<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 April 30, 1997
[ ] 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 April 30, 1997, there were 22,917,178 shares of Common Stock outstanding.
TOTAL PAGES IN THIS REPORT: 11 (excluding cover but including signature page)
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INDEX
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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 6-7
Item 2. Management's discussion and Analysis
of Financial Condition and Results of
Operations 8-9
PART II. Other Information
-----------------
Item 6. Exhibits 10
SIGNATURES 11
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Angstrom Technologies, Inc.
Balance Sheet
Apr. 30, 1997 Oct. 31, 1996
------------- -------------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 178,214 $ 24,175
Short-term investments 621,469 816,517
Accounts receivable 97,702 110,940
Interest receivable 6,003 6,093
Advances to suppliers 19,148 --
Inventories:
Finished goods 28,343 30,168
Work in process 13,557 12,906
Raw materials and parts 672,216 522,931
714,116 566,005
Prepaid expenses 12,759 1,181
Total current assets 1,649,411 1,524,911
Furniture and equipment, at cost 154,374 141,789
Less accumulated depreciation 56,076 46,609
Net furniture and equipment 98,298 95,180
Patents, less accumulated amortization of 113,783 97,877
$6,764
Total assets $1,861,492 $1,717,968
NOTE: The balance sheet at October 31, 1996 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.
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Angstrom Technologies, Inc.
Balance Sheet (continued)
<TABLE>
<CAPTION>
April 30, 1997 Oct. 31, 1996
-------------- -------------
(Unaudited) (Note)
<S> <C> <C>
Liabilities and capital
Current liabilities:
Accounts payable $ 138,828 $ 190,938
Accrued liabilities 82,472 55,520
Long-term debt due within one year 27,672 26,068
Total current liabilities 248,972 272,526
Long-term debt 54,137 68,386
Capital:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 1,370,475 issued and outstanding
(liquidation preference of $2.00 per share) 2,254,942 2,439,483
Common stock, $.01 par value; 45,000,000 shares
authorized, 22,917,178 shares issued and 230,172 224,690
outstanding
Additional paid in capital 4,917,645 4,726,086
Accumulated deficit (5,844,375) (6,013,203)
Net capital 1,558,384 1,377,056
Total liabilities and capital $ 1,861,492 $ 1,717,968
NOTE: The balance sheet at October 31, 1996 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.
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Angstrom Technologies, Inc.
Statements of Operations
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
April 30, April 30, April 30, April 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 433,183 $ 244,083 $ 855,979 $ 442,582
Cost of Sales 129,293 120,150 248,743 260,307
---------- ---------- ---------- -----------
Gross profit 303,890 123,933 607,236 182,275
Selling, general and
administrative expenses 225,463 215,338 452,828 395,197
---------- ---------- ---------- -----------
Other income (expense) 78,427 (91,405) 154,408 (212,922)
Interest expense (2,583) (3,305) (5,355) (6,778)
Interest income 12,595 17,415 19,776 34,926
Gain on security sale -- -- -- 4,028
---------- ---------- ---------- -----------
(10,012) (14,110) (14,421) (32,176)
---------- ---------- ---------- -----------
Net income (loss) 88,439 (77,295) 168,829 (180,746)
---------- ---------- ---------- -----------
Less dividend requirement
on preferred stock (54,819) (62,855) (109,600) (106,900)
---------- ---------- ---------- -----------
Net imcome (loss) applicable
to common stock $ 33,620 $ (140,150) $ 59,229 $ (287,646)
========== ========== ========== ===========
Net income (loss) per common
share $ -- $ (0.01) $ -- (0.01)
========== ========== ========== ===========
Weighted Average Number
of Shares Outstanding 22,863,145 21,760,958 22,496,568 21,985,118
========== ========== ========== ===========
</TABLE>
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<PAGE>
Angstrom Technologies, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months ended Apr. 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Operating Activities
Net income (loss) $ 168,828 $ (103,451)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 10,204 3,672
Changes in operating assets and liabilities:
Accounts receivable 13,238 60,008
Interest receivable 90 --
Advances to suppliers (19,148) --
Inventories (148,111) (49,295)
Prepaid expenses (11,578) 51,287
Accounts payable (52,110) (12,980)
Accrued liabilities 28,556 (26,426)
Net cash provided (used in) operating activities (10,031) (77,185)
Investing activities
Purchases of furniture and equipment (12,585) (24,214)
Proceeds from sale of investments 195,048 66,267
Capitalization of patents (16,643) (15,730)
Net cash provided by investing activities 165,820 26,323
Financing activities
Proceeds from stock options exercises 12,500 --
Principal repayments of long-term debt (14,250) (5,537)
Net cash used by financing activities (1,750) (5,537)
Net increase (decrease) in cash 154,039 (56,399)
Cash and cash equivalents at beginning of year 24,175 129,308
Cash and cash equivalents at end of year $ 178,214 $ 72,909
Supplemental cash flow disclosures
Cash paid for interest $ 5,355 $ 6,778
</TABLE>
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<PAGE>
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 of 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 three month period ended April 30, 1997 is not
necessarily indicative of the results that may be expected for the
year ended October 31, 1997. 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, 1996, in
arrears. No dividend was accrued for the year ended October 31, 1996.
The amount that would have been accrued at October 31, 1996, if a
dividend had been recorded, would have been $237,206 ($.16 per
preferred stock share outstanding at November 1, 1996). No dividend
has been accrued for the three month period ended April 30, 1997. The
amount that would have been accrued at April 30, 1997, if a dividend
had been recorded for the six months then ended would have been
approximately $128,279.
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 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.
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For the three months ended April 30, 1997, preferred stock conversions
were as follows:
Conversion Preferred Stock Common Stock
Date Converted Received
02/04/97 20,000 80,000
02/05/97 2,300 9,200
02/11/97 9,100 36,400
02/12/97 29,900 119,600
02/26/97 6,370 25,480
02/28/97 5,450 21,800
03/12/97 5,000 20,000
04/09/97 1,000 4,000
------ -------
79,120 316,480
====== =======
The preferred stock has a liquidation preference of $2.00 per share,
an aggregate of $2,740,950.
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
April 30, 1994 was zero. The tax effects of the net operating loss
carryforwards and temporary differences that give rise to deferred
income tax assets and a corresponding valuation allowance at April 30,
1997 and October 31, 1996 are presented below:
April 30, October 31,
1997 1996
Deferred tax assets:
Net operating loss $1,466,000 $1,498,000
Other, net 7,000 5,000
---------- ----------
Total deferred tax assets 1,474,000 1,503,800
Less: valuation allowance (1,474,000) (1,503,800)
---------- ----------
Net Deferred Tax Asset $ -0- $ -0-
========== ==========
The company entered fiscal 1997 with cumulative net operating loss
carryforwards of approximately $3,800,000 for federal income tax
purposes which expire in the years 2000 to 2010.
Note 6 On March 3, 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 "Earnings
Per Share" (SFAS No. 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in
accordance with Accounting Board Opinion (APS) No. 15, "Earnings Per
Share." SFAS 128 provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. The Company will adopt SFAS No. 128
in 1997 and its implementation is not expected to have a material
effect on the financial statements.
Note 7 Patents
Included in the other assets section of the balance sheet are
certain costs associated with patents, which are capitalized and
amortized over the shorter of their statutory lives or their estimated
useful lives using the straight-line method. The Company periodically
evaluates the recoverability of these assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of ("SFAS 121")."
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<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Second Quarter Compared to Fiscal 1996
Net sales for the initial six month period of Fiscal 1997 were
approximately $856,000, an increase of approximately 193% from the approximately
$442,600 in net sales in the corresponding period of Fiscal 1996. This increase
in sales was a result of significantly higher sales of chemicals made to the
subcontractor for the U.S. Postal Service on a new order relating to the
Company's prior work on certified mail labels, as well as increased sales of
scanners and chemicals to other clients. Cost of sales decreased materially from
58.8% to 29.1% due to the higher margins associated with the high volume of
chemical sales, as well as reflecting increased efficiencies in production
methods put in place.
Selling, general and administrative expenses increased from
approximately $395,200 in the prior year's six months to approximately $452,800
in the corresponding period of fiscal 1997. These increases were primarily due
to the increase in sales commissions, which were directly tied into the increase
in sales.
The Company generated net income of $168,829 before dividend
requirements in this six-month period of Fiscal 1997 as compared with a net loss
of $180,746 before dividend requirements in the prior year's comparable period.
Continuing its policy of conserving cash to meet operating requirements, the
Company has declined to accrue a preferred stock dividend for the periods in
reference.
Research and development expenses totaled approximately $142,000 during
the recent six months, as compared to approximately $268,800 in the prior year's
comparative period, as the Company completed development of hardware and
chemical advancements and continued to focus its efforts on sweeping various
electronic functions into a single microprocessor chip of special design, as
well as development of additional chemical compounds and refinements to its
existing line of scanners and readers.
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 $799,683
as at the end of the second quarter of Fiscal 1997 as compared with $840,692 as
at the end of Fiscal 1996, reflecting in a decrease in these categories of
$41,009. It experienced a slight decrease in trade accounts receivable of
$13,238, while inventory increased by $148,111; the increase in inventory
reflected increased production to meet the sales increases experienced and to
also afford the Company a lower cost of unit production and the ability to meet
any future orders on a timely basis. As indicated in Note 3 to these financial
statements, no preferred dividend has been accrued for the first two quarters of
Fiscal 1997 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
8
<PAGE>
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 the net operating loss carryforwards and temporary
differences that give rise to deferred income tax assets and a corresponding
valuation allowance at April 30, 1997 and October 31, 1996 is presented below.
Deferred tax assets: April 30, 1997 October 31, 1996
-------------- ----------------
Net Operating Loss $1,466,000 $ 1,498,000
Other Net 7,000 5,800
------------ -----------
Total deferred tax assets $1,474,200 1,503,800
Less: Valuation allowance (1,474,200) (1,503,800)
------------ -----------
Net deferred tax asset $ -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 2010.
Other
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
Forward Looking Statement
This press release contains certain forward looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which are intended to be covered by the safe harbors created thereby.
Although the Company believes that the assumptions underlying the forward
looking statements contained herein are reasonable, any of the assumptions could
be inaccurate, and therefore, there can be no assurance that such forward
looking statements will prove to be accurate. Factors that could cause actual
results to differ include, but are not limited to, technological changes,
cancellation of orders, competition and other market factors.
9
<PAGE>
Part II
Other Information
Item 6. Exhibits
(a) Exhibits
(i) Exhibit 11--Calculation of Earnings per Share
(ii) Exhibit 27--Financial Data Schedules
10
<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.
ANGSTROM TECHNOLOGIES, INC.
DATE: June 13, 1997 By: s/Daniel A. Marinello
----------------------
Daniel A. Marinello
Chief Executive Officer
and Chief Financial Officer
11
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Exhibit 11
<TABLE>
<CAPTION>
Six months April Three months April
1997 1996 1997 1996
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net income (loss)168,829(180,746) 88,439(77,295)
Preferred stock dividend requirement (109,600) (128,279) (54,819) (62,855)
Net income (loss) applicable to common stock 59,229 (309,025) 33,620 (140,150)
Average common shares outstanding 22,693,000 21,886,000 22,535,000 21,769,000
Earnings (loss) per share 0.00 (0.01) 0.00 (0.01)
Fully diluted earnings (loss) per share:
Net effect of dilutive common share equiv-
alents based on the treasury stock method 4,286,000 4,018,000 4,286,000 4,018,000
Effect of conversion of preferred shares 5,482,000 8,414,000 5,482,000 6,414,000
Shares for fully diluted eps
calculation 32,461,000 32,297,000 32,303,000 32,201,000
Fully diluted earnings (loss) per share 0.00 (0.01) 0.00 (0.01)
</TABLE>
Page 1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> $178,214
<SECURITIES> 621,469
<RECEIVABLES> 97,702
<ALLOWANCES> 0
<INVENTORY> 714,116
<CURRENT-ASSETS> 1,649,411
<PP&E> 98,298
<DEPRECIATION> 56,076
<TOTAL-ASSETS> 1,861,492
<CURRENT-LIABILITIES> 248,972
<BONDS> 54,137
0
2,254,942
<COMMON> 230,172
<OTHER-SE> 4,917,645
<TOTAL-LIABILITY-AND-EQUITY> 1,861,492
<SALES> 855,979
<TOTAL-REVENUES> 875,755
<CGS> 248,743
<TOTAL-COSTS> 701,571
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,355
<INCOME-PRETAX> 168,829
<INCOME-TAX> 0
<INCOME-CONTINUING> 168,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,829
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
