered into as of this 18 day of August,
2004 (the "Amendment"), by and between Veeco Compound Semiconductor Inc., a
Minnesota corporation (hereinafter "Landlord"), and APA Optics, Inc. a Minnesota
corporation (hereinafter "Tenant").

     The  parties  entered  into a Lease as of June, 2004 which they now wish to
amend  (the  "Lease").  Capitalized terms used but not defined herein shall have
the  meanings  assigned  to  such  terms  in  the  Lease.

     For good and valuable consideration, the parties agree to amend the Lease
as follows:

     1.   Immediately following Section 6 of the Lease, a new Section 6A shall
be added to read as follows:

     6A.  TENANT MACHINE USAGE: LANDLORD MACHINE USAGE.
          ---------------------------------------------

     During the term of this lease, Tenant shall provide usage of Tenant's
     Machine to the Landlord at prearranged times for the purposes of Customer
     demonstrations and related process development. In exchange for time used
     on the Tenant's Machine, Landlord shall make time available on Landlord's
     E300 Machine at a time-exchange rate. For every two (2) days that Landlord
     uses Tenant's Machine, one (1) day shall be made available for Tenant's
     usage on Landlord's E300 Machine.

     Any usage of the Tenant's Machine by the Landlord or the Landlord's machine
     by the Tenant will be on a mutually agreeable schedule. In addition, Tenant
     and Landlord agree to schedule times so as not to unduly interfere with
     Tenant's business usage of the Tenant's Machine or Landlord's business
     usage of Landlord's machine. Any usage of the Tenant's Machine by the
     Landlord or the Landlord's machine by the Tenant will be evaluated by both
     the Landlord and Tenant to verify suitability and compatibility of the
     process.

     Landlord will be held accountable for repairs to any Tenant equipment that
     is damaged by improper use or abuse by Landlord or its agents during the
     course of Customer demonstrations and related process development. Tenant
     will be held accountable for repairs to any Landlord equipment that is
     damaged by improper use or abuse by Tenant or its agents.

     2.   This Amendment may be executed in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same
instrument. A facsimile copy of a signed counterpart shall be treated the same
as a signed original.

     3.   Except as amended hereby, the Lease shall continue in full force and
effect.


<PAGE>
     IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the
day and year first written above.

LANDLORD:                               TENANT:

Veeco Compound Semiconductor Inc.       APA Optics, Inc.

By  /s/  Gregory Robbins                By  /s/  Anil K. Jain
  -------------------------------         --------------------------------
  Its  Secretary                          Its  Chief Executive Officer
     ----------------------------            -----------------------------



<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>5
<FILENAME>doc6.txt
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
Exhibit 31.1

                                  CERTIFICATION

I, Anil K. Jain, certify that:

1.   I  have  reviewed  this  quarterly  report on Form 10-Q of APA Enterprises,
     Inc.;

2.   Based  on  my  knowledge, this quarterly report does not contain any untrue
     statement  of a material fact or omit to state a material fact necessary to
     make  the  statements  made, in light of the circumstances under which such
     statements  were made, not misleading with respect to the period covered by
     this  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included  in  this  quarterly  report, fairly represent in all
     material  respects  the financial condition, results of operations and cash
     flows  of  the  registrant  as  of,  and for, the periods presented in this
     report;

4.   APA Enterprises, Inc.'s other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a and 15(e)) for APA Enterprises, Inc. and we have:

     a)   Designed  such  disclosure  controls  and  procedures  to  ensure that
          material  information relating to APA Enterprises, Inc., including its
          consolidated  subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this report is being
          prepared;

     b)   Evaluated  the effectiveness of our disclosure controls and procedures
          as  of  a  date and presented in this quarterly report our conclusions
          about  the  effectiveness of the disclosure controls and procedures as
          of  the  end  of  the  period  covered  by  this  report  based on our
          evaluation.

     c)   Disclosed  in  this  report  any  change  in  APA  Enterprises, Inc.'s
          internal  control  over  financial  reporting that occurred during the
          most  recent  fiscal  quarter  that  has  materially  affected,  or is
          reasonably  likely  to  materially  affect, the Company's control over
          financial  reporting.

5.   APA  Enterprises,  Inc.'s  other  certifying officers and I have disclosed,
     based  on  our  most  recent  evaluation of internal control over financial
     reporting,  to  our  auditors  and  the  audit  committee  of  our board of
     directors:

     a)   All  significant deficiencies and material weaknesses in the design or
          operation  of  internal  controls  over  financial reporting which are
          reasonably  likely to adversely affect APA Enterprises, Inc.'s ability
          to  record,  process,  summarize and report financial information; and

     b)   Any  fraud, whether or not material, that involves management or other
          employees  who  have  a  significant role in the registrant's internal
          controls  over  financial  reporting.

November 5, 2004



Signature:  /s/  Anil K. Jain
           ------------------
Print Name: Anil K. Jain
            ------------
Print Title: Chief Executive Officer and Chief Financial Officer
             ---------------------------------------------------


                                        1
<PAGE>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>6
<FILENAME>doc7.txt
<DESCRIPTION>EXHIBIT 32.1
<TEXT>
Exhibit 32.1


                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                       AS ADOPTED PURSUANT TO SECTION 906
                        OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of APA Enterprises, Inc. (the "Company")
on Form 10-Q for the period ending September 30, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Anil K.
Jain, Chief Executive Officer and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the
Sarbanes-Oxley Act of 2002, that:

1.   The  Report fully complies with the requirements of Sections 13(a) or 15(d)
     of  the  Securities  Exchange  Act  of  1934;  and

2.   The  information contained in the Report fairly represents, in all material
     respects, the financial condition and results of operations of the Company.

November 5, 2004


Signature:  /s/  Anil K. Jain
           ------------------
Print Name: Anil K. Jain
            ------------
Print Title: Chief Executive Officer and Chief Financial Officer
             ---------------------------------------------------


                                        1
<PAGE>

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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