UNITED STATES
                       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,  2004.

[ ]  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                       (I.R.S. Employer
  of incorporation 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).

     [ ]  YES  [X]  NO

     The  aggregate  market  value  of  the voting and non-voting equity held by
non-affiliates  of  the  registrant,  as  of  the  last  business  day  of  the
registrant's most recently completed second fiscal quarter computed by reference
to  the  price  at  which  the  common  equity  was  last sold was approximately
$26,539,734.


                                        1
<PAGE>
     The  number  of  shares of common stock outstanding as of June 29, 2004 was
11,872,331.

                         DOCUMENTS INCORPORATED BY REFERENCE:

     Portions  of  our proxy statement for the annual shareholders meeting to be
held  in  August  2004  are  incorporated  by  reference  into  Part  III.


                                        2
<PAGE>
<TABLE>
<CAPTION>
                                APA OPTICS, INC.
                            ANNUAL REPORT ON FORM 10K
                                TABLE OF CONTENTS



PART I
<S>            <C>
ITEM 1.        BUSINESS
ITEM 2.        PROPERTIES
ITEM 3.        LEGAL PROCEEDINGS
ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II
ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
               STOCKHOLDER MATTERS
ITEM 6.        SELECTED FINANCIAL DATA
ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
               AND RESULTS OF OPERATIONS
ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A.       CONTROLS AND PROCEDURES
ITEM 9B.       OTHER INFORMATION

PART III
ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11.       EXECUTIVE COMPENSATION
ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT
ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14.       PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

SIGNATURES
EXHIBIT INDEX
</TABLE>


                                        3
<PAGE>
                                     PART I

ITEM  1.     BUSINESS.

GENERAL  DEVELOPMENT  OF  BUSINESS.

     APA  Optics,  Inc.  ("APA  Optics,  Inc.  or  the "Company") is a Minnesota
corporation which was founded in 1979.  Our corporate headquarters is located at
2950  N.E. 84th Lane, Blaine, MN and our corporate website is www.apaoptics.com.

     Since the founding of the Company, we have focused on leading edge research
in  gallium  nitride  (GaN), sophisticated optoelectronics, and optical systems,
with the primary goal of developing advanced products for subsequent fabrication
and  marketing.  Based  on  this  research  we  have developed multiple products
including fiber optic components for metro and access communications networks, a
range  of  GaN  based  devices,  and precision optical products. We believe that
gallium  nitride  based  devices  have significant potential markets and we have
developed  specific  expertise  and/or patent positions relevant to them. During
fiscal  year  2004  we  ceased the design and manufacturing of precision optical
components  due  to intense competition from Asian manufacturers primarily based
on  lower  labor  rates.

     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 which could 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 for several applications,
particularly  related  to  long-haul  communications,  which in turn has reduced
demand  for fiber optic components.  We have redirected our efforts to metro and
access  networks  applications,  which  are  most  likely  to see growth.  These
networks  place value on lower cost components, ease of installation, and remote
configurability.  The Company has chosen to avoid costly product development and
capital  expansion  activity  by  teaming  with highly qualified, cost efficient
partners  with  limited market presence.  As a result, we have introduced a line
of  arrayed  waveguide grating (AWG) modules based on planar lightwave circuits,
and  thin  film  filter  (TFF)  WDM  products  for  these  markets.

     Our  wholly  owned  subsidiary,  APA  Cables  and Networks, Inc. ("APACN"),
focuses  on  custom-engineered  products  for  telecommunications  customers,
primarily  related  to  cabling management requirements of the Fiber-to-the-Home
(FTTH)  marketplace.  In  June  2003, APACN  purchased the assets of Americable,
Inc.  These  assets  have been integrated with assets and operations acquired in
March  2003  from  Computer  System  Products,  Inc.  ("CSP").  The  Americable
acquisition  allowed  APACN to add its own brand of fiber distribution equipment
to  its full-line of standard and custom copper and fiber optic cable assemblies
for  broadband service providers and original equipment manufacturers ("OEM's").
The  Americable  acquisition  diversifies  our  product  offerings,  expands our
opportunities  for  cross-selling  our  products  to  former  CSP and Americable
customers, and enables us to offer a more complete technology solution to all of
our  customers.

     APACN streamlined operations during 2004 by consolidating the operations of
the  former  CSP and Americable employees in a single location, resulting in the
elimination  of  duplicate  costs  within the organization and reducing property
rental  by  more  than  50%.


                                        4
<PAGE>
INFORMATION  ABOUT  INDUSTRY  SEGMENTS

     The  Company  divides  its  businesses  into  two  segments:  APA,  which
manufactures  and  markets  advanced products for the fiber optic communications
and  optoelectronic  and  laser  industries;  and  APACN,  which  designs  and
manufactures standard and custom fiber and copper cable assemblies,  fiber optic
distribution  panels  and  other  telecommunications  equipment  for  the
telecommunications  and  enterprise  markets.

     Additional information regarding operations in the segments is set forth in
Note  N  in  the  Notes  to  the  Consolidated Financial Statements under Item 8
herein.

DESCRIPTION  OF  BUSINESS  -  APA

     APA  develops,  manufactures  and  markets  advanced products for the fiber
optic, telecommunications, optoelectronics and laser industries, including Dense
Wavelength  Division  Multiplexers  (DWDM's),  products  for  UV  (ultra violet)
detection,  nitride  epitaxial  layers  and  wide  band-gap  transistors.  These
operations  began  with  the  inception  of  the Company in 1979 and are located
principally  in  our  facilities  in  Blaine,  Minnesota  (which  focuses  upon
fabrication  of epitaxial layers and processing of these layers to build devices
on  wafers)  and  in  our  facility  in  Aberdeen,  South Dakota (which performs
packaging  and  inspection).  Certain  products  are  purchased  from  contract
manufacturers.

Proprietary  Products

Our  current  proprietary  products  are  described  below.

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

-         Passive  Optical  Splitters  (wavelength  independent)  Our  passive
          ------------------------------------------------------
     Optical  splitter  is  used  in  applications in optical access networking,
     including  Fiber-to-the-Premise  and  FTTH.  Newly  adopted  standards  for
     optical  access  networking  have  been  adopted by an increasing number of
     networking  equipment  companies  and telecommunications service providers.
     Network  upgrades  which  push  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
          -------------------------------------------------------------
     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


                                        5
<PAGE>
     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 relationship was formalized
     early  in  fiscal  2004.  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.

          We  have  discontinued  bulk  grating modules due to the significantly
     higher  manufacturing  costs,  as compared to TFF or AWG based modules, and
     intense competition, principally based on low-cost off shore labor. We hold
     three  patents in this field, the earliest of which was issued in September
     1995.

          Our  fiber  optics  product  set continues to include planar lightwave
     circuit  optical  splitters  for  FTTH  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. We market and sell these products mainly
     through  the  sales  channels  of  APACN.

     -    Ultraviolet  (UV)  Detector-Based  Products  We  currently manufacture
          -------------------------------------------
          value-added  products  built around UV detectors fabricated by APA and
          procured  externally.  These  products  are:

         -         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
               maximum exposure time according to government guidelines based on
               skin type and widely-accepted research on UV exposure limits. The
               product  has  been  introduced  and  is being sold through retail
               channels,  catalogs  and  Internet  sites.  We  are  committing
               significant  resources  to the continuing rollout of this product
               line  and,  based  on  consumer  response, may commit significant
               resources  to  expand  our  product  offering  in  this  area.

         -         Industrial  UV  Meters  This  product  family  goes under the
                   ----------------------
               general trade name of TrUVMeterTM. We are currently developing of
               the Profiler M model, which specifically targets printing presses
               using  UV-cured  inks  and  UV  "tunnel"  curing equipment. These
               printing processes are sensitive to the overall exposure provided
               by  UV  sources  (mercury  or its derivative lamps) and therefore
               require  periodic  monitoring. The Profiler M senses the exposure
               using  four detectors and stores, analyzes and displays a limited
               amount  of  data.  The data can later be downloaded to a computer
               for  detailed analysis and charting. We believe that the Profiler
               M,  if  the  development is successful, will be introduced to the
               market  during  fiscal  2005.

          APA's  research  and  development  efforts  are  currently  focused on
     the  products  described  below.


                                        6
<PAGE>
     -     Compound  Semiconductor Electronic Devices  We have been a pioneer in
           ------------------------------------------
          the  research  oftransistors  based  on  GaN/AlGaN  (gallium
          nitride/aluminum  gallium nitride) heterojunctions and are maintaining
          a  research  and  development  capability  in  this  technology  while
          assessing  commercialization  opportunities. We purchased a multiwafer
          (6  wafers,  2  inches  in  diameter)  Metal  Organic  Chemical  Vapor
          Deposition  System  (MOCVD)  during  the  later part of fiscal 2004 to
          enhance  our  capabilities  in  this  technology area. Once this MOCVD
          system is fully operational, it will be sufficient to take care of all
          our  MOCVD  growth  requirements.  In June 2004 we signed a lease with
          Veeco  Compound  Semiconductor,  Inc. ("Veeco"), a large semiconductor
          equipment  manufacturing  company,  to  locate  and  operate our MOCVD
          system  in  its  Process  Integration  Facility  in  White  Bear Lake,
          Minnesota  (which  is  near  APA's Blaine office). Operating the MOCVD
          machine at Veeco's facility will give us central access to significant
          electrical,  optical, and structural characterization tools, currently
          rented  from  various suppliers, that are used to optimize and control
          the  growth  of  our transistors. Once installed, we will initiate our
          MOCVD growth in Veeco's facilities using the new machine while phasing
          out  the  growth  occurring in the Blaine facilities. These steps will
          also  eliminate  expenses  for significant leasehold improvements that
          would have been required to locate the machine in our Blaine facility.
          The  machine  will  be operated by our employees. Our lease with Veeco
          protects  our intellectual property while providing improved access to
          potential  customers and state of the art crystal growth resources. We
          believe that this system will be operational during the second quarter
          of  fiscal  2005.  There  are  significant  markets emerging for these
          materials  and devices with the rapid growth of cellular phone use and
          its  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  and  we are continuing to
          develop  our  intellectual  property  portfolio  in  this  area.  A
          provisional  patent application was converted to a full application in
          November  2003, and an additional provisional application was filed in
          June 2004. 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 capabilities.
          We  worked  with several partners during fiscal 2004 to complement our
          device fabrication capabilities and we are continuing discussions with
          several  other  potential  industrial  partners  for manufacturing and
          marketing.  Our  ability  to  capture contracts and develop additional
          industry  partners  will  depend  critically  on  our  ability to grow
          epitaxial  material  on  larger  diameter  substrates  using our newly
          procured  MOCVD  system.  During  fiscal  2004,  we  made  significant
          progress in these areas. 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.

Marketing  and  Distribution

          APA  markets  DWDM  products  through  our  APACN  sales  channels.
     Additionally,  we  use  manufacturer's  representatives  and  distributors
     domestically  and in various countries (including Japan, Germany, Italy and
     France). 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.

Competition

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


                                        7
<PAGE>
     markets  have  fostered  a highly competitive environment. This competition
     has resulted in price reductions and lower profit margins for the companies
     serving  this market. Many of the companies engaged in these businesses are
     well  financed  and  have  significantly  greater  research,  development,
     production,  and  marketing  resources  than we do. Some of these companies
     have  long  operating  histories,  well-established  distribution channels,
     broad  product  offerings  and  extensive  customer  bases.  Our ability to
     compete  with these companies 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 Scientific Atlanta, C-Cor,
     Harmonic,  and  Motorola.

          We  are  not  aware of any companies currently marketing a personal UV
     monitor  with  a combination of features, style and packaging equivalent to
     ours, although there are other manufacturers of this type of product in the
     United  States,  Japan  and  Korea.

          EIT,  Apprise  Technologies  and  International  Light offer UV curing
     control  instruments  that  perform  similar  functions  to the Profiler M,
     although  we  believe that our product will offer a superior combination of
     features  and  price.  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, Emcore
     Corporation,  RFMD  Corporation,  and  some  Japanese  and  European firms.


DESCRIPTION  OF  BUSINESS  -  APACN

          APACN  offers  a  broad  range  of  telecommunications  equipment  and
     products  developed from over 20 years of product expertise acquired in the
     CSP  and  Americable  acquisitions.  Its  broad  range of product offerings
     include  the  design  and  manufacture  of standard and custom connectivity
     products  such as fiber distribution systems, optical components, and fiber
     and  copper  cable assemblies that serve the communication service provider
     including  Fiber-to-the-Home,  large  enterprise,  and  OEM  markets.  Most
     products  are  produced at the Company's plant in Plymouth, MN with support
     from  APA's  facility  in  Aberdeen,  South  Dakota.  Certain  products are
     purchased  from  contract  manufacturers  or  other  sources.

Products

-         Fiber  Distribution  Systems   Americable  fiber  distribution systems
      ----------------------------
     are  high  density,  easy  access  fiber  distribution  panels  and  cable
     management systems that are designed to reduce installation time, guarantee
     bend  radius  protection  and  improve traceability. The product line fully
     supports  a  wide range of panel configurations, densities, connectors, and
     adapters that can be utilized on a stand-alone basis or integrated into the
     panel  system.  The  unique  interchangeable building block design delivers
     feature rich solutions which are able to meet the needs of a broad range of
     network  deployments.

-         Optical components  APACN  packages  optical  components  for  signal
      ------------------
     coupling,  splitting,  termination,  multiplexing,  demultiplexing  and
     attenuation  to seamlessly integrate with the Americable Fiber Distribution
     System.  This  value-added  packaging  allows the customer to source from a
     Single


                                        8
<PAGE>
     supplier  and reduces space requirements. The products are built and tested
     to  meet  GR-326  and  GR-1209  standards  for  trouble-free performance in
     extreme  outside  plant  environments.

-         Cable  Assemblies  APACN  manufactures  high  quality fiber and copper
          -----------------
     assemblies  with  an industry-standard or customer-specified configuration.
     Assemblies  built  include  but  are  not  limited  to:  single mode fiber,
     multimode fiber, multi-fiber, CATV node assembly, DS1 Telco, DS 3 (734/735)
     coax,  Category  5e  and  6,  SCSI,  Token  Ring,  and  V.35.


Marketing  and  Distribution

          APACN  markets  its products in the United States through a network of
manufacturer  representative  organizations  and  an  internal sales team. APACN
works  closely with its target customers to adapt the company's product platform
to  the  client's  unique  requirements.  APACN  offers a high level of customer
service  and  principally brings new products to markets based upon the specific
requests  of  its  customers.

Competition

          Competitors  for  the Americable Fiber Distribution system include but
are  not limited to ADC Telecommunications, Inc., Corning Cabling Systems, Inc.,
OFS  (Furukawa  Electric  North  America, Inc.), Telect Inc., Alcatel, Inc., and
Tyco  Electronics, Inc. These firms are substantially larger than APACN and as a
result  may  be  able  to procure pricing for necessary components at much lower
prices.  Competition  for  the  custom fiber and copper termination services for
cable assemblies is intense. Competitors range from small, family-run businesses
to  very  large  contract  manufacturing  facilities.


SOURCES  OF  RAW  MATERIALS  AND  OUTSOURCED  LABOR

          Numerous  purchased  materials  and components, and labor, are used in
the manufacturing of the Company's products. Most of these are readily available
from  multiple  suppliers.  Some  critical  components  and outsourced labor are
purchased  from a single or a limited number of suppliers. The loss of access to
some components and outsourced labor would have a material adverse effect on our
ability  to deliver products on a timely basis and on our financial performance.


PATENTS  AND  INTELLECTUAL  PROPERTY

          As  of  March 31, 2004, APA had 12 patents issued in the United States
and  seven  pending patent applications 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.


                                        9
<PAGE>
ENVIRONMENTAL  COMPLIANCE

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

MAJOR  CUSTOMERS

     No  single  customer  accounted for more than 10% of the Company's sales in
fiscal  2004.  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. These
customers  also  accounted  for  approximately  6%  of  the  outstanding  trade
receivable  balance  at  March  31,  2003.

BACKLOG

     APA  had  $6,490 in backlog of orders at March 31, 2004, and had no backlog
as  of  March  31,  2003.  APACN  has a backlog of $856,700 as of March 31, 2004
compared  to  $389,000  as  of  March  31,  2003.

RESEARCH  AND  DEVELOPMENT

     During  the  fiscal  years  ended March 31, 2004, 2003, and 2002, APA spent
approximately $949,000, $1,212,000 and $1,114,000, respectively, on research and
development,  all  of  which  was  related  to  the DWDM, compound semiconductor
electronic  devices,  UV  detector  and  related  products.  APA had no research
activities  sponsored  by  customers  in  fiscal  years  2004, 2003 and 2002. 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. APACN made no
significant expenditures for research and development form its inception through
March  31,  2004.

EMPLOYEES

     As  of  March 31, 2004, APA had 52 full-time employees (including executive
officers).  As  of  March 31, 2004, APACN had 95 full-time employees. 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


                                       10
<PAGE>
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.

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, 2004, we had
an  accumulated  deficit of $29.7 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. Adverse market
conditions  in  the  communications  equipment  industry and any slowdown in the
United  States  economy  may  harm  our  financial  condition.

     Demand  for our products is dependent on several factors, including capital
expenditures  in  the  communications  industry.  Capital  expenditures  can  be
cyclical  in  nature  and  result  in  protracted  periods of reduced demand for
component  parts. Similarly, periods of slow economic expansion or recession can
result  in periods of reduced demand for our products. The current U.S. economic
slowdown has been more profound in the telecommunications market, resulting in a
significant  reduction in capital expenditures for the Company's products. It is
impossible  to  predict how long the slowdown will last. Such periods of reduced
demand  will  harm  our business, financial condition and results of operations.
Changes  to the regulatory requirements of the telecommunications industry could
also  affect  market


                                       11
<PAGE>
conditions,  which  could also reduce demand for our products. Moreover, some of
our  customers have experienced serious financial difficulties, which in certain
cases  have  resulted  in  bankruptcy  filings  or  cessation  of  operations.

Our  industry  is  highly  competitive  and  subject  to  pricing  pressure.

     Competition  in  the  communications  equipment  market is intense. We have
experienced  and  anticipate  experiencing  increasing  pricing  pressures  from
current  and  future  competitors  as  well as general pricing pressure from our
customers  as  part  of  their cost containment efforts. Many of our competitors
have  more  extensive  engineering,  manufacturing,  marketing,  financial  and
personnel  resources  than  we do. As a result, these competitors may be able to
respond  more  quickly  to  new or emerging technologies and changes in customer
requirements  or  to  offer  more  aggressive  price  reductions.

Our  sales  could  be  negatively  impacted  if one or more of our key customers
substantially  reduce  orders  for  our  products.

     If  we  lose  a  significant customer, our sales and gross margins would be
negatively  impacted.  In  addition,  the loss of sales may require us to record
impairment, restructuring charges or exit a particular business or product line.

We may be required to rapidly increase our manufacturing capacity to deliver our
products  to  our  customers  in  a  timely  manner.

     Manufacturing  of  our  products  is a complex and precise process. We have
limited  experience  in  rapidly  increasing  our  manufacturing  capacity or in
manufacturing products at high volumes. If demand for our products increases, we
will  be  required  to hire, train and manage additional manufacturing personnel
and  improve  our  production  processes  in  order  to  increase our production
capacity.  There are numerous risks associated with rapidly increasing capacity,
including:

     -    Difficulties  in  achieving  adequate  yields  from  new manufacturing
          lines,

     -    Difficulty maintaining the precise manufacturing processes required by
          our  products  while  increasing  capacity,

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

     -    Lack  of  availability  of  qualified  manufacturing  personnel.

     If  we  apply our capital resources to expanding our manufacturing capacity
in anticipation of increased customer orders, we run the risk that the projected
increase  in  orders  will  not  be  realized. If anticipated levels of customer
orders  are not received, we will not be able to generate positive gross margins
and  profitability.

Our  dependence  on outside manufacturers may result in product delivery delays.

     We  purchase  components  and labor that are incorporated into our products
from outside vendors. In the case of the SunUV(R) Personal UV Monitor, we supply
components  to an outside assembler who delivers the completed product. If these
vendors  fail  to  supply us with components or completed assemblies on a timely
basis,  or  if the quality of the supplied components or completed assemblies is
not acceptable, we could experience significant delays in shipping our products.
Any  significant  interruption  in  the  supply  or support of any components or
completed  assemblies  could seriously harm our sales and our relationships with
our  customers.  In  addition,  we  have  increased  our  reliance on the use of
contract  manufacturers  to  make  our  products.  If  these  contract


                                       12
<PAGE>
manufacturers  do not fulfill their obligations, or if we do not properly manage
these  relationships,  our  existing  customer  relationships  may  suffer.

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

     Some  of  the  Company's  products are designed to be deployed in large and
complex  networks  and  must  be compatible with other components of the system,
both  current  and  future.  Our customers may discover errors or defects in our
products only after they have been fully deployed. In addition, our products may
not  operate  as expected over long periods of time. In the case of the SunUV(R)
Personal  UV  Monitor,  a  consumer  product, customers could encounter a latent
defect not detected in the quality inspection. If we are unable to fix errors or
other  problems,  we  could  lose customers, lose revenues, suffer damage to our
brand  and  reputation, and lose our ability to attract new customers or achieve
market  acceptance.  Each of these factors would negatively impact cash flow and
would  seriously  harm  our  business,  financial  condition  and  results  of
operations.

Consolidation  among  our  customers  could  result  in our losing a customer or
experiencing  a  slowdown  as  integration  takes  place.

     It is likely that there will be increased consolidation among our customers
in  order  for  them  to  increase market share and achieve greater economies of
scale.  Consolidation is likely to impact our business as our customers focus on
integrating  their  operations  and  choosing  their  equipment vendors. After a
consolidation  occurs, there can be no assurance that we will continue to supply
the  surviving  entity.

We  must  introduce  new  products and product enhancements to increase revenue.

     The  successful  operation  of  our  business  depends  on  our  ability to
anticipate  market  needs  and  develop  and  introduce new products and product
enhancements  that  respond  to  technological  changes  or  evolving  industry
standards  on  a  timely and cost-effective basis. Our products are complex, and
new  products  may  take  longer  to  develop than originally anticipated. These
products  may  contain  defects  or  have unacceptable manufacturing yields when
first  introduced  or  as  new versions are released. Our products could quickly
become  obsolete  as new technologies are introduced or as other firms introduce
lower  cost  alternatives. We must continue to develop leading-edge products and
introduce  them  to the commercial market quickly in order to be successful. Our
failure  to  produce  technologically  competitive  products in a cost-effective
manner  and  on  a  timely  basis  will  seriously  harm our business, financial
condition  and  results  of  operations.

Our  markets  are  characterized  by  rapid  technological  changes and evolving
standards.

     The  markets  we  serve  are  characterized  by rapid technological change,
frequent  new  product  introductions,  changes  in  customer  requirements  and
evolving  industry standards. In developing our products, we have made, and will
continue  to  make,  assumptions with respect to which standards will be adopted
within  our  industry.  If the standards that are actually adopted are different
from  those  that  we  have  chosen  to  support,  our  products may not achieve
significant  market  acceptance.

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

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


                                       13
<PAGE>
and  in  the  United  States and global economies, it is possible that customers
from whom we expect to derive substantial revenue will default or that the level
of  defaults will increase. Any material payment defaults by our customers would
have  an  adverse  effect  on our results of operations and financial condition.

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

     Our  products  are  sophisticated  and  rely  on  complicated manufacturing
processes.  We  have  received  multiple  patents  on  aspects of our design and
manufacturing  processes and we have applied for several more. Third parties may
still  assert  claims  that  our  products  or  processes  infringe  upon  their
intellectual  property.  Defending  our  interests against these claims, even if
they  lack  merit,  may  be  time  consuming, result in expensive litigation and
divert  management  attention  from  operational  matters.  If such a claim were
successful,  we  could  be  prevented  from manufacturing or selling our current
products,  be  forced  to  redesign  our  products,  or be forced to license the
relevant intellectual property at a significant cost. Any of these actions could
harm  our  business,  financial  condition  or  results  of  operations.

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

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

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


EXECUTIVE  OFFICERS

The  following  is  a  list of our executive officers, their ages, positions and
offices  as  of  March  31,  2004.

<TABLE>
<CAPTION>
NAME                     AGE  POSITION
<S>                      <C>  <C>

Dr. Anil K. Jain         58   Chief Executive Officer/President/Chief
                              Financial Officer of APA Optics, Inc.

Cheri Beranek Podzimek   41   President, APACN
</TABLE>

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

     CHERI BERANEK PODZIMEK joined APACN in July 2003 as President. Ms. Podzimek
was  previously  President  of  Americable,  which was acquired by APACN in June
2003. She served as President of Americable from 2002 to 2003. From 2001 to 2002
Ms.  Podzimek  was  Chief  Operating


                                       14
<PAGE>
Officer of Americable. Previously, Ms. Podzimek held a variety of lead marketing
positions  with  emerging  high-growth  technology companies. She served as Vice
President  of Marketing from 1996-2001 at Transition Networks, a manufacturer of
network  connectivity  products,  Director  of  Marketing  from  1992 to 1996 at
Tricord Systems, an early stage multi-processor based super server manufacturer,
and  Director  of  Marketing from 1988 to 1992 at Digi International, a designer
and  manufacturer  of  connectivity products. Earlier in her career Ms. Podzimek
held  marketing  positions  for  non-profit organizations, including the City of
Fargo,  the  Metropolitan Planning Commission of Fargo/Moorhead and North Dakota
State  University.

ITEM  2.     PROPERTIES.

     We  have  corporate  offices,  manufacturing  facilities,  and laboratories
located  in an industrial building at 2950 N.E. 84th Lane, Blaine, Minnesota. We
currently  lease  23,500  square  feet  of  space  under a lease from Jain-Olsen
Properties,  a  partnership  consisting  of  Anil  K. Jain and Kenneth A. Olsen,
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.

     We  own a 24,000 square foot production facility in Aberdeen, South Dakota,
which  is  used  mainly  for  assembly  of products for APACN customers and to a
lesser  extent  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.

     APA  has  signed  a  lease  agreement  in  June of 2004 with Veeco Compound
Semiconductor,  Inc.  to locate APA's multi-wafer MOCVD unit purchased in fiscal
2004  in  Veeco's  facilities in White Bear Lake, Minnesota, which is near APA's
Blaine  facility.  The  facility  will  have  all  the  necessary  installation
requirements  in place for the operation of the unit. The lease agreement is for
three  years  and officially begins when Veeco's required leasehold improvements
are  completed.  We  expect  this to occur in the second quarter of fiscal 2005.

     APACN subleases a 37,000 square foot facility in Plymouth, MN consisting of
office,  manufacturing  and warehouse space. This lease runs through June, 2006.
See  Note  K  of  the  Notes  to  the Financial Statements included under Item 8
hereof.

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.


                                       15
<PAGE>
<TABLE>
<CAPTION>
FISCAL 2004                       HIGH    LOW
--------------------------------  -----  -----
<S>                               <C>    <C>
Quarter ended June 30, 2003       $2.70  $1.23
Quarter ended September 30, 2003   3.04   2.07
Quarter ended December 31, 2003    2.99   2.00
Quarter ended March 31, 2004       3.27   2.19

FISCAL 2003                       HIGH    LOW
--------------------------------  -----  -----
Quarter ended June 30, 2002       $2.83  $1.75
Quarter ended September 30, 2002   2.50   1.44
Quarter ended December 31, 2002    1.87   1.27
Quarter ended March 31, 2003       1.30   1.78
</TABLE>

     There  were  approximately  351 holders of record of our common stock as of
March  31,  2004.

     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.

ITEM  6.     SELECTED  FINANCIAL  DATA.

<TABLE>
<CAPTION>
                                                            2004          2003          2002          2001          2000
                                                        ------------  ------------  ------------  ------------  ------------
<S>                                                     <C>           <C>           <C>           <C>           <C>
Statements of Operations Data:
  Revenues . . . . . . . . . . . . . . . . . . . . . .  $11,909,465   $   436,157   $   595,955   $   885,740   $   420,809
  Net loss . . . . . . . . . . . . . . . . . . . . . .   (6,535,147)   (5,009,434)   (4,738,199)   (3,261,446)   (3,796,296)
  Net loss per share, basic and diluted. . . . . . . .         (.55)         (.42)         (.40)         (.29)         (.43)
  Weighted average number of shares, basic
  and diluted. . . . . . . . . . . . . . . . . . . . .   11,872,331    11,873,914    11,896,976    11,180,165     8,744,125

Balance Sheet Data:
  Total assets . . . . . . . . . . . . . . . . . . . .  $25,844,991   $31,884,526   $36,396,410   $41,914,451   $ 9,610,391
  Long-term obligations, including current
  portion. . . . . . . . . . . . . . . . . . . . . . .    1,811,759     2,173,682     2,461,363     2,836,831     3,049,258
  Shareholders' equity . . . . . . . . . . . . . . . .   22,363,061    28,918,943    33,504,917    38,280,299     6,306,049
</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

     APA  is  engaged  in  designing,  manufacturing,  and  marketing of various
optoelectronic  products,  ultraviolet  (UV)  detectors and related products and
optical  components. 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.


                                       16
<PAGE>
     APACN,  which  is a wholly owned subsidiary of APA Optics, Inc., is engaged
in  the  design,  manufacture, distribution, and marketing of a variety of fiber
optics  and  copper  components  to the data communication and telecommunication
industries.  APACN's  primary  manufactured products include standard and custom
fiber  optic cable assemblies, copper cable assemblies, value-added fiber optics
frames,  panels  and  modules. APACN acquired certain assets of CSP on March 14,
2003  and certain assets of Americable on June 27, 2003. Several items discussed
under  the  "Results of Operations" show significant changes from the comparable
periods  in the preceding fiscal year as a result of the acquisitions of CSP and
Americable.

APPLICATION  OF  CRITICAL  ACCOUNTING  POLICIES

     In  preparing  our  consolidated  financial  statements, we make estimates,
assumptions  and  judgments  that can have a significant impact on our revenues,
loss from operations and net loss, as well as on the value of certain assets and
liabilities on our consolidated balance sheet. We believe that there are several
accounting  policies that are critical to an understanding of our historical and
future  performance,  as these policies affect the reported amounts of revenues,
expenses  and  significant  estimates and judgments applied by management. While
there  are  a number of accounting policies, methods and estimates affecting our
consolidated  financial  statements,  areas  that  are  particularly significant
include:

     -    Revenue  recognition;

     -    Accounting  for  income  taxes;  and

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

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

     Revenue  is recognized when the product has been shipped, acceptance by the
customer  is  reasonably  certain  and  collection  is  probable.

Accounting  for  Income  Taxes
------------------------------

     As  part of the process of preparing our consolidated financial statements,
we  are  required  to  estimate  our  income  tax  liability  in  each  of  the
jurisdictions  in  which  we  do  business. This process involves estimating our
actual  current  tax  expense  together  with  assessing  temporary  differences
resulting  from  differing  treatment  of items for tax and accounting purposes.
These  differences  result  in deferred tax assets and liabilities. We must then
assess  the  likelihood  that  these  deferred tax assets will be recovered from
future  taxable  income  and, to the extent we believe that recovery is not more
likely  than  not  or  unknown,  we  must  establish  a  valuation  allowance.

     Significant  management  judgment  is required in determining our provision
for  income  taxes,  our  deferred  tax assets and liabilities and any valuation
allowance  recorded  against our deferred tax assets. At March 31, 2004, we have
recorded  a  full  valuation  allowance  of $11,075,084 against our deferred tax
assets,  due to uncertainties related to our ability to utilize our deferred tax
assets,  consisting principally of certain net operating losses carried forward.
The  valuation  allowance  is  based  on  our  estimates  of  taxable  income by
jurisdiction  and  the  period  over  which  our  deferred  tax  assets  will be
recoverable.  The  Company  had  U.S. net operating loss (NOL) carry forwards of
approximately  $27,899,000  which  expire  in  fiscal  years  2004  to  2024.

     Realization  of  the  NOL  carry  forwards and other deferred tax temporary
differences  are  contingent  on future taxable earnings. The deferred tax asset
was  reviewed  for  expected  utilization  using


                                       17
<PAGE>
a  "more  likely than not" approach as required by SFAS No. 109, "Accounting for
Income  Taxes,"  by  assessing  the  available  positive  and  negative evidence
surrounding  its  recoverability.

     We  will  continue  to  assess and evaluate strategies that will enable the
deferred  tax  asset,  or  portion  thereof, to be utilized, and will reduce the
valuation  allowance  appropriately  at such time when it is determined that the
"more  likely  than  not"  approach  is  satisfied.

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

     Goodwill represents the excess of the purchase price over the fair value of
net  assets acquired. Effective April 1, 2002, we adopted Statement of Financial
Accounting  Standards  (SFAS)  142,  Goodwill and Other Intangible Assets, which
provides  that  goodwill  should  not  be  amortized but reviewed for impairment
annually  or  whenever conditions exist that indicate an impairment could exist.
The  Company  performed the annual impairment test in fiscal years 2004 and 2003
and  concluded  that  no  impairment  had  occurred.

     The  Company  evaluates  the  recoverability  of  its  long-lived assets in
accordance  with  SFAS  144,  "Accounting  for  the  Impairment  or  Disposal of
Long-Lived  Assets."  SFAS  144 requires recognition of impairment of long-lived
assets in the event that events or circumstances indicate an impairment may have
occurred  and  when  the  net  book  value  of  such  assets  exceeds the future
undiscounted  cash  flows attributed to such assets. We assess the impairment of
long-lived  assets whenever events or changes in circumstances indicate that the
carrying  value  may  not be recoverable. No impairment of long-lived assets has
occurred  through  the  year  ended  March  31,  2004.

     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
is  described.  Management  believes  the adoption of Interpretation 46 (FIN 46)
will  not  have  a  material  effect  on  our  financial  position or results of
operations.

CONTRACTUAL  OBLIGATIONS

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

<TABLE>
<CAPTION>
                                Less than                            After
                        Total     1 Year    1-3 years   4-5 years   5 years
                        ----------------------------------------------------
<S>                     <C>     <C>         <C>         <C>         <C>
Long-term debt          $1,812  $    1,638  $       94  $       40  $     40
Operating leases           670         359         311           -         -
                        ----------------------------------------------------

Total Contractual Cash
    Obligations         $2,482  $    1,997  $      405  $       40  $     40
                        ====================================================
</TABLE>

RESULTS  OF  OPERATIONS

                              2004 COMPARED TO 2003
                              ---------------------

REVENUES

     Consolidated  revenues  for  the  year  ended  2004  increased  27-fold  to
$11,909,465 from sales of $436,157 in 2003. Consolidated cost of sales increased
to  $11,914,050  in  2004 from $2,802,597 in 2003. Consolidated operating losses
increased  to  $6,558,499  in  2004  compared  to  $5,329,466  in  2003.


                                       18
<PAGE>
Consolidated  net  losses  increased  to  $6,535,147 in 2004 or $.55 per diluted
share  compared  to  $5,009,434  or  $.42  in  2003.

     APA's  revenues  for  the  year  ended  2004  were  $218,187 as compared to
$202,137  in  2003. Sales of its optics products were $91,778 versus $102,592 in
2003.  This  product line was discontinued in January 2004 and subsequently sold
in  April  2004. Sales of fiber optics products were $85,341 in 2004 compared to
$77,028  in  2003.  Sales  of  GaN  related products were $23,519 in 2004 versus
$12,742  in  2003.  The  majority  of the GaN sales were to one customer for the
SunUV(R)  Personal  UV  Monitor.  Other  revenue was $17,549 in 2004 compared to
$9,775  in  2003.  APA's  revenue  growth  is  dependent  upon  our  ability  to
successfully  complete  its  manufacturing reliability with its GaN products and
sell  into  its  targeted  market  segments.

     APACN's  revenues  for the year ended 2004 were $11,691,278 versus $234,020
in  the year ended 2003. Sales from the preceding year consisted only of revenue
generated by the CSP acquisition from March 14, 2003 until March 31, 2003. Sales
for  fiscal  2004  reflect  a  full year of revenue from the CSP acquisition and
three  quarters  of  revenue from the Americable acquisition which was completed
June  27,  2003.  For  the year ended March 31, 2004, sales to broadband service
provider  and  commercial  data  networks,  which  include  APACN  custom  fiber
distribution  systems,  associated cable assemblies and optical components, were
$7,023,700, or 60% of total sales. Sales to OEM's, consisting primarily of fiber
optic  and  copper  cable assemblies produced to customer design specifications,
were $4,667,600, or 40% of total sales. APACN's revenue growth is dependent upon
capital  expenditures  in  the communications equipment industry, our ability to
develop  and  introduce  new  products,  and  our  ability to acquire and retain
business  in  a competitive industry. We expect sales at APACN in fiscal 2005 to
increase  slightly  over  the  next  year.


COST  OF  SALES  AND  GROSS  PROFIT

     APA's  cost of sales for the year ended 2004 were $2,883,054 as compared to
$2,626,685  in  2003.  Product  development  and  materials  cost  increased
approximately  $280,000,  while  amortization  expenses  decreased approximately
$181,000,  mainly  due  to  additional  patent  amortization  taken  in  2003.

     APACN's  gross profit for the year ended 2004 was $2,660,282 as compared to
$58,109  in  2003.  Gross profit from the preceding year consisted of only gross
profit  generated  by  the  CSP  acquisition from March 14, 2003 until March 31,
2003. Gross profit for fiscal 2004 reflects a full year of gross profit from the
CSP  acquisition  and  three  quarters  of  gross  profit  from  the  Americable
acquisition  which  was  completed June 27, 2003. Gross profit percent for APACN
for  the  period  ending  March  31, 2004 was 22.8%. Gross profit was negatively
affected  by  production  variances  resulting  from  combining the two acquired
companies  into  one  operation.  We expect gross margins for APACN to gradually
improve  in  fiscal  2005.


RESEARCH  AND  DEVELOPMENT  EXPENSES

     Research  and  development expenses consist of the research and development
expense  at APA (there have been no research and development expenses at APACN).
Expenses  decreased by $263,482, to $948,737 for the year ended 2004 as compared
to  $1,212,219  for  the year ended 2003. This represents a decrease of 22% from
2003.  The  decrease  is primarily due to decreased research activity related to
fiber optics products. The majority of the decreases are due to the reduction in
salaries  and  other  related


                                       19
<PAGE>
personnel  expenses.  We expect fiscal 2005 research and development expenses at
APA  to  remain  constant  with  2004.


SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES

     Selling,  general  and  administration (S, G & A) expenses at APA increased
approximately  $357,635  to  $1,989,969  in  2004  from  $1,632,334 in 2003. The
increase  is  due  primarily  to higher depreciation and amortization as well as
higher  professional  fees  related  to  the  acquisition  costs  for  CSP  and
Americable.  We expect S, G &A to decrease slightly over the balance of the 2005
fiscal  year  as a result of cost reductions implemented throughout fiscal 2004.

     Selling,  general  and administration expenses at APACN were $3,615,208 for
the  year  ending  March 31, 2004 as compared to $118,473 in 2003. S, G & A from
the  preceding  year consisted of expenses generated by the CSP acquisition from
March  14,  2003  until March 31, 2003. S, G & A for fiscal 2004 reflects a full
year  of  S, G & A from the CSP acquisition and three quarters worth of S, G & A
from  the Americable acquisition which was completed June 27, 2003. S, G & A for
fiscal  2004  was  negatively  affected  by  duplicate  expenses  related to the
consolidation  of  operations  and  facilities.  We  expect S, G & A to decrease
slightly  in  fiscal  2005 from fiscal 2004 in relation to current sales levels.

OTHER  INCOME  AND  EXPENSE

     Other  income  at  APA  decreased  $231,035 to $202,837 in fiscal 2004 from
$433,872  in 2003. The decrease is due mainly to lower interest income resulting
from  a  combination  of a decline in the rate of interest earned on investments
and  a  lower  average cash balance. Other expenses increased $1,829 to $115,010
from  $113,181  in  2003.

     Other  income  at  APACN  increased  $19,829  to  $22,882 in fiscal 2004 as
compared to $3,053 in fiscal 2003. The increase was due to management fee income
for  the  first  quarter  of  2004 for personnel related to the CSP acquisition.
Other  expense  at  APACN increased $82,592 to $85,304 for the year ending 2004.
The  increase  is  due  primarily  to  the  disposal  of  assets  related to the
consolidation  of  CSP  and  Americable  into  a  single  facility.

NET  LOSS

     Consolidated  net  loss for the Company increased $1,525,713 to $6,535,147,
or  $.55 cents per share, as compared to a net loss of $5,009,434, or $.42 cents
per  share,  in  fiscal  2003.  The  increase  in losses is due primarily to the
additional  net  losses  as  APACN.

     Net  loss  for  APA for the year ending 2004 was $5,537,390, an increase of
$587,980,  or  12%,  from $4,949,410 in 2003. The increased losses are primarily
the  result  of  a  combination  of higher cost of sales and S. G, & A expenses.

     Net  loss for APACN for the year ending 2004 was $997,757 versus $60,024 in
fiscal  2003.  The  increase  is  due  mainly to 2003 expenses only representing
several days of expense from the CSP acquisition in March, 2003. The increase in
net  loss  was  partly attributable to the expenses related to integrate the two
acquisitions.

                              2003 COMPARED TO 2002
                              ---------------------


                                       20
<PAGE>
REVENUES

     APA  recognized  operating revenues of $436,157 and $595,955 for the fiscal
years  ended  March 31, 2003 and 2002, respectively. The decrease of $159,798 or
27%  from  fiscal  2002  to 2003 was primarily the result of lower sales of DWDM
components.  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.

COST  OF  SALES  AND  GROSS  PROFIT

     Costs  of  sales  were  $2,802,597 and $3,545,519 for fiscal 2003 and 2002,
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. Gross margin for
product  sales was negative in both 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.

RESEARCH  AND  DEVELOPMENT  EXPENSES

     Research and development expenses were $1,212,219 and $1,114,051 for fiscal
years  2003  and  2002,  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.

SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSES

     Selling, general and administrative expenses were $1,750,807 and $1,733,846
for fiscal years 2003 and 2002, respectively. The decrease of $16,961 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.

OTHER  INCOME  AND  EXPENSE

     We realized $436,925 and $1,193,525 in interest income in fiscal years 2003
and  2002, respectively. The decrease in interest income of $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.

NET  LOSS

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

LIQUIDITY  AND  CAPITAL  RESOURCES

     As  of March 31, 2004, our principal source of liquidity was our cash, cash
equivalents  and  short-term  investments, which totaled $13,544,910 compared to
$22,235,686  at  March  31,  2003.

     We used $5,595,781 to fund operating activities during fiscal 2004 compared
to  $4,659,154 in fiscal 2003, and $3,753,553 in fiscal 2002. In all three years
the  largest  use  of  cash  in  operating activities was the funding of the net
losses.  The  net loss for fiscal 2004 expanded to $6,535,147 from $5,009,434 in
fiscal  2003. The primary factors contributing to the increased loss from fiscal
2003  to  2004  were  the


                                       21
<PAGE>
increased losses at APACN. The significant 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.

     In  fiscal  2004  we  used  $2,753,246  in  investing  activities including
$1,960,000  used to purchase the assets of Americable. We also invested $785,870
to  purchase  property  and  equipment, mainly for the purchase of the MOCVD. In
fiscal  2003  we  used  $3,828,000  in  investing activities to purchase CSP. We
invested  $359,474  in  property and equipment and $84,131 in patents, for a net
decrease  in  cash  from  investment activities of $4,271,605. 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.

     In  fiscal  2004, we used $341,749 in financing activities primarily to pay
down  long-term  debt  relating  to  our  facility in Aberdeen, South Dakota. In
fiscal  2003,  we  used  $439,958  in financing activities primarily to pay down
long-term  debt  also  related  to  the  Aberdeen  facility. We used $460,564 in
financing  activities  in fiscal 2002. Primary uses of cash in 2002 included the
repurchase  of  common stock for $92,638 and the scheduled retirement of debt in
the  amount  of  $375,468.

     Construction  of  our  manufacturing  facility in Aberdeen utilized certain
economic incentive programs offered by the State of South Dakota and the City of
Aberdeen.  At March 31, 2004, the total principal outstanding under bonds issued
by  the  State of South Dakota was $1,485,000. 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 these covenants during all of fiscal 2002, 2003 and 2004.
For  further information regarding these bonds, see Note E of Notes to Financial
Statements  included  under Item 8 of this Report. On April 14, 2004 the Company
sold  its  Optics  manufacturing operations discussed in Note M to the Financial
Statements included under Item 8 of this report, to PNE, Inc. dba IRD. The terms
of  the  sale  required the Company to prepay $89,000 of a loan with the City of
Aberdeen, South Dakota and to accelerate the loan payment schedule over the next
several  years,  ending  in  2010.

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


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


     Our exposure to market risk for changes in interest rates relates primarily
to  our  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


                                       22
<PAGE>
foreign  exchange  risk.  See  "Cash  and  Equivalents"  under  Note  A  of  the
Consolidated  Financial Statements.


ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA.

     Quarterly Results of Operations. The following tables present our unaudited
quarterly  operating  results  for  the  eight  quarters  ended  March 31, 2004:


<TABLE>
<CAPTION>
                                                    Quarter Ended
                               -----------------------------------------------------------
                                 June 30,     September 30,    December 31,    March 31,
                                   2002           2002             2002           2003
                               ------------  ---------------  --------------  ------------
<S>                            <C>           <C>              <C>             <C>
  Statement of Operations Data

Net revenue . . . . . . . . .  $    72,451   $       38,900   $      40,674   $   284,132
Gross profit (loss) . . . . .     (681,269)        (680,044)       (513,379)     (491,748)
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)

                                                    Quarter Ended
                               -----------------------------------------------------------
                                 June 30,      September 30,    December 31,    March 31,
                                   2003             2003            2003          2004
                               ------------  ---------------  --------------  ------------
  Statement of Operations Data

Net revenue . . . . . . . . .  $ 1,566,992   $    3,557,586   $   3,301,955     3,482,932
Gross profit (loss) . . . . .     (300,889)         218,329         (12,513)       90,488
Net loss. . . . . . . . . . .   (1,545,399)      (1,667,488)     (1,642,436)   (1,679,824)
Net loss per share. . . . . .  $     (0.13)  $        (0.14)  $       (0.14)  $     (0.14)
</TABLE>


                                       23
<PAGE>
             REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM
             ------------------------------------------------------


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, 2004 and 2003, and the related
consolidated  statements of operations, shareholders' equity, and cash flows for
each  of the three years in the period ended March 31, 2004.  These consolidated
financial  statements  are  the responsibility of the Company's management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements  based  on  our  audits.

          We conducted our audits in accordance with the standards of the Public
Company  Accounting  Oversight  Board  (United States).  Those standards require
that  we plan and perform the audit to obtain reasonable 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  consolidated  financial statements referred to
above  present  fairly,  in  all  material  respects, the consolidated financial
position  of APA Optics, Inc. as of March 31, 2004 and 2003 and the consolidated
results  of its operations and its cash flows for each of the three years in the
period  ended March 31, 2004, 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,  on  April  1,  2002.



                                                          /s/ Grant Thornton LLP


Minneapolis,  Minnesota
June  15,  2004


                                       24
<PAGE>
<TABLE>
<CAPTION>
                                APA OPTICS, INC.
                          CONSOLIDATED BALANCE SHEETS
                                    MARCH 31,


        ASSETS                                                2004         2003
                                                           -----------  -----------
<S>                                                        <C>          <C>
CURRENT ASSETS
  Cash and cash equivalents                                $13,544,910  $22,235,686
  Accounts receivable, net of allowance for uncollectible
    accounts of $49,038 and $20,644 at
    March 31, 2004 and 2003                                  1,549,016      468,576
  Inventories                                                1,574,188    1,398,203
  Prepaid expenses                                             174,503      134,045
  Bond reserve funds                                           133,865      125,830
                                                           -----------  -----------

        Total current assets                                16,976,482   24,362,340


PROPERTY, PLANT AND EQUIPMENT, net                           4,550,956    3,989,344

OTHER ASSETS
  Bond reserve funds                                           332,433      340,629
  Goodwill                                                   3,422,511    2,500,296
  Other                                                        562,609      691,917
                                                           -----------  -----------
                                                             4,317,553    3,532,842
                                                           -----------  -----------

                                                           $25,844,991  $31,884,526
                                                           ===========  ===========
</TABLE>


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


                                       25
<PAGE>
<TABLE>
<CAPTION>
                LIABILITIES AND
                SHAREHOLDERS' EQUITY                            2004           2003
                                                           -------------  -------------
<S>                                                        <C>            <C>
CURRENT LIABILITIES
  Current maturities of long-term debt                     $  1,637,923   $  1,846,922
  Accounts payable                                              812,165        454,804
  Accrued compensation                                          645,293        255,403
  Accrued expenses                                              212,713         81,694
                                                           -------------  -------------

                Total current liabilities                     3,308,094      2,638,823

LONG-TERM DEBT, net of current maturities                       173,836        326,760

COMMITMENTS AND CONTINGENCIES                                         -              -

SHAREHOLDERS' EQUITY
  Undesignated shares, 4,999,500 authorized shares;
     no shares issued and outstanding                                 -              -
  Preferred stock, $.01 par value; 500 authorized shares;
     no shares issued and outstanding                                 -              -
  Common stock, $.01 par value; 50,000,000
     authorized shares; 11,872,331 shares
     issued and outstanding at March 31, 2004 and 2003          118,723        118,723
  Additional paid-in capital                                 51,980,946     52,001,681
  Accumulated deficit                                       (29,736,608)   (23,201,461)
                                                           -------------  -------------
                                                             22,363,061     28,918,943
                                                           -------------  -------------

                                                           $ 25,844,991   $ 31,884,526
                                                           =============  =============
</TABLE>


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


                                       26
<PAGE>
<TABLE>
<CAPTION>
                                APA OPTICS, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                              YEARS ENDED MARCH 31,



                                           2004          2003          2002
                                       ------------  ------------  ------------
<S>                                    <C>           <C>           <C>
Revenues                               $11,909,465   $   436,157   $   595,955

Costs and expenses
  Cost of sales                         11,914,050     2,802,597     3,545,519
  Research and development                 948,737     1,212,219     1,114,051
  Selling, general and administrative    5,605,177     1,750,807     1,733,846
                                       ------------  ------------  ------------
                                        18,467,964     5,765,623     6,393,416
                                       ------------  ------------  ------------

      Loss from operations              (6,558,499)   (5,329,466)   (5,797,461)

Other income                               225,719       436,925     1,193,525
Other expense                             (200,314)     (115,893)     (132,263)
                                       ------------  ------------  ------------
                                            25,405       321,032     1,061,262
                                       ------------  ------------  ------------

      Loss before income taxes          (6,533,094)   (5,008,434)   (4,736,199)

Income taxes                                 2,053         1,000         2,000
                                       ------------  ------------  ------------

      Net loss                         $(6,535,147)  $(5,009,434)  $(4,738,199)
                                       ============  ============  ============

Net loss per share
  Basic and diluted                    $     (0.55)  $     (0.42)  $     (0.40)
                                       ============  ============  ============

Weighted average shares outstanding
  Basic and diluted                     11,872,331    11,873,914    11,896,976
                                       ============  ============  ============
</TABLE>


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


                                       27
<PAGE>
<TABLE>
<CAPTION>
                                                     APA  OPTICS,  INC.

                                      CONSOLIDATED  STATEMENTS  OF  SHAREHOLDERS'  EQUITY

                                                   YEARS  ENDED  MARCH  31,

                            Undesignated
                               shares     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>            <C>
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
  Options issued as
compensation                           -         -         -           -          -       (20,735)             -          (20,735)
  Net loss                             -         -         -           -          -             -     (6,535,147)      (6,535,147)
                            ------------  --------  --------  -----------  ---------  ------------  -------------  ---------------
Balance at March 31, 2004              -         -  $      -  11,872,331   $118,723   $51,980,946   $(29,736,608)  $   22,363,061
                            ============  ========  ========  ===========  =========  ============  =============  ===============
</TABLE>


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


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                  APA OPTICS, INC.

                        CONSOLIDATED STATEMENTS OF CASH FLOWS

                                YEARS ENDED MARCH 31,


                                                            2004           2003         2002
                                                        ------------  ------------  ------------
<S>                                                     <C>           <C>           <C>
Cash flows from operating activities:
  Net loss                                              $(6,535,147)  $(5,009,434)  $(4,738,199)
  Adjustments to reconcile net loss to net cash
    used in operating activities, net of acquisitions:
      Depreciation and amortization                         971,194       810,505       654,460
      Deferred compensation expense                         (20,735)       (9,309)       45,414
      Changes in operating assets and liabilities,
      net of acquisitions:
        Accounts receivable                                (440,161)      (63,392)      350,246
        Inventories                                        (179,293)     (130,889)      375,241
        Prepaid expenses and other assets                   (44,909)      (30,457)      (73,524)
        Accounts payable and accrued expenses               653,270      (226,178)     (367,191)
                                                        ------------  ------------  ------------
          Net cash used in operating activities          (5,595,781)   (4,659,154)   (3,753,553)
Cash flows from investing activities:
  Purchases of property and equipment                      (785,870)     (359,474)   (1,050,274)
  Sale of short-term investments                                  -             -    15,759,000
  Cash paid for business acquisition                     (1,960,000)   (3,828,000)            -
  Other                                                      (7,376)      (84,131)     (113,698)
                                                        ------------  ------------  ------------
          Net cash provided by (used in) investing
            activities                                   (2,753,246)   (4,271,605)   14,595,028
Cash flows from financing activities:
  Repurchase of common stock                                      -        (5,991)      (92,638)
  Proceeds from exercise of warrants and options                  -             -        10,041
  Payment of long-term debt                                (361,923)     (437,467)     (375,468)
  Bond reserve funds                                         20,174         3,500        (2,499)
                                                        ------------  ------------  ------------
          Net cash used in financing activities            (341,749)     (439,958)     (460,564)
                                                        ------------  ------------  ------------
Increase (decrease) in cash and cash equivalents         (8,690,776)   (9,370,717)   10,380,911
Cash and cash equivalents at beginning of year           22,235,686    31,606,403    21,225,492
                                                        ------------  ------------  ------------
Cash and cash equivalents at end of year                $13,544,910   $22,235,686   $31,606,403
                                                        ============  ============  ============
Supplemental cash flow information:
  Cash paid during the year for:
    Interest                                            $   109,251   $   115,893   $   132,263
    Income taxes                                              2,053         1,000         2,000

Noncash investing and financing transactions:
  Contributed land                                      $         -   $    67,760   $         -
                                                        ============  ============  ============
  Issuance of warrants                                  $         -   $   371,000   $         -
                                                        ============  ============  ============
  Capital expenditure included in accounts payable      $   225,000   $         -   $         -
                                                        ============  ============  ============
</TABLE>


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


                                       29
<PAGE>
                                APA OPTICS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          MARCH 31, 2004, 2003 AND 2002


NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES


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

APA  Optics, Inc. (the Company) is a manufacturer of custom cable assemblies and
supplier  of  premise  cabling  components  and networking products to customers
throughout  the  United  States  with a concentration in Minnesota.  The Company
also  manufactures  and  markets  dense  wavelength  division multiplexer (DWDM)
optical  components  and  offers  a  range  of  gallium  nitride-based  devices.

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

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

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

Revenue  is  recognized  when  the  product  has been shipped, acceptance by the
customer  is  reasonably  certain  and  collection  is  probable.

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

The  Company considers all highly liquid investments with original maturities of
three  months  or  less  to be cash equivalents.  Investments classified as cash
equivalents  at  March  31,  2004  and 2003 consist entirely of short-term money
market  accounts.  Cash  equivalents are stated at cost, which approximates fair
value.

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

Accounts  receivable  are presented net of allowances.  Credit is extended based
on the evaluation of a customer's financial condition and, generally, collateral
is not required.  Accounts outstanding longer than the contractual payment terms
are  considered past due.  The Company determines its allowance by considering a
number  of factors, including the length of time trade receivables are past due,
the  Company's  previous loss history, the customer's current ability to pay its
obligation  to  the  Company,  and  the condition of the general economy and the
industry  as whole.  The Company writes off accounts receivable when they become
uncollectible;  payments  subsequently received on such receivables are credited
to  the  allowance  for  doubtful  accounts.


                                       30
<PAGE>
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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

Inventories consist of finished goods, raw materials and work in process and are
stated  at the lower of average cost (which approximates the first-in, first-out
method)  or  market.  Cost  is  determined  using  material  costs, internal and
external  labor  charges,  and  allocated  factory  overhead  charges.

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  for  book  and  tax purposes over the following estimated
useful  lives  of  the  assets:

                        Years
                        ------

Building                  20
Equipment               3 - 10
Leasehold improvements  7 - 10


Goodwill  and  Long  Lived  Assets
----------------------------------

Goodwill  represents  the excess of the purchase price over net assets acquired.
Effective  April  1, 2002, the Company adopted Statement of Financial Accounting
Standards  (SFAS) 142, Goodwill and other Intangible Assets, which provides that
goodwill  should  not  be  amortized  but  reviewed  for  impairment annually or
whenever  conditions exist that indicate an impairment could exist.  The Company
performed the annual impairment test in fiscal years 2004 and 2003 and concluded
that  no  impairment  had  occurred.

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

The Company has various incentive and non-qualified stock option plans which are
used  as an incentive for directors, officers, and other employees, as described
more  fully  in  Note  J.  The  Company uses the intrinsic value method to value
stock  options  issued  to employees. Under this method, compensation expense is
recognized  for  the amount by which the market price of the common stock on the
date of grant exceeds the exercise price. The Company's stock based compensation
expense  also  reflects  the  benefit of the cancellation of previously expensed
options.  The  Company  recognized  compensation  expense (income) of $(20,735),
$(9,309)  and  $45,414  for  the years ended March 31, 2004, 2003 and 2002.  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


                                       31
<PAGE>
NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  -  CONTINUED

applied  the  fair  value  method,  to stock-based employee compensation for the
following  fiscal  years:

<TABLE>
<CAPTION>
                                                 March 31,     March 31,    March 31,
                                                   2004          2003         2002
                                               ------------  -----------  -----------
<S>                                            <C>           <C>          <C>
                                               $ 6,535,147   $5,009,434   $4,738,199
Net loss to common shareholders - as reported
Less: Total stock-based employee
compensation expense determined under fair
value method for all awards, net of related
tax effects                                        158,936      153,266      273,516
Net loss - pro forma                           $ 6,694,083   $5,162,700   $5,011,715
                                               ============  ===========  ===========

Basic and diluted net loss per common share
- as reported                                  $      (.55)  $     (.42)  $     (.40)
                                               ============  ===========  ===========

Basic and diluted net loss per common share
- pro forma                                    $      (.55)  $     (.43)  $     (.42)
                                               ============  ===========  ===========
</TABLE>


The  weighted  average  fair value of options granted in 2004, 2003 and 2002 was
$2.62,  $1.20,  and  $9.30.  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 2004, 2003 and 2002;
zero  dividend yield, risk-free interest rate of 3.3%, 3.2% and 4.5%; volatility
of  75%,  77%  and  132%, and a weighted-average expected term of the options of
five  years.


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

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

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

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

Common  stock  options  and  warrants  to  purchase 975,937, 999,197 and 655,872
shares  of  common  stock with a weighted average exercise price of $6.35, $6.50
and  $10.15  were  outstanding  during  the years ended March 31, 2004, 2003 and
2002,  but  were  excluded because they were antidilutive. Had we not incurred a
net  loss during the year ended March 31, 2004, we would have assumed conversion
of  stock  options  into  18,031  common  shares.  We would not have assumed any
conversions  of  stock  options  for  fiscal  year  2003  and  2002.

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


                                       32
<PAGE>
NOTE  A  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  -  CONTINUED

The  preparation  of  consolidated  financial  statements  in  conformity  with
accounting  principles  generally  accepted  in  the  United  States  of America
requires  management  to make estimates and 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.

Impairment  of  Long-Lived  Assets
----------------------------------

The  Company  evaluates the recoverability of its long-lived assets and requires
recognition  of  impairment  of  long-lived  assets  if  events or circumstances
indicate  an  impairment  may  have occurred and when the net book value of such
assets  exceeds  the  future  undiscounted cash flows attributed to such assets.
The  Company  assesses  the  impairment  of long-lived assets whenever events or
changes  in  circumstances  indicate  that  the  carrying  value  may  not  be
recoverable.  No  impairment  of long-lived assets has occurred through the year
ended  March  31,  2004.

Reclassifications
-----------------

Certain  reclassifications  have  been  made to the 2003 financial statements to
conform  with  the  presentation  used  in 2004.  These reclassifications had no
effect  on  net  loss  or  shareholders'  equity  as  previously  reported.

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

The  Financial  Accounting  Standards  Board issued FIN 46 (R), Consolidation of
Variable  Interest  Entities,  in  December  2003 to provide guidance on when an
investor  should  consolidate another entity from which they receive benefits or
are  exposed  to  risks  when  those  other entities are not controlled based on
traditional  voting  interest or they are thinly capitalized.  FIN 46 (R) refers
to those entities as variable interest entities (VIEs). A variable interest is a
contractual,  ownership,  guarantee  of  debt, or other financial interest in an
entity  that  changes with changes in the entity's asset value.  An entity would
be  considered  a  VIE  if  the  amount  of  equity at risk in the entity is not
sufficient to allow it to finance its activities without additional subordinated
financial support from the Company.  The provisions of FIN 46 (R) were effective
at  the end of the first reporting period after March 15, 2004.  The adoption of
FIN  46  (R)  will  not  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  -  ACQUISITIONS

On  March  14,  2003,  the  Company  acquired certain assets and assumed certain
liabilities  of  CSP.  The  acquisition  was  accounted  for  as a purchase and,
accordingly,  results  of  operations  relating  to  the  purchased  assets were
included in the statement of operations from the date of acquisition. The impact
on  operations  for  year  ended  March 31, 2003 was not material. There were no
contingent  payments  related  to  the  acquisition.


                                       33
<PAGE>
NOTE  B  -  ACQUISITIONS  -  CONTINUED

In  accordance with SFAS 141, the Company reclassified certain balances from the
original CSP purchase price allocation as part of an asset valuation adjustment.
The  adjustment  was  made  after  determining  the  fair  value  of  the assets
purchased.  The result of the change was a decrease in inventory and an increase
in goodwill recorded. This did not change the purchase price of the transaction.
The  purchase price, assets acquired and liabilities assumed with purchase price
adjustments  are  as  follows:

<TABLE>
<CAPTION>
                                    Original        Purchase    Net Purchase
                                 Purchase Price      Price          Price
                                   Allocation      Adjustment    Allocation
<S>                              <C>              <C>           <C>
Accounts receivable              $       384,571  $         -   $     384,571
Inventory                              1,227,239     (627,364)        599,875
Property, plant and equipment            402,799            -         402,799
                                 ---------------  ------------  -------------
      Assets purchased                 2,014,609     (627,364)      1,387,245
Trade accounts payable                   239,187            -         239,187
Capitalized leases                       149,786            -         149,786
Vendor restructuring payable             263,818            -         263,818
Accrued expenses                          34,114            -          34,114
                                 ---------------  ------------  -------------
      Less: Liabilities assumed          686,905            -         686,905
Net assets                             1,327,704     (627,364)        700,340
Goodwill                               2,500,296      627,364       3,127,660
                                 ---------------  ------------  -------------
      Purchase price             $     3,828,000  $         -   $   3,828,000
                                 ===============  ============  =============
</TABLE>


On  June  27,  2003, the Company acquired certain assets of Americable, Inc. The
acquisition  was  accounted  for  as  a  purchase  and,  accordingly, results of
operations  relating to the purchased assets have been included in the statement
of  operations  from  the  date of acquisition. There are no contingent payments
related  to  the  acquisition.

In  accordance with SFAS 141, the Company reclassified certain balances from the
original  Americable  purchase  price  allocation  as part of an asset valuation
adjustment.  The  adjustment  was  made  after determining the fair value of the
assets  purchased.  The  result  of  the  change was a decrease in inventory and
property,  an  increase  in  accounts  receivable,  and  an increase in goodwill
recorded.  This  did  not  change  the  purchase  price  of the transaction. The
purchase  price  and  assets  acquired  with  purchase  price adjustments are as
follows:

<TABLE>
<CAPTION>
                                  Original        Purchase    Net Purchase
                               Purchase Price      Price          Price
                                 Allocation      Adjustment    Allocation
<S>                            <C>              <C>           <C>
Accounts receivable            $       594,000  $    46,279   $     640,279
Inventory                              638,000      (13,944)        624,056
Property, plant and equipment          450,000      (49,186)        400,814
                               ---------------  ------------  -------------
      Assets purchased               1,682,000      (16,851)      1,665,149
Goodwill                               278,000       16,851         294,851
                               ---------------  ------------  -------------
      Purchase price           $     1,960,000  $         -   $   1,960,000
                               ===============  ============  =============
</TABLE>

Goodwill  for  both  acquisitions  is  expected  to  be fully deductible for tax
purposes.


                                       34
<PAGE>
NOTE  C  -  INVENTORIES


Inventories  consist  of  the  following  at  March  31:

<TABLE>
<CAPTION>
                    2004        2003
                 ----------  ----------
<S>              <C>         <C>

Raw materials    $  371,536  $  702,233
Work-in-process      46,222     155,138
Finished goods    1,156,430     540,832
                 ----------  ----------

                 $1,574,188  $1,398,203
                 ==========  ==========
</TABLE>


NOTE  D  -  PROPERTY,  PLANT  AND  EQUIPMENT

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

<TABLE>
<CAPTION>
                                                   2004        2003
                                                ----------  ----------
<S>                                             <C>         <C>

Land                                            $  127,760  $  127,760
Buildings                                        1,679,424   1,679,424
Manufacturing equipment                          6,037,670   5,731,507
Office equipment                                   619,026     507,872
Leasehold improvements                           1,119,616   1,082,538
                                                ----------  ----------
                                                 9,583,496   9,129,101
Less accumulated depreciation and amortization   5,032,540   5,139,757
                                                ----------  ----------

                                                $4,550,956  $3,989,344
                                                ==========  ==========
</TABLE>

NOTE  E  -  LONG-TERM  DEBT

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

<TABLE>
<CAPTION>
                                                                      2004         2003
                                                                   -----------  -----------
<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                           $ 1,485,000  $ 1,560,000

Low interest economic development loans, 0%, due in various
Installments through 2010                                              229,305      246,944

Forgivable economic development loans, 3%, paid in full in fiscal            -      216,951
2004

Capital lease obligations                                               97,454      149,787
                                                                   -----------  -----------
                                                                     1,811,759    2,173,682
Less current maturities                                              1,637,923    1,846,922
                                                                   -----------  -----------
                                                                   $   173,836  $   326,760
                                                                   ===========  ===========
</TABLE>


                                       35
<PAGE>
The  forgivable economic development 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


                                       36
<PAGE>
NOTE  E  -  LONG-TERM  DEBT  -  CONTINUED

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 matured in
fiscal  2004.   As of March 31, 2004, 36,511 warrants have been issued for loans
forgiven  totaling  $187,289.

At  March  31,  2004 and 2003, the Company had on deposit with trustees $466,298
and $415,629 in reserve funds for current bond maturities, of which $133,865 and
$125,830  are  for  current  bond  maturities.  These funds are included in bond
reserve  funds  in the accompanying balance sheets.  The loan agreement requires
the  Company to maintain compliance with certain covenants.  The Company was out
of  compliance with certain of these covenants in fiscal 2004.  All debt, except
for  the  long-term  portion  of  the  low interest 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 a 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.  In April 2004, the Company was required to restructure one of its
loans  with  the  City  of  Aberdeen  in conjunction with the sale of its Optics
manufacturing  operations  to  include  an  advance  payment  and an accelerated
payment  stream. The restructuring had no effect on the amount or classification
of  the  overall  loan  balance  at  March  31,  2004.


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

<TABLE>
<CAPTION>
Years ending March 31,
<S>                     <C>
2005                    $1,637,923
2006                        65,873
2007                        27,963
2008                        20,000
2009                        20,000
Thereafter                  40,000
                        ----------
                        $1,811,759
                        ==========
</TABLE>


NOTE  F  -  EMPLOYEE  BENEFIT  PLAN

     The  Company  maintains  a  contributory 401(k) profit sharing benefit plan
covering all employees.  The Company matches 50% of employee contributions up to
6% of a participant's compensation.  The Company's contributions under this plan
were  $72,000, $51,000, and $53,000 for the years ended March 31, 2004, 2003 and
2002.


NOTE  G  -  INCOME  TAXES

Deferred taxes recognize the impact of temporary differences between the amounts
of the assets and liabilities recorded for financial statement purposes and such
amount  measured in accordance with tax laws.  Realization of net operating loss
carry  forward  and other deferred tax temporary differences are contingent upon
future  taxable  earnings.  The  Company's  deferred  tax asset was reviewed for
expected utilization using a "more likely than not" approach as required by SFAS
109  by  assessing  the  available  positive  and  negative  factors


                                       37
<PAGE>
NOTE  G  -  INCOME  TAXES  -  CONTINUED

surrounding  its  recoverability.  Accordingly,  the Company has recorded a full
valuation  allowance  at  March  31,  2004  and  2003.

Significant  components  of  deferred  income  tax assets and liabilities are as
follows  at  March  31,  2004:

<TABLE>
<CAPTION>
                                                2004           2003
                                            -------------  ------------
<S>                                         <C>            <C>
Current deferred income tax assets:
Inventories                                 $     64,350   $    73,710
Accrued expenses                                  33,930             -
                                            -------------  ------------
                                                  98,280        73,710

Long-term deferred income tax assets:
Property and equipment depreciation              172,770             -
Intangibles                                       17,940             -
Net operating loss carryforward               10,880,432     8,679,276
                                            -------------  ------------
                                              11,071,142     8,679,276
                                            -------------  ------------
Total deferred income tax assets              11,169,422     8,752,986

Long-term deferred income tax liabilities:
Goodwill                                          94,338         5,418
                                            -------------  ------------
Total net deferred income taxes               11,075,084     8,747,568
Valuation allowance                          (11,075,084)   (8,747,568)
                                            -------------  ------------
Total                                       $          -   $         -
                                            =============  ============
</TABLE>

As  of  March  31,  2004,  the Company has net operating loss carry forwards for
federal  income tax purposes of approximately $27,899,000 which expire in fiscal
years  2005  to  2024.

Income tax expense consists entirely of state taxes in 2004, 2003, 2002.

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.  There were no
purchases  in  fiscal  2004.  As  of  March 31, 2004 and 2003, a total of 46,750
shares  for  $98,629 at an average price of $2.11 per share had been repurchased
and  retired.


NOTE  I  -  SHAREHOLDER  RIGHTS  PLAN

Pursuant  to the Shareholder Rights Plan 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.


                                       38
<PAGE>
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 1,089,148 shares
of  common  stock  available  for  issue  at  March  31,  2004.


Option  transactions  under  these  plans during the three years ended March 31,
2004  are  summarized  as  follows:

<TABLE>
<CAPTION>
                                                 Weighted average
                               Number of shares    exercise price
                               ----------------  -----------------
<S>                            <C>               <C>
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
  Granted                              140,000                2.62
  Canceled                            (163,260)               5.65
                               ----------------
Outstanding at March 31, 2004          385,115                3.74
                               ================
</TABLE>

The  number  of shares exercisable at March 31, 2004, 2003 and 2002 was 176,815,
165,325  and  108,674,  respectively,  at  a  weighted average exercise price of
$4.21,  $5.42  and  $4.68  per  share,  respectively.

The  following table summarizes information concerning currently outstanding and
exercisable  stock  options  at  March  31,  2004:

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING                         OPTIONS EXERCISABLE
                     -------------------                         -------------------
                               Weighted average     Weighted                      Weighted
Range of            Number        remaining          average        Number         Average
exercise prices   outstanding  contractual life  exercise price   outstanding  exercise price
----------------  -----------  ----------------  ---------------  -----------  ---------------
<S>               <C>          <C>               <C>              <C>          <C>
1.48-$2.91            194,740        4.32 years  $          2.31       29,940  $          1.91
3.77-5.53             140,375         .67 years             4.31      128,250             4.24
5.73-7.22              25,000        2.33 years             6.65        9,500             6.62
8.50-11.90             25,000        3.05 years             8.82        9,125             8.83
                  -----------                                     -----------
                      385,115        2.84 years             3.74      176,815             4.21
                  ===========                                     ===========
</TABLE>


                                       39
<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:

<TABLE>
<CAPTION>
                             Warrants    Exercise price   Expiration
                           outstanding     per share          date
                           ------------  ---------------  -----------
<S>                        <C>           <C>              <C>
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  2005 - 2008
                           ------------
  Issued                             -           -             -
  Expired                            -           -             -
                           ------------
Balance at March 31, 2004      590,822     3.00 - $17.84  2005 - 2008
                           ============
</TABLE>

All  warrants  are  exercisable  upon  date  of  grant.

There  were  no  warrants  issued  in  fiscal  year  2004.

In  fiscal  year  2003,  350,000  warrants 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.


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  increases  of the rental rate based on increases in the
consumer  price  index.  As  of  the date of this report, the Company intends to
extend that lease.  The Company leases other office and manufacturing facilities
space  that  expires  June  30,  2006.

The  Company  leases  certain  equipment  under  capital lease arrangements with
interest  ranging from 10% to 10.62% and terms through July 2006.  The equipment
has  a  net  book  value  of  $104,561  at  March  31,  2004.


                                       40
<PAGE>
NOTE  K  -  COMMITMENTS  -  CONTINUED

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

<TABLE>
<CAPTION>
                                                   Capital   Operating
Year ending March 31                                leases     leases
-------------------------------------------------  --------  ----------

<S>                                                <C>       <C>
2005                                               $ 51,633  $  359,011
2006                                                 49,321     251,850
2007                                                  7,963      59,164
2008                                                      -         240
                                                   --------  ----------

Total minimum lease payments                        108,917  $  670,265
                                                             ==========
Less: Amounts representing interest                  11,463
                                                   --------

Present value of future minimum lease
   payments                                          97,454

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

Capital lease obligations, net of current portion  $ 45,122
                                                   ========
</TABLE>

Rental expense was $485,000, $149,000 and $138,000 for the years ended March 31,
2004,  2003  and  2002, of which $149,000, $139,000 and $138,000 was paid to the
partnership,  respectively.


NOTE  L  -  CONCENTRATIONS


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

No  single customer accounted for more than 10% of the Company's sales in fiscal
2004.   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.   These customers
also  accounted for approximately 6% of the outstanding trade receivable balance
at  March  31,  2003.


Suppliers
---------

The  Company  purchases raw materials, component parts and outsourced labor from
many  suppliers.  Although  many  of these items are single-sourced, the Company
has  experienced  no  significant  difficulties  to  date  in obtaining adequate
quantities.  These  circumstances  could change, however, and the Company cannot
guarantee  that  sufficient  quantities  or  quality of raw materials, component
parts  and  outsourced  labor  will be as readily available in the future or, if
available,  that  we will be able to obtain them at favorable prices. There were
no suppliers that provided more than 10% of the Company's total purchases in the
years  ended  March  31,  2004,  2003  or  2002.


NOTE  M  -  SUBSEQUENT  EVENT  (UNAUDITED)

The  Company  sold  its  Optics  manufacturing  operations on April 14, 2004 for
$220,000.   The  terms  of  the  sale required the Company to restructure a loan
with  the  City  of  Aberdeen  which  amounted  to  an  upfront  payment


                                       41
<PAGE>
NOTE  M  -  SUBSEQUENT  EVENT  (UNAUDITED)  -  CONTINUED

and  an acceleration of the loan balance over the next several years. Results of
these  manufacturing  operations were not material to the consolidated financial
statements  for  fiscal  years  2004,  2003  and  2002.

NOTE  N  -  SEGMENTS  OF  BUSINESS

The  March 2003 and June 2003 acquisitions of Computer System Products, Inc. and
Americable, Inc prompted the Company's management to adjust how it evaluates its
business.  As  a  result  the  Company  established  segments  under  FASB  131
"Disclosures  about  Segments  of  an  Enterprise and Related Information." This
evaluation  is  based  on  the way segments are organized within the Company for
making operating decisions and assessing performance. The Company has identified
two  reportable  segments  based  on  its  internal  organizational  structure,
management  of  operations,  and  performance evaluation. These segments are APA
Optics (APA) and APA Cables and Networks (APACN).  APA's revenue is generated in
the  design,  manufacture  and  marketing  of  ultraviolet  (UV)  detection  and
measurement devices and optical components. APACN's revenue is derived primarily
from  standard and custom fiber optic cable assemblies, copper cable assemblies,
value  added  fiber  optics  frames, panels and modules.  Expenses are allocated
between  the  companies based on detailed information contained in invoices.  In
addition,  corporate  overhead  costs  for  management's time and other expenses
absorbed  at  APA  are  allocated  to  APACN on an ongoing basis. Such allocated
expenses  were  $152,452 for the twelve months ended March 31, 2004.  There were
no  allocated  expenses  in fiscal 2003. Segment detail is summarized as follows
(unaudited,  in  thousands):

<TABLE>
<CAPTION>
                              APA Optics    APACN     Eliminations    Consolidated
                              -----------  --------  --------------  --------------
<S>                          <C>           <C>       <C>             <C>
TWELVE MONTHS ENDED MARCH
31, 2004
  External sales             $       409   $11,691   $        (191)  $      11,909
  Cost of sales                    3,074     9,031            (191)         11,914
  Operating loss                  (5,604)     (955)              -          (6,559)

  Depreciation and                   797       174               -             971
  amortization
  Capital expenditures, net          695        91               -             786
  Assets                          26,187     7,310          (7,652)         25,845

TWELVE MONTHS ENDED MARCH
31, 2003
  External sales             $       202       234               -   $         436
  Cost of sales                    2,627       176               -           2,803
  Operating loss                  (5,269)      (60)              -          (5,329)
  Depreciation and                   811         -               -             811
  amortization
  Capital expenditures               309        50               -             359
  Assets                          31,406     5,275          (4,848)         31,885
</TABLE>


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

          None.

ITEM  9A.  CONTROLS  AND  PROCEDURES.


                                       42
<PAGE>
     The  Company's  chief  executive  officer  and chief financial officer (the
same)  has  concluded  that the Company's disclosure controls and procedures (as
defined in Exchange Act Rule 13a-15(e) 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  as  of  the  end  of  the  period  covered  by  this  Report.

     There  were  no significant changes in the Company's internal controls over
financial  reporting  or  in other factors that could significantly affect these
during  the  fiscal  quarter  ended  March  31,  2004.

ITEM  9B.  OTHER  INFORMATION

     There were no events during the quarter ended March 31, 2004 required to be
disclosed  on  Form  8-K  which  were  not  so  disclosed.



                                    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 to be held in August 2004.


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 to be held in
August  2004.


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 to be held
in  August  2004.


                                       43
<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
                                                                                            reflected in column (a))
-------------------------------------  ------------------------  ----------------------  -------------------------------
<S>                                    <C>                       <C>                     <C>
Equity compensation plans approved by
security holders                                        385,115  $                 3.74                        1,042,628
-------------------------------------  ------------------------  ----------------------  -------------------------------
Equity compensation
plans not approved by
security holders                                        590,822  $                 8.05                  Not applicable*
-------------------------------------  ------------------------  ----------------------  -------------------------------
Total                                                   975,937  $                 6.35                        1,042,628
-------------------------------------  ------------------------  ----------------------  -------------------------------

<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 to be held in
August  2004.

ITEM  14.     PRINCIPAL  ACCOUNTANT  FEES  AND  SERVICES

     Information required by Item 14 is incorporated in this Report by reference
to  the  proxy  statement  for  our annual meeting of shareholders to be held in
August  2004.


                                       44
<PAGE>
<TABLE>
<CAPTION>
                                     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
                                                                                          ----
<S>       <C>                                                                              <C>

            (i)  Report of Independent Registered Public Accounting Firm for. . . . . . .  F1
                 the years ended March 31, 2004, 2003 and
                 2002
           (ii)  Consolidated Balance Sheets as of March 31, 2004 and 2003. . . . . . . .  F2

          (iii)  Consolidated Statements of Operations for the years ended
                 March 31, 2004, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . .  F3
           (iv)  Consolidated Statement of Shareholders' Equity for the years ended
                 March 31, 2004, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . .  F4
            (v)  Consolidated Statements of Cash Flows for the years ended
                 March 31, 2004, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . .  F6
           (vi)  Notes to the Consolidated Financial Statements for the years ended
                 March 31, 2004, 2003 and 2002. . . . . . . . . . . . . . . . . . . . . .  F7

       (2)      Financial Statement Schedules: None
</TABLE>

     (b)   Reports  filed  on  Form  8-K:

     In  the  last quarter of our fiscal year ended March 31, 2004, we filed the
following  reports  on  Form  8-K

<TABLE>
<CAPTION>
--------------  --------------  --------------------------  --------------------
Date of Report  Date of Filing  Event Reported              Financial Statements
                                                            Filed
--------------  --------------  --------------------------  --------------------
<S>             <C>             <C>                         <C>
January 15      January 15      Press release announcing    None
                                organizational changes
--------------  --------------  --------------------------  --------------------
</TABLE>



     (c)     Exhibits.  See  Exhibit  Index.


                                       45
<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 29, 2004                 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, Chief   June 29, 2004
---------------------------  Financial Officer and Director (principal
Anil K. Jain                 executive officer and principal financial
                             officer)

/s/ Kenneth A. Olsen         Secretary, Vice President, and Director     June 29, 2004
---------------------------
Kenneth A. Olsen

/s/Daniel Herzog             Comptroller (principal accounting officer)  June 29, 2004
---------------------------
Daniel Herzog

/s/ John G. Reddan           Director                                    June 29, 2004
---------------------------
John G. Reddan

/s/ Ronald G. Roth           Director                                    June 29, 2004
---------------------------
Ronald G. Roth

/s/ Stephen A. Zuckerman MD  Director                                    June 29, 2004
---------------------------
Stephen Zuckerman
</TABLE>


                                       46
<PAGE>
<TABLE>
<CAPTION>
                                          EXHIBIT  INDEX

=======================================================================================================
                                                                       PAGE NUMBER OR INCORPORATED
NUMBER                   DESCRIPTION                                         BY REFERENCE TO
-------------------------------------------------------------------------------------------------------
<C>       <S>                                                      <C>
     2.1  Asset Purchase Agreement between APACN and               Exhibit 2.1 to Form 8-K filed
          CSP, Inc.                                                March 31, 2003

     2.1  Asset Purchase Agreement between APACN and               Exhibit 2.1 to Form 8-K filed July
          Americable, Inc.                                         2, 2003

     2.2  Agreement Not to Compete with Peter Lee as part of       Exhibit 2.2 to Form 8-K filed
          CSP asset purchase                                       March 31, 2003

     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
          Development Security Agreement REDI Loan No: 95-         10-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
          between Aberdeen Development Corporation and             10-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
          and between Aberdeen Development Corporation and         10-QSB
          APA Optics, Inc.

  4.2(e)  Amended Loan Agreement with Aberdeen                     Exhibit 4.2(e) to Registrants
          Development Corporation and APA Optics, Inc.             Report on Form 10-K for fiscal
                                                                   year ended March 31, 2004

  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


                                       48
<PAGE>
=======================================================================================================
                                                                       PAGE NUMBER OR INCORPORATED
 NUMBER                   DESCRIPTION                                        BY REFERENCE TO
-------------------------------------------------------------------------------------------------------
  4.3(b)  Mortgage and Security Agreement - One Hundred            Exhibit 4.3(b) to the June 1996
          Day Redemption from APA Optics, Inc. to South            10-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
          Venture, Inc.                                            10-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)

  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

     4.8  Common Stock Warrant Purchase Agreement with             Exhibit 4.8 to Form 8-K filed
          Peter Lee as part of CSP asset purchase                  March 31, 2003

 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
          Properties                                               the Securities and Exchange
                                                                   Commission on June 26, 1986

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

*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


                                       49
<PAGE>
=======================================================================================================
                                                                       PAGE NUMBER OR INCORPORATED
NUMBER                    DESCRIPTION                                        BY REFERENCE TO
-------------------------------------------------------------------------------------------------------
   *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.

    10.8  Sublease agreement between Newport and APACN             Exhibit 10.8 to Registrant's Report
                                                                   of Form 10-QSB for the quarter
                                                                   ended June 30, 2003

    10.9  Sublease agreement between Veeco Compound                Exhibit 10.9 to Registrant's
          Semiconductor and APA Optics, Inc.                       Report of Form 10-K for the fiscal
                                                                   year ended March 31, 2004

   10.10  Ken Olsen Separation Agreement                           Exhibit 10.10 to Registrant's
                                                                   Report on Form 10-K for the fiscal
                                                                   year ended March 31, 2004

      14  Code of Ethics                                           Exhibit 14 to Registrant's Report
                                                                   on Form 10-K for the fiscal year
                                                                   ended March 31, 2004

      21  List of Subsidiaries

    23.1  Consent of Grant Thornton LLP
          Certification of Chief Executive Officer Pursuant to

    31.1  Section 302 of the Sarbanes-Oxley Act of 2002
          Certification of Chief Executive Officer and Principal
          Financial Officer Pursuant to Section 906 of the

    32.1  Sarbanes-Oxley Act of 2002

<FN>
*Indicates  management contract or compensation plan or arrangements required to be filed as an exhibit
to  this  form.
</TABLE>


                                       50
<PAGE>