SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-K
[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act  of  1934
     For  the  fiscal  year  ended  March  31,  2003.

[_]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
     For  the  transition  period  from  ________________  to  _________________

                         COMMISSION FILE NUMBER 0-16106

                                APA OPTICS, INC.
             (Exact Name of Registrant as Specified in its Charter)

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

                               2950 N.E. 84TH LANE
                             BLAINE, MINNESOTA 55449
                                 (763) 784-4995
   (Address, including ZIP code and telephone number, including area code, of
                    registrant's principal executive office)

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

                    SERIES B PREFERRED SHARE PURCHASE RIGHTS
                                (TITLE OF CLASS)

     Indicate  by  check  mark  whether the Registrant (1) has filed all reports
required  to  be  filed  by  Section  13 or 15(d) of the Exchange Act during the
preceding  12 months and (2) has been subject to the filing requirements for the
past  90  days.  [X] YES     [_] NO

     Indicate  by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  registrant's  knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form  10-K.  [ ] YES    [X] NO

     Indicate  by  check mark whether the registrant is an accelerated filer (as
defined  in  Rule  12b-2  of  the  Act. [_]

     The  aggregate  market  value  of  the voting and non-voting equity held by
non-affiliates  of  the  registrant,  as  of  the  last  business  day  of  the
registrant's  most  recently  completed  second  fiscal  quarter  [computed  by
reference to the price at which the common equity was last sold] [or the average
bid  or  asked  price  of  such  common  equity]  was approximately $18,811,345.

     The  number  of  shares of common stock outstanding as of June 12, 2003 was
11,872,331.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Portions of our proxy statement for the annual shareholders meeting to be
held in August 2003 are incorporated by reference into Part III.


<PAGE>
                                     PART I
ITEM  1.     BUSINESS.

GENERAL  DEVELOPMENT  OF  BUSINESS.

     Since  the founding of APA Optics, Inc. ("APA") in 1979, we have focused on
leading  edge  research  in gallium nitride (GaN), sophisticated optoelectronics
and  optical  systems, with the primary goal of developing advanced products for
subsequent  fabrication  and  marketing.  Based  on  this  research we developed
multiple  products  including  fiber  optic  components  for  metro  and  access
communications  networks,  a  range  of GaN based devices, and precision optical
products.  We  believe  that  gallium  nitride  based  devices  have significant
potential  markets  and  we developed specific expertise and/or patent positions
relevant  to  them.  We  have long been a designer and manufacturer of precision
optical  components  and  have  substantial  expertise  in  this  area.

     In  addition  to  manufacturing  and  marketing  products,  we are actively
seeking  to  license  certain  portions  of  our intellectual property portfolio
related  to  GaN to other companies. While we have had discussions with multiple
companies,  we  have not entered into any license arrangements as of the date of
this  report.  We  consider  the  market for products anticipated to be produced
under  such  licenses  to  be  just now emerging, including applications for GaN
based  transistors  for  cell  phone  base  stations.

     Almost  all  telecommunications  service  providers  and  network equipment
suppliers  are  experiencing  severely  reduced demand, which in turn as reduced
demand  for  their  fiber  optic  components.  In  this depressed market we have
focused  on  identifying  applications  which  are most likely to see growth, in
particular,  on  applications  and  systems  integrators  who are addressing key
bandwidth  bottlenecks  in  the communications networks.  The networks which are
still  underdeveloped  are  the metro and access networks.  The metro and access
networks  place value on lower cost components, ease of installation, and remote
configurability.

     In  this  era of excess component manufacturing capacity, APA has chosen to
avoid costly product development and capital expansion activity. Instead, APA is
teaming  with  highly  qualified  cost  efficient  partners  with limited market
presence.

     In  the  past  year  we  worked  on  diversifying our optical fiber product
offering  to  include new products for access and metro systems.  We developed a
line  of  arrayed waveguide grating (AWG) WDM products based on planar lightwave
circuits.  The new products are directed towards lower channel local WDM systems
and  FTTH  access  systems.  APA is attracted to the access network construction
due  to  the  observed  growth  in  FTTH  and  other  broadband  deployments.

     Intense  competition  from Asian manufacturers has also impacted our optics
manufacturing  business  due mainly to lower labor rates. Relatively high manual
labor  requirements,  resulting  in  relatively  higher manufacturing costs, may
force  us  to  limit  or  eliminate our optical manufacturing business activity.

     In  March  2003, our wholly owned subsidiary, APA Cables and Networks, Inc.
("APACN"), purchased assets from Computer System Products, Inc. ("CSP"). Founded
in  1982, CSP's first product was a power distribution cable for use in computer
rooms. Data products followed as a natural add-on to these types of projects and
CSP  became  an  early  pioneer  as  a  manufacturer and distributor in the data
communications  market.  Core  competencies  in  copper and fiber optics led the
company  into  the  telecommunications  industry  and opportunities continued to
drive further product offerings. CSP grew organically from its inception through
2000 at a compound annual rate of 37%, operating profitably for the first 17 out
of 20 years in business. At its peak, sales volume reached over $ 42 million and
the  company  employed  almost  250  people.

     During the industry downturn, CSP reorganized to reduce its operating costs
by  almost  70  percent  by  substantial  head-count  reduction, the sale of its
distribution  and power cable business (which accounted for approximately 50% of
CSP's  historic  sales),  consolidations  of  its  manufacturing  facilities and
restructuring  of  its


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<PAGE>
unsecured  liabilities.  APACN  acquired the assets and some liabilities of this
remaining  business.  APACN  is  a full-line manufacturer of standard and custom
copper  and  fiber  optic  cable  assemblies  for service providers and original
equipment  manufacturers  ("OEM").  This  acquisition  diversifies  our  product
offerings,  expands  our  opportunities  for cross-selling our other products to
former CSP customers and enables us to offer a more complete technology solution
to  all  our  customers.

     We  intend  to  deploy  the  assets  in  the  same  line  of business. This
acquisition  diversifies  our  product  offerings, expands our opportunities for
cross-selling our other products to former CSP customers and enables us to offer
a  more  complete  technology  solution  to  all  our  customers.

     Since  eliminating  our R&D contracts in 2000 to focus on production of our
proprietary  products our revenues have decreased and our losses have increased.
We  anticipate  that  there will be opportunities to bid on R&D contracts in the
GaN  based  transistor area in the coming fiscal year.  When these opportunities
coincide with our development plan we shall pursue these contracts.  In order to
successfully  capture  these  contracts  we  anticipate  partnering  with  other
industrial  and  academic  institutions  that  have  skills  and  resources
complementary  to  our  own.  In this way our core competencies and intellectual
property can be leveraged with the most efficient use of our internal resources.

DESCRIPTION  OF  BUSINESS.

Proprietary  Products

We  currently  offer  the  products  described  below.

     -    Fiber Optic Components. APA Optics provides passive optical components
          -----------------------
     for  FTTP  networking  based  on  the  Passive  Optical  Network  (PON)
     architecture.  The  product  line  includes  planar  lightwave  circuit
     (wavelength independent) optical splitters for PON FTTP networks, and fiber
     optic  enclosures  for  locating  passive  splitters  in  the  field.

          APA  has increased its WDM offerings to include thin film filter (TFF)
     WDM  components  for  use in low channel count access and metro WDM systems
     for  data, voice and CATV. The TFF components can also be deployed in field
     enclosures.  APA  also introduced an arrayed waveguide grating (AWG) module
     for  cost  effective, high channel count applications. In early FY 2004, we
     had  our first AWG sale to a previous bulk grating customer. These products
     were  introduced  at  2003  Optical  Fiber  Conference.

          The  bulk grating modules have been put on hold. The price competition
     for  these  products  is  intense.  In  addition, it has been difficult for
     domestic  manufacturing  to  compete with low cost off shore labor. We hold
     three  patents in this field, the earliest of which was issued in September
     1995.  In  addition  we have two pending patents and numerous international
     filings  covering  key  markets  in  Europe  and  Asia.

          APA  has  increased  the diversity of its fiber optics product set. We
     now  offer planar lightwave circuit optical splitters for fiber to the home
     networks;  thin  film  filter  WDM  components  for  use  in  CATV,
     telecommunication, and free space optics systems; and arrayed waveguide WDM
     components  for  higher  channel count systems with advanced functions. APA
     identifies  and  qualifies  low cost international suppliers of fiber optic
     components  and  adds  value by characterizing performance, adding advanced
     features,  and user friendly enclosures. The technical marketing and design
     skills  at  APA  bring  customized  solutions  to  end users at competitive
     prices.  Additionally,  the  MMF  bulk  grating  WDM  module  supports high
     capacity  data  transmission  through  embedded  multi  mode  fiber.


                                        3
<PAGE>

-         Precision  Optical Products. We manufacture and sell precision optical
          ----------------------------
     products  to third parties; however, we expect a significant portion of our
     capacity  to  be  used  supplying components for our DWDM components in the
     future.  Custom  optical  products  include:

     -         Optical  Lens  Systems.  We  design  and build multi-element lens
               -----------------------
          systems  and  components, including mounting structures, for precision
          quality  optical  needs  in  many  applications, including laser-based
          systems, imaging systems, inspection systems, display systems, display
          optics,  focusing  optics  for  ultraviolet  fire  alarms,  alignment
          verification  optics  for  dual  magnetic  recording  heads,  and
          multi-magnification  optics  systems  for  optical  comparators.

     -         Optical  Thin  Film  Coatings.  We  custom  design,  develop, and
               ------------------------------
          fabricate optical thin film coatings for optical components of lasers,
          laser  systems,  optical  instruments,  and  optical  devices.  Our
          antireflective  coatings  are  deposited  onto Company-fabricated lens
          components.  We  also  use  our  thin film coating facility to design,
          develop  and  fabricate  coatings  for  lens  components  supplied  by
          customers.

     -         Optical  Windows  and  Flats.  We  manufacture  standard,
               -----------------------------
          off-the-shelf,  high  quality,  optical  windows  and reference flats.

-         Ultraviolet  (UV) Detectors. We currently manufacture and sell a range
          ----------------------------
     of  UV detectors. The UV detectors are high response compound semiconductor
     devices  based  on  gallium  nitride  (GaN)  and  aluminum  gallium nitride
     (AlGaN). They are compact and rugged compared to competing technologies and
     have  applications  in spectrometry, UV curing processes, UV lamp monitors,
     solar  radiation measurement, laser measurement and calibration, biomedical
     instrumentation,  and  flame detection and monitoring. We have been awarded
     seven  patents  in  the area of compound semiconductor devices and have two
     patents  pending.  While  we currently manufacture and sell UV detectors as
     components,  our focus in this area is on value-added products built around
     the  detectors.  We  introduced  two  such products in fiscal 2003 and will
     continue  to  actively  market  these:

     -         SunUV(R)  Personal  UV  Monitor. The SunUV(R) Personal UV Monitor
               --------------------------------
          (formerly,  SunUVWatch(R))  is  a  personal ultraviolet radiation (UV)
          monitor that also incorporates a time/day/date function. It detects UV
          radiation  that  is  hazardous  to human health. It keeps track of the
          total  UV  exposure of the user and estimates a maxiumum exposure time
          according  to  government  guidelines  based  on  skin  type  and
          widely-accepted research on UV exposure limits. Through fiscal 2003 we
          continued to complete development of this product and introduced it at
          several  trade  shows  for retailers in the golf and outdoors products
          markets.  We  believe that there are significant international markets
          for  this  type  of product in addition to the US market. We expect to
          commit  significant  resources  to  the rollout of these products and,
          based on consumer response, may commit significant resources to expand
          our  product  offering  in  this  area.

     -         TrUVMeter(TM).  This  product  is  targeted  at  industrial  and
               ------------
          scientific  users  interested  in  measuring  UV  wavelengths  with no
          sensitivity to visible or infrared (IR) light. The product consists of
          a  detector  on  a cable that is connected to a computer, and software
          that  allows  the  computer  to  operate like a meter and data-logging
          instrument.  Example  target  markets  are  manufacturers of UV lamps,
          users  of  UV-cured  inks  and  paints,  and manufacturers of UV-based
          sterilization  systems.

Our  research  and  development  efforts  are  currently focused on the products
described  below.

-         Compound  Semiconductor  Electronic Devices. We have been a pioneer in
          --------------------------------------------
     the  research  of  transistors  based  on GaN/AlGaN heterojunctions and are
     maintaining  a  R&D  capability  in  this  technology  while  assessing
     commercialization opportunities. There are significant markets emerging for
     these  devices  with the rapid growth of cellular phone use, the associated
     infrastructure,  military  remote  sensing  and communication, and in other
     high  power/frequency/temperature  applications.  Two  of our seven awarded
     patents  in this technology are fundamental to the transistor structure. We
     continue  to  develop  our  intellectual  property


                                        4
<PAGE>
     portfolio,  filing  a  provisional  patent application in November of 2002.
     Significant  resources  would  be  required  should we choose to internally
     develop  a  full  product  line  in  this  area. Our approach to developing
     products  in  this  area will be to fully utilize our internal capabilities
     while  seeking  partners with complementary capability. We are currently in
     extended discussions with several industrial concerns negotiating licensing
     and outsourcing agreements. Outsourcing of processes that require extensive
     capital  investment  and  development  should  allow  us  to concentrate on
     further developing products and intellectual property with more value added
     potential. Our ability to capture contracts and develop industrial partners
     will  depend critically on our ability to grow epitaxial material on larger
     diameter  substrates.  While  initial  uniformity  measurements  have  been
     encouraging,  we  cannot  guarantee  that  we  will  be successful in these
     efforts.

Value-Added  Products

APA  identifies  and  qualifies  low cost international suppliers of fiber optic
components  and  adds  value  to  their  products by characterizing performance,
adding  advanced  features,  and user friendly enclosures.  This process has the
following  advantages: rapid product introduction, reduced development cost, and
reduced  production  costs.  The  technical  marketing  and design skills at APA
bring  customized  solutions  to  end  users  through  this  partnering process.
Activities  involved  in the partner selection process include technical product
evaluation,  ability  to obtain Telcordia qualification, and on-site auditing of
supplier facilities. We have applied this process toward the following products:

-         Passive  Optical  Splitters  (wavelength independent). A new component
          ------------------------------------------------------
     for  APA,  the  passive optical splitter, has application in optical access
     networking,  including  Fiber-to-the-Premise,  and Fiber-to-the-Home. Newly
     adopted  standards  for  optical  access networking have been adopted by an
     increasing  number of networking equipment companies and telecommunications
     service  providers.  Network upgrades, pushing fiber closer to the end-user
     are  being  implemented  successfully by independent telephone companies in
     rural  settings  and also in green field (new) housing developments. APA is
     also  marketing  optical fiber closures, for packaging optical splitters in
     the  outside  network  environment.  The products are offered together as a
     value-added,  turnkey  solution,  making  passive  splitters  ready  for
     deployment  into  the  outside network. Both new products are being sourced
     through  offshore  manufacturing  partners,  and contracts have been put in
     place  to  supply  APA  with  these  products.

-         Thin  Film Filter WDM Components and AWG DWDM Components. APA has also
          ---------------------------------------------------------
     identified  several low channel count thin film filter product lines. These
     products  are  used  in  CATV  systems  and metro telecom systems. APACN is
     already  supplying  cable  products  to  many  of the target CATV and metro
     telecom  systems  operators.  Again using the value added model, we plan to
     provide  customized  products  to systems operators at a competitive price.

          APA  has  also  introduced  a  line  of  arrayed waveguide grating WDM
     modules.  AWG  products  are  manufactured  using  cost  effective  silicon
     semiconductor processing techniques. During the second half of fiscal 2003,
     we  identified  a  technically strong partner. A committed relationship was
     formalized  early  in fiscal 2003. The first products will be a 40 channel,
     100  GHz  channel spacing module followed by a 50 channel 50GHz module. APA
     has  joined  the  international  multi  source  agreement  for  thermally
     stabilized  AWG  modules that included NEL, Hitachi, Alcatel, NEC, JDSU and
     others.  The  finalized versions of 40 channel AWG modules will be released
     in 2004. AWG technology is especially attractive because multiple functions
     can  be  integrated  into  a  single  chip.  These  advanced  functions are
     attractive  for  systems with remote configuration abilities and may be the
     topic  of  future  joint  development.

Marketing  and  Distribution

     We  market  our DWDM and UV detector products through a variety of channels
including  advertising  in  relevant  professional magazines, showcasing them in
trade  shows,  direct  mailing,  personal  visits,  and by use of manufacturer's
representatives  and  distributors  domestically  and  in  various  countries
(including  Japan,  Germany,


                                        5
<PAGE>
Italy  and France). Some of the fiber optic components will also be sold through
APACN.  Our  DWDM  products  are  sold  through  APA  due  to  the more involved
technical  exchanges  and  longer  sales incubation period.  Potential leads are
readily  shared  between  the  two organizations. We do not currently maintain a
large  internal  sales force. We have one sales person dedicated to the SunUV(R)
Personal  UV  Monitor  and  we also maintain product information on our website.
Industrial  acceptance  of  GaN  based  transistor  products  and our ability to
license  our  intellectual  property  will  critically  depend  on proven device
reliability  in  addition  to  well documented initial performance.  As such, we
have  focused  our  development  efforts toward characterization and reliability
investigation.

Sources  of  Raw  Materials

     Several purchased materials and components are used in the manufacturing of
our  products. Most of these are readily available from multiple suppliers. Some
critical  optical  components are purchased from a single or a limited number of
suppliers. We are working with other optical manufacturers to develop additional
sources  of  these  components  as well as pursuing internal development of this
capability  for some of these components.  The loss of access to some components
would  have  a  material  adverse effect on our ability to deliver products on a
timely  basis  and  on  our  financial  performance.
Patents  and  Intellectual  Property

     As of March 31, 2003, we had 12 patents issued in the United States and six
patents applied for inside and outside the United States. We believe our success
heavily  depends upon technology we develop internally. We have made significant
progress  toward  improving the active, strategic management of our intellectual
property  portfolio.  The  markets  for  our products are characterized by rapid
change  and  continual  innovation  that could render our technology and patents
obsolete  before their statutory protection expires. Several of the companies we
compete  with  have  greater  research  and development resources than we do and
could  develop  technologies  and  products that are similar or even superior to
ours  without  infringing  on  our  intellectual  property.

Environmental  Compliance

     Because  we  handle a number of chemicals in our operations, we must comply
with  federal,  state  and local laws and regulations regarding the handling and
disposal  of  such  chemicals.  To date the cost of such compliance has not been
material.

Major  Customers

     In  prior  years,  we  provided  research  and  development  services under
contracts  with  various  governmental  agencies. Currently, we have no material
contracts  with any such agencies. Two major customers accounted for 21% and 15%
of  the  Company's  sales  for the year ended March 31, 2003. During fiscal year
2002,  revenues  from  three customers represented 28%, 23% and 14% of our total
revenues  each.  In  fiscal 2001, we had three customers whose dales represented
19%,  16%  and  15% of total revenues each. While significant as a percentage of
revenues,  the  revenues in dollars were not significant and the loss of any one
of  these  customers  would  not  have a material adverse effect on the Company.

  Backlog

     We  had  no  backlog  of orders at March 31, 2003 or 2002 and approximately
$545,000  at  March  31,  2001.  APACN had a backlog of $389,000 as of March 31,
2003.

Competition

     The  optoelectronics  and  compound semiconductor electronic device markets
are  evolving  rapidly  and,  therefore,  the  competitive  landscape  changes
continually.  The  opportunities  presented  by  these  markets  have


                                        6
<PAGE>
fostered  a  highly  competitive  environment.  This competition has resulted in
price reductions and lower profit margins for the companies serving this market.
Many  of  the  companies  engaged in these businesses are well financed and have
significantly greater research, development, production, and marketing resources
than  we  do.  Some  of  these  companies  have  long  operating  histories,
well-established  distribution  channels,  broad product offerings and extensive
customer  bases. Our ability to compete with these companies will depend largely
on the performance of our devices, our ability to innovate and develop solutions
for  our customers, our intellectual property, our ability to convince customers
to  adopt our technology early in their design cycle, and our ability to control
costs

     Competitors  for  our  DWDM  products include Lightwave Microsystems, Inc.,
NetTest,  LightChip,  Inc.,  Wavesplitter Technologies, Inc., Gould, Avanex, and
JDS  Uniphase  Corporation. Competitors for our GaN products include SVT (GaN UV
detectors),  and various UV detector makers using silicon or other semiconductor
materials that do not perform comparably to GaN but are lower-priced. We are not
aware  of  any  companies  currently  marketing  a  personal  UV  monitor with a
combination  of features, style and packaging equivalent to ours, although there
are  other manufacturers of this type of product in the US, Japan and Korea, and
we  have  found  several intellectual property for this general type of product.
Newport,  Melles  Griot  and Oriel offer scientific UV meters, some offering GaN
detectors as an option. A number of firms offer lower-performance, lower-cost UV
meters  for  industrial  applications.  Competitors  for  GaN/AlGaN transistors,
which  are  currently  in the R&D phase at APA Optics, would include Cree, Inc.,
Nitronex  Corporation,  and  RFMD  Corporation,  and  some Japanese and European
firms.

Research  and  Development

     During  the  fiscal  years  ended  March 31, 2003, 2002, and 2001, we spent
approximately  $1,212,000, $1,114,000, and $1,176,000, respectively, on research
and  development,  all  of which was related to the DWDM, compound semiconductor
electronic  devices,  UV  detector  and  related  products.  We  had no research
activities  sponsored  by  customers  in  fiscal  years  2003, 2002 and 2001. We
operate  in  highly  competitive and rapidly evolving markets and plan to commit
significant  resources  for research and development for the foreseeable future.
We  could locate research and development facilities in locations other than our
current  facilities  in  Minnesota  and  South  Dakota based on several factors,
including  accessibility  to  qualified  personnel  and  facility  costs.

Employees

     As  of  March  31, 2003, we had 44 full-time employees (including executive
officers). Our future performance is dependent on our ability to attract, train,
and retain highly qualified personnel. We have no employment agreements with our
employees.  The  loss  of  one or more key employees could negatively impact the
Company.

FACTORS  THAT  MAY  AFFECT  FUTURE  RESULTS

     The  statements  contained  in this report on Form 10-K that are not purely
historical  are  "forward-looking  statements" within the meaning of the Private
Securities  Litigation  Reform Act of 1995, Section 27A of the Securities Act of
1933  and Section 21E of the Securities Exchange Act of 1934, including, without
limitations,  statements  regarding  the Company's expectations, hopes, beliefs,
anticipations,  commitments,  intentions  and  strategies  regarding the future.
Forward-looking statements include, but are not limited to, statements contained
in  "Item  1.  Business"  and  "Item  7. Management's Discussion and Analysis of
Financial Condition and Results of Operations." Actual results could differ from
those projected in any forward-looking statements for the reasons, among others,
detailed  below.  We  believe  that  many of the risks detailed here are part of
doing business in the industry in which we compete and will likely be present in
all  periods  reported.  The  fact  that certain risks are characteristic to the
industry  does  not  lessen  the  significance  of the risk. The forward-looking
statements are made as of the date of this Form 10-K and we assume no obligation
to  update  the  forward-looking  statements or to update the reasons why actual
results  could  differ  from  those projected in the forward-looking statements.


                                        7
<PAGE>
Unless  we  generate  significant revenue growth, our expenses and negative cash
flow  will  significantly  harm  our  financial  position.

     We have not been profitable since fiscal 1990. As of March 31, 2003, we had
an  accumulated  deficit of $23.2 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.

Demand for our products is subject to significant fluctuation. Market conditions
in the telecommunications market in particular 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 economic
slowdown  has been more profound in the telecommunications market resulting in a
significant reduction in capital expenditures for products such as our DWDMs and
our  fiber  optic  components. 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  fiber  optic  components.

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 precision 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,


                                        8
<PAGE>
     -    Difficulty  maintaining the precision manufacturing processes required
          by  our  products  while  increasing  capacity,

     -    The  inability  to timely procure and install the necessary equipment,
          and

     -    Lack of availability of qualified manufacturing personnel.

     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 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 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.

Our  products  may  have  defects  that  are not detected before delivery to our
customers.

     Some  of  our  products  are  designed  to be deployed in large and complex
optical  networks  and  must  be compatible with other components of the system,
both  current  and future. In addition, our products may not operate as expected
over  long  periods of time. Our customers may discover errors or defects in our
products  only  after they have been fully deployed. 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.

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.

Our  products  may  infringe  on  the  intellectual  property  rights  of others

     Our  products  are  sophisticated  and  rely  on  complicated manufacturing
processes.  We  have  received  multiple  patents  on  aspects of our design and
manufacturing  processes  and  we  have  applied  for  several  more.


                                        9
<PAGE>
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 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.


                               EXECUTIVE OFFICERS

The  following  is  a  list of our executive officers, their ages, positions and
offices  as  of  March  31,  2003.

<TABLE>
<CAPTION>
NAME                      AGE                     POSITION
<S>                       <C>       <C>
Dr. Anil K. Jain           57       Chief Executive Officer and President
Kenneth A. Olsen           59       Vice President and Secretary
David R. Peters            48       Chief Financial Officer
</TABLE>

     DR. ANIL K. JAIN has been a Director, Chief Executive Officer and President
since  March  1979. He also served as Chief Financial Officer until August 2000.
From  1973  until October 15, 1983, when Dr. Jain commenced full time employment
with  the  Company,  he  was  employed  at  the  Systems  and Research Center at
Honeywell  Inc.  as  a  Senior  Research  Fellow,  coordinating  optics-related
development.

     KENNETH  A. OLSEN has been a Director since 1980, Secretary since 1983, and
Vice  President  since 1992. Prior to joining the Company, he was with 3M Corp.,
St.  Paul,  Minnesota.

     DAVID  R. PETERS has been Chief Financial Officer since joining the Company
in  January  2003. Prior to joining the Company he was President and Senior Vice
President  of  CSP  and related companies, Plymouth, Minnesota, from May 1988 to
December  2002.  Prior to CSP, Mr. Peters was an auditor with Ernst & Young, LLP
and  McGladrey  &  Pullen,  LLP.


ITEM  2.     PROPERTIES.

     We  have  corporate  offices,  manufacturing  facilities,  and laboratories
located  in an industrial building at 2950 N.E. 84th Lane, Blaine, Minnesota. We
currently  lease  23,500  square  feet of space under a sublease from Jain-Olsen
Properties,  a  partnership  consisting  of  Anil  K. Jain and Kenneth A. Olsen,
officers  and  directors  of  the  Company.  See  Note  K  of Notes to Financial
Statements included under Item 8 hereof. We own land directly west of the Blaine
facility  that  may  be  used  for  future  expansion.


                                       10
<PAGE>
     We  also  own  a  24,000 square foot production facility in Aberdeen, South
Dakota,  which is used for assembly of our DWDM components and UV detectors. The
land  upon  which  this  facility  is  located  was  granted  to us as part of a
financing  package  from  the city of Aberdeen. See Note E of Notes to Financial
Statements  included  under  Item  8  in  this  Report  for  further information
regarding  the  financing  of  this  facility.

     In  connection  with  our acquisition of assets from CSP, we entered into a
month-to-month lease for a portion of a building previously occupied by CSP at a
monthly  rent  of $16,667. We or the landlord can terminate this lease on thirty
days  advance  notice.  We believe that we can acquire substitute space suitable
for  our  needs at comparable rent. We currently do not intend to remain in this
facility  beyond  September  30,  2003.

ITEM  3.     LEGAL  PROCEEDINGS.

     We  are  not  currently  involved  in  any  material  legal  proceedings.

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

     No  matter  was  submitted  to a vote of security holders during the fourth
quarter  of  the  fiscal  year  covered  by  this  Report.



                                     PART II

ITEM  5.     MARKET  FOR  REGISTRANT'S  COMMON  EQUITY  AND  RELATED STOCKHOLDER
MATTERS.

     Our  common  stock is traded on The Nasdaq National Market under the symbol
"APAT."  The  following table sets forth the quarterly high and low sales prices
for  our  common stock for each quarter of the past two fiscal years as reported
by  Nasdaq.

<TABLE>
<CAPTION>
FISCAL 2003                                       HIGH    LOW
-----------                                      ------  -----
<S>                                              <C>     <C>
Quarter ended June 30, 2002                      $ 2.02  $1.80
Quarter ended September 30, 2002                   1.65   1.15
Quarter ended December 31, 2002                    1.62   1.33
Quarter ended March 31, 2003                       1.33   1.27

FISCAL 2002                                       HIGH    LOW
-----------                                      ------  -----
Quarter ended June 30, 2001. . . . . . . . . .   $11.50  $7.00
Quarter ended September 30, 2001 . . . . . . .     9.00   1.90
Quarter ended December 31, 2001. . . . . . . .     3.44   2.00
Quarter ended March 31, 2002 . . . . . . . . .     4.83   2.40
</TABLE>

     There  were  approximately  356 holders of record of our common stock as of
March  31,  2003.

     We  have  never paid cash dividends on our common stock. The loan agreement
relating  to  certain  bonds  issued  by  the  South Dakota Economic Development
Finance  Authority  restricts  our  ability  to  pay  dividends.


                                       11
<PAGE>
ITEM  6.     SELECTED  FINANCIAL  DATA.

<TABLE>
<CAPTION>
                                            2003          2002          2001          2000          1999
                                        ------------  ------------  ------------  ------------  ------------
<S>                                     <C>           <C>           <C>           <C>           <C>
Statements of Operations Data:
  Revenues . . . . . . . . . . . . . .  $   436,157   $   595,955   $   885,740   $   420,809   $   722,030
  Net loss . . . . . . . . . . . . . .   (5,009,434)   (4,738,199)   (3,261,446)   (3,796,296)   (2,513,798)
  Net loss per share,basic and diluted
                                               (.42)         (.40)         (.29)         (.43)         (.30)
  Weighted average number of shares, .   11,873,914    11,896,976    11,180,165     8,744,125     8,512,274
  basic and diluted  . . . . . . . . .

  Balance Sheet Data:
  Total assets . . . . . . . . . . . .  $31,833,696   $36,396,410   $41,914,451   $ 9,610,391   $ 6,804,976
  Long-term obligations, including
  current portion. . . . . . . . . . .    2,173,682     2,461,363     2,836,831     3,049,258     3,214,712
  Shareholders' equity . . . . . . . .   28,918,943    33,504,917    38,280,299     6,306,049     3,389,295
</TABLE>

     The above selected financial data should be read in conjunction with the
financial statements and related notes included under Item 8 of this Report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in Item 7 of this Report.



ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

GENERAL

     We  are  engaged  in  designing,  manufacturing,  and  marketing of various
optoelectronic  products,  ultraviolet  (UV)  detectors and related products and
optical  components.  For  several  years, we also received significant revenues
from  research and development services projects sponsored by various government
agencies.  In fiscal 1998, we shifted our emphasis from research and development
to product development, with the intent to eventually manufacture and market our
own  proprietary  products.  Accordingly, revenues from research and development
contracts  decreased  significantly  in  fiscal 2000 and we received no revenues
from  this  source  in  fiscal  years  2001,  2002  or  2003

     For  the  last  several  years  our goal has been to manufacture and market
products/components  based  on  our  technology developments. We have focused on
DWDM  components  for  fiber optic communications and GaN based ultraviolet (UV)
detectors  (both components and integrated detector/electronic/display packages)
because  we  believe  that  these  two  product areas have significant potential
markets  and  because we have expertise and/or patent positions related to them.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

     We  have  reviewed our use of estimates in applying our accounting policies
and  determined that significant changes in our various estimates would not have
a  material  impact  on  the presentation of our financial condition, changes in
financial  condition  or  results of operations. Accordingly, we do not consider
any  of  our estimates to be "critical estimates" as defined in the rules of the
Securities  and Exchange Commission. See Note A of Notes to Financial Statements
under Item 8 of our Report on Form 10-K for descriptions of the use of estimates
in  our accounting policies. Our management and the audit committee of our board
of  directors  have  discussed  our  use  of  estimates  and  have  approved our
disclosure  relating  to  it  in  this  report.


                                       12
<PAGE>
     In  Note  A  of the Notes to the Financial Statements, the effect of recent
promulgations  of the Financial Accounting Standards Board (FASB) on the Company
are  described.  Management  believes  the  adoption  of Statements of Financial
Accounting  Standards  (SFAS)  Nos. 144, 145, 146 and 148, and Interpretation 45
(FIN 46) will not have a material effect on our financial position or results of
operations.

CONTRACTUAL OBLIGATIONS

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

                                Less than                            After
                        Total     1 Year    1-3 years   4-5 years   5 years
                        ----------------------------------------------------
<S>                     <C>     <C>         <C>         <C>         <C>
Long-term debt          $2,173  $    1,847  $      150  $       36  $    140
Operating leases           300         162         138           -         -
                        ----------------------------------------------------
Total Contractual Cash
Obligations             $2,473  $    2,009  $      288  $       36  $    140
                        ====================================================
</TABLE>


RESULTS  OF  OPERATIONS

     We  recognized  operating  revenues of $436,157, $595,955, and $885,740 for
the  fiscal  years  ended  March  31,  2003,  2002,  and 2001, respectively. The
decrease of $159,798 or 27% from fiscal 2002 to 2003 was primarily the result of
lower  sales  of DWDM components. The decrease of $289,785 from 2001 to 2002 was
also  due to decreasing DWDM component sales. A reduction in capital spending in
the  telecommunications  industry  in  addition  to  the United States recession
significantly  reduced demand for these components. APA Optics had no backlog of
orders  at  the end of fiscal 2003 or 2002. Our backlog of DWDM component orders
was  approximately $545,000 as of March 31, 2001. There were no contract fees in
fiscal  2003, 2002 or 2001. APACN, our wholly owned subsidiary, had a backlog of
$389,329 at March 31, 2003. We expect to ship these orders in the first quarter.
APACN's  backlog  consists  of  contracts  acquired  from  CSP  in  March  2003.

     As  discussed  in  the  General  Development of the Business above, capital
expenditures in the telecom industry are down significantly. Because of this, we
expect  revenues for at least the next few quarters to be consistent with fiscal
year  2003.

     Costs of sales were $2,802,597, $3,545,519, and $2,663,192 for fiscal 2003,
2002 and 2001 respectively. The decrease of $742,922 or 21% in the cost of sales
from  fiscal 2002 to 2003 was primarily due to the decrease in sales volume. The
increase  of  $882,327  or 33% in the cost of sales from fiscal 2001 to 2002 was
largely  the  result  of  inventory  obsolescence  costs, increased depreciation
related  to capital equipment purchases and costs associated with implementing a
quality  assurance  program.  Gross margin for product sales was negative in all
three  fiscal  years, reflecting continued increased personnel and manufacturing
costs and relatively low sales. The negative gross margins are influenced by low
unit production and sales levels relative to the capital equipment and personnel
committed  to  production.  We  expect  to continue to experience negative gross
margins  until  there  is a significant increase in sales and production levels.
Cost  of  contract  fees was eliminated as no contract research was performed in
fiscal  2003,  2002  or  2001.

     Research  and  development  expenses  were  $1,212,219,  $1,114,051,  and
$1,175,564  for  fiscal  years 2003, 2002 and 2001 respectively. The increase of
$98,168  or  9%  from  fiscal  2002  to  2003 is due primarily to an increase in
personnel  and equipment costs for development of GaN based transistor products.
We  plan  to  expand  our research and development and expect to incur increased
expenses  related  to these activities in the future. The decrease of $61,513 or
5%  from  fiscal  2001  to  2002  reflects a shift in personnel to manufacturing
products  from  product  development.


                                       13
<PAGE>
     Selling,  general  and administrative expenses were $1,750,807, $1,733,846,
and  $1,866,766 for fiscal years 2003, 2002 and 2001, respectively. The decrease
of $132,920 or 7% from fiscal 2001 to 2002 and $18,458 or 1% from fiscal 2002 to
2003  reflects  our  efforts to reduce expenses in response to the slow economy,
including a reduction in staff in the third quarter of fiscal 2002. Our selling,
general  and  administrative  expenses  could  increase  significantly  with the
planned  rollout  of  our  SunUV(R) Personal UV Monitor and our TRUVMETER(TM) in
fiscal  2004.

     We  realized  $436,925,  $1,193,525,  and  $2,002,713 in interest income in
fiscal  years 2003, 2002 and 2001, respectively. The decrease in interest income
of $809,188 or 40% from fiscal 2001 to 2002 and $756,600 or 63% from fiscal 2002
to  2003 reflects the steep decline in short-term interest rates over the fiscal
year  and  declining  cash  investments. We consumed a total of $5.2 million and
$9.3  million in cash in fiscal 2002 and 2003, respectively, to fund operations,
purchase  equipment,  retire  debt and acquire CSP. We expect interest income to
decline  again  in  fiscal  2004  because  short-term interest rates will likely
remain  low  and  we  will  consume  cash  in  operations.

     Our  net losses for fiscal 2003, 2002 and 2001 were $ 5,009,434, $4,738,199
and  $2,953,392,  respectively.

LIQUIDITY  AND  CAPITAL  RESOURCES

     As  of March 31, 2003, our principal source of liquidity was our cash, cash
equivalents  and  short-term  investments, which totaled $22,235,686 compared to
$31,606,403  at  March  31,  2002.

     We used $4,659,154 to fund operating activities during fiscal 2003 compared
to  $3,753,553 in fiscal 2002, and $2,230,867 in fiscal 2001. In all three years
the  largest  use  of  cash  in  operating activities was the funding of the net
losses.  The  net loss for fiscal 2003 expanded to $4,974,015 from $4,738,199 in
fiscal  2002. The primary factors contributing to the increased loss from fiscal
2002 to 2003 were the decline in sales, the increase in research and development
costs  and  the decline in interest income. The significant factors contributing
to  the  increased  loss  from  fiscal  2001 to 2002 were declining sales, lower
interest  income  and  higher  inventory  obsolescence.

     In  fiscal  2003  we  used  $4,271,605  in  investing activities. including
$3,828,000  used  to  purchase  the  assets of CSP.  In fiscal 2002 we generated
$15,759,000  through  the  sale  of  short-term  investments,  and. we  invested
$1,050,274 in property and equipment and $113,698 in patents, for a net increase
in  cash from investment activities of $14,595,028. The majority of the proceeds
from  the  sale  of  short-term  securities  are  classified  as  cash  and cash
equivalents  on  the  balance sheet as of March 31, 2002. We used $16,995,645 in
investing  activities  in  fiscal  2001,  $15,759,000  of  which was invested in
short-term  investments.

     In  fiscal  2003, we used $439,958 in financing activities primarily to pay
down  long-term  debt  of  $437,467. We used $460,564 in financing activities in
fiscal  2002.  Primary  uses of cash included the repurchase of common stock for
$92,638  and  the  scheduled  retirement  of  debt in the amount of $375,478. In
fiscal  2001 financing activities provided net cash of $34,510,098. Sales of our
common stock provided $39,842,684, retirement of preferred stock used $5,033,054
and the scheduled retirement of debt and additions to bond reserve funds used an
additional  $299,532.

     In  connection  with  the  construction  of  the  manufacturing facility in
Aberdeen,  we  took  advantage of certain economic incentive programs offered by
the State of South Dakota and the City of Aberdeen. At March 31, 2003, the total
principal  outstanding  under  bonds  issued  by  the  State of South Dakota was
$1,560,000. Interest on the bonds ranges from 5% to 6.75%, and the bonds are due
in  various  installments  between 2004 and 2016. These bonds require compliance
with  certain  financial covenants. We were out of compliance with some of these
covenants  during  part  of  fiscal  2001  and  all of fiscal 2002 and 2003. For
further  information  regarding  these  bonds,  see Note E of Notes to Financial
Statements  included  under  Item 8 of this Report. Our capital requirements are
dependent  upon several factors including market acceptance of our products, the
timing  and


                                       14
<PAGE>
extent of new product introductions and delivery, and the costs of marketing and
supporting  our  products on a worldwide basis. See "Item 1. Business." Although
we  believe  that our current cash, cash equivalents, and short-term investments
will  be  sufficient to fund our operations for more than the next 12 months, we
cannot  assure  you  that  we  will  not seek additional funds through public or
private  equity  or debt financing or from other sources within this time frame,
or  that additional funding, if needed, will be available on terms acceptable to
us,  or at all. We may also consider the acquisition of, or evaluate investments
in,  products  and  businesses complementary to our business. Any acquisition or
investment  may  require  additional  capital.


ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Our exposure to market risk for changes in interest rates relates primarily
to  our  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. See "Cash
and  Equivalents"  and  "Short-term  Investments"  under  Note 1. of the Audited
Financial  Statements.


ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA.

     Quarterly Results of Operations. The following tables present our unaudited
quarterly  operating  results  for  the  eight  quarters  ended  March 31, 2003:

<TABLE>
<CAPTION>


                                                         Quarter Ended
                               -------------------------------------------------------------
                                  June 30,       September 30,    December 31,   March 31,
                                    2001             2001            2001           2002
                                    ----             ----            ----           ----
 Statement of Operations Data

<S>                            <C>              <C>              <C>            <C>
Net revenue . . . . . . . . .  $      434,335   $       87,574   $     49,089   $    24,957
Gross profit (loss) . . . . .        (508,518)        (869,742)      (977,252)     (594,052)
Net loss. . . . . . . . . . .        (654,062)      (1,364,499)    (1,422,002)   (1,306,636)
Net loss per share. . . . . .  $        (0.05)  $        (0.11)  $      (0.12)  $     (0.11)
                                                         Quarter Ended
                               -------------------------------------------------------------
                                  June 30,       September 30,    December 31,   March 31,
                                    2002             2002            2002           2003
                                    ----             ----            ----           ----
 Statement of Operations Data

Net revenue . . . . . . . . .  $       72,451   $       38,900   $     40,674   $   284,132
Gross profit (loss) . . . . .        (681,269)        (680,044)      (513,379)     (491,746)
Net loss. . . . . . . . . . .      (1,252,994)      (1,318,737)    (1,151,494)   (1,286,209)
Net loss per share. . . . . .  $        (0.11)  $        (0.11)  $      (0.10)  $     (0.11)
<FN>


     See Item 14(a)(1) for financial statements filed with this Report.
</TABLE>



ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

          On  March  8,  2002, we terminated Ernst & Young LLP (E&Y) as auditor.
The replacement of E&Y was recommended by our Audit Committee and adopted by our
Board  of  Directors.


                                       15
<PAGE>
     E&Y's reports on our financial statements for the previous two fiscal years
ended  March 31, 2000 and March 31, 2001, did not contain any adverse opinion or
disclaimer  of  opinion and were not qualified as to uncertainty, audit scope or
accounting  principles.  During our two most recent fiscal years ended March 31,
2001  and  the  interim  period  through  March  2,  2002,  (i)  there  were  no
disagreements  between  us  and  E&Y  on  any matter of accounting principles or
practices,  financial statement disclosure or auditing scope or procedure which,
if  not  resolved  to  the  satisfaction  of  E&Y, would have caused E&Y to make
reference  to  the  subject  matter  of  the disagreement in connection with its
reports  and  (ii)  there  were  no  "reportable  events,"  as  defined  in Item
304(a)(1)(v)  of Regulation S-K of the Securities and Exchange Commission (SEC).
The  decision  to  replace E&Y was not the result of any disagreement between us
and  E&Y  on any matter of accounting principle or practice, financial statement
disclosure  or  audit  procedure.

     Concurrently,  on  March  8, 2002, our Audit Committee recommended, and our
Board  of  Directors  approved, the appointment of Grant Thornton LLP (Grant) as
our  new  independent  accountant  and  auditor.  Grant  audited  our  financial
statements  to be included in the Form 10-K for the fiscal year ending March 31,
2003 and we intend to have Grant continue to serve as our independent accounting
and  audit  firm  for the fiscal year ending March 31, 2004.  We did not consult
with  Grant  on  any  matters  related  to  accounting  principles  or practice,
financial  statement  disclosures  or  audit  procedures  prior to selecting and
appointing  Grant  as  our  auditor.



                                    PART III


ITEM  10.     DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT.

     Information  regarding  executive  officers  is  included in Part I of this
Report  and  is  incorporated  in  this  Item  10  by  reference.

     Information  regarding  directors and the information required by Items 11,
and  13,  below,  is  incorporated  in  this  Report  by  reference to the proxy
statement  for  our  annual  meeting  of shareholders (anticipated to be held in
August  2003).


ITEM  11.     EXECUTIVE  COMPENSATION.

     Information required by Item 11 is incorporated in this Report by reference
to the proxy statement for our annual meeting of shareholders (anticipated to be
held  in  August  2003).


ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Certain information required by Item 12 is incorporated in this Report by
reference to the proxy statement for annual meeting of shareholders.




                                       16
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                 (a)                      (b)                          (c)
--------------------------------------------------------------------------------------------------------
Plan category          Number of securities to      Weighted-average     Number of securities remaining
                       be issued upon exercise     exercise price of      available for future issuance
                       of options, warrants or    outstanding options,      under equity compensation
                                rights            warrants and rights      plans (excluding securities
<S>                    <C>                        <C>                    <C>
--------------------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders               408,375                   $4.27                      1,065,888
--------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders               590,822                   $13.52                  Not applicable*
--------------------------------------------------------------------------------------------------------
Total                          999,197                   $9.91                      1,065,888
--------------------------------------------------------------------------------------------------------
<FN>
* These securities are comprised solely of warrants that were not issued pursuant to any formal plan
with an authorized number of securities available for issuance.
</TABLE>


ITEM  13.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

     Information required by Item 13 is incorporated in this Report by reference
to the proxy statement for our annual meeting of shareholders (anticipated to be
held  in  August  2003).

ITEM 14.     CONTROLS AND PROCEDURES.

     a.   Evaluation  of disclosure controls and procedures. The Company's chief
          executive  officer and chief financial officer have concluded that the
          Company's  disclosure  controls and procedures (as defined in Exchange
          Act  Rule  13a-14(c))  are  sufficiently  effective to ensure that the
          information  required to be disclosed by the Company in the reports it
          files  under the Exchange Act is gathered, analyzed and disclosed with
          adequate timeliness, accuracy and completeness, based on an evaluation
          of  such controls and procedures conducted within 90 days prior to the
          date  hereof.

     b.   Changes  in  internal controls. There have been no significant changes
          in  the  Company's  internal  controls  or in other factors that could
          significantly  affect  these  controls  subsequent  to the date of the
          evaluation  referred  to  above.



                                       17
<PAGE>

                                     PART IV

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.


(a) (1)  The following financial statements are filed herewith under Item 8

                                                                        Page

         (i)   Report of Independent Certified Public Accountants
               for the years ended March 31, 2003, 2002 and 2001 . . .    F1


         (ii)  Report of Independent Certified Public Accountants for     F2
               the year ended March 31, 2001 . . . . . . . . . . . . .

         (iii) Balance Sheets as of March 31, 2003 and 2002. . . . . .    F3

         (iv)  Statements of Operations for the years ended
               March 31, 2003, 2002 and 2001 . . . . . . . . . . . . .    F4

         (v)   Statement of Shareholders' Equity for the years ended
               March 31, 2003, 2002 and 2001 . . . . . . . . . . . . .    F5

         (vi)  Statements of Cash Flows for the years ended
               March 31, 2003, 2002 and 2001 . . . . . . . . . . . . .    F7

         (vii) Notes to the Financial Statements at March 31, 2003 . .    F8


    (2)  Financial Statement Schedules: None

(b)      Reports  filed  on  Form  8-K:

<TABLE>
<CAPTION>
In the last quarter of our fiscal year ended March 31, 2003, we filed the following
reports on Form 8-K

-----------------------------------------------------------------------------------
                                                               Financial Statements
Date of Report  Date of Filing         Event Reported                 Filed

-----------------------------------------------------------------------------------
<S>             <C>             <C>                            <C>
February 14     February 14     Earnings Release for 3rd       None
                                Quarter
-----------------------------------------------------------------------------------
March 5         March 5         Execution of agreement to      None
                                acquire assets from Computer
                                System Products, Inc.
-----------------------------------------------------------------------------------
March 28        March 28        Closing of purchase of assets  None
                                of CSP
-----------------------------------------------------------------------------------

-----------------------------------------------------------------------------------
</TABLE>


     (c)     Exhibits.  See  Exhibit  Index.


                                       18
<PAGE>
                                   SIGNATURES

     Pursuant  to  the  requirements  of  Section  13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf  by  the  undersigned,  thereunto  duly  authorized.
APA  Optics,  Inc.

Date: June 27, 2003          By  /s/ Anil K. Jain
                                ------------------------------------------
                                     Anil K. Jain
                                     President and Chief Executive Officer

     Pursuant  to  the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by  the  following  persons  on  behalf of the
Registrant  and  in  the  capacities  and  on  the  dates  indicated.
<TABLE>
<CAPTION>



SIGNATURE                    TITLE                                    DATE
---------                    -----                                    ----
<S>                          <C>                                       <C>

/s/ Anil K. Jain             President, Chief Executive Officer, and   June 27, 2003
---------------------------
Anil K. Jain                 Director (principal executive officer)

/s/ Kenneth A. Olsen         Secretary, Vice President, and Director   June 27, 2003
---------------------------
Kenneth A. Olsen

/s/ David R. Peters          Chief Financial Officer (principal        June 27, 2003
---------------------------
David R. Peters              financial and accounting officer)

/s/ John G. Reddan           Director                                  June 27, 2003
---------------------------
John G. Reddan
/s/ Ronald G. Roth           Director                                  June 27, 2003
---------------------------

Ronald G. Roth
/s/ Stephen A. Zuckerman MD  Director                                  June 27, 2003
---------------------------
Stephen Zuckerman
</TABLE>


                                       19
<PAGE>
                                  CERTIFICATION
I,  Anil  K.  Jain,  certify  that:

1.   I  have  reviewed  this  annual  report  on  Form 10-K of APA Optics, Inc.;

2.   Based  on  my  knowledge,  this  annual  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  annual  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included  in  this  annual  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
     annual  report;

4.   APA  Optics,  Inc.'s  other  certifying  officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange Act Rules 13a-14 and 15d-14) for APA Optics, Inc. and we have:

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

     b)   Evaluated  the  effectiveness  of  the  our  disclosure  controls  and
          procedures  as  of  a  date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

     c)   Presented  in  this  annual  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

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

     a)   There are no known deficiencies in the design or operation of internal
          controls  which  could  adversely affect APA Optics, Inc.'s ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and

     b)   There  has been no known fraud, whether or not material, that involves
          management  or  other  employees  who  have  a significant role in the
          registrant's  internal  controls;  and

6.   APA  Optics,  Inc.'s other certifying officers and I have indicated in this
     annual  report  whether there were significant changes in internal controls
     or  in  other  factors  that  could  significantly affect internal controls
     subsequent  to  the  date  of  our  most  recent  evaluation, including any
     corrective  actions  with  regard  to significant deficiencies and material
     weaknesses.

June  27,  2003


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


                                       20
<PAGE>
                                  CERTIFICATION

I, David R. Peters, certify that:

1.   I  have  reviewed  this  annual  report  on  Form 10-K of APA Optics, Inc.;

2.   Based  on  my  knowledge,  this  annual  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  annual  report;

3.   Based  on  my  knowledge,  the  financial  statements,  and other financial
     information  included  in  this  annual  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
     annual  report;

4.   APA  Optics,  Inc.'s  other  certifying  officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in  Exchange Act Rules 13a-14 and 15d-14) for APA Optics, Inc. and we have:

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

     b)   Evaluated  the  effectiveness  of  the  our  disclosure  controls  and
          procedures  as  of  a  date within 90 days prior to the filing date of
          this  annual  report  (the  "Evaluation  Date");  and

     c)   Presented  in  this  quarterly  report  our  conclusions  about  the
          effectiveness  of  the disclosure controls and procedures based on our
          evaluation  as  of  the  Evaluation  Date;

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

     a)   There are no known deficiencies in the design or operation of internal
          controls  which  could  adversely affect APA Optics, Inc.'s ability to
          record,  process,  summarize  and  report  financial  data  and  have
          identified  for  the  registrant's auditors any material weaknesses in
          internal  controls;  and

     b)   There  has been no known fraud, whether or not material, that involves
          management  or  other  employees  who  have  a significant role in the
          registrant's  internal  controls;  and

6.   APA  Optics,  Inc.'s other certifying officers and I have indicated in this
     annual  report  whether there were significant changes in internal controls
     or  in  other  factors  that  could  significantly affect internal controls
     subsequent  to  the  date  of  our  most  recent  evaluation, including any
     corrective  actions  with  regard  to significant deficiencies and material
     weaknesses.


June 27, 2003
Signature: /s/ David R. Peters
           -------------------
Print Name: David R. Peters
            ---------------
Print Title: Chief Financial Officer
             -----------------------


                                       21
<PAGE>
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------


Board  of  Directors  and  Shareholders
APA  Optics,  Inc.

          We  have  audited  the accompanying consolidated balance sheets of APA
Optics,  Inc.  (the  Company)  as  of  March  31, 2003 and 2002, and the related
consolidated  statements of operations, shareholders' equity, and cash flows for
the  years then ended.  These financial statements are the responsibility of the
Company's  management.  Our  responsibility  is  to  express an opinion on these
financial  statements  based  on  our  audits.

          We  conducted  our  audits  in  accordance  with  auditing  standards
generally  accepted  in  the  United States of America.  Those standards require
that  we plan and perform the audit to obtain reasonable assurance about whether
the  financial  statements are free of material misstatement.  An audit includes
examining,  on  a test basis, evidence supporting the amounts and disclosures in
the  financial  statements.  An  audit  also  includes  assessing the accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating  the overall financial statement presentation.  We believe our audits
provide  a  reasonable  basis  for  our  opinion.

          In our opinion the financial statements referred to above present
fairly,  in  all  material  respects, the consolidated financial position of APA
Optics,  Inc. as of March 31, 2003 and 2002, and the consolidated results of its
operations  and  its  cash  flows  for  the years then ended, in conformity with
accounting  principles  generally  accepted  in  the  United  States of America.

          As discussed in Note A to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets," ("SFAS") on April 1, 2002.



                                                          /s/ Grant Thornton LLP


Minneapolis, Minnesota
May 5, 2003


                                       22
<PAGE>
                         Report of Independent Auditors


The  Board  of  Directors  and  Shareholders
APA  Optics,  Inc.

We  have  audited the accompanying balance sheet of APA Optics, Inc. as of March
31,  2001,  and  the related statements of operations, shareholders' equity, and
cash  flows  for each of the two years in the period ended March 31, 2001. These
financial  statements  are  the  responsibility of the Company's management. Our
responsibility  is  to express an opinion on these financial statements based on
our  audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to  obtain  reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the  amounts  and  disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made  by  management,  as  well  as  evaluating  the overall financial statement
presentation.  We  believe  that  our  audits provide a reasonable basis for our
opinion.

In  our  opinion,  the financial statements referred to above present fairly, in
all  material  respects,  the financial position of APA Optics, Inc. as of March
31,  2001,  and the results of its operations and its cash flows for each of the
two  years  in  the  period  ended March 31, 2001, in conformity with accounting
principles  generally  accepted  in  the  United  States.

                                            /s/  Ernst  &  Young  LLP


Minneapolis,  Minnesota
May 11, 2001


                                       23
<PAGE>
<TABLE>
<CAPTION>
                                APA OPTICS, INC.

                           CONSOLIDATED BALANCE SHEETS

                                    MARCH 31,





            ASSETS                                              2003         2002
                                                            -----------  -----------
<S>                                                         <C>          <C>
CURRENT ASSETS
  Cash and cash equivalents                                 $22,235,686  $31,606,403
  Accounts receivable, net of allowance for
    uncollectible at March 31, 2003 and 2002                    468,576       20,613
  Inventories, net                                            1,398,203       40,075
  Prepaid expenses                                              134,045      103,588
  Bond reserve fund                                              75,000       70,000
                                                            -----------  -----------

       Total current assets                                  24,311,510   31,840,679


PROPERTY, PLANT AND EQUIPMENT, net                            3,989,344    3,748,004


OTHER ASSETS
  Bond reserve funds                                            340,629      349,129
  Bond placement costs, net of accumulated amortization
    of $300,000 and $252,000 at March 31, 2003 and 2002          20,013       68,013
  Patents, net of accumulated amortization of $516,657
    and $347,998 at March 31, 2003 and 2002                     85,362      169,890
  Goodwill                                                    2,500,296            -
  Other                                                         586,542      220,695
                                                            -----------  -----------
                                                              3,532,842      807,727
                                                            -----------  -----------

                                                            $31,833,696  $36,396,410
                                                            ===========  ===========
</TABLE>


The accompanying notes are an integral part of these financial statements.


<PAGE>
<TABLE>
<CAPTION>
        LIABILITIES AND
          SHAREHOLDERS' EQUITY                                2003           2002
                                                         -------------  -------------
<S>                                                      <C>            <C>
CURRENT LIABILITIES
  Current maturities of long-term debt                   $  1,846,922   $  1,996,345
  Accounts payable                                            454,804        127,926
  Accrued expenses                                            286,267        302,204
                                                         -------------  -------------

        Total current liabilities                           2,587,993      2,426,475

LONG-TERM DEBT, net of current maturities                     326,760        465,018

COMMITMENTS AND CONTINGENCIES                                       -              -

SHAREHOLDERS' EQUITY
  Undesignated shares, 4,999,500 authorized shares;
    no shares issued and outstanding                                -              -
  Preferred stock, $.01 par value; 500 authorized shares;
    no shares issued and outstanding                                -              -
  Common stock, $.01 par value; 50,000,000
    authorized shares; 11,872,331 and 11,875,881 shares
    issued and outstanding at March 31, 2003 and 2002         118,723        118,759
  Additional paid-in capital                               52,001,681     51,578,185
  Accumulated deficit                                     (23,201,461)   (18,192,027)
                                                         -------------  -------------
                                                           28,918,943     33,504,917
                                                         -------------  -------------

                                                         $ 31,833,696   $ 36,396,410
                                                         =============  =============
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                 APA  OPTICS,  INC.

                        CONSOLIDATED STATEMENTS OF OPERATIONS

                                YEARS ENDED MARCH 31,


                                                 2003          2002          2001
                                             ------------  ------------  ------------
<S>                                          <C>           <C>           <C>
Revenues                                     $   436,157   $   595,955   $   885,740

Costs and expenses
 Cost of sales                                 2,802,597     3,545,519     2,663,192
 Research and development                      1,212,219     1,114,051     1,175,564
 Selling, general and administrative           1,750,807     1,733,846     1,866,766
                                             ------------  ------------  ------------
                                               5,765,623     6,393,416     5,705,522
                                             ------------  ------------  ------------

 Loss from operations                         (5,329,466)   (5,797,461)   (4,819,782)

Interest income                                  436,925     1,193,525     2,002,713
Interest expense                                (115,893)     (132,263)     (135,323)
                                             ------------  ------------  ------------
                                                 321,032     1,061,262     1,867,390
                                             ------------  ------------  ------------

 Loss before income taxes                     (5,008,434)   (4,736,199)   (2,952,392)

Income taxes                                       1,000         2,000         1,000
                                             ------------  ------------  ------------

 Net loss                                     (5,009,434)   (4,738,199)   (2,953,392)

Preferred stock dividend                               -             -       (33,054)
Excess of preferred stock redemption over
  carrying value                                       -             -      (275,000)
                                             ------------  ------------  ------------


 Net loss applicable to common shareholders  $(5,009,434)  $(4,738,199)  $(3,261,446)
                                             ============  ============  ============

Net loss per share
 Basic and diluted                           $     (0.42)  $     (0.40)  $     (0.26)
                                             ============  ============  ============

Net loss per share attributable to common
  shareholders
 Basic and diluted                           $     (0.42)  $     (0.40)  $     (0.29)
                                             ============  ============  ============

Weighted average shares outstanding
 Basic and diluted                            11,873,914    11,896,976    11,180,615
                                             ============  ============  ============

</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                       APA OPTICS, INC.

                                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                                                     YEARS ENDED MARCH 31,


                                    Preferred stock        Common stock        Additional                     Total
                                   -----------------  ----------------------    paid-in      Accumulated   shareholders'
                                   SHARES    AMOUNT     SHARES      AMOUNT      capital        deficit        equity
                                                                              ------------  -------------  ------------
<S>                                <C>      <C>       <C>          <C>        <C>           <C>            <C>
Balance at March 31, 2000             500   $     5    8,997,992   $ 89,980   $16,408,446   $(10,192,382)  $ 6,306,049
  Issuance of common stock              -         -    2,845,868     28,459    39,528,845              -    39,557,304
  Warrants exercised                    -         -       64,646        646       252,584              -       253,230
  Redemption of preferred stock      (500)       (5)           -          -    (4,724,995)      (308,054)   (5,033,054)
  Warrants issued in lieu of debt
    service payments                    -         -            -          -        51,172              -        51,172
  Options exercised                     -         -        6,950         70        32,080              -        32,150
  Options issued as compensation        -         -            -          -        66,840              -        66,840
  Net loss                              -         -            -          -             -     (2,953,392)   (2,953,392)
                                   -------  --------  -----------  ---------  ------------  -------------  ------------
Balance at March 31, 2001               -         -   11,915,456    119,155    51,614,972    (13,453,828)   38,280,299
  Options exercised                     -         -        5,125         51        25,245              -        25,296
  Common stock repurchased              -         -      (43,200)      (432)      (92,206)             -       (92,638)
  Options issued as compensation        -         -            -          -        45,414              -        45,414
  Other                                 -         -       (1,500)       (15)      (15,240)             -       (15,255)
  Net loss                              -         -            -          -             -     (4,738,199)   (4,738,199)
                                   -------  --------  -----------  ---------  ------------  -------------  ------------
Balance at March 31, 2002               -         -   11,875,881    118,759    51,578,185    (18,192,027)   33,504,917
  Common stock repurchased              -         -       (3,550)       (36)       (5,955)             -        (5,991)
Aberdeen land grant                                                                67,760                       67,760
  Options issued as compensation        -         -            -          -        (9,309)             -        (9,309)
  Warrants issued                       -         -            -          -       371,000              -       371,000
  Net loss                              -         -            -          -             -     (5,009,434)   (5,009,434)
                                   -------  --------  -----------  ---------  ------------  -------------  ------------
Balance at March 31, 2003               -   $     -   11,872,331   $118,723   $52,001,681   $(23,201,461)  $28,918,943
</TABLE>

The accompanying notes are an integral part of these financial statements.


<PAGE>
<TABLE>
<CAPTION>
                                             APA OPTICS, INC.

                                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                          YEARS ENDED MARCH 31,


                                                          2003          2002          2001
                                                      ------------  ------------  -------------
<S>                                                   <C>           <C>           <C>
Cash flows from operating activities:
  Net loss                                            $(5,009,434)  $(4,738,199)  $ (2,953,392)
  Adjustments to reconcile net loss to net cash used
    in operating activities, net of acquisition:
  Depreciation and amortization                           810,505       654,460        424,022
      Deferred compensation expense                        (9,309)       45,414         66,840
      Changes in operating assets and liabilities,
      net of acquisition:
        Accounts receivable                               (63,392)      350,246       (161,522)
        Inventories                                      (130,889)      375,241       (138,791)
        Prepaid expenses and other assets                 (30,457)      (73,524)       (10,261)
        Accounts payable and accrued expenses            (226,178)     (367,191)       542,237
                                                      ------------  ------------  -------------
          Net cash used in operating activities        (4,659,154)   (3,753,553)    (2,230,867)
Cash flows from investing activities:
  Purchases of property and equipment                    (359,474)   (1,050,274)    (1,128,453)
  Purchases of short-term investments                           -             -    (15,759,000)
  Sale of short-term investments                                -    15,759,000              -
  Cash paid for business acquisition                   (3,828,000)            -              -
  Acquisition of patents                                  (84,131)     (113,698)      (108,192)
                                                      ------------  ------------  -------------
Cash paid for business acquisition                     (3,828,000)            -              -
                                                      ------------  ------------  -------------
          Net cash provided by (used in) investing
            activities                                 (4,271,605)   14,595,028    (16,995,645)
Cash flows from financing activities:
  Payments for redemption of preferred stock                    -             -     (5,033,054)
  Proceeds from sales of common stock                           -             -     39,557,304
  Repurchase of common stock                               (5,991)      (92,638)             -
  Proceeds from exercise of warrants and options                -        10,041        285,380
  Payment of long-term debt                              (437,467)     (375,468)      (161,255)
  Bond reserve funds                                        3,500        (2,499)      (138,277)
                                                      ------------  ------------  -------------
          Net cash provided by (used in) financing
            activities                                   (439,958)     (460,564)    34,510,098
                                                      ------------  ------------  -------------
Increase (decrease) in cash and cash equivalents       (9,370,717)   10,380,911     15,283,586
Cash and cash equivalents at beginning of year         31,606,403    21,225,492      5,941,906
                                                      ------------  ------------  -------------
Cash and cash equivalents at end of year              $22,235,686   $31,606,403   $ 21,225,492
                                                      ============  ============  =============
Supplemental cash flow information:
  Cash paid during the year for:
    Interest                                          $   115,893   $   132,263   $    135,323
    Income taxes                                            1,000         2,000          1,000
Noncash investing and financing transactions:
 Warrants issued in lieu of debt service payments               -             -         51,172
                                                      ============  ============  =============
    Contributed land                                  $    67,760             -              -
                                                      ============  ============  =============
    Issuance of warrants                                  371,000             -              -
                                                      ============  ============  =============
</TABLE>


<PAGE>
                                APA OPTICS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2003, 2002 AND 2001


NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

     Nature  of  Business
     --------------------

     APA Optics, Inc. (the Company) manufactures and markets dense wavelength
     division multiplexer (DWDM) optical components, offers a range of gallium
     nitride-based devices, and manufacturers custom optics products.

     The Company owns 100% of the stock of APA Cables and Networks, Inc.
     (APACN). APACN is a manufacturer of custom cable assemblies and supplier of
     premise cabling components and networking products to customers throughout
     the United States with a concentration in Minnesota.

     Principles  of  Consolidation
     -----------------------------

     The consolidated financial statements include the accounts of APA Optics,
     Inc. and its wholly-owned subsidiary, APA Cables and Networks, Inc.
     ("APACN") All significant inter-company accounts and transactions have been
     eliminated in consolidation.

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

     Revenue is recognized when the product has been shipped and accepted by the
     customer and collection is probable.

     Cash  and  Cash  Equivalents
     ----------------------------

     The Company considers all highly liquid investments with original
     maturities of three months or less to be cash equivalents. Investments
     classified as cash equivalents at March 31, 2003 and 2002 consist entirely
     of short-term money market accounts. Cash equivalents are stated at cost,
     which approximates fair value.

     Accounts  Receivable
     --------------------

     The Company grants credit to customers in the normal course of business,
     but generally does not require collateral or any other security to support
     amounts due. Management performs on-going credit evaluation of customers.
     The Company maintains allowances for potential credit losses when needed
     and, when realized, have been within management's expectation.


<PAGE>
NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  -  CONTINUED

     Inventories
     -----------

     Inventories are stated at the lower of cost or market. Cost is determined
     using the first-in, first-out (FIFO) method for raw material, actual cost
     for direct labor, and average cost for factory overhead in work-in-process.

     Property,  Plant  and  Equipment
     --------------------------------

     Property, plant and equipment are stated at cost, less accumulated
     depreciation and amortization. Depreciation and amortization are provided
     on the straight-line method over the following estimated useful lives of
     the assets:

                                                                     Years
                                                                     ------

               Building                                                20
               Equipment                                             3 - 10
               Leasehold improvements                                7 - 10


     Bond  Placement  Costs
     ----------------------

     Bond placement costs relate to the issuance of bonds and are amortized over
     the life of the related bonds, or five to eight years.

     Patents
     -------

     Costs of obtaining and successfully defending patents are capitalized and
     amortized over three to five years.

     Goodwill
     --------

     Goodwill represents the excess of the purchase price over net assets
     acquired. In accordance with the adoption of Statement of Financial
     Accounting Standards (SFAS) No. 142, Goodwill and Intangible Assets,
     effective April 1, 2002, the Company reviewed the goodwill recorded during
     its acquisition (see Note B) and determined it to have an indefinite life.
     Accordingly, the Company did not record any amortization during fiscal
     2003.


                                        1
<PAGE>
NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  -  CONTINUED


     Stock-Based Compensation
     -------------------------

     The Company has various incentive and non-qualified stock option plans
     which are used as an incentive for directors, officers, and other
     employees, as described more fully in Note J. The Company uses the
     intrinsic value method to value stock options issued to employees, and the
     Company accounts for those plans under the recognition and measurement
     principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,
     and related Interpretations. 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 of an option. The Company
     recognized compensation expense (income) of $(9,309), $45,414 and $66,840
     for the years ended March 31, 2003, 2002 and 2001. For those stock options
     granted where the exercise price was equal to the market value of the
     underlying common stock on the date of grant, no stock-based employee
     compensation cost is reflected in the net loss. Had the fair value method
     been applied, our compensation expense would have been different. The
     following table illustrates the effect on net loss and net loss per share
     if the Company had applied the fair value recognition provisions of SFAS
     No. 123, Accounting for Stock-Based Compensation, to stock-based employee
     compensation for the following fiscal years:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------
                                                   March 31,    March 31,    March 31,
     -------------------------------------------  -----------  -----------  -----------
                                                     2003         2002         2001
     -------------------------------------------  -----------  -----------  -----------
<S>                                               <C>          <C>          <C>
     -------------------------------------------  -----------  -----------  -----------
     Net loss to common shareholders - as
     reported                                     $5,009,434   $4,738,199   $3,261,446
     -------------------------------------------  -----------  -----------  -----------
     Less: Total stock-based employee
     compensation expense determined under fair
     value based method for all awards, net of
     related tax effects                             153,266      273,516      339,852
     -------------------------------------------  -----------  -----------  -----------
     Net loss - pro forma                         $5,162,700   $5,011,715   $3,601,298
     -------------------------------------------  -----------  -----------  -----------

     -------------------------------------------  -----------  -----------  -----------
     Basic and diluted net loss per common share
     - as reported                                $     (.42)  $     (.40)  $     (.29)
     -------------------------------------------  -----------  -----------  -----------

     -------------------------------------------  -----------  -----------  -----------
     Basic and diluted net loss per common share
     - pro forma                                  $     (.43)  $     (.42)  $     (.32)
     -------------------------------------------  -----------  -----------  -----------
</TABLE>


     The weighted average fair value of options granted in 2003, 2002 and 2001
     was $1.20, $9.30, and $11.30. The fair value of each option grant is
     estimated on the date of grant using the Black-Scholes option pricing model
     with the following weighted average assumptions used for grants in 2003,
     2002 and 2001; zero dividend yield, risk-free interest rate of 3.2%, 4.5%
     and 6.0%; volatility of 77%, 132% and 93%, and a weighted-average expected
     term of the options of five years.


                                        2
<PAGE>
NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  -  CONTINUED

     Fair  Value  of  Financial  Instruments
     ---------------------------------------

     Due to their short-term nature, the carrying value of current financial
     assets and liabilities approximates their fair values. The fair value of
     long-term obligations, if recalculated based on current interest rates,
     would not significantly differ from the recorded amounts.

     Net  Loss  Per  Share
     ---------------------

     Basic net loss per share is computed by dividing net loss per common
     shareholder by the weighted average number of common shares outstanding.
     Diluted net loss per share is computed by dividing net loss by the weighted
     average number of common shares outstanding and common share equivalents
     related to stock options and warrants, when dilutive.

     Common stock options and warrants to purchase 999,197, 655,872 and 715,372
     shares of common stock with a weighted average exercise price of $6.50,
     $10.15 and $9.44 were outstanding during the years ended March 31, 2003,
     2002 and 2001, but were excluded because they were antidilutive.

     Use  of  Estimates
     ------------------

     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that affect the reported
     amounts of assets and liabilities, related revenues and expenses and
     disclosure about contingent assets and liabilities at the date of the
     financial statements. Actual results may differ from those estimates used
     by management.

     Newly Adopted Accounting Standards
     -------------------------------------

     On April 1, 2002, the Company adopted SFAS No. 141, Business Combinations
     and SFAS No. 142, Goodwill and Intangible Assets. As a result of the
     adoption of SFAS No. 142, the Company will not amortize its goodwill. The
     Company reviewed goodwill for impairment in accordance with SFAS No. 142
     and no impairment was identified. As of March 31, 2003, the Company has
     goodwill of $2,500,296. The adoption of SFAS No. 141 and SFAS No. 142 did
     not have a material effect on the Company's consolidated financial
     statements or reporting of financial information.

     In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS
     No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
     SFAS No. 146 addresses accounting and processing for costs associated with
     exit or disposal activities. SFAS No. 146 requires the recognition of a
     liability for a cost associated with an exit or disposal activity when the
     liability is incurred versus the date a company commits to an exit plan. In
     addition, SFAS No. 146 states the liability should be initially measured at
     fair value. The requirements of SFAS No. 146 are effective for exit or
     disposal activities that are initiated after December 31, 2002. The Company
     believes the adoption of SFAS No. 146 will not have a material effect on
     theconsolidated financial position or results of operations.


                                        3
<PAGE>
NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  -  CONTINUED

     In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
     Guarantor's Accounting and Disclosure Requirements for Guarantees,
     Including Indirect Guarantees of Indebtedness of Others. FIN 45 addresses
     the disclosure requirements of a guarantor in its interim and annual
     financial statements about its obligations under certain guarantees that it
     has issued. FIN 45 also requires a guarantor to recognize, at the inception
     of a guarantee, a liability for the fair value of the obligation undertaken
     in issuing the guarantee. The disclosure requirements of FIN 45 are
     effective for the Company for the year ended March 31, 2003. The liability
     recognition requirements will be applicable prospectively to all guarantees
     issued or modified after December 31, 2002. This pronouncement is not
     anticipated to have a material effect on the Company's consolidated
     financial position or results of operations.

     In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based
     Compensation-Transition and Disclosure. SFAS No. 148 amends the disclosure
     and certain transition provisions of SFAS No. 123, Accounting for
     Stock-Based Compensation. Its disclosure provisions, which apply to all
     entities with employee stock-based compensation, are effective for fiscal
     years ending after December 15, 2002. New interim period disclosures are
     also required in financial statements for interim periods beginning after
     December 15, 2002. Other than the additional disclosure requirements, this
     pronouncement is not anticipated to have a material effect on the Company's
     consolidated financial position or results of operations.

     In January 2003, the FASB issued FIN No. 46 (FIN 46), Consolidation of
     Variable Interest Entities. FIN 46 is an interpretation of Accounting
     Research Bulletin No. 51, Consolidated Financial Statements, and addresses
     consolidation of business enterprises of variable interest entities. FIN 46
     applies immediately to variable interest entities created or obtained after
     January 31, 2003 and it applies in the first fiscal year or interim period
     beginning after June 15, 2003, to variable interest entities in which an
     enterprise holds a variable interest that it acquired before February 1,
     2003. This pronouncement is not anticipated to have a material effect on
     the Company's consolidated financial position or results of operations

     On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
     2002 (the "Act"), which immediately impacts Securities and Exchange
     Commission registrants, public accounting firms, lawyers and securities
     analysts. This legislation is the most comprehensive since the passage of
     the Securities Act of 1933 and Securities Exchange Act of 1934. It has far
     reaching effects on the standards of integrity for corporate management,
     board of directors, and executive management. Additional disclosures,
     certifications and procedures will be required of the Company. The Company
     does not expect any material adverse effect as a result of the passage of
     this legislation; however, the full scope of the Act has not yet been
     determined.


NOTE  B  -  ACQUISITION


     On March 14, 2003, the Company acquired certain assets and assumed certain
     liabilities of Computer System Products, 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. The impact on operations was not material. There are
     no contingent payments related to the acquisition. This acquisition
     diversifies the Company's product offerings, expands its opportunities for
     cross-selling other products to former CSP customers and enables it to
     offer a more complete technology solution to all its customers.


                                        4
<PAGE>
NOTE  B  -  ACQUISITION-  CONTINUED

The purchase price, assets acquired and liabilities assumed are as follows:

     ---------------------------------------------------------  -----------
     Accounts receivable                                         $  384,571
     ---------------------------------------------------------  -----------
     Inventory                                                    1,227,239
     ---------------------------------------------------------  -----------
     Property, plant and equipment                                  402,799
     ---------------------------------------------------------  -----------
             Assets purchased                                     2,014,609
     ---------------------------------------------------------  -----------
     Trade accounts payable                                         239,187
     ---------------------------------------------------------  -----------
     Capitalized leases                                             149,786
     ---------------------------------------------------------  -----------
     Vendor restructuring payable                                   263,818
     ---------------------------------------------------------  -----------
     Accrued expenses                                                34,114
     ---------------------------------------------------------  -----------
             Less: Liabilities assumed                              686,905
     ---------------------------------------------------------  -----------
     Net Assets                                                   1,327,704
     ---------------------------------------------------------  -----------
     Goodwill                                                     2,500,296
     ---------------------------------------------------------  -----------
             Purchase price                                      $3,828,000
     ---------------------------------------------------------  -----------


NOTE  C  -  INVENTORIES

Inventories  consist  of  the  following  at  March  31:

                                                              2003      2002
                                                          ----------  -------

     Raw materials                                          $702,233  $21,448
     Work-in-process                                         155,138   18,627
     Finished goods                                          540,832        -
                                                          ----------  -------

                                                           1,398,203 $ 40,075
                                                          ==========  =======



NOTE  D  -  PROPERTY,  PLANT  AND  EQUIPMENT

     Property,  plant  and  equipment  consist  of  the  following  at March 31:

                                                         2003        2002
                                                      ----------  ----------

     Land                                             $  127,760  $   60,000
     Buildings                                         1,679,424   1,679,424
     Manufacturing equipment                           5,251,458   4,690,130
     Tools                                               461,408     423,748
     Office equipment                                    543,407     477,694
     Leasehold improvements                            1,065,645     968,073
                                                      ----------  ----------
                                                       9,129,102   8,299,069
     Less accumulated depreciation and amortization    5,139,758   4,551,065
                                                      ----------  ----------

                                                       3,989,344  $3,748,004
                                                      ==========  ==========


                                        5
<PAGE>

NOTE  E  -  LONG-TERM  DEBT

     The  following  is  a  summary  of  the  outstanding  debt  at  March  31:

<TABLE>
<CAPTION>
                                                                     2003        2002
                                                                 -----------  -----------
<S>                                                              <C>          <C>

     South Dakota Governor's Office of Economic Development
     and the Aberdeen Development Corporation Bond, 5% to 6.75%
     due in various installments through 2016                    $ 1,560,000  $ 1,630,000

     Low interest economic development loans, 0% to 3%,
     due in various installments through 2016                        246,944      264,583

     Forgivable economic development loans, 3%, due in
     various installments through 2003                               216,951      566,780

     Other                                                           149,787            -
                                                                 -----------  -----------
                                                                   2,173,682    2,461,363
     Less current maturities                                       1,846,922    1,996,345
                                                                 -----------  -----------

                                                                 $   326,760  $   465,018
                                                                 ===========  ===========
</TABLE>


     The forgivable loans are contingent upon employment levels at the facility
     meeting preset criteria. As partial consideration for any loans forgiven,
     the Company will grant warrants to purchase common stock of the Company
     based on the number of job credits earned by the Company in the preceding
     12 months divided by the exercise price. The exercise price of the warrants
     was set at $4.00 for year one of the debt and the yearly grant exercise
     price increases one dollar each year until the debt matures in fiscal 2003.
     No loans were forgiven and no new warrants were issued in fiscal year 2003.
     As of March 31, 2003, 36,511 warrants have been issued for loans forgiven
     totaling $187,289.

     At March 31, 2003 and 2002, the Company had on deposit with trustees
     $415,629 and $419,129 in reserve funds for current bond maturities, of
     which $75,000 and $70,000 are held in escrow. These funds are included in
     bond reserve funds in the accompanying balance sheets. The loan agreement
     requires the Company to maintain compliance with certain covenants. The
     Company was out of compliance with certain of these covenants in fiscal
     2003. All debt, except for the long-term portion of the low interest loans,
     the forgivable loans, and the capital lease obligations, to which the
     covenant violation does not apply, has been classified as current due to
     the Company's covenant violation.

     As part of the Company's plan to construct their production facility, the
     city of Aberdeen, South Dakota gave the Company land, contingent upon the
     Company staying in the new building through June 23, 2002. The Company
     satisfied this requirement in fiscal 2003 and recorded the contributed land
     with an assessed value of $67,760 on the books as of March 31, 2003.

     All of the above debt is secured by land, buildings, and certain equipment
     of the Company.


                                        6
<PAGE>
NOTE  E  -  LONG-TERM  DEBT  -  CONTINUED

     Scheduled maturities of the Company's long-term debt are as follows:



               Years ending March 31,
                       2004                                   $1,846,922
                       2005                                       61,258
                       2006                                       63,675
                       2007                                       25,439
                       2008                                       17,639
                    Thereafter                                   158,749
                                                              ----------
                                                              $2,173,682
                                                              ==========


NOTE  F  -  EMPLOYEE  BENEFIT  PLAN


     The Company maintains a contributory 401(k) profit sharing benefit plan
     covering all employees. During fiscal year 2001, the Company started
     matching 50% of employee contributions up to 6% of a participant's
     compensation. The Company's contributions under this plan were
     $51,000,$53,000, and $34,000 for the years ended March 31, 2003, 2002 and
     2001.


NOTE  G  -  INCOME  TAXES


     As of March 31, 2002, the Company has net operating loss carryforwards for
     federal income tax purposes of approximately $22,265,000 which expire in
     fiscal years 2004 through 2023.

     Deferred income taxes resulting from differences in accounting for items
     between financial statements and increase tax returns, along with net
     operating loss carryforwards, have been fully reserved. Significant
     components of the Company's deferred taxes at March 31 are as follows:


     Income tax expense consists entirely of state taxes in 2003, 2002 and 2001.


NOTE  H  -  SHAREHOLDERS'  EQUITY


     The Board of Directors may, by resolution, establish from the undesignated
     shares different classes or series of shares and may fix the relative
     rights and preferences of shares in any class or series.

     In fiscal year 2003, the Board of Directors authorized the repurchase of up
     to the greater of $2,000,000 or 500,000 shares of common stock. As of March
     31, 2003 and 2002, a total of 46,750 and 43,200 shares for $98,629 and
     $92,638 at an average price of $2.11 and $2.14 per share, respectively, had
     been repurchased.


                                        7
<PAGE>
NOTE H - SHAREHOLDERS' EQUITY - CONTINUED


     In fiscal year 2001, the Company redeemed all 500 shares of its preferred
     stock in exchange for a $5,033,054 cash payment. Also, the Company sold
     2,845,868 shares of its common stock in a registered offering, resulting in
     net proceeds of $39,557,304. The proceeds were used to fund operations.


NOTE  I  -  SHAREHOLDER  RIGHTS  PLAN


     Pursuant to the Shareholder Rights Plan adopted by the Company in 2001,
     each share of common stock has attached to it a right, and each share of
     common stock issued in the future will have a right attached until the
     rights expire or are redeemed. Upon the occurrence of certain change in
     control events, each right entitles the holder to purchase one
     one-hundredth of a share of Series B Junior Preferred Participating Share,
     at an exercise price of $80 per share, subject to adjustment. The rights
     expire on November 10, 2010 and may be redeemed by the Company at a price
     of $.001 per right prior to the time they become exercisable.


NOTE  J  -  STOCK  OPTIONS  AND  WARRANTS


     Stock  Options
     --------------

     The Company has various incentive and non-qualified stock option plans
     which are used as an incentive for directors, officers, and other
     employees. Options are generally granted at fair market values determined
     on the date of grant and vesting normally occurs over a six-year period.
     The plans had 1,065,888 shares of common stock available for issue at March
     31, 2003.


                                        8
<PAGE>
NOTE  J  -  STOCK  OPTIONS  AND  WARRANTS  -  CONTINUED

     Option transactions under these plans during the three years ended March
     31, 2003 are summarized as follows:



                                                        Weighted average
                                    Number  of shares    exercise price
                                    ------------------  -----------------

     Outstanding at March 31, 2000            292,500   $            4.49
       Granted                                160,000               10.06
       Canceled                               (48,375)               4.12
       Exercised                               (6,950)               4.64
                                    ------------------
     Outstanding at March 31, 2001            397,175                6.81
       Granted                                 90,000               10.33
       Canceled                              (112,500)               7.79
       Exercised                               (5,125)               4.94
                                    ------------------
     Outstanding at March 31, 2002            369,550                7.40
       Granted                                167,500                1.88
       Canceled                              (128,675)               8.16
                                    ------------------  -----------------
     Outstanding at March 31, 2003            408,375                4.27
                                    ==================



     The number of shares exercisable at March 31, 2003, 2002 and 2001 was
     165,325, 108,674 and 191,898, respectively, at a weighted average exercise
     price of $5.42, $4.68 and $5.77 per share, respectively.

     The following table summarizes information concerning currently outstanding
     and exercisable stock options at March 31, 2003:



                     OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
                   ------------------------             ----------------------
                                 Weighted
                                  average    Weighted                 Weighted
     Range of                    remaining    Average                 Average
     exercise        Number     contractual  exercise     Number      exercise
     prices        outstanding     life        price    outstanding    price
     ------------  -----------  -----------  ---------  -----------  ---------

     1.48-$2.00       137,500   4.50 years  $    1.86        3,700  $    1.98
     3.77-5.53         176,375   1.64 years       4.34      125,875       4.26
     5.73-7.22          35,000   3.06 years       6.71       19,875       6.70
     8.50-11.90         29,500   3.44 years       9.29        6,125      11.10
     14.00-17.15        30,000   2.32 years      15.58        9,750      15.58
                   -----------                          -----------
                       408,375   2.90 years       4.27      165,325  $    5.42
                   ===========                          ===========


     The Company's 2003, 2002 and 2001 pro forma net loss and net loss per share
     would have been $(5,162,700), $(5,011,715) and $(3,601,298) or $(0.43),
     $(0.42) and $(0.32) loss per share had the fair value method been used for
     valuing options granted during 2003, 2002 and 2001. These effects may not
     be representative of the future effects of applying the fair value method.


                                        9
<PAGE>
NOTE  J  -  STOCK  OPTIONS  AND  WARRANTS  -  CONTINUED

Stock  Warrants
---------------

     The following is a table of the warrants to purchase shares of the
     Company's common stock:

                                  Warrants    Exercise price   Expiration
                                outstanding      per share        date
                                ------------  ---------------  -----------

     Balance at March 31, 2000      204,858   $ 3.75 - $49.47    2000-2005
       Issued                       177,985      7.00 - 17.84    2005-2006
       Exercised                    (64,646)      3.75 - 5.00    2000-2004
     Balance at March 31, 2001      318,197      4.00 - 17.84  2002 - 2006
       Expired                      (31,875)             4.00         2002
                                ------------
     Balance at March 31, 2002      286,322      4.79 - 17.84  2002 - 2006
       Issued                       350,000              3.00         2008
       Expired                      (45,500)      3.75 - 5.00         2002
                                ------------
     Balance at March 31, 2003      590,822      3.00 - 17.84  2003 - 2008
                                ============


All warrants are exercisable upon date of grant.


     In fiscal year 2003, warrants totaling 350,000 at a value of $371,000 were
     issued in connection with the acquisition of the assets of Computer System
     Products, Inc. These warrants were valued by an independent firm and are
     exercisable at $3.00.

     In fiscal year 2001, warrants totaling 84,084 at a value of $1,500,059 were
     issued in connection with the issuance of common stock as a cost of
     financing. These warrants were valued based upon the Company's stock price
     at the time of the transaction. An additional 7,310 warrants were issued in
     fiscal year 2001 related to the forgiveness of debt (see note E).

     Additionally, in fiscal year 2001, 57,500 warrants were repriced at $14.72
     per share. In connection with the repricing, these individuals were issued
     86,591 additional warrants also at $14.72. The price of the warrants was
     based upon the value of the Company's stock price on the day of the
     transaction.


NOTE  K  -  COMMITMENTS

     The Company leases office and manufacturing facilities from a partnership
     whose two partners are major shareholders and officers of the Company. The
     lease agreement, classified as an operating lease, expires November 30,
     2004 and provides for periodic increase of the rental rate based on
     increases in the consumer price index.

     The Company leases certain equipment under capital lease arrangements with
     interest ranging from 0% to 10.62% and terms through July 2006. The
     equipment has a net book value of $157,029 at March 31, 2003.


                                       10
<PAGE>
NOTE  K  -  COMMITMENTS  -  CONTINUED

     The Company also leases warehouse space on month-to-month terms with 30
     days written notice from either party needed to terminate the lease. The
     leases require payment of all operating expenses and real estate taxes over
     the life of the lease.

     The following is a schedule of approximate minimum payments required under
     the capital and operating leases:


                                                         Capital    Operating
          Year ending March 31                            leases     leases
          --------------------                          ----------  --------

                 2004                                   $   64,613  $162,291
                 2005                                       51,668   108,280
                 2006                                       49,321    29,429
                 2007                                        7,963       294
                                                        ----------  --------

     Total minimum lease payments                          173,565  $300,294
                                                                    ========
     Less: Amounts representing interest                    23,778
                                                        ----------

     Present value of future minimum lease
        payments                                           149,787

     Less: Current portion                                  52,332
                                                        ----------

     Capital lease obligations, net of current portion     $97,455
                                                        ==========

     Rental expense was $149,000, $138,000 and $135,000 for the years ended
     March 31, 2003, 2002 and 2001, of which $139,000, $138,000 and $135,000 was
     paid to the partnership, respectively.

NOTE  L  -  CONCENTRATIONS

     Major  Customers
     ----------------

     Two major customers accounted for 21% and 15% of the Company's sales for
     the year ended March 31, 2003. Three major customers accounted for 28%, 23%
     and 14% of the Company's sales for the year ended March 31, 2002. Three
     different customers accounted for 19%, 16% and 15% of the Company's sales
     for the year ended March 31, 2001. These customers also accounted for
     approximately 6% and 52% of the outstanding trade receivable balance at
     March 31, 2003 and 2002.

     Suppliers
     ---------

     Although the Company buys specific components from a limited number of
     suppliers, management believes that other suppliers could provide a similar
     component on comparable terms. A change in suppliers, however, could cause
     a delay in manufacturing and a possible loss of sales, which would affect
     short-term operating results adversely. There were no suppliers that
     provided more than 10% of the Company's total purchases in the years ended
     March 31, 2003, 2002 or 2001.


                                       11
<PAGE>
NOTE  M  -  SUBSEQUENT  EVENT  (UNAUDITED)

     The Company announced that its subsidiary APACN completed an acquisition of
     assets from Americable, Inc. (Bloomington, MN) on June 27, 2003.

     The assets will be integrated with assets acquired by APACN in March 2003
     from Computer System Products, Inc. APACN manufactures standard and custom
     copper and fiber cable assemblies for service providers and original
     equipment manufacturers.


                                       12
<PAGE>
<TABLE>
<CAPTION>
                                              EXHIBIT INDEX

=============================================================================================================
                                                                             PAGE NUMBER OR INCORPORATED
    NUMBER      DESCRIPTION                                                        BY REFERENCE TO
-------------------------------------------------------------------------------------------------------------
<S>             <C>                                                      <C>
           3.1  Restated Articles of Incorporation, as amended to date   Exhibit 3.1 to Registrant's Report
                                                                         on Form 10-Q for the quarter
                                                                         ended September 30, 2000

           3.2  Bylaws, as amended and restated to date                  Exhibit 3.2 to Registrant's Report
                                                                         on Form 10-KSB for the fiscal
                                                                         year ended March 31, 1999

        4.1(a)  State of South Dakota Board of Economic                  Exhibit 4.1(a) to the Report on 10-
                Development $300,000 Promissory Note, REDI Loan:         QSB for the quarter ended June
                95-13-A                                                  30, 1996 (the "June 1996 10-
                                                                         QSB")

        4.1(b)  State of South Dakota Board of Economic                  Exhibit 4.1(b) to the June 1996 10-
                Development Security Agreement REDI Loan No: 95-         QSB
                13-A dated May 28, 1996

        4.2(a)  700,000 Loan Agreement dated June 24, 1996 by            Exhibit 4.2(a) to the June 1996 10-
                and between Aberdeen Development Corporation and         QSB
                APA Optics, Inc.

        4.2(b)  300,000 Loan Agreement dated June 24, 1996               Exhibit 4.2(b) to the June 1996 10-
                between Aberdeen Development Corporation and             QSB
                APA Optics, Inc.

        4.2(c)  250,000 Loan Agreement dated June 24, 1996 by            Exhibit 4.2(c) to the June 1996 10-
                and between Aberdeen Development Corporation and         QSB
                APA Optics, Inc.

        4.2(d)  300,000 Loan Agreement dated June 24, 1996 by            Exhibit 4.2(d) to the June 1996 10-
                and between Aberdeen Development Corporation and         QSB
                APA Optics, Inc.

        4.3(a)  Loan Agreement between South Dakota Economic             Exhibit 4.3(a) to the June 1996 10-
                Development Finance and APA Optics, Inc.                 QSB

        4.3(b)  Mortgage and Security Agreement - One Hundred            Exhibit 4.3(b) to the June 1996 10-
                Day Redemption from APA Optics, Inc. to South            QSB
                Dakota Economic Development Finance Authority
                dated as of June 24, 1996

        4.4(a)  Subscription and Investment Representation               Exhibit 4.4(a) to the June 1996 10-
                Agreement of NE Venture, Inc.                            QSB

        4.4(b)  Form of Common Stock Purchase Warrant for NE             Exhibit 4.4(b) to the June 1996 10-
                Venture, Inc.                                            QSB

        4.5(a)  Certificate of Designation for 2% Series A               Exhibit 4.5(a) filed as a part of
                Convertible Preferred Stock                              Registration Statement on Form S-
                                                                         3 (Commission File No. 333-33968)


                                       13
<PAGE>
=============================================================================================================
                                                                             PAGE NUMBER OR INCORPORATED
    NUMBER      DESCRIPTION                                                        BY REFERENCE TO
-------------------------------------------------------------------------------------------------------------

        4.5(b)  Form of common stock warrant issued in connection        Exhibit 4.5(b) filed as a part of
                with 2% Series A Convertible Preferred Stock             Registration Statement on Form S-
                                                                         3 (Commission File No. 333-33968)

           4.6  Common Stock Purchase Warrant issued to                  Exhibit 4.6 to Registrant's Report
                Ladenburg Thalmann & Co. Inc. to purchase 84,083         on Form 10-K for fiscal year
                shares                                                   ended March 31, 2000 ("2000 10-K")

           4.7  Share Rights Agreement dated October 23, 2000 by         Exhibit 1 to the Registration
                and between the Registrant and Wells Fargo Bank          Statement on Form 8-A filed
                Minnesota NA as Rights Agent                             November 8, 2000

       10.1(a)  Sublease Agreement between the Registrant and Jain-      Exhibit 10.1 to the Registration
                Olsen Properties and Sublease Agreement and Option       Statement on Form S-18 filed with
                Agreement between the Registrant and Jain-Olsen          the Chicago Regional Office of the
                Properties                                               Securities and Exchange
                                                                         Commission on June 26, 1986

       10.1(b)  Amendment and Extension of Sublease Agreement            Exhibit 10.1(b) to 2000 10-K
                dated August 31, 1999

      *10.2(a)  Stock Option Plan for Nonemployee Directors              Exhibit 10.3a to Registrant's
                                                                         Report on Form 10-KSB for the
                                                                         fiscal year ended March 31, 1994
                                                                         (the "1994 10-KSB")

      *10.2(b)  Form of option agreement issued under the plan           Exhibit 10.3b to 1994 10-KSB

         *10.3  1997 Stock Compensation Plan                             Exhibit 10.3 to Registrant's Report
                                                                         on Form 10-KSB for the fiscal
                                                                         year ended March 31, 1997

         *10.4  Insurance agreement by and between the Registrant        Exhibit 10.5 to Registrant's Report
                and Anil K. Jain                                         on Form 10-K for the fiscal year
                                                                         ended March 31, 1990

         *10.5  Form of Agreement regarding Repurchase of Stock          Exhibit 10.1 to Registrant's Report
                upon Change in Control Event with Anil K. Jain and       on Form 10-QSB for the quarter
                Kenneth A. Olsen                                         ended September 30, 1997
                                                                         ("September 1997 10-QSB")

         *10.6  Form of Agreement regarding                              Exhibit 10.2 to the September
                Employment/Compensation upon Change in Control           1997 10-QSB
                with Messrs. Jain and Olsen

          10.7  Form of Agreement regarding Indemnification of           Exhibit 10.7 to Registrant's Report
                Directors and Officers with Messrs. Jain, Olsen,         on From 10-K for the fiscal year
                Ringstad, Roth, Von Wald and Zuckerman                   ended March 31, 2002.

            21  List of Subsidiaries

          23.1  Consent of Grant Thornton LLP


                                       14
<PAGE>
=============================================================================================================
                                                                             PAGE NUMBER OR INCORPORATED
    NUMBER      DESCRIPTION                                                        BY REFERENCE TO
-------------------------------------------------------------------------------------------------------------

          23.2  Consent of Ernst & Young LLP

          99.1  Certification of Chief Executive Officer

          99.2  Certification of Chief Financial Officer
</TABLE>


*Indicates management contract or compensation plan or arrangements required to
be filed as an exhibit to this form.


                                       15
<PAGE>