<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED)
For the fiscal year ended October 31, 1996
----------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File Number 0-12646
-------
ANGSTROM TECHNOLOGIES, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 31-1065350
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1895 Airport Exchange Boulevard, Erlanger, KY 41018
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (606) 282-0020
--------------
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None
- --------- -------------------------
- --------- -------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value ("Common Stock"); 8% Redeemable Convertible
------------------------------------------------------------------------
Preferred Stock, $.01 par value ("Preferred Stock").
------------------------------------------------------------------------
(Title of class)
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
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. [ ]
[Cover page 1 of 2 pages]
<PAGE>
The issuer's revenues for the fiscal year ending October 31, 1996 were
$869,829.
As of January 1, 1997, the aggregate market value, based on the average
bid and asked prices, of the issuer's voting stock (Common Stock) held by
non-affiliates was approximately $7,550,000. For purposes of this calculation,
shares of Common Stock held by directors, officers and stockholders whose
ownership exceeds five percent of the Common Stock outstanding at October 31,
1996 were excluded. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or indirect,
to direct or cause the direction of management or policies of the issuer, or
that such person is controlled by or under common control of the issuer.
As of January 1, 1997, there were 22,468,938 shares of Common Stock and
1,482,535 shares of Preferred Stock, outstanding, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TOTAL PAGES IN THIS REPORT: 28 EXHIBIT INDEX: PAGE 26
-- --
[Cover page 2 of 2 pages]
<PAGE>
CHANGES FROM FORM 10-KSB
1. Management's Discussion and Analysis
Financial Statements
2. Statements of Cash Flows
3. Notes to Financial Statements (F-7=F-15)
-3-
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
----------------------------------------------------------
Summary of Operations
- ---------------------
Year Ended October 31, 1996 ("Fiscal 1996") compared to Year Ended October 31,
1995 ("Fiscal 1995")
- --------------------------------------------------------------------------------
Net sales of $869,829 for Fiscal 1996 reflect a decrease of 16.2% from
the $1,050,281 in net sales in Fiscal 1995. This decrease in sales was reflected
both in sales of chemicals and scanner equipment. During Fiscal 1995, sales of
both product categories to a subcontractor for the U.S. Postal Service totaled
approximately $477,000, or approximately 45% of the Company's total sales while
there were no sales during Fiscal 1996 to this party, reflecting the concluding
portion of that particular contract. However, in a recent development, the
Company has been awarded another contract by this subcontractor in connection
with an additional phase of this project by the U.S. Postal Service and revenues
derived from this customer should be reflected in the first six months of
operations during Fiscal 1997 (the current fiscal year). The cost of sales, as a
percentage of overall sales, on a year-to-year comparison increased from 34.1%
to 50.1%; this was due to the lower sales base over which to spread fixed costs,
the loss of certain economics of scale previously realizable by higher
production rates, and increased engineering costs to facilitate production of
new products.
Selling, general and administrative expenses decreased slightly from
approximately $973,850 in Fiscal 1995 to approximately $945,900 in Fiscal 1996.
This decrease was primarily due to the lower sales commissions payable on the
reduced sales figures as well as to a modest reduction in development expenses
as the Company successfully completed the development of the hand-held scanner,
mid-range and remote controlled scanners as well as the development of
formulations for a variety of additional chemical compounds. Six patents in all
have been issued to the Company from the U.S. Patent Office; costs relating
thereto had previously been either capitalized or expensed by the Company.
The Company generated a net loss of $467,207 before dividend
requirements during Fiscal 1996 as compared with a net loss of $217,211 for
Fiscal 1995, before dividend requirements.
After taking into account research and development and interest
expenses, the Company incurred operating losses (before applicable interest
income) in Fiscal 1995 of approximately $104,000 on chemicals and $193,000 on
scanner and hardware sales, while incurring operating income on chemical sales
of approximately $313,000 and a loss of $248,000 on scanners and hardware sales
in Fiscal 1996 on these items.
Net interest income of approximately $50,750 for Fiscal 1996 was
slightly less than the net interest income of approximately $63,900 in Fiscal
1995 as a result both of lower interest rates, which gave a lesser return on
investment, and the fact that the Company's cash balances available for
investment were slightly lower.
-4-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
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 significant cash flows from its operations and has depended upon
financing from outside sources to maintain itself.
The Company had cash and cash equivalents, and investments, of $840,692
as at the end of Fiscal 1996 as compared with $1,490,521 as at the end of Fiscal
1995, resulting in a decrease in these categories of $649,829, which was used to
fund operating losses as well as cover expenditures for its new computerized
operating system and molds for more efficient manufacture of scanners. It also
experienced a slight decrease in trade accounts receivable of $9,682 and an
increase in inventory of $274,589 due to the fact that it has produced a full
line of products to present to customers and potential customers. Prepaid
expenses at such dates decreased materially from $111,961 to $1,181 due to the
absence of a need to make advance payments to suppliers. It is anticipated that
the Company will continue to experience a decrease in cash and short term
investments while it is engaged in development expenses related to new products
and until more substantial sales revenues are generated. As indicated in Note 2
to these financial statements, no dividend has been accrued for 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 anticipates that
existing funds will enable it to fund its operating and capital needs through at
least October 31, 1997, the end of its current fiscal year, and for some time
thereafter. 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.
-5-
<PAGE>
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 October 31, 1996 and October 31, 1995 is presented below.
Deferred tax assets: October 31, 1996 October 31, 1995
---------------- ----------------
Net Operating Loss $ 1,498,000 $ 1,320,000
Other Net 5,800 4,000
----------- -----------
Total deferred tax assets 1,503,800
1,324,000
Less: Valuation allowance (1,503,800) 1,319,800
----------- -----------
Net deferred tax asset $ -0- $ 4,200
=========== ===========
Deferred tax liabilities:
Note payable; rate differentia - (4,200)
----------- -----------
Net deferred tax liability $ - $ (4,200)
=========== ===========
Net deferred tax $ -0- $ -0-
=========== ===========
The Company has cumulative net operating loss carryforwards of
approximately $3,800,000 for federal income tax purposes which expire between
the years 2000 to 2011.
Other
- -----
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
-6-
<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.
Date: May 22, 1997 ANGSTROM TECHNOLOGIES, INC.
By: s/Daniel A. Marinello
---------------------------
Daniel A. Marinello,
Chief Executive Officer and
Chief Financial 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>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
s/Daniel A. Marinello Chief Executive Officer, May 22, 1997
- ---------------------------------- Chief Financial Officer and a
Daniel A. Marinello Director (Principal Executive
Officer, Principal Financial Officer
and Principal Accounting Officer)
s/Louis Liang Executive Vice President - May 22, 1997
- ---------------------------------- Strategic Business and a Director
Louis Liang
s/William J. Ryan Executive Vice President - May 22, 1997
- ---------------------------------- Operations and a Director
William J. Ryan
Secretary and a Director
- ----------------------------------
Douglas B. Kruger
</TABLE>
<PAGE>
Financial Statements
Angstrom Technologies, Inc.
Years ended
October 31, 1996 and 1995
with Report of Independent Auditors
<PAGE>
Angstrom Technologies, Inc.
Financial Statements
Years ended October 31, 1996 and 1995
Contents
Report of Independent Auditors ............................................. 1
Audited Financial Statements
Balance Sheet .............................................................. 2
Statements of Operations ................................................... 4
Statements of Capital ...................................................... 5
Statements of Cash Flows ................................................... 6
Notes to Financial Statements .............................................. 7
<PAGE>
Report of Independent Auditors
The Board of Directors
Angstrom Technologies, Inc.
We have audited the accompanying balance sheet of Angstrom Technologies, Inc. as
of October 31, 1996, and the related statements of operations, capital and cash
flows for each of the two years in the period ended October 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Angstrom Technologies, Inc. at
October 31, 1996, and the results of its operations and its cash flows for each
of the two years in the period ended October 31, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Cincinnati, Ohio
January 6, 1997
F-1
<PAGE>
Angstrom Technologies, Inc.
Balance Sheet
October 31, 1996
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 24,175
Short-term investments 816,517
Accounts receivable 110,940
Interest receivable 6,093
Inventories:
Finished goods 30,168
Work in process 12,906
Raw materials and parts 522,931
------------------
566,005
Prepaid expenses 1,181
------------------
Total current assets 1,524,911
Furniture and equipment, at cost 141,789
Less accumulated depreciation 46,609
------------------
Net furniture and equipment 95,180
Patents, less accumulated amortization of $4,518 97,877
------------------
Total assets $1,717,968
==================
F-2
<PAGE>
Liabilities and capital
Current liabilities:
Accounts payable $ 190,938
Accrued liabilities 55,520
Long-term debt due within one year 26,068
------------------
Total current liabilities 272,526
Long-term debt 68,386
Capital:
Preferred stock, $.01 par value; 5,000,000 shares authorized, 1,482,535
issued and outstanding (liquidation preference of $2.00
per share) 2,439,483
Common stock, $.01 par value; 45,000,000 shares authorized,
22,468,938 shares issued and outstanding 224,690
Additional paid in capital 4,726,086
Accumulated deficit (6,013,203)
------------------
Net capital 1,377,056
------------------
$1,717,968
==================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Angstrom Technologies, Inc.
Statements of Operations
Year ended October 31
1996 1995
----------------------------
Net sales $ 869,829 $ 1,050,281
Cost of sales 441,886 357,611
----------------------------
Gross profit 427,943 692,670
Selling, general and administrative expenses 945,906 973,852
Interest expense 12,876 15,469
Interest income (63,632) (79,440)
----------------------------
895,150 909,881
----------------------------
Net loss (467,207) (217,211)
Less dividend requirement on preferred stock (237,206) (266,152)
----------------------------
Net loss applicable to common stock $ (704,413) $ (483,363)
============================
Net loss per common share $ (0.03) $ (0.02)
============================
See accompanying notes.
F-4
<PAGE>
Angstrom Technologies, Inc.
Statements of Capital
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------------------------------------------
Shares Amount Shares Par value
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at October 31, 1994 1,711,500 $ 2,816,240 21,553,078 $ 215,531
Conversion of preferred stock (48,050) (79,065) 192,200 1,922
Net loss
--------------------------------------------------------------
Balance at October 31, 1995 1,663,450 2,737,175 21,745,278 217,453
Conversion of preferred stock (180,915) (297,692) 723,660 7,237
Net loss
--------------------------------------------------------------
Balance at October 31, 1996 1,482,535 $ 2,439,483 22,468,938 $ 224,690
==============================================================
<CAPTION>
Additional Net
Paid in Accumulated Capital
Capital Deficit (Deficiency)
-----------------------------------------------
<S> <C> <C> <C>
Balance at October 31, 1994 $ 4,358,488 $(5,328,785) $ 2,061,474
Conversion of preferred stock 77,143 ---
Net loss (217,211) (217,211)
-----------------------------------------------
Balance at October 31, 1995 4,435,631 (5,545,996) 1,844,263
Conversion of preferred stock 290,455 ---
Net loss (467,207) (467,207)
-----------------------------------------------
Balance at October 31, 1996 $ 4,726,086 $(6,013,203) $ 1,377,056
===============================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
Angstrom Technologies, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended October 31
1996 1995
-----------------------------------
<S> <C> <C>
Operating activities
Net loss $(467,207) $ (217,211)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 19,624 13,994
Changes in operating assets and liabilities:
Accounts receivable 9,682 (58,825)
Interest receivable 5,396 (7,088)
Inventories (274,589) (56,573)
Prepaid expenses 110,780 (66,230)
Accounts payable 85,606 (11,958)
Accrued liabilities 8,297 1,348
-----------------------------------
Net cash used by operating activities (502,411) (402,543)
Investing activities
Purchases of furniture and equipment (73,113) (1,304)
Proceeds from sale of available-for-sale investments 533,208 824,205
Capitalization of patents (40,920) (61,475)
Other assets 1,237 -
-----------------------------------
Net cash provided by investing activities 420,412 761,426
Financing activities
Payment of preferred stock dividend - (256,725)
Principal repayments of long-term debt (23,134) (20,530)
-----------------------------------
Net cash used by financing activities (23,134) (277,255)
-----------------------------------
Net (decrease) increase in cash (105,133) 81,628
Cash and cash equivalents at beginning of year 129,308 47,680
-----------------------------------
Cash and cash equivalents at end of year $ 24,175 $ 129,308
===================================
Supplemental cash flow disclosures
Cash paid for interest $ 12,876 $ 15,470
Conversion of preferred stock to common stock 297,692 79,065
</TABLE>
See accompanying notes.
F-6
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements
October 31, 1996 and 1995
1. Significant Accounting Policies
Business
Angstrom Technologies, Inc. (the Company), is a developer and manufacturer of
electro-optical scanning devices and related ultraviolet chemical compounds. The
Company sells primarily to Fortune 500 companies in a variety of industries, and
generally does not require collateral for credit sales. Credit losses are
provided for in the financial statements when necessary and have been
consistently within management's expectations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on the
first-in, first-out basis. The Company periodically reviews inventory levels for
obsolete, slowmoving and nonsalable inventory and records a reserve against
those inventories when deemed necessary.
Furniture and Equipment
Furniture and equipment is stated at cost. Depreciation is provided using the
straight-line method over the useful life of the assets.
Patents
The Company has been awarded four patents from the U.S. Patent office. The legal
fees associated with the application and approval of these patent applications
for U.S. and foreign patents have been capitalized. These patent costs are being
amortized over a life not to exceed 20 years which is deemed to be the economic
life of the patents.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments with a maturity of three months or less at date of
purchase to be cash equivalents.
Net Loss Per Common Share
Calculations of net loss per common share are based on the weighted average
number of shares outstanding during each year. The weighted average number of
shares outstanding was 22,084,393 for 1996 and 21,587,286 for 1995.
F-7
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." The Statement established
financial accounting and reporting standards for stock-based employee
compensation plans. Companies may elect to account for such plans under the fair
value method or continue the previous accounting and disclose pro forma net
income and earnings per share as if the fair value method was applied. The
statement is to be applied on a prospective basis beginning in the Company's
fiscal year 1997.
The Company has not yet determined the potential financial statement impact of
the Standard.
Revenue Recognition
Revenues are recognized when a product is shipped or a service is performed. The
Company provides for product returns and warranties based on historical
experience.
Use of Estimates
The preparation of the financial statements using generally accepted accounting
principles requires management to make estimates and assumptions that affect the
amounts recorded in the financial statements and accompanying notes. Actual
results could differ from those estimates.
2. Results of Operations and Management's Plans
The Company has employment agreements with its key executives (the Team) which
provides that the team receive an aggregate of 15% of gross sales plus 10% of
the first $1,000,000 of pre-tax profits in each year (so long as pre-tax profits
for such year equal or exceed $1,000,000), with a reduced percentage of pre-tax
profits in excess of this figure.
During the fiscal year ended October 31, 1994, 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 shares of preferred stock to 5,000,000 from
2,000,000 and reducing the par value of the preferred stock previously
authorized to $.01 per share from $10.00 per share.
F-8
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
2. Results of Operations and Management's Plans (continued)
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
approximately $2,838,000 after offering expenses. Each unit consists of one
share of the Company's 8% redeemable convertible preferred stock and one Class A
redeemable common stock purchase warrant. Each 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 preferred stock has a cumulative dividend rate of $0.16 per share
per annum and carries a liquidation preference of $2.00 per share plus any
dividends in arrears.
In 1996 and 1995, Management has determined that available funds are more
prudently utilized in its ongoing research and development efforts and as a
result no accrual or payment of dividends will be made until such time as
sufficient cash flows are generated from operations. Management intends to hold
the dividend payable as of November 30, 1996 ($503,358) and 1995 ($266,152), in
arrears. No dividend has been accrued for the year ended October 31, 1996 and
1995. The amount that would have been recorded at October 31, 1996 and 1995, if
a dividend had been declared, would have been $237,206 and $266,152,
respectively. The preferred stock is subject to redemption at the company's
option at $2.00 per share on 30-60 days written notice at any time after one
year from the effective date (December 22, 1993), provided that the closing high
bid price for common stock shares is at least $1.00 per share for 10 consecutive
trading days. The net proceeds of the offering were used primarily to repay
outstanding notes payable and fund operating and capital needs. Specific plans
primarily include scanning system product development, additional purchases of
inventory and additional rental space and upgraded sales and marketing efforts.
As a result of these various actions, the Company believes that it will be able
to continue its operations through its 1997 fiscal year.
F-9
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
3. Investments
Investments at October 31, 1996 are comprised of U.S. Treasury bills, $367,243,
classified by management as available for sale, and U.S. Treasury bonds,
$449,274, classified as held to maturity. The available for sale securities are
recorded at fair value with any aggregate net unrealized gain/loss reported as a
separate component of shareholders' equity, in accordance with Statement of
Financial Accounting Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The held to maturity investments mature within one
year and are carried at amortized cost which approximates market value at
October 31, 1996.
Interest income of $63,632 and $79,440 includes approximately $12,000 and $736
from the amortization of discounts on investments in 1996 and 1995,
respectively.
4. Long-term Debt
Long-term debt at October 31, 1996 consists of the following:
Non-interest bearing promissory note, payable in monthly installments
of $3,000 through January 1, 2000, less discount of $32,412 imputed
at an annual rate of 12% $94,454
Less current maturities 26,068
-------
$68,386
=======
The non-interest bearing promissory note was originally an interest bearing
demand note with a principal balance of $297,940. The terms of the note have
been renegotiated to provide for repayment of the principal balance only over a
period of 97 months. The note is carried at the present value of its scheduled
payments discounted at an annual rate of 12%.
The following payments of principal are required subsequent to October 31, 1996:
1997 $26,068
1998 29,375
1999 33,100
Thereafter 5,911
-------
94,454
=======
F-10
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
5. Stock Option Plans
Under the Company's Amended 1983 Stock Option Plan and 1985 Stock Option Plan
(the Plans), officers and other key employees who perform services on behalf of
the Company may be granted either non-qualified stock options or incentive stock
options for the purchase of up to 700,000 shares of the Company's common stock.
The Plans also provide for the issuance of stock appreciation rights in
connection with the granting of stock options. Option prices may not be less
than 100% of the fair market value of the common stock on the date of grant and
unexercised options expire not more than 10 years from date of grant. The Plans
are administered by a Stock Option Committee (the Committee) of the Board of
Directors. Subject to the guidelines of the Plans, the Committee determines who
options will be granted to, the type of options to be granted, the number of
shares, the option price per share, and the time when the options may be
exercised.
On June 23, 1994, the Board of Directors unanimously adopted the Company's 1994
Stock Option Plan (the "1994 Plan"), subject to stockholder approval (which has
been obtained) at the Annual Meeting of Stockholders held November 7, 1994. The
Company's prior stock option plans remain in effect as well. Under the 1994
Plan, a total of 6,300,000 shares are reserved for issuance to employees,
including directors and officers who may not be salaried employees ("Eligible
Participants"). The 1994 Plan provides that the number of shares subject thereto
and outstanding options and their exercise prices, are to be appropriately
adjusted for mergers, consolidations, recapitalizations, stock dividends, stock
splits or combination of shares. Shares allocated to options and stock
appreciation rights which have terminated for reasons other than the exercise
thereof may be reallocated to other options and/or stock appreciation rights.
Ratification and approval of the 1994 Plan with stockholders also constituted
ratification and approval of the options to be granted thereunder to the
Company's executive officers and directors.
Each member of the Team has received grants under the 1994 Stock Option Plan to
acquire one million shares of the common stock of the Company at a price per
share equal to $.125, the fair market price of the shares on both June 23, 1994,
the date on which the options were granted as well as November 7, 1994 the date
on which the 1994 Stock Option Plan was ratified and approved by stockholders at
the Annual Meeting of Stockholders and such grants were reconfirmed and
reissued. Such options are exercisable to the extent of 500,000 shares
immediately, an additional 250,000 on the first anniversary of the date of grant
and the balance of 250,000 shares exercisable from and after the second
anniversary of the date of grant, with such options expiring ten years from the
date of grant unless sooner terminated in accordance with its provisions.
F-11
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
5. Stock Option Plans (continued)
Options expire in 2001, 2002, 2004 or 2005 based upon the date of grant. Changes
in options outstanding under the Plans are as follows:
Stock Option
Shares Price Range
------------------------------------------------
Balance at October 31, 1994 3,390,000 $0.01 and $.125
Granted 100,000 $.125
------------------
Balance at October 31, 1995 3,490,000 $0.01 and $.125
Granted 75,000 $.406
------------------
Balance at October 31, 1996 3,565,000 $0.01 and $.125
==================
At October 31, 1996, 7,000,000 shares of common stock are reserved for issuance
under the Plans.
At a special meeting of the Company's shareholders on January 20, 1992, options
were granted outside of the Company's stock option plans to the Company's former
president to purchase 1,000,000 shares of common stock. These options were
repurchased by the company during 1996 for $3,000. In addition, options were
granted to the chief executive officer to purchase 400,000 shares of common
stock. The option price of each grant is $0.125 per share and the options expire
on April 14, 1997.
At a special meeting of the Board of Directors on September 14, 1993, options
were granted outside of the Company's stock option plans to the Team to purchase
a total of 300,000 shares of common stock at an option price of $0.125 per share
for a period expiring September 14, 1997.
All options outstanding at October 31, 1996 are fully exercisable.
F-12
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
6. Related Party Transactions
During the fiscal year ended October 31, 1996 the Company paid approximately
$133,000 ($158,000 in 1995) in commissions to the Team in accordance with the
Agreement described in Note 2 to the financial statements. The Company paid
consulting fees of approximately $207,000 ($169,000 in 1995) to various members
of the Board of Directors and/or corporate officers or to entities controlled by
them for Board of Directors fees, technical, research and development and sales
and marketing services rendered during the year.
The Company is required to assign to the Team a 1/3rd interest in any patents or
other intellectual property created by the Team which is used in the Company's
business. The Company is required to pay the Team a royalty computed at 5% of
the gross profit (difference between selling price and direct manufacturing
cost, exclusive of overhead) from use of such intellectual property. In the
event of termination of the Agreement by the Company, the Company shall have the
right to continue to retain exclusive use of the patents and other intellectual
properties by paying the Team an amount equal to 10% of gross revenues from
products sold which utilize such intellectual property; otherwise, the Company
may retain a non-exclusive license to use such intellectual property for a fee
of 5% of gross revenues from products sold utilizing such patents. During the
year ended October 31, 1996 the Company paid royalties of approximately $3,701
to the Team ($4,320 in 1995).
7. Leases
Minimum future rental payments under commitments for noncancelable operating
leases in effect at October 31, 1996, principally for facilities is
approximately $32,000 in 1996.
Total rent expense under operating leases was $14,623 and $14,109 for the years
ended October 31, 1996 and 1995, respectively.
F-13
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
8. Federal Income Taxes
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" 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 at October 31, 1996 is presented below:
October 31,
1996
------------------
Deferred tax assets:
Net operating loss $ 1,498,000
Other, net 5,800
------------------
Total deferred tax assets 1,503,800
Less: valuation allowance 1,503,800
------------------
Net deferred tax asset $ -
==================
The Company has cumulative net operating loss carryforwards of approximately
$3,800,000 for federal income tax purposes which expire in the years 2000 to
2011.
The reconciliation of income tax at the U.S. Federal statutory rate to income
tax expense is:
<TABLE>
<CAPTION>
Year ended October 31
1996 1995
-------------------------------
<S> <C> <C>
Tax at U.S. statutory rate $(159,000) $(74,000)
Loss for which benefit not provided 159,000 74,000
-------------------------------
Actual tax provision $ -0- $ -0-
===============================
</TABLE>
9. Research and Development Costs
Research and development costs charged to expense during the fiscal years ended
October 31, 1996 and 1995 were approximately $349,590 and $527,000,
respectively.
F-14
<PAGE>
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
10. Significant Customers
Customers in excess of 10% of net sales for each respective year is as follows:
<TABLE>
<CAPTION>
Year ended October 31
1996 1995
----------------------------------
<S> <C> <C>
Customer A 17% 1%
Customer B 15% 2%
Customer C 17% 6%
Customer D 6% 48%
</TABLE>
