<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended July 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ________
Commission file number 0-12646
ANGSTROM TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 31-1065350
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1895 Airport Exchange Boulevard, Erlanger, KY 41018
(Address of principal executive offices)
(606) 282-0020
(Issuer's telephone number)
____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
As of July 31, 1996, there were 22,393,938 shares of Common Stock outstanding.
TOTAL PAGES IN THIS REPORT: 13 (excluding cover but including signature page)
<PAGE>
INDEX
PART I. Financial Information Page No.
--------
Item 1. Financial Statements
Balance Sheets 2-3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. Other Information
Item 6. Exhibits 12
SIGNATURES 13
1
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ANGSTROM TECHNOLOGIES, INC.
BALANCE SHEET
July 31, October 31,
1996 1995
(Unaudited) (Note)
----------- -----------
ASSETS
Current assets:
Cash $ 60,865 $ 129,308
Short-term investments 477,859 901,633
Interest receivable 6,914 11,489
Accounts receivable 101,995 120,622
Inventories
Finished goods 25,350 14,052
Raw materials and parts 468,768 277,364
----------- -----------
494,108 291,416
Prepaid expenses 61,593 111,961
----------- -----------
Total current assets 1,203,333 1,566,429
Furniture and equipment, at cost 95,990 68,676
Less: accumulated depreciation (41,416) (31,104)
----------- -----------
54,574 37,572
Other assets:
Long-term investments 449,034 448,092
Patents, net of amortization 87,336 61,076
Other assets 1,382 1,237
----------- -----------
Total assets $ 1,795,659 $ 2,114,406
=========== ===========
NOTE: The balance sheet at October 31, 1995 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
2
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ANGSTROM TECHNOLOGIES, INC.
BALANCE SHEET (CONTINUED)
July 31, October 31,
1996 1995
(Unaudited) (Note)
----------- -----------
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable $ 136,468 $ 105,332
Accrued liabilities 42,188 47,223
Long-term debt due within one year 25,302 23,134
----------- -----------
Total current liabilities 203,958 175,689
Long-term debt 75,197 94,454
Capital
Preferred stock, $.01 par value; 5,000,000
shares authorized, 1,501,285 and 1,663,450
shares issued and outstanding at July 31,
1996 and at October 31, 1995 2,470,335 2,737,175
Common stock, $.01 par value; 45,000,000
shares authorized, 22,393,938 and 21,745,278
shares issued and outstanding at July 31,
1996 and at October 31, 1995 223,939 217,453
Additional paid-in capital 4,695,984 4,435,631
Accumulated deficit (5,873,754) (5,545,996)
----------- -----------
Net capital 1,516,504 1,844,263
----------- -----------
Total liabilities and capital $ 1,795,659 $ 2,114,406
=========== ===========
NOTE: The balance sheet at October 31, 1995 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
3
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<TABLE>
<CAPTION>
ANGSTROM TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
July 31, 1996 July 31, 1995 July 31, 1996 July 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 175,673 $ 415,242 $ 618,256 $ 724,338
Cost of sales 111,874 96,427 372,180 245,166
------------ ------------ ------------ ------------
Gross profit 63,799 318,815 246,076 479,172
Selling, general and administrative
expenses 222,825 233,365 618,022 758,358
------------ ------------ ------------ ------------
(159,026) 85,450 (371,946) (279,186)
Other Income (Expense)
Interest income 15,889 19,841 50,814 59,349
Interest expense (3,143) (3,793) (9,921) (11,834)
Gain (loss) on sale of securities (733) 0 3,295 (26)
------------ ------------ ------------ ------------
Net income (loss) (147,013) 101,498 (327,758) (231,697)
------------ ------------ ------------ ------------
Less preferred dividend requirement (60,100) (67,340) (167,000) (202,020)
------------ ------------ ------------ ------------
Net income (loss) applicable to
common stockholders $ (207,113) $ 34,158 $ (497,758) $ (433,717)
============ ============ ============ ============
Net (loss) per share $ (0.01) $ 0.00 $ (0.02) $ (0.02)
============ ============ ============ ============
Weighted Average Number of
Shares Outstanding 22,189,528 21,645,078 21,821,384 21,590,411
</TABLE>
See accompanying notes.
4
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ANGSTROM TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended July 31,
--------------------------
1996 1995
--------- ---------
Operating Activities
Net loss $(327,758) $(231,697)
Adjustments to reconcile net loss to net
cash used in operations
Depreciation 10,311 10,275
Amortization 947 0
Changes in operating assets and liabilities:
Decrease (increase) in receivables 23,202 (64,902)
Decrease (increase) in inventories (202,692) (18,807)
Decrease (increase) in prepaid expenses 50,368 (104,734)
Increase in other assets (145) (5,579)
Increase (decrease) in accounts payable 32,785 (19,641)
Increase (decrease) in other liabilities (6,685) (710)
--------- ---------
Net cash used in operating activities (419,665) (435,795)
Investing Activities
Purchase of furniture and equipment (27,314) (1,304)
Proceeds from disposition of investments 422,833 746,752
Capitalization of patents (27,208) 0
--------- ---------
Net cash provided by investing activities 368,311 745,448
Financing Activities
Payment on preferred stock dividend 0 (256,725)
Payments on long-term debt (17,089) (15,165)
--------- ---------
Net cash used in financing activities (17,089) (271,890)
--------- ---------
Net (decrease) increase in cash (68,443) 37,763
Cash, beginning of period 129,308 47,680
--------- ---------
Cash, end of period $ 60,865 $ 85,443
========= =========
Supplemental information:
Interest paid $ 9,921 $ 11,834
See accompanying notes.
5
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ANGSTROM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine month period ended July 31, 1996 is not
necessarily indicative of the results that may be expected for the
year ended October 31, 1996. For further information, refer to the
financial statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended October 31, 1996.
Note 2 Earnings per common share are calculated based upon a weighted
average of shares outstanding after giving effect to the preferred
dividend requirements.
Note 3 The preferred stock issued December 22, 1993 provided for an annual
cumulative dividend to be paid on November 1, 1995. Management has
determined that available funds would be more prudently utilized in
its ongoing research and development efforts and as a result no
accrual or payment of dividend will be made until such time as
sufficient cash flows are generated from operations. Management
intends to hold the dividend payable as of November 1, 1995, in
arrears. No dividend was accrued for the year ended October 31, 1995.
The amount that would have been accrued at October 31, 1995 if a
dividend had been recorded would have been $266,152 ($.16 per
preferred stock share payable at November 30, 1995 to holders of
record 15 days prior to such date). No dividend has been accrued for
the nine month period ended July 31, 1996. The amount that would have
been accrued at July 31, 1996, if a dividend had been recorded, would
have been approximately $167,000 ($.16 per preferred stock share
outstanding at that date).
Note 4 On December 3, 1993, the shareholders of the Company approved an
amendment to the Company's certificate of incorporation increasing the
authorized number of shares of common stock to 45,000,000 from
25,000,000, increasing the authorized number of preferred stock to
5,000,000 from 2,000,000 and reducing the par value of the preferred
stock to $.01 per share from $10.00 per share.
On December 22, 1993, the Company completed the issuance of 1,725,000
units of its securities through a public offering, resulting in net
proceeds of $2,838,454 after offering expenses. Each unit consists of
one share of the redeemable convertible preferred stock and one Class
A redeemable common stock purchase warrant. Each
6
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Note 4 (Continued)
share of preferred stock is convertible into four shares of the
Company's common stock and each Class A warrant entitles the holder to
purchase one share of the Company's common stock for $1.00 and to
receive one Class B redeemable common stock purchase warrant which
entitles the holder to purchase one share of the Company's common
stock for $1.50.
The following conversions of preferred stock for common stock have
occurred during the period ended July 31, 1996 as follows:
Conversion Preferred Stock Common Stock
Date Converted Received
---------- --------------- ------------
5/1/96 6,200 24,800
5/6/96 4,000 16,000
5/13/96 6,800 27,200
5/21/96 15,600 62,400
5/23/96 25,480 101,920
6/7/96 12,500 50,000
6/19/96 4,500 18,000
7/1/96 3,550 14,200
7/3/96 2,500 10,000
7/11/96 13,000 52,000
7/17/96 2,150 8,600
7/22/96 5,925 23,700
------- -------
102,205 408,820
======= =======
The preferred stock has a liquidation preference of $2.00 per share,
an aggregate of $3,002,570.
Note 5 Effective November 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes."
The standard requires the use of the liability method to recognize
deferred income tax assets and liabilities, using expected future tax
rates. The cumulative effect of adopting the standard and the effect
of applying the standard on the operating statement for the period
ended January 31, 1994 was zero. The tax effects of temporary
differences that give rise to a deferred income tax asset, a
corresponding valuation allowance and deferred tax liability at July
31, 1996 and October 31, 1995 are presented below:
7
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Note 5 (Continued)
July 31, October 31,
1996 1995
----------- -----------
Deferred tax assets:
Net operating loss $ 1,396,000 $ 1,320,000
Reserve for inventory
obsolescence 2,000 4,000
----------- -----------
Total deferred tax asset 1,398,000 1,324,000
Less: valuation allowance (1,393,000) (1,319,800)
----------- -----------
Net deferred tax asset $ 3,000 $ 4,200
=========== ===========
Deferred tax liabilities:
Note payable; rate differential 3,000 4,200
----------- -----------
Net deferred tax liability $ 3,000 $ 4,200
=========== ===========
Net deferred tax $ 0 $ 0
=========== ===========
The Company entered fiscal 1996 with cumulative net operating loss
carryforwards of approximately $3,310,000 for federal income tax
purposes which expire in the year 2000 to 2010. As a result of a
capital stock transaction in May 1989, a change in ownership, as
defined by Section 392 of the Internal Revenue Code, occurred. The
effect of the change in ownership is to severely limit the future
utilization of the net operating loss carryforward existing at that
date.
8
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1996 Third Quarter and Nine Months compared to Fiscal 1995 periods
Net sales for the third quarter of Fiscal 1996 were approximately $175,700,
a decrease of 57.6% from the approximately $415,200 in net sales in the
corresponding quarter of 1995. This decrease covered both chemicals and scanner
equipment, and resulted from the absence of a major sales order in this quarter,
especially in light of significant sales made in the corresponding quarter of
Fiscal 1995 to a postal contractor for the U.S. Postal Service certified mail
label printing project. The Postal Service and this contractor continue to
utilize both hardware and chemicals made by the Company and the Company is
seeking additional orders from them. Sales for the nine month period ended July
31, 1996 were approximately $618,300, a decrease of approximately 14.6% from the
approximately $724,300 in sales for the corresponding nine month period of the
prior fiscal year. Cost of sales increased as a percentage of overall sales in
the year-to-year third quarter from 23% to 64%; this was due to the lower sales
base over which to spread fixed costs, the loss of certain economies of scale
realizable by higher production rates, and higher engineering costs to
facilitate production of new products. Cost of sales for the nine month
comparative periods increased for these same reasons.
Selling, general and administrative expenses decreased from approximately
$233,400 in the prior year's third quarter to approximately $222,800 in the
third quarter of Fiscal 1996 evidencing, among other things, the reduction in
payment of sales commissions.
Net interest income of approximately $15,900 for the third quarter of
Fiscal 1996 was slightly less than the net interest income of $19,900 for the
third quarter of the preceding fiscal year due to reduced capital available for
investment; however, net interest income for the nine month period in Fiscal
1996 equalled $50,800, only a slight decrease from the $59,350 of net interest
income for the first nine months of Fiscal 1995, since the effect of lesser
funds to invest was partially offset by higher interest rates.
As a result of the foregoing, the Company generated a net loss of
approximately $147,000 before dividend requirements during the third quarter of
Fiscal 1996 and a net loss of $327,800 before dividend requirements for the
first nine months of Fiscal 1996, as opposed to a net profit of $101,500 and net
loss of $231,700, respectively, for the corresponding periods of Fiscal 1995,
again before dividend requirements.
-9-
<PAGE>
Liquidity and Capital Resources
At the end of the third quarter of Fiscal 1996, as compared with the status
as at October 31, 1995, the Company had a net decrease in cash and short term
investments of approximately $492,200 (primarily due to funding of operating
losses), a decrease in trade accounts receivable of $18,600 (owing to timing of
collections), an increase in inventory of $202,700 (as the Company readies for
commercial production of its broader range of readers and chemical formulations)
and a decrease in prepaid expenses of $50,400 largely resulting from a reduction
in the amount of advances paid to manufacturing suppliers for future deliveries.
It is anticipated that the Company will continue to experience a decrease in
cash and short term investments unless and until more substantial sales revenues
are generated. As indicated in Note 4 to these financial statements, no dividend
has been accrued for the first nine months of Fiscal 1996 since management has
determined to conserve available funds and maintain the Company's liquidity in
light of its needs to continue developmental and marketing expenditures referred
to hereinabove.
The Company's primary need for cash is to support its programs and its
ongoing operating activities. The Company's primary sources of liquidity have
historically been cash provided by financing activities. The Company has never
generated sufficient cash flows from its operations and has depended upon
financing from outside sources to maintain itself.
On December 22, 1993 the Company consummated a public offering of its
securities consisting of 1,725,000 units. Each unit was comprised of one share
of 8% redeemable convertible preferred stock (convertible into four shares of
Common Stock) and one Class A redeemable common stock purchase warrant. The
Company received net proceeds of approximately $2,838,000 from such offering,
after underwriting discounts and commissions and other expenses of the offering.
The Company ultimately utilized approximately $382,000 of such proceeds to repay
outstanding loans to the underwriter and the Company's officers, directors and
stockholders. The Company anticipates that the proceeds of such public offering,
together with existing funds, will enable it to fund its operating and capital
needs through at least the end of its next fiscal year. The Company may require
additional financing after such time depending on the status of its sales
efforts and whether sufficient revenues and contractual commitments have been
received from its customers to enable it to function with sufficient liquidity.
The Company is not able at this time to predict the amount or potential source
of such additional funds and has no commitment to obtain such funds.
Federal Income Taxes
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". The standard
requires the use of the liability method to recognize deferred income tax assets
and liabilities, using expected future tax rates.
The tax effects of temporary differences that give rise to deferred income
tax assets, a corresponding valuation allowance and deferred tax liabilities at
July 31, 1996 and October 31, 1995 is presented below.
-10-
<PAGE>
July 31, 1996 October 31, 1995
Deferred tax assets: ------------- ----------------
Net Operating Loss $ 1,396,000 $ 1,320,000
Reserve for inventory obsolescence 2,000 4,000
----------- -----------
Total deferred tax asset: 1,398,000 1,324,000
Less: Valuation allowance (1,393,000) (1,319,800)
----------- -----------
Net deferred tax asset $ 3,000 $ 4,200
=========== ===========
Deferred tax liabilities:
Note payable; rate differential 3,000 4,200
----------- -----------
Net deferred tax liability $ 3,000 $ 4,200
=========== ===========
Net deferred tax $ -0- $ -0-
=========== ===========
The Company has cumulative net operating loss carryforwards of
approximately $3,310,000 million for federal income tax purposes which expire
between the years 2000 to 2010. As a result of a capital stock transaction in
May 1989, a change in ownership, as defined by Section 382 of the Internal
Revenue Code, occurred. The effect of the change in ownership is to severely
limit the future utilization of the net operating loss carryforward existing at
that date.
Other
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
-11-
<PAGE>
Part II
Other Information
Item 6. Exhibits
(a) Exhibits
No exhibits are being filed with this Quarterly Report on Form
10-QSB.
8-K Reports
(b) No reports on Form 8-K were filed during the quarter in reference.
-12-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report on Form 10-QSB to be signed on its behalf by the undersigned,
thereunto duly authorized.
DATE: September 13, 1996
ANGSTROM TECHNOLOGIES, INC.
By: s/Daniel A. Marinello
Daniel A. Marinello
Chief Executive Officer and
Chief Financial Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 60,865
<SECURITIES> 477,859
<RECEIVABLES> 101,995
<ALLOWANCES> 0
<INVENTORY> 494,108
<CURRENT-ASSETS> 1,203,333
<PP&E> 95,990
<DEPRECIATION> 41,416
<TOTAL-ASSETS> 1,795,659
<CURRENT-LIABILITIES> 203,958
<BONDS> 75,197
0
2,470,335
<COMMON> 223,939
<OTHER-SE> 4,695,984
<TOTAL-LIABILITY-AND-EQUITY> 1,795,659
<SALES> 618,256
<TOTAL-REVENUES> 672,365
<CGS> 372,180
<TOTAL-COSTS> 618,022
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,921
<INCOME-PRETAX> (327,758)
<INCOME-TAX> 0
<INCOME-CONTINUING> (327,758)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327,758)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
