ANGSTROM TECHNOLOGIES INC, POS AM, 1997-02-14

ANGSTROM TECHNOLOGIES INC
POS AM, 1997-02-14
MISCELLANEOUS CHEMICAL PRODUCTS

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<PAGE>

As filed with the Securities and Exchange Commission on February 14, 1997
Registration No. 33-69190

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

POST-EFFECTIVE AMENDMENT NO. 1

FORM SB-2

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

ANGSTROM TECHNOLOGIES, INC.
(Name of small business issuer in its charter)

3823
Primary Standard Industrial
Classification Code Number

31-1065350
I.R.S. Employer Identification No.

DELAWARE
(State of jurisdiction or incorporation or organization)

1895 Airport Exchange Boulevard, Suite 110, Erlanger, KY 41018
(606) 282-0020
(Address and telephone number of principal executive offices)

1895 Airport Exchange Boulevard, Suite 110, Erlanger, KY 41018
(606) 282-0020
(Address of principal place of business or intended principal place of business)

Daniel A. Marinello
Chief Executive Officer
Angstrom Technologies, Inc.
1895 Airport Exchange Boulevard, Suite 110, Erlanger, KY 41018
(606) 282-0020
(Name and telephone number of agent for service)

----------------

Copy to:
Edward I. Tishelman, Esq.
Hartman & Craven LLP
460 Park Avenue
New York, NY 10022

----------------

Approximate date of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective

----------------

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [X]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

<PAGE>
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
Dollar Proposed Maximum Proposed maximum
Title of each class of Amount to be offering price per aggregate Amount of
securities to be registered registered unit or Share(1) offering price(1) registration fee
- - --------------------------- ------------ ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Units, each consisting of one
share of 8% redeemable con-
vertible preferred stock, par
value $.01, together with one
Class A redeemable common
stock purchase warrant(2)..... 1,725,000 $2.00 $3,450,000 $1,078.13

Common Stock, $.01 par
value(3)...................... 6,900,000 $ -- $ -- $ --

Common Stock, $.01 par value
per share, and one Class B
redeemable common stock
purchase warrant(4)........... 1,725,000 $1.00 $1,725,000 $ 539.06

Common Stock, $.01 par
value(5)...................... 1,725,000 $1.50 $2,587,500 $ 808.59

Unit Purchase Options......... 150,000 $ -- $ -- $ --

Underwriter's Units, each con-
sisting of one share of 8%
redeemable convertible
preferred stock, par value
$.01, together with one Class
A common stock purchase
warrant....................... 150,000 $2.40 $ 360,000 $ 112.50

Common Stock, $.01 par
value(6)...................... 600,000 $ -- $ -- $ --

Common Stock, $.01 par value,
and one Class B common stock
purchase warrant(7)........... 150,000 $1.00 $ 150,000 $ 46.88

Common Stock, $.01 par
value(8)...................... 150,000 $1.50 $ 225,000 $ 70.31

Total...................... $8,497,500

Total Registration Fee.. $2,655.47(9)
</TABLE>

- - ------------
(1) Each share of 8% convertible preferred stock is convertible into four shares
of common stock, $.01 par value; each Class A Warrant, when exercised with
the payment of $1.00, will result in the issuance to the holder thereof of
one share of Common Stock, plus one Class B Redeemable common stock Purchase
Warrant, exercisable for the purchase of one share of Common Stock at a
price of $1.50 per share.

(2) Includes 225,000 Units which the Underwriter has the option to purchase to
cover over-allotments, if any.

(3) Issuable upon conversion of 8% convertible preferred stock.

(4) Issuable upon exercise of Class A redeemable common stock purchase warrants.

(5) Issuable upon exercise of Class B redeemable common stock purchase warrants.

(6) Issuable upon conversion of 8% convertible preferred stock contained in
Underwriter's Units..

(7) Issuable upon exercise of Underwriter's Class A redeemable common stock
purchase warrants.

(8) Issuable upon exercise of Underwriter's Class B redeemable common stock
purchase warrants.

(9) Previously paid to Securities and Exchange Commission.

----------------

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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<PAGE>
Cross Reference Sheet Showing Location in the Prospectus of Information
Required by Items of Form SB-2

<TABLE>
<CAPTION>
Item Number and Caption Prospectus Page
- - ----------------------- ---------------
<S> <C>
Item 1. Front of Registration Statement and Outside
Front Cover of Prospectus................. Cover
Item 2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover; Outside Back Cover
Item 3. Summary Information and Risk Factors........ Prospectus Summary; Risk Factors
Item 4. Use of Proceeds............................. Use of Proceeds
Item 5. Determination of Offering Price............. Inapplicable
Item 6. Dilution.................................... Inapplicable
Item 7. Selling Security Holders.................... Inapplicable
Item 8. Plan of Distribution........................ Cover; Plan of Distribution
Item 9. Legal Proceedings........................... Inapplicable
Item 10. Directors, Executive Officers, Promoters
and Control Persons....................... Management - Directors
Item 11. Security Ownership of Certain Beneficial
Owners and Management..................... Share Ownership of Certain Beneficial Owners and Management
Item 12. Description of Securities................... Description of Securities
Item 13. Interests of Named Experts and Counsel...... Legal Matters
Item 14. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... Management - Limitation of Liability and Indemnification
Item 15. Organization within Last Five Years......... Inapplicable
Item 16. Description of Business..................... Business
Item 17. Management's Discussion and Analysis or
Plan of Operation......................... Management's Discussion and Analysis or Plan of Operation
Item 18. Description of Property..................... Business - Property
Item 19. Certain Relationships and Related
Transactions.............................. Business - The Company - Intellectual Property Rights and
Technology Protection; Management - Intellectual Property
Rights; Interests of Management and Others in Certain
Transactions
Item 20. Market for Common Equity and Related
Stockholder Matters....................... Description of Securities - Common Stock; Dividends; Price
Range of Common Stock
Item 21. Executive Compensation...................... Management - Executive Compensation
Item 22. Financial Statements........................ Financial Statements
Item 23. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................ Inapplicable
</TABLE>
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<PAGE>
PROSPECTUS

ANGSTROM TECHNOLOGIES, INC.

5,832,535 Shares of Common Stock,
$.01 par value per share

-----------------

1,725,000 Class B Warrants

-----------------

This Prospectus relates to the sale by Angstrom Technologies, Inc (the
"Company") from time to time of an aggregate of up to 4,932,535 shares of common
stock, $.01 par value ("Common Stock") issuable upon (i) conversion of the
Company's 8% redeemable convertible preferred stock, par value $.01 ("Preferred
Stock"); (ii) exercise of the Company's Class A redeemable common stock purchase
warrants (the "Class A Warrants"); and (iii) exercise of the Company's Class B
redeemable common stock purchase warrants (the "Class B Warrants"). Each share
of Preferred Stock is convertible into four (4) shares of the Company's Common
Stock. Each Class A Warrant entitles the holder upon exercise thereof to
purchase one (1) share of Common Stock at a price of $1.00 per share and to
simultaneously receive one Class B Warrant. Each Class B Warrant entitles the
holder thereof, upon exercise and payment of one and one-half ($1.50) dollar, to
purchase one share of Common Stock. The Class A Warrants and Class B Warrants
(collectively, "Warrants") are exercisable until 5:00 p.m. Eastern Daylight Time
on December 12, 1998, when the Warrants expire, and are redeemable at a price of
$.001 per Warrant at the call of the Company if not exercised after the
underlying Common Stock has been quoted at a closing high bid of no less than
$1.50 and $2.00, respectively, for a period of 10 consecutive trading days. The
Preferred Stock and Class A Warrant were originally issued in December 1993 in a
unit ("Unit") comprised of one share of Preferred Stock and one Class A Warrant.
See "Description of Securities--Warrants."

The Preferred Stock has a cumulative dividend rate of $.16 per share per annum.
The Preferred Stock carries a liquidation preference of $2.00 per share plus
accrued but unpaid dividends, if any, before any amount is paid to holders of
the Common Stock. The Preferred Stock is subject to redemption at the option of
the Company at $2.00 per share on not less than 30 nor more than 60 days'
written notice at any time after one year from the Effective Date, provided that
the closing high bid price for the shares of Common Stock is no less than $1.00
per share for 10 consecutive trading days ending within 15 days of the date of
mailing of the notice of redemption. The dividend has not been declared and paid
on the Preferred Stock since the period commencing November 1, 1995, as Company
management has elected to conserve working capital. See "Description of
Securities--Preferred Stock," and "Risk Factors--Dividends on Common Stock and
Preferred Stock Not Likely." This prospectus also covers Common Stock (900,000
shares and 150,000 Class B Warrants) underlying Units which the underwriter in
the Company's December, 1993 public offering received in the underwriter's
option to purchase. See "Plan of Distribution."

The following table as to all securities to be registered:

Underwriting Aggregate
discounts and Proceeds to
Number Price to public commissions issuer
--------- --------------- ------------- -------------
Shares (total) 5,832,535 $5,832,535(1) -0- $5,832,535(2)
Class B Warrants 1,725,000 -(3) -0- -

- - ------------
(1) Estimated at $1.00 per share.

(2) From this sum, expenses estimated at $24,000, consisting of filing fees,
printing and EDGAR transmission costs and legal and accounting fees.

(3) Exercise price of Class B Warrants is $1.50, but it is issued without charge
upon exercise of Class A Warrant.

<PAGE>
The Company's Common Stock is publicly traded in the over-the-counter market and
is quoted on the Electronic Bulletin Board for non-NASDAQ stocks of the National
Association of Securities Dealers, Inc. ("Electronic Bulletin Board") and listed
in the "pink sheets" published by the National Quotation Bureau, Inc. The high
bid and low asked prices at which the Common Stock as quoted on February 4, 1997
was $1.03 bid and $1.12 asked, and the Units were quoted at $3.00 bid and $4.50
asked.

----------------

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND PROSPECTIVE PURCHASERS SHOULD
CAREFULLY CONSIDER THE FACTORS SPECIFIED UNDER "RISK FACTORS". THE SECURITIES
OFFERED HEREBY SHOULD ONLY BE PURCHASED BY INVESTORS WHO CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT THEREIN.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is February 14, 1997.

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<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Room 1400, 75 Park Place, New York, New York 10007, and
Room 3190, Kluczynski Federal Building, 230 South Dearborn Street, Chicago,
Illinois 60604, and copies of such materials can be obtained from the Pubic
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding issuers, including the
Company, that file electronically with the Commission.

The Company has filed a Registration Statement on Form SB-2 ("Registration
Statement") under the Securities Act of 1933, as amended ("1933 Act") with the
Commission with respect to the securities being offered by this Prospectus. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement and the exhibits thereto. All of these documents may be inspected
without charge at the Public Reference Section of the Commission, at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies may be obtained therefrom at
prescribed rates. Statements contained in this Prospectus concerning the
provisions of documents filed with the Registration Statement as exhibits are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the SEC.

No person is authorized in connection with any offering made hereby to give
any information or to make any representation other than as contained in this
Prospectus, and if given or made, such information or representation must not be
relied upon as having been authorized by the Company or by the Underwriter. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, by any person in any jurisdiction in which it is unlawful for such
person to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that the information herein is correct as of any date subsequent to
the date hereof.

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<PAGE>
PROSPECTUS SUMMARY

This summary is qualified in its entirety by the other information and financial
statements appearing elsewhere in the Prospectus.

The Company

Angstrom Technologies, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on June 3, 1983. The Company's principal executive
offices are located at 1895 Airport Exchange Boulevard, Suite 110, Erlanger,
Kentucky 41018 and its telephone number is (606) 282-0020. See "Business - The
Company - Background" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations".

The Company is engaged in the development, manufacture and sale of
Electro-Optical Control Systems, consisting of an ultraviolet optical scanner
and invisible fluorescent chemical compounds. The Company has developed and
markets scanning units known as the OMNI 2000E and 2000H series). These units
can be used individually or combined with several units, working in unison to
provide statistical process control for manufacturing lines. Individually, the
unit can determine the presence or absence of the fluorescent compound. When
units are combined, a grid code is formed where information is generated and
stored, then later read for a variety of applications. In addition, the Company
produces a number of fluorescent compounds, each of which emits its own wave
length. When printed, sprayed, or stamped, the marking compounds are non-visible
under normal lighting conditions. This allows for marking over existing graphics
or on different materials without changing the appearance of the product. These
compounds are blended into a variety of materials to be applied to the
customer's product. An example of materials, among others, are printing inks,
plastic films, over-print varnish, adhesives, and hot plastic molding compounds.
Also, due to the invisible nature of the compound, the system can also be used
in a variety of security applications.

The Company's technology involves placing a mark, comprised of a
non-visible compound, on a product. These compounds emit a low level of visible
light when excited by ultraviolet light transmitted from a scanner designed and
sold by the Company. The scanner receives the visible light and converts it to
an electronic signal. Using one of the many outputs available, an operator can
be notified, an ejection device activated, and a programmable controller or
computer can be signalled to take the appropriate action. The scanner works
independent of varying background, color, shape, size, or ambient lighting
conditions. These features are intended to overcome many of the disadvantages
associated with conventional photoelectrics.

The Company's products have historically been geared for use by the
pharmaceutical and automobile parts manufacturing industries in connection with
a variety of functions including: label verification, quality control,
inspection, alignment, adhesive tracing, safety seal verification, sorting,
automatic identification, matching and inserting. In addition to the foregoing
applications, the Company has also developed and is in the process of marketing
applications in the document security field, such as identification of
counterfeit currency and verification of credit cards and other identification
cards.

- 4 -
<PAGE>
The Company has developed and now offers for sale five different scanning
devices:

1. Hand-Held scanner used, among other things, for verifying tickets to
sporting and entertainment events;

2. Mid-Range scanner used for a variety of commercial applications;

3 High-End scanner, which has the ability to tie-into a computer, and is
being used for the U.S. Postal Office Certified Mail Project.

4. High-End and High-Security Document scanner, which allows modulation of
upper and lower reading limits, to be used for check sorting and check
verification applications;

5. Document Reader, which is portable and easily moveable, to be used for
verifying tickets to sporting and entertainment events, among other
things.

The Company has also been developing its chemical compounds to keep pace
with both scanner development and the needs of its customers and markets. A
significant achievement was the development of sub-micron compound number 6
which has been specified by the US Postal Service for incorporation in the
fluorescent ink used on certified mail labels; as a result, the Company recently
received a new purchase order from a subcontractor of the US Postal Service for
this compound (see "Sales and Marketing"). In addition, over 60 new ultraviolet
compounds have been developed by the Company, which is conducting performance
and related testing on the same to determine which compounds will be placed into
manufacturing for commercial use. See "Business-Products". There can be no
assurance that such pending developments will result in revenues or profits to
the Company. See "Risk Factors - New Products and Technological Change".

The Offering

There is being offered under this Prospectus 4,932,535 shares of Common
Stock, out of which 1,482,535 shares of Common Stock are being reserved for
issuance upon conversion of shares of Preferred Stock (at a rate of 4 shares of
Common Stock for each 1 share of Preferred Stock). Since the shares of Preferred
Stock are already issued and outstanding, no cash proceeds from the conversion
will flow to the Company as a result; however, in the event of conversion of
Preferred Stock, the Company's obligation to pay dividends thereon will cease
and the priority in liquidation and dividend payments of Preferred Stock being
converted will lapse, thereby conferring a theoretical benefit upon the holders
of Common Stock. There is also reserved for issuance 1,725,000 shares of Common
Stock for exercise of the Class A Warrants and Class B Warrants, respectively (a
total of 3,450,000 shares of Common Stock). The Class A Warrants are exercisable
at $1.00 per share (thereby generating 1 Class B Warrant) and the Class B
Warrants are exercisable at $1.50 per share; any net proceeds so derived by the
Company will be used for general working capital purposes.

There is also reserved for issuance, 900,000 shares of Common Stock

underlying certain derivative securities which the underwriter in the Company's
December 1993 public offering received an option to acquire. See "Plan of
Distribution."

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<PAGE>
CAPITALIZATION

Shares Outstanding As of October 31, 1996
- - ------------------ ----------------------
Shares of Common Stock . . . . . . . . . . . . . . . . . 22,468,938
Shares of Preferred Stock . . . . . . . . . . . . . . . 1,482,535
Class A Warrants . . . . . . . . . . . . . . . . . . . . 1,725,000
Class B Warrants . . . . . . . . . . . . . . . . . . . . - 0 -

Summary Financial Information

Year Ended Year Ended
October 31, 1996 October 31, 1995
---------------- ----------------
Statement of Operations Data:
Total revenues $ 869,829 $ 1,050,281

Net income (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 share of common stock (0.03) (0.02)
Dividends on shares of common stock 0.00 0.00

October 31, 1996 October 31, 1995
---------------- ----------------
Balance Sheet Data:
Working capital $1,252,385 $1,296,286
Total assets 1,717,968 2,114,406
Total liabilities 340,912 270,143
Stockholders' equity 1,377,056 $1,844,263

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<PAGE>
RISK FACTORS

In addition to the other information in this Prospectus, the following should be
considered carefully in evaluating the Company and its business before
purchasing the Units offered by this Prospectus.

RISKS RELATED TO THE COMPANY

1. History of Operating Losses; Accumulated Deficit.

The Company was founded in 1983 and, in 1984, consummated a public offering
of shares of its Common Stock, whereby it received net proceeds of approximately
$2,400,000. From 1984 through 1990 the Company was focused on development
activities consisting of readying for marketing and sale its photomolecular
control systems and devices whereby a combination of ultraviolet light,
fluorescent chemicals and compounds and scanning devices were used to recognize
and distinguish encoded containers and other materials. Thereafter, the Company
continued to develop its products and also became actively engaged in marketing
and sales activities. From inception through October 31, 1990, the Company was
unable to generate sufficient cash flow to maintain its operations and service
its debt. A levying creditor began attaching the Company's property in June
1990, forcing the Company to file for protection under Chapter 11 of the
Bankruptcy Code; while operating as a Debtor-In-Possession, the Company revised
the payment terms due to such creditor and obtained dismissal of the Bankruptcy
proceedings in July, 1991. From its formation in 1983 through October 31, 1996,
the Company derived an accumulated deficit of $6,013,203, of which $467,207 was
incurred during its most recent fiscal year, the period ending October 31, 1996
("Fiscal 1996"). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Company's Financial Statements and
Notes thereto and the Report of Independent Auditors included herein.

2. Need for Additional Working Capital.

The Company anticipates that its existing capital resources, including the
net proceeds of its public offering consummated in December, 1993, will be
adequate to satisfy its capital requirements until at least the completion of
its current fiscal year ending October 31, 1997; this is based upon the fact
that the Company had cash and cash equivalents and short-term liquid investments
on hand as at October 31, 1996 of $840,692 which management believes is more
than sufficient to fund anticipated marketing and development expenses, and the
Company's operating loss, if any, through this period of time. In addition, in
order to further conserve its cash resources, the Board of Directors of the
Company has passed up declaring a dividend on the Preferred Stock and the same
has been accrued. The Company's future capital requirements will depend on many
factors, including cash flow from operations, continued progress in its product
development programs, competing technological and market developments, and the
Company's ability to market its product successfully. It may be necessary to
raise additional funds, through equity or debt financing. Any equity financing
could result in dilution to the Company's then existing stockholders, and any
financing, if available at all, may be on terms unfavorable to the Company. See
"Business", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Financial Statements".

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<PAGE>
3. Competition.

The market for the Company's products is highly competitive, and the
Company expects competition to increase. Many of the Company's current and
prospective competitors have significantly greater financial, technical and
marketing resources than the Company. Competitive pressures could cause the
Company's products to lose market acceptance or result in significant price
erosion, with a material adverse effect upon the Company's results of
operations. A variety of external and internal factors could adversely affect
the Company's ability to compete. These include the relative functionality,
performance and reliability of the products offered by the Company and its
competitors, the success and timing of new product development efforts, and the
Company's success in attracting and retaining highly qualified employees.
Although the Company believes its products are competitive with those of its
competitors in functionality, performance and reliability, the Company has no
quantitative data to substantiate such belief. See "Business - Competition".

4. Dependence on Proprietary Technology; Limited Patent Protection.

The Company's success is heavily dependent upon its proprietary technology
because it deems its chemical formulae and components and structure of its
scanning devices to give it an advantage over other persons seeking to duplicate
its products. The Company relies on one or more of contractual rights, trade
secrets and copyright laws to establish or protect its rights. In addition, from
and after May 1995, the Company has been granted U.S. patents covering an
authentication system and relating to the calibration of fluorescence detectors,
respectively, in addition to its previously outstanding patent covering
ultraviolet detection technology and now holds a total of six patents. Despite
this fact, there can be no assurance that such patents or that any future
patents which may issue in the Company's favor would necessarily protect the
Company from competition or potential competition. Accordingly, the Company
anticipates reliance for the foreseeable future on both its patents and on
contractual rights, trade secrets and copyright laws. The steps taken by the
Company to protect its rights may not necessarily be adequate to deter
misappropriation, or to preclude an independent third party from developing
functionally equivalent technology. The newly issued and pending patents are
filed in the names of individual executives who are the inventors thereof and a
two-thirds interest is assigned to the Company, which has exclusive rights
thereto, subject to the payment of royalties. See "Business -Intellectual
Property Rights and Technology Protection" and "Executive Employment Agreement -
Intellectual Property Rights".

5. Uncertainty of Market Acceptance.

The Company's products have had but limited sales in recent years. For its
fiscal years ending October 31, 1996 and October 31, 1995, the Company had sales
revenues of approximately $869,800 and $1,050,280, respectively. Although the
Company has been expanding its product line and implementing a special marketing
program, market acceptance of the Company's current and proposed products will
depend upon the ability of the Company to demonstrate the advantages of its
equipment and methodology over other products that attempt to perform similar
functions. There can be no assurance that the Company will be able to compete

effectively in and develop the market for its products. See "Business Products;
Competition; Sales and Marketing".

- 8 -
<PAGE>
6. New Products and Technological Change.

The Company has recently completed the upgrading of its scanner product to
take account of microprocessor technology and has produced a family of five
scanners and readers. See "Business - Products." Management has been able to
empower some of its scanners for invisible bar code reading functions; in
addition, the Company has produced a miniaturized version of its scanner, which
is marketed as a "reader" unit, as well as a mid-range scanner which is smaller,
has less functions and is less expensive than its larger version. The Company
also is continuing its efforts to increase its chemical line by modifying the
formulas for the chemicals used in connection with its scanner and reader
products. However, there can be no assurance that such product development will
be successful or result in significant revenue or any profits to the Company.
Further, as with any technological dependent product, the Company expects that
the market for its products will continue to be subject to frequent changes in
technology and customer preferences. As a result, the Company's growth and
future financial performance will depend upon its ability to develop and
introduce new products and enhance existing products accommodating the latest
technological advances and customer requirements. Some of the Company's products
will require adaptation to specific customer needs on a "build-to-suit" basis.
There can be no assurance that any new or modified products will be successfully
developed or achieve market acceptance, or that competitors will not develop and
market products which render obsolete or less marketable the Company's existing
products or its products under development. Any failure by the Company to
anticipate or respond adequately to the changes in technology and customer
preferences, or any significant delays in product development or introduction,
could adversely affect its business. See "Business - Products" and
"Competition".

7. Key Personnel; Management of Growth.

The Company's success depends to a significant extent upon a limited number
of executive officers, technical and engineering employees and consultants, and
sales advisors and representatives working with the Company. The loss of the
services of relatively few of such persons could have a material adverse effect
on the Company. The Company entered into an employment contract with Daniel A.
Marinello, its Chief Executive Officer, and Messrs. Louis Liang and Bill Ryan
Executive Vice Presidents. At the Annual Meeting of Stockholders held for Fiscal
1994, stockholders of the Company ratified and approved the Employment Agreement
between the Company, on the one hand, and Messrs. Marinello, Liang and Ryan, as
a management team. Such Employment Agreement thus became effective on and as of
November 1, 1994. See "Management - Executive Compensation". All three of the
foregoing persons are also directors. See "Interests of Management and Others in
Certain Transactions". The Company's future success will also depend upon its
ability to attract and retain skilled technical, managerial and marketing
personnel. Competition for such personnel is intense. See "Business - Employees"
and "Management".

8. Dependence on a few Principal Customers.

Products manufactured by the Company are presently sold to a limited number
of clients and customers under a relatively few contracts or purchase orders.
The Company markets its products to a number of different manufacturers
including pharmaceutical firms, soft drink and beer bottling firms and others.
During the Company's fiscal years ended October 31, 1996 and

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<PAGE>
October 31, 1995, respectively, the Company's principal customers (i.e, 10% or
more of sales) consisted of three customers, accounting for 15%, 17% and 17%
respectively, of sales in Fiscal 1996 and one customer accounting for
approximately 45% of sales in Fiscal 1995. The loss of any of these customers
and the failure to replace them could have a material adverse effect on the
Company. See "Business - Markets".

9. Continued Control of Company by Inside Stockholders.

The present stockholders are able to elect all of the Company's directors
and will continue to control the Company's business and affairs after this
Offering. See "Security Ownership of Certain Beneficial Owners and Management".
In addition, the Company's by-laws, among other things, protect officers and
directors by indemnifying them against losses they may incur in legal
proceedings resulting from their service to the Company. See "Management -
Directors, Executive Officers and Key Employees" and "Description of
Securities - Directors' Liability".

10. Limitation on Loss Carryforwards.

The Company has net operating loss carryforwards ("NOL's") for federal
income tax purposes of approximately $3.8 million as of October 31, 1996. Net
operating loss carryforwards can be used to offset federal taxable income during
a 15-year period from the date of the loss, and begin to expire in 2000, subject
to certain limitations. One such limitation is imposed under Section 382 of the
Internal Revenue Code of 1986, as amended. Upon a change in ownership or
control, as defined therein, ("Ownership Change"), the Company can utilize only
a portion of its tax loss carryforwards to reduce taxable income in any year.
Such an Ownership Change took place during the three year testing period ended
May 18, 1989 so that future years' utilization of those Company NOL's generated
prior to the date of Ownership Change will be limited. As a result, the amount
of taxable income that can be reduced by NOL carryforwards that existed as of
May 18, 1989 is severely restricted. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition --Federal Income Taxes."

11. Environmental and Related Matters.

The Company's operations involve the use or handling of materials that may
be classified as environmentally hazardous substances. Laws and regulations
protecting the environment and persons engaged in processing hazardous materials
have become more stringent, and may in certain circumstances impose "strict
liability," rendering a person liable for environmental damage without regard to
negligence or fault on the part of such person. Such laws and regulations may
expose the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company which were in compliance with all applicable

laws at the time such acts were taken. The Company believes that its exposure
and responsibility for environmental matters is limited by virtue of the fact
that the chemical components it receives have already been processed by the
original manufacturers thereof to a state where the same are relatively
non-hazardous. Furthermore, the Company requires its outside production
facilities to bear responsibility for environmental and other regulatory matters
during their processing of these chemicals, and to indemnify the Company against
any resultant liability. The cost of

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<PAGE>
compliance with environmental laws and regulations has not had a material
adverse effect on the Company to date, and the Company is not aware of any
existing situation that it believes is likely to have any such material adverse
effect on the Company. See "Business-Manufacture".

RISKS RELATED TO THE OFFERING

12. Shares Eligible for Future Sale.

Approximately 15,300,000 shares of Common Stock currently outstanding are
"restricted securities" as that term is defined in Rule 144 promulgated under
the 1933 Act. Ordinarily, a person holding "restricted securities" may sell the
same after two years, and in certain limited amounts without registration
pursuant to Rule 144. Virtually all of these restricted securities are now
eligible for sale under Rule 144 or Rule 144(k), subject to the conditions and
limitations provided therein.

Pursuant to the Company's public offering of securities in December 1993,
the Company issued convertible preferred stock, each share being presently
convertible into four shares of Common Stock. In addition, the Company issued
Class A Common Stock Purchase Warrants, each of which entitles the holder to
acquire one share of Common Stock at a price of $1.00 per share and to
simultaneously receive 1 Class B Warrant to purchase 1 share of Common Stock at
$1.50 per share. See "Description of Securities." All of the aforesaid
underlying shares of Common Stock are required to be registered upon delivery to
the holders converting such preferred stock or exercising such warrants, as the
case may be. In addition, the underwriter of such public offering received
options to purchase 150,000 units (comprised of 1 share of Preferred Stock and 1
Class A Warrant) exercisable for a four year period commencing December 13, 1994
(when the underwriter will also be entitled to certain rights to demand
registration of the aforesaid securities). The sale, or availability for sale,
of substantial amounts of Common Stock, Units and/or warrants to acquire Common
Stock in the public market subsequent hereto pursuant to Rule 144 or otherwise
could adversely affect the market price of the Common Stock, and could impair
the Company's ability to raise additional capital through the sale of its equity
securities or debt financing. The availability of Rule 144 to the holders of
restricted securities of the Company would be conditioned on, among other
factors, the availability of certain public information concerning the Company.
See "Description of Securities" and "Shares Eligible for Future Sale".

13. Possible Restrictions on "Market Making" Activities in the
Company's Securities.

The shares of Common Stock are currently traded in the over-the-counter
market and quoted on the electronic bulletin board for non-NASDAQ stocks of the
National Association of Securities Dealers, Inc. ("Electronic Bulletin Board")
and listed in the "pink sheets" published by the National Quotation Bureau, Inc.
Among the broker-dealer firms making a market in the Common Stock is M.H.
Meyerson & Co. Inc. ("MHM") which is deemed to own 900,000 shares underlying
securities contained in the underwriter's option to acquire 150,000 Units,
issued in connection with the Company's, December, 1993 public offering; in
addition officers, directors and principal stockholders of MHM (including
Kenneth J. Koock) own, as of October 31, 1996, 5,285,496 shares of Common Stock,
although each disclaims beneficial ownership of

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<PAGE>
shares owned by the other or by MHM. Further, MHM may, as a market maker,
participate in the distribution and sale of some or all of the Common Stock
being offered hereby, which activity could require it to cease or restrict its
market making activities in the Company's securities. See "Selling Stockholders
and "Plan of Distribution", "Business-Recent Public Offering" and "Share
Ownership of Certain Beneficial Owners and Management".

14. NASDAQ Listing Not Available.

Since the Company is presently unable to satisfy NASDAQ's listing or
maintenance requirements, trading in the Common Stock is and would be conducted
in the over-the-counter market on the NASD's non-NASDAQ "Electronic Bulletin
Board". Consequently, the liquidity of the Company's securities could be
impaired, not only in the number of securities which could be bought and sold,
but also through delays in the timing of transactions, reduction in the news
media's coverage of the Company, and lower prices for the Company's securities
than might otherwise be attained. There is no assurance that such securities
will ever qualify for listing on NASDAQ.

15. Disclosure Relating to Low-Priced Stocks; Adverse Effect of "Penny Stock"
Rules on Liquidity for the Company's Common Stock.

The Company's securities are and will be subject to Rule 15c2-6 under the
Exchange Act which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, this
will affect the ability of broker- dealers to sell such securities and could
affect the ability of purchasers in this Offering to sell any of the Common
Stock acquired hereby in the secondary market.

The Commission has adopted regulations which generally define a "penny
stock" to be any non-NASDAQ equity security that has a market price (as therein
defined) less than $5.00 per share or with an exercise price of less than $5.00
per share, subject to certain exceptions. For any transaction by broker-dealers
involving a penny stock, unless exempt, the rules require delivery, prior to a
transaction in a penny stock, of a risk disclosure document relating to the

penny stock market. Disclosure is also required to be made about compensation
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.

The Company's securities are also subject to Section 15(b)(6) of the
Exchange Act, which gives the Commission the authority to prohibit any person
that is engaged in unlawful conduct while participating in a distribution of
penny stock from associating with a broker-dealer or participating in a
distribution of penny stock, if the Commission finds that such a restriction
would be in the public interest.

Because the Company's securities are subject to the rules on penny stocks,
the market

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<PAGE>
liquidity for the Company's Common Stock may very likely be adversely affected.

16. Dividends on Common Stock and Preferred Stock Not Likely.

The Company has not paid any dividends on its Common Stock in the past and
there can be no assurance that the Company will do so in the future. Moreover,
it is anticipated that earnings, if any, which might be generated from operation
of the Company will be used to finance the growth of the Company and that cash
dividends will not be paid on the Common Stock. See "Dividends". In addition,
the Company is obligated to pay annual cumulative dividends on the Preferred
Stock issued in the Offering consummated in December, 1993 which could deplete
the Company's working capital and adversely impact upon the possibility of
future cash dividends upon the Common Stock; while the Company paid the initial
dividend on its shares of Preferred Stock on December 5, 1994, it has passed
upon payment of this dividend for periods since that time, including the current
period. Management will make future decisions respecting dividends on the
Preferred Stock and Common Stock depending upon such factors as the results of
the Company's operations, its cash flow situation and the need to conserve cash
and liquidity to fund its current and future activities.

USE OF PROCEEDS

The net proceeds to be derived by the Company from the issuance of the
shares of Common Stock covered by this Prospectus, after estimated expenses
aggregating approximately $24,000, are to be utilized by the Company for general
and working capital purposes. The Company will derive no cash proceeds from the
sale of up to 1,482,535 shares of Common Stock covered hereby which are reserved
for issuance to the holders of shares of Preferred Stock upon conversion
thereof. However, 1,725,000 shares of Common Stock are reserved for issuance
upon exercise of the publicly held Class A Warrants, at a price of $1.00 per
share, and 1,725,000 shares of Common Stock are reserved for issuance upon
exercise of Class B Warrants at a price of $1.50 per share; if all of such
warrants are exercised, the Company would receive net proceeds of up to
approximately $4,262,500 as a result. However, there can be no assurance that
any of the foregoing warrants will be exercised and that the Company will
receive any proceeds as a result thereof.

There is also reserved 900,000 shares of Common Stock for issuance upon
exercise by the underwriter in the Company's 1993 public offering of certain
derivative securities contained in the Underwriter's option. See "Plan of
Distribution." Of such shares of Common Stock, 150,000 are reserved for issuance
upon exercise of Class A Warrants and 150,000 are reserved upon exercise of
Class B Warrants, respectively; exercise of such Warrants would result in
additional net proceeds to the Company of approximately $375,000.

PRICE RANGE OF COMMON STOCK

The Company's shares of Common Stock are traded in the over-the-counter
market and quoted in the "pink sheets" published by the National Quotation
Bureau, Inc. ("NQB"). Such shares are presently listed on the NASD non-NASDAQ
"Electronic Bulletin Board". However,

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<PAGE>
since the shares have traded on an inactive basis during many of the periods set
forth below, the Company does not regard such price quotations as representing
prices at which sizable transactions could have been or were effected.

The following table sets forth the range of high and low bid prices for the
Company's Common Stock for each quarter during the period November 1, 1994
through October 31, 1996 as furnished by the NQB. These quotations reflect
inter-dealer prices without retail mark-up, markdown or commission and may not
necessarily represent actual transactions.

BID
-------------
High Low
---- ---
Fiscal 1995
11/1/94 to 1/31/95 .21 .05
2/1/95 to 4/30/95 .21 .05
5/1/95 to 7/31/95 .25 .05
8/1/95 to 10/31/95 .50 .12

Fiscal 1996
11/1/95 to 1/31/96 .25 .18
2/1/96 to 4/30/96 .53 .25
5/1/96 to 7/31/96 .81 .50
8/1/96 to 10/31/96 .56 .38

On February 4, 1997, the high bid price for the Company's Common Stock was
$1.03 per share. The number of holders of the Company's Common Stock was
approximately 560 on February 3, 1997, computed by the number of record holders;
this does not take account of stockholders for whom shares are being held in the
names of brokerage houses and clearing agencies.

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<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
October 31, 1996. This table should be read in conjunction with the Financial
Statements and related notes thereto included elsewhere in this Prospectus.

October 31,
1996(1)
-----------
Short Term Debt ........................................ $ -0-
Long Term Debt including current portion ............... 94,454
Stockholders' Equity:
Preferred Stock, par value $.01 per share;
5,000,000 shares authorized,
1,482,535 shares issued and outstanding .......... 2,439,483
Common Stock, par value $.01 per share;
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)
----------
Stockholders' equity ................................... 1,377,056
----------
Total .................................................. $1,471,510
----------

- - ------------
(1) Does not include: (i) shares of Common Stock issuable upon conversion of the
1,482,535 shares of Preferred Stock outstanding from the Units publicly
offered and sold in December, 1993, and the exercise of the Class A and
Class B Warrants included in or underlying such Units; (ii) 150,000 shares
of Preferred Stock included in the Units publicly offered and sold in
December 1993, subject to the Underwriter's Unit Purchase Options, or the
900,000 shares of Common Stock issuable upon conversion of such shares of
Preferred Stock and upon exercise of the Class A and Class B Warrants
included in or underlying such Units; (iii) 6,700,000 shares of Common Stock
reserved for issuance under the Company's Stock Option Plans, of which
options to purchase 300,000 shares have been previously exercised and
options to purchase 3,490,000 shares are outstanding; or (iv) 1,700,000
shares of Common Stock issuable upon exercise of currently outstanding
options granted outside the Company's Stock Option Plan. See "Management,"
"Certain Transactions and Agreements" and "Description of Securities".

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<PAGE>
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.

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<PAGE>

Year Ended October 31, 1995 ("Fiscal 1995") compared to
Year Ended October 31, 1994 ("Fiscal 1994")

Net sales of $1,050,281 for Fiscal 1995 reflect an increase of 98% from the
$531,339 in net sales in Fiscal 1994. This increase in sales was a result of
higher sales of both chemicals and scanner equipment, a significant portion of
which was made to a postal subcontractor for U.S. Postal Service Certified Mail
Label printing. There was also an increase in revenues from special installation
and servicing activities relating to putting scanners in place to meet special
requirements of customers' facilities. Chemicals accounted for 82% of sales,
scanners for 9.6% of sales, and the balance consisted of servicing activities.
Cost of sales decreased as a percentage of overall sales in the year-to-year
comparison from 66.8% to 34.1%. The cost of goods, consisting of materials,
labor and attributable overhead, of (i) chemical sales and (ii) scanner/hardware
sales was 68.2% and 61.6%, respectively in Fiscal 1994 as compared with 22.5%
and 11.5%, respectively, in Fiscal 1995. This reduction was due to the
substantially higher sales base over which to spread fixed costs as well as
lower costs of manufacturing certain chemical compounds due to economies of
scale.

Selling, general and administrative expenses increased from approximately
$465,000 in Fiscal 1994 to approximately $974,000 in Fiscal 1995. This continued
a trend in increased selling, general and administrative expenses which
evidenced itself in the first quarter of Fiscal 1995. These increases were due
to development expenses associated with the prospective 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.
Management anticipates that developmental expenses will continue at
approximately the current rates until development of pending new products has
been completed. During Fiscal 1995 two additional patents were issued to the
Company from the U.S. Patent Office; costs relating thereto had previously been
either capitalized or expensed by the Company. It should also be noted that
increases in marketing and advertising expenses evident in the first two
quarters of Fiscal 1995 have ceased, with such expenses being greatly reduced
for the balance of Fiscal 1995 as management focused on sales efforts to
identified customers, rather than advertising directed to the market at large.

The Company generated a net loss of $217,209 before dividend requirements
during Fiscal 1995 as compared with a net loss of $239,164 for Fiscal 1994,
before dividend requirements.

After taking into account incident research and development and interest
expenses, the Company incurred operating losses (before applicable interest
income) in Fiscal 1994 of approximately $111,000 on chemicals and $203,000 on
scanner and hardware sales, while incurring losses of approximately $104,000 and
$193,000 in Fiscal 1995 on these items.

Net interest income of approximately $79,400 for Fiscal 1995 was slightly
greater than the net interest income of approximately $75,200 in Fiscal 1994 as
a result both of higher interest rates, which gave a larger return on
investment, and the fact that the proceeds of the Company's December, 1993
public offering were not available for use for the full Fiscal 1994 period.

- 17 -

<PAGE>
Liquidity and Capital Resources - Fiscal 1996

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.

Liquidity and Capital Resources - Fiscal 1995

The Company had cash and cash equivalents and investments, of $1,490,522 as
at the end of Fiscal 1995 (as compared with $2,221,610 as at the end of Fiscal
1994). It also experienced an increase in trade accounts receivable of $58,825
(owing to increased sales activity) and an increase in inventory of $56,573 (due
to a gearing up of production of the new scanners to meet projected sales) as
compared to the Company's prior fiscal year. Prepaid expenses at such dates
increased by $66,230 due to increased advances to suppliers. At the end of
Fiscal 1995, the Company had a net decrease in cash and short term investments
of $824,205 (due to funding of operating losses). 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 1995
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.

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<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.

October 31, October 31,
1996 1995
----------- -----------
Deferred tax assets:
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 differential - (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. 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.

- 19 -

<PAGE>
BUSINESS

The Company

Angstrom Technologies, Inc. (the "Company") was incorporated under the laws
of the State of Delaware on June 3, 1983. The Company derived its name from the
Angstrom units of measurement of wavelengths of light.

The Company is engaged in the development, manufacture and sale of
Electro-Optical Control Systems, consisting of an ultraviolet optical scanner
and invisible fluorescent chemical compounds. The Company has developed and
markets scanning units known as the OMNI 2000E and 2000H series. These units can
be used individually or combined with several units, working in unison to
provide statistical process control for manufacturing lines. Individually, the
unit can determine the presence or absence of the fluorescent compound. When
units are combined, a grid code is formed where information is generated and
stored, then later read for a variety of applications. In addition, the Company
produces a number of fluorescent compounds, each of which emits its own wave
length. When printed, sprayed, or stamped, the marking compounds are non-visible
under normal lighting conditions. This allows for marking over existing graphics
or on different materials without changing the appearance of the product. These
compounds are blended into a variety of materials to be applied to the
customer's product. An example of materials, among others, are printing inks,
plastic films, over-print varnish, adhesives, and hot plastic molding compounds.
Also, due to the invisible nature of the compound, the system can also be used
in a variety of security applications.

Products

The Company's products have traditionally consisted of an ultraviolet
optical scanner and various chemical compounds. During Fiscal 1994 the Company
completed the upgrading of the technology used in its products in order to

produce a scanner incorporating a microprocessor which has advanced both its
capability in (a) speed of reading, and (b) sensitivity. Among other

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<PAGE>
things, this permits the scanner to read invisible bar codes and has greatly
increased other potential applications. The Company's sales of scanners were not
being actively promoted pending the development of the advanced scanner during
Fiscal 1994.

Use of outside production facilities tends to reduce the capital
expenditures necessary to effect production and help expedite full scale
production of the new units. The following are examples of expected improvements
and are based on current engineering estimates: Estimated lamp life to be in
excess of 20,000 hours as compared to current life of approximately 1,000 hours;
estimated cost of electronic components (currently 66% of total cost) to be
reduced by 90%; and increase depth of field (distance from scanner to target) by
a factor of three. The Company is currently working on the commercialized
production of two new basic compounds which are intended to be marketed in the
security industry for a wide array of end-use products that will incorporate
sophisticated wavelength and non-visible encoding. Current product development
in the scanner by the Company has brought the technology into swipe bar code
readers (verifying bar codes describing document information) and the Company
has recently become enabled to produce a smaller compact hand held bar code
reader, as well as to complete reformulation of certain of the chemicals used by
the Company in conjunction with its scanners and readers.

The Company is continuing to develop improvements in its electronic
components by ultimately incorporating or "sweeping" support electronics into a
semi-conductor chip, and further developing the mechanical and optical portions
of its scanner; it has also developed improved chemical compounds to be used in
document security applications. In this regard, the Company plans to take
multiple electronic components and incorporate them into a single semiconductor
chip utilizing Complimentary Metal Oxide Semiconductor ("CMOS") technology. CMOS
technology is designed to operate at low temperatures, thereby allowing the use
of plastics for the final optical package embodiments.

The Company's first new scanner was and is being offered for sale by the
Company at prices ranging between $8,000 -$11,000 per unit, with a base price of
$8,000 and additional optional features, such as remote LCD readout, external
beeper, customized optics, customized computer programming interface and decoder
interface for bar code reading available for additional charges of $500 or more
for each such feature. More than twenty-five of the new scanning units have been
sold. The scanners carry a sales price which varies, depending on the unit and
such price, subject to volume discounts. The Company has found that many
customers or potential customers require specific customizing of these scanning
units, to meet the needs of the specific applications for which the units are
being purchased. Such customizing may result in an increase in the price
charged. In addition, existing customers who are using the Company's older
version scanners are offered a credit against the price of the new scanner for a
trade-in of their existing scanning devices.

The Company has developed and now offers for sale five different scanning
devices:

1. Hand-Held scanner used, among other things, for verifying tickets to sporting
and entertainment events;

2. Mid-Range scanner used for a variety of commercial applications;

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<PAGE>
3. High-End scanner, which has the ability to tie-into a computer, and is being
used for the U.S. Postal Office Certified Mail Project.

4. High-End and High-Security Document scanner, which allows modulation of upper
and lower reading limits, to be used for check sorting and check verification
applications;

5. Document Reader, which is portable and easily moveable, to be used for
verifying tickets to sporting and entertainment events, among other things.

Manufacture

The components of the Company scanners are manufactured by outside
contractors, in accordance with the Company's standards, pursuant to purchase
orders issued by the Company on an as needed basis. No manufacturer has been
given an exclusive retention and the Company believes that there are numerous
alternative sources for securing production of such components.

Final assembly and quality control testing of the scanners are performed
on-site with Company personnel.

The scanning compounds are manufactured off-site by a custom chemical
manufacturer under a confidentiality agreement, providing protection for the
Company's trade secrets. The custom chemical manufacturer is responsible for
EPA, NIOSH, and OSHA compliance to the extent such laws are applicable. The
Company has entered into this agreement to produce its chemicals, at a lower
unit cost and with enhanced capacity to meet the increasing production level
which may be required by the Company's new marketing efforts, should the later
result in sales increases. However, the Company believes that there are numerous
alternative sources for manufacturing its chemical compounds and that its not
dependent on the arrangement presently in effect. In an effort to enhance its
optical and general development laboratories, the Company, in July 1994,
commenced to employ a research chemist, at an annual compensation of
approximately $55,000, and is also utilizing laboratory facilities for further
development of chemical compounds at a local university at a cost of

approximately $19,000 per annum. The Company has also retained a product
engineer, at an annual cost estimated to be approximately $80,000, whose
activities involve, among other things, to sweep many of the scanner's
electronic circuits onto a chip. See "Products". It is anticipated that such
activities will continue during Fiscal 1997. The anticipated source of funds
therefore is the Company's working capital, derived from its public offering in
Fiscal 1994.

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<PAGE>
Sales and Marketing

The Company has been engaged in a program designed to upgrade its products,
expand its product lines and attempt to substantially increase its customer
base. In connection therewith, the Company commenced its sales and marketing
program in January, 1993 by the use of independent sales representatives.
However, until September, 1994, the Company's program for sales of hardware was
held in abeyance, pending the completion of development and test marketing of
its new Omni 2000H scanner. Commencing on or about February 1994, the Company
began a more intensive sales and marketing program.

For its sales efforts, the Company utilizes Messrs. Marinello and Ryan, two
of its executive officers, who allocate a significant portion of their time to
sales and marketing efforts. During Fiscal 1993 and Fiscal 1994, approximately
$7,800 and $20,900, respectively, were expended by the Company in its sales and
marketing efforts, in addition to which approximately $5,100 and $29,400,
respectively, were paid as compensation to the Company's Chief Executive Officer
under an employment agreement measuring compensation by way of the Company's
overall sales. During Fiscal year 1995, approximately $158,000 has been paid as
sales commissions to executive officers while during Fiscal 1996, approximately
$133,000 was paid as sales commissions to executive officers and $3,701 paid as
royalties. It is the Company's goal to attempt to increase its sales and
marketing through the mode of entering into strategic alliances and joint
venturing endeavors with well-placed firms in various business areas rather than
expending large sums in developing the Company's own independent direct selling
structure.

The Company's sales efforts have been disappointing on a historical basis
until the third quarter of Fiscal 1995. In Fiscal 1991 the Company had $259,841
in sales, comprised of eleven scanners sold at an average price of $4,937 with
chemical sales of approximately 66% of total sales. In Fiscal 1992 the Company
had $467,433 in sales, comprised of twenty-seven scanners sold at an average
price of $5,175 with chemical sales approximately 60% of total sales. In Fiscal
1993 the Company had $346,026 in sales, comprised of seven scanners sold at an
average price of $4,913 with chemical sales of approximately 80% of total sales.
Of the scanner sales in Fiscal 1993, all were to existing rather than new
customers, although some chemical sales were to new customers. Net sales for the
fiscal year ended October 31, 1994 totaled $531,339, a substantial increase from
the $346,026 in sales in Fiscal 1993; This trend of increased sales continued in
Fiscal 1995 when net sales equalled $1,050,281. Such increase was generated in
the main by sales to a sub-contractor for the U.S. postal service in connection
with production of labels for certified mail. These customer orders covered both
the purchase of chemical compounds for use in printing ink to be utilized in
labels for certified mail as well as the sale by the Company of six scanners for

use by the subcontractor in its internal verification system in connection with
the production of certified mail labels. Such labels are to be used by the U.S.
Postal Service in connection with an automation system, using equipment of a
third party, scheduled for operation during 1996, which will among other things,
automatically sort-out certified mail from other types of mail. During Fiscal
1996, the Company's revenues decreased to $869,829 due to the completion of the
Postal Service contract, although following the close of Fiscal 1996 the Postal
contract entered a new phase wherein the Company received orders for additional
amounts of its chemical compound. With the Company's new line of scanner and
reader hardware and broad-based chemicals to be used with these items, the
Company is attempting to broadly increase its sales base. However, the Company's
sales must still be

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<PAGE>
regarded as below levels deemed necessary to establish profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Summary of Operations" for a breakdown of sales, margins and
related items respecting the Company's chemical and scanner/hardware sales,
respectively.

Markets

Among the principal industries which presently utilize or constitute
potential clients for the Company's products are pharmaceutical firms (for
labels and bottling) and automobile parts manufacturers; incident thereto, or,
as markets for additional products, are adhesive manufacturers, label
manufacturers, and stamp and paper currency manufacturers.

The foregoing applications cover a wide variety of industrial processing
including quality assurance, manufacturing and product sorting.

In the pharmaceutical industry, the Company's products are utilized to
insure the correct label is placed on the correct pharmaceutical product; in
addition, verification of label alignment and safety seal presence are employed
in the food and drug industries.

In the automotive industry, the Company's products are utilized in the
identification of correct labels on assembly parts and the detection of adhesive
presence in sub-assembly components.

In the packaging industries, the Company's products are utilized to ensure
correct label placement, in the sorting of various products and in adhesive
detection.

The new improved scanners being developed by the Company, and the compact
reading devices incident thereto, are believed by management to have
applications in various facets of the document security industry, as well as in
the process control field previously serviced by the Company. Among such new
applications, would be the prevention of counterfeiting of currencies, postage
stamps and tickets to various sports and entertainment events, and marking of
items being sold to consumers through retail outlets. The Company is currently
exploring potential customers with an interest in a wide variety of security
applications under development by the Company. Among other things, the Company

is preparing for a test marketing of its technology to be used in connection
with the identification of counterfeits and sorting of bank checks. The Company
has also sold its ultraviolet chemical for use in inks being used on U.S.
government documentation, such as passports.

Products manufactured by the Company are presently sold to a limited number
of clients and customers under a relatively few contracts or purchase orders.
During the Company's fiscal year ended October 31, 1995 sales to one customer
exceeded 10% of net sales and amounted to approximately 50% of the Company's
sales while during the year ended October 31, 1996, sales to three customers in
excess of 10% were approximately 15%, 17% and 17%, respectively.

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<PAGE>
Competition

The Company competes with a number of companies, both in its present line
of business (labeling of pharmaceutical bottles, automotive parts and similar
items) and in the prospective business to be entered into with the new prototype
(security applications for documents). Many of such competitors have greater
financial and other resources. In the labeling and parts identification
business, among its competitors are Data Logic, Inc. and Sick Optic Electronic,
GmBh, both of which have readers capable of reading broad (rather than specific)
bands of light and do not provide either application engineering or scanning
compounds. The Company's scanners are capable of operating on a more defined
basis and can differentiate among certain colors. Accordingly, the Company
believes that its scanner is capable of sorting out various labels for different
products whereas readers produced by competitors are able to detect fluorescent
chemicals on labels but cannot sort out similar labels. The Company's existing
products are comparable in price to those of its competitors. The Company also
competes with the machine vision industry, which utilizes solid state cameras
and complex computer programs for similar applications, such as product and
label identification, that the Company offers to similar markets. The Company's
ultraviolet detection system, which can also be used for labeling applications,
is priced at approximately $8,000 per system compared to a range of
$12,000-$15,000 for video systems generally available for bottling and
production line identification. Such competing video systems are produced and
sold by (a) General Electric Vision division of General Electric Corporation;
(b) GM Fanuk, a joint venture of General Motors Corporation and Fanuk
Corporation (a Japanese firm); and (c) Penn Video, Inc.

With respect to document security, the Company's New Technology scanner
competes with a number of other products used for this purpose, including
holograms (which are three-dimensional representations designed with certain
visual attributes for the purpose of thwarting counterfeits). The Company also
competes with technology which places water marks and/or fabric threads within
paper and currency. The Company believes that, if its New Technology scanner
proves commercially feasible, it will enjoy a superiority against counterfeiting
over these other technologies since the Company's non-visible specific frequency
ultra-violet chemical compounds will be more difficult to duplicate than are
competing document security devices. The basis for this belief is that the
Company's products can differentiate its chemistry within ten nanometers of the
spectrum whereas its competitors have thus far produced sensors which
principally read in the blue area of the spectrum; by having greater specificity

in its reading capacity, the Company can blend other colors into its blue
spectrum inks and read such colors with greater particularity, thereby giving
the Company's products a broader range of application. See "Risk Factors -
Competition."

Intellectual Property Rights and Technology Protection

The Company has trademark registrations in the United States for
"INVISI:GRAPHICS" and "Angstrom Technologies, Inc", and "SDR". The use and
registration rights of a trademark holder do not ensure that such holder has
superior rights to others that may have registered or used identical related
marks on related goods or services. The Company has chosen to greatly reduce the
current use of the "INVISI:GRAPHICS" and "SDR" trademarks as part of an image
upgrade featuring the new technology products in manufacturing and development.
The principal register trademark: Angstrom, Registered June 23, 1987, which
remains in effect

- 25 -
<PAGE>
through June 23, 2007, will still be used in the Company's new marketing logo.

The Company's initial patent was issued for ultraviolet reader technology,
and is described as "Fluorescent object recognition system having self-modulated
light source." In addition, in May 1995, the Company was granted patents
covering an authentication system and relating to the calibration of
fluorescence detectors, respectively, and also has other patents pending. The
patent on the authentication system and methods covers 27 claims which
incorporates the technology developed by the Company for its new scanners and
bar code reader. The Company has six patents in effect at this time. Despite
this fact, there can be no assurance, that any present or future patents which
may issue in the Company's favor would necessarily protect the Company from
competition or potential competition. Accordingly, the Company anticipates
reliance for the foreseeable future on both its patents and on contractual
rights, trade secrets and copyright laws. See "Risk Factors - Dependence on
Proprietary Technology; Limited Patent Protection."

Pursuant to its Executive Employment Agreements with Messrs. Marinello,
Liang and Ryan (See "Interests of Management and Others in Certain
Transactions"), the three executives are engaged, among other things, in a plan
of activity to expand patent and intellectual property coverage for the Company.
New patents are being developed and filed in the name of the individuals, who
have agreed to assign a two-thirds interest therein to the Company, which is
obligated to cover the cost of filing fees and fees of patent counsel. The
Company will have exclusive rights to use such patents for a royalty fee of 5%
of gross profits during the term of the aforesaid employment agreements, and at
a royalty equal to 10% of gross revenues thereafter.

Employees

The Company presently employs four executives, three engineering employees,
a research chemist, an office manager and one full-time and one part-time
clerical person. It also retains an outside accounting firm to supervise its
financial records and independent consultants on business and engineering
matters, as necessary. The President assists Company personnel in applications

engineering.

Facilities

The Company maintains its executive offices in Erlanger, Kentucky,
comprising approximately 2,000 square feet. Such offices are leased for a period
through May 14, 1999 at a cost of approximately $15,000 per year, and have been
considered adequate to meet its present needs. The Company also leases adjacent
storage space on a month-to-month basis at a rate of approximately $900 per
annum.

- 26 -

<PAGE>
DIVIDENDS

The Company has never paid cash dividends on its Common Stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future as
it intends to retain future earnings to finance the growth of the business. The
payment of future cash dividends, if any, will depend on such factors as earning
levels, anticipated capital requirements, the operating and financial condition
of the Company and other factors deemed relevant by the Board of Directors. See
"Risk Factors - Dividends on Common Stock Not Likely". The Company is required
to pay a $.16 cash dividend annually on each share of Preferred Stock, to the
extent legally available for payment under the laws of Delaware, which dividend
is cumulative. The Company has declared an initial cash dividend of .15 cents
per share upon its shares of 8% Convertible Preferred Stock, such dividend being
paid on December 5, 1994 to holders of record as of the close of business on
November 30, 1994. See "Description of Securities - 8% Redeemable Convertible
Preferred Stock" and "Business - Preferred Stock Dividend." However, the Company
has not paid a preferred dividend since then due to the Company's desire to
conserve cash resources for development and marketing activities; such dividend
must ultimately be paid before distributions may be made upon shares of Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

- 27 -

<PAGE>
MANAGEMENT

Directors, Executive Officers and Key Employees.

The executive officers and directors of the Company are as follows:

Name Age Positions
- - ---- --- ---------
Daniel A. Marinello 56 President, Chief Executive Officer and Chief
Financial Officer and a director
Louis Liang 53 Executive Vice President-Strategic Business and a
director
William J. Ryan 57 Executive Vice President-Operations and a director
Douglas B. Kruger 53 Secretary and a director

Daniel A. Marinello has been Chief Executive Officer and Chief Financial Officer
of the Company since October 28, 1992. Prior thereto and since February, 1987,
Mr. Marinello has been serving as a director of the Company and as an advisory
engineer thereto. Prior thereto, from February, 1966 through July, 1992, he held
several engineering, management and advisory positions for the IBM Corporation
in Essex Jct., Vermont.

Louis Liang has been a director since February 1, 1994 and was appointed
Executive Vice President - Strategic Business in May, 1994. Mr. Liang was most
recently Director of Subcontract Operations and Package Development Technology
of VLSI Technology Inc. for a four year period from May, 1989 to June, 1993. He
has been employed, since 1972, in various capacities in the electronic and
semiconductor industries, including positions dealing with research and
development, engineering, operations and new venture and business development
matters. He has also been active as a technical, marketing and management
consultant to companies in the Silicon Valley. Mr. Liang has a B.A. and M.S.
degrees in Applied Physics from the University of California, San Diego and
Santa Barbara campuses.

William J. Ryan has been a director and Executive Vice President - Operations
since April 1, 1994. He has served most recently, between July, 1992 and April,
1994, as an Executive Management Consultant to several high technology
semiconductor suppliers and equipment manufacturers. His responsibilities
included developing market strategy, product design and implementing cost
effective manufacturing processes. Prior to becoming engaged in the consulting
business, Mr. Ryan was employed at IBM for 27 years in various senior
engineering and technical management positions. His last assignment with IBM was
as Senior Engineering Manager of Advanced Semiconductor Equipment Engineering.
Mr. Ryan holds a B.S. degree in Mechanical Engineering from the University of
Vermont and has published technical papers and spoken extensively at executive
management and technical management seminars.

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<PAGE>
Douglas B. Kruger has been a director since November 2, 1992. On January 18,
1993, Mr. Kruger was elected to serve as Secretary of the Company. Mr. Kruger is
presently and has since September, 1991 been an independent business and
marketing consultant. Prior thereto, from November, 1988 to its sale in

September, 1991, he was the Chief Executive Officer and sole stockholder of
Concept Surfaces Corp., a decorative surfacing company located in Florida.
Between June, 1964 and November, 1988, he held a variety of positions with the
IBM Corporation including manufacturing technician and as an executive with the
International Procurement Group of that firm.

Each of the Company's directors has been elected at the recent Annual
Meeting of Stockholders to serve until the next such Annual Meeting and until
his successor has been elected and qualified. The Company's executive officers
are appointed annually by the Company's directors. Each of the Company's
officers continue to serve until their successors have been appointed.

Under federal securities laws, the Company's directors, its executive
officers and any person holding more than 10% of the Company's Common Stock are
required to report their ownership of the Company's Common Stock and any changes
in that ownership to the Securities and Exchange Commission ("SEC") on the SEC's
Forms 3, 4 and 5. Based on its review of the copies of such forms it has
received, the Company believes that all of its officers, directors and greater
than 10% beneficial owners complied with all filing requirements applicable to
them with respect to transactions during Fiscal 1996.

Executive Compensation

The following Summary Compensation Table shows compensation paid by the
Company for services rendered during Fiscal Years 1996 and 1995 for Daniel A.
Marinello, who was the Chief Executive Officer and President and Chief Operating
Officer at the end of such fiscal years. No other executive officers of the
Company received salary and bonus compensation which exceeded $100,000 in such
fiscal years.

Summary Compensation Table

<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Award
------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary ($) Options Compensation ($)
- - --------------------------- ---- ------------- ------------ ----------------
<S> <C> <C> <C> <C>
Daniel A. Marinello, 1996 --- ----(3) $93,058(2)
Chief Executive Officer and 1995 --- ---- $96,172(2)
Chief Financial and 1994 --- ---- $29,397(2)
Accounting Officer(1)
</TABLE>
- - ------------
(1) Commenced to serve as such on October 28, 1992. See "Daniel A. Marinello -
Employment Agreement" below for a description of the terms of Mr.
Marinello's compensation.

(2) Comprised of accrued commissions.

(3) Options covering 1,000,000 shares at a price of $.125 per share were granted
in November, 1994, constituting the fair market value of such shares as at
such date.

- 29-
<PAGE>
Daniel A. Marinello - Employment Agreement During Prior Fiscal Years

On October 28, 1992, Mr. Marinello entered into an employment agreement
with the Company. It provides for him to be employed as Chief Executive Officer
and Chief Financial Officer through October 28, 1995 at an annual salary of (a)
fifteen (15%) percent of sales produced by him and five (5%) percent of sales
revenues of sales representatives, payable at the end of the month in which
payment for such sales is received by the Company, and (b) a bonus payment
computed by the following percentage of the Company's pre-tax profits in excess
of a base amount equal to the Company's pre-tax profits, if any, for its fiscal
year ended October 31, 1992 during each year of the term hereof:

5% of the first $1,000,000;
4% of the second $1,000,000;
3% of the third $1,000,000;
2% of the fourth $1,000,000; and
1% of any excess of pre-tax profits over $4,000,000.

Executive Employment Agreement between the Company and
Messrs. Marinello, Liang and Ryan

The Board of Directors of the Company has approved and the stockholders of
the Company, at the Annual Meeting of Stockholders, held November 7, 1994,
ratified and approved, an Executive Employment Agreement (the "Agreement"),
between the Company, on the one hand, and Messrs. Marinello, Liang and Ryan, its
three highest ranking executive officers as a management team (the "Team"). The
Agreement has become effective on and as of November 1, 1994 and supersedes the
existing Employment Agreement with Mr. Marinello as well as the employment
arrangements with Messrs. Liang and Ryan. Since May, 1994, Messrs. Liang and
Ryan have been receiving compensation equal to $5,000 per month for each such
person. An outline of the terms of the Agreement is as follows:

Term

The term of the Agreement is initially for a three year period commencing
as of November 1, 1994 and ending October 31, 1997. The Agreement thereafter is
automatically renewed for annual consecutive renewal periods of one year each
unless terminated by notice of non-renewal sent either by the Company or the
Team, at least 60 days prior to the expiration of the initial term or any
renewal term; provided, however, that the Company may only terminate the
Agreement in the event that its net profits after taxes during the preceding 12
months is either a negative number or does not equal or exceed at least $150,000
more than the Company's net profits after taxes for the prior 12 month period,
or its sales do not show at least a 15% increase between such periods.

- 30 -
<PAGE>

Compensation

The Employment Agreement previously in effect with Mr. Marinello provided
that he shall receive compensation equal to 15% of gross sales and 5% of the
first $1,000,000 of pre-tax profits annually, with a sliding percentage
thereafter. The Agreement, which has now superseded Mr. Marinello's Employment
Agreement, provides that the Team shall receive, allocated among them, 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. The net sales component of compensation is divided among Messrs.
Marinello, Ryan and Liang in the amounts of 10.5%, 4.5% and 0%, respectively,
while the 10% of the first million dollars in pre-tax profits is apportioned 5%,
2.5% and 2.5%, respectively, and maintained in the same ratio, as such
percentage may be reduced.

Duties

Members of the Team are to be employed in their current capacities whereby
Mr. Marinello will remain President and Chief Executive Officer, Mr. Liang,
Executive Vice President - Strategic Business and Mr. Ryan as Executive Vice
President - Operations. Each member of the Team is required to devote
substantially all of his business time and efforts in the Company's employ and
to perform such services for the Company and its subsidiaries or affiliates as
may exist from time to time. The Team will be responsible for the general and
active management of the Company's business, including its assets and
liabilities, and the direct supervision of its managers, employees and sales
agents, subject, at all times, to the direction and control of the Board of
Directors. In connection with the specific task of product development, the Team
is charged with implementing the program dealing with product performance,
enhanced consistency of operation, and refinement and improvement of the
Company's products and the commercial applications thereof. The Team will also
recruit, train, supervise and evaluate independent contractors to act as
manufacturer's representatives to market the Company's products and services in
the United States.

Termination

The Company may terminate the Agreement only for "cause", which shall
consist of (a) a violation of the non-competition provisions, (b) commission of
an act or existence of circumstances which constitute "cause" within the meaning
of Delaware law, or (c) malfeasance or the commission or omission of acts which,
in the reasonable judgment of the Board of Directors, are contrary to the
instructions of the Board of Directors.

Non-Competition

During the term of the Agreement, the Team may not compete with the
Company's business in the United States or in any foreign jurisdiction in which
the Company is then conducting business.

- 31 -
<PAGE>
Additional Provisions

(a) In the event that one or two members of the Team are incapacitated or
unable to perform their duties, the other members of the Team, if still
performing his duties, shall be entitled to the entire compensation payable to
the Team under the Agreement.

(b) Each member of the Team has been granted a Stock Option covering 1
million Shares of the Company, exercisable at $.125 per Share which constitutes
the fair market value thereof, 50% of such number of shares becoming immediately
exercisable, with 250,000 exercisable after one year and the balance of the
shares becoming exercisable after the second anniversary of such grant. These
options have been granted pursuant to the Company's 1994 Stock Option Plan (the
"1994 Stock Option Plan"), which was ratified and approved at the Annual Meeting
of Stockholders referred to above.

Intellectual Property Rights

The Team is required to assign to the Company a 2/3rds interest in any
patents or other intellectual property created by it which is used in the
Company's business. The Company is required to pay the Team a royalty computed
by 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.

Take Over or Merger

In the event there is a buy out, take over or merger of the Company by a
third party (collectively called the "Takeover"), the Team shall be entitled to
receive twenty-five percent (25%) of the total value of the Takeover payable
immediately upon consummation of the Takeover, in cash or cash equivalent
acceptable to the Team, each member of the Team to receive one-third (1/3) of
the twenty-five percent (25%) payment; notwithstanding the foregoing, (A) the
aggregate payment to be made to the Team in event of a Takeover shall not exceed
$45 million, and (B) no sums on account of any such transaction shall be payable
to the Team in such event unless (i) if the Takeover occurs during the period up
to and including October 31, 1996, the Company reports net profits after taxes
in the most current fiscal year at least equal to or exceeding the Company's net
profits after taxes for the prior twelve month period by at least $150,000 (or
there are at least $150,000 in net profits if there were no net profits in the
preceding fiscal year) and the Company's sales display at least a 15% increase
in the most recent such fiscal year period over the preceding twelve month
period, or (ii) if the Takeover occurs during the period from and after November
1, 1996, the total value of the Takeover equals or exceeds $12.5 Million for the
Company's assets or capital stock, as the case may be. In the event of a payment
to the Team in respect of a Takeover of the Company, such payment shall be in
addition to any amounts otherwise received by the members of the Team in
exchange for shares in the Company sold or exchanged by them pursuant to such
Takeover.

- 32 -
<PAGE>
1983 and 1985 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 nonqualified stock options or
incentive stock options for the purchase of up to 700,000 shares of the
Company's Common Stock. Options to purchase 300,000 shares have been previously
exercised, options to purchase 50,000 shares have been cancelled, and options to
purchase 240,000 shares are outstanding. 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 ten
years from date of grant. The Plans are administered by a Stock Option Committee
("Committee") of the Board of Directors. Stock options are granted to management
and others based upon a variety of criteria including the position held by such
executive, employee or other person, the responsibilities with which such person
is charged, the person's length of service with the Company, and the necessity
and desirability to the Company of rendering an incentive to such person to
continue his relationship with the Company and to enthusiastically foster the
Company's best interests. 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.

In addition to the options under the aforesaid Plans, the Company has
granted options to acquire 1,700,000 shares outside of such Plans at a price of
$.125 per share. On September 14, 1993, options to acquire 100,000 shares of
Common Stock at a price of $.125 per share for a three-year period were granted
to Douglas Kruger, the Company's Secretary and a director, and to each of
Messrs. Louis Liang and William J. Ryan, who were then consultants to, and are
now officers and directors of, the Company. On June 23, 1994, Mr. Kruger was
granted an option to acquire 50,000 shares of common stock at a price of $.125
per share under the Company's 1985 stock option plan.

Reference is made to the last paragraph of the discussion under "1994 Stock
Option Plan" for information concerning the grants of options under that plan to
three executive officers and directors, effective as of November 7, 1994. During
Fiscal 1995, options to purchase an aggregate of 100,000 shares at a price of
$.125 per share for a ten year period extending until May 18, 2005 were granted
to six Company employees. During Fiscal 1996, options to purchase 75,000 shares
of Common Stock at a price of $.41 per share for a ten year period extending
until August 21, 2006 were granted to Company employees, including a grant of
25,000 options to Douglas Kruger, Secretary and a director of the Company.

1994 Stock Option Plan

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

- 33 -
<PAGE>
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 as
described below.

Both incentive stock options and nonstatutory stock options may be granted
under the 1994 Plan to Eligible Participants, at a price to be determined by the
option committee, provided, however, that incentive stock options must be
granted at an exercise price not less than the fair market value of the Shares
on the date of the grant. Such exercise price may be payable in cash or, with
the approval of the committee which administers the 1994 Plan, by a combination
of cash or Shares. Shares received upon exercise of options granted under the
1994 Plan will be subject to certain restrictions on sale or transfer. The term
of any option may not exceed ten years from the date of grant. Conditions for
the exercise of options, which must be consistent with the terms of the 1994
Plan, are fixed by a committee appointed by the Board of Directors, consisting
of not less than two nor more than five persons.

Optionees under the 1994 Plan with incentive stock options may exercise up
to 20 percent of such options granted for each year of service to the Company
after the date of grant of the option, but the committee may accelerate the
schedule of the time or times when an option may be exercised, provided that the
fair market value of the securities subject to an incentive stock option may not
exceed $100,000 at the first time such options become exercisable.

If the optionee shall die, the 1994 Plan provides that the option may be
exercised, to the extent that the holder shall have been entitled to do so at
the date of death, by the optionee's executors or administrators, or by any
person who acquired the right to exercise such option by bequest or inheritance
or by reason of the death of the optionee, at any time, or from time to time,
within one year after the date of the optionee's death, but not later than the
expiration of the option. If an optionee's employment by the Company terminates,
whether as a result of termination by the Company or by the employee, normal
retirement, early retirement, or disability retirement, the 1994 Plan provides
that the option holder may exercise such option, to the extent that he may be
entitled to do so at the date of the option holder's termination, at any time,
or from time to time, within ninety days of the date of termination of the
option holder's employment, but not later than the expiration of the option.

The 1994 Plan also provides for stock appreciation rights, pursuant to
which the optionee may surrender to the Company all or any part of an
unexercised option and receive from the Company in exchange therefor Shares
having an aggregate market value equal to the dollar amount obtained by
multiplying (x) the number of Shares subject to the surrendered options by (y)

the amount by which the market value per Share at the time of such surrender
exceeds the exercise price per Share of the related option. The Company's
obligation arising from an exercise of stock appreciation rights may also be
settled by the payment of cash, or a combination of cash and Shares. The Board
of Directors may at any time terminate or from time to time amend or alter the
1994 Plan, subject to certain restrictions.

Each of Messrs. Marinello, Liang and Ryan has received grants under the
1994 Stock Option Plan to acquire one million Shares 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

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<PAGE>
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 of 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
respective provisions.

With respect to each named executive officer, the following table sets
forth information concerning all unexercised options (whether or not issued
under one of the Company's Plans) held at October 31, 1996, there having been no
options granted to him during 1996:

Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired Value Options at FY-End (#) FY-End ($)
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- - ---- --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Daniel Marinello -- -- 1,200,000/250,000 $530,750/$109,375
</TABLE>

- 35 -

<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table and notes thereto sets forth information regarding the
beneficial ownership of the Company's shares of Common Stock as of February 4,
1997 by (i) each person known by the Company to be the beneficial owner of more
than 5% of such voting security, (ii) each director, (iii) each of the named
executive officers of the Company, and (iv) all executive officers and directors
of the Company as a group. The percentages have been calculated by taking into
account all shares of Common Stock owned on such date as well as all such shares
with respect to which such person has the right to acquire beneficial ownership
at such date or within 60 days thereafter ("presently exercisable options").
Unless otherwise indicated, all persons listed below have sole voting and sole
investment power over the shares of Common Stock owned.

Name and Address Amount and Nature of Percent of
of Beneficial Owner(1) Beneficial Ownership(2) Class(2)
- - ---------------------- ----------------------- ----------
Kenneth J. Koock(3) 3,523,096(2) 13.8%
2 Robin Hill Road
North Caldwell, New Jersey 07006

Daniel A. Marinello 1,865,000(4) 7.3%

Louis Liang 1,004,000(5) 3.9%

William J. Ryan 950,000(6) 3.7%

Douglas Kruger 675,000(7) 2.6%

All officers and directors as a
group (four persons) 4,494,000 17.6%

- - ------------
(1) Unless otherwise indicated, address is c/o the Company.

(2) Based on a total of 22,468,938 shares of Common Stock issued and outstanding
as of October 31, 1996 and 3,075,000 shares of Common Stock issuable upon
the exercise of presently exercisable stock options (both qualified under
the Plans and non-qualified options issued apart from such Plans) by persons
described in the foregoing table.

(3) All shares are owned directly, except for 125,000 shares held as custodian
for Mr. Koock's grown children which are included in this total; he
disclaims beneficial ownership of such shares as well as of any shares which
may be owned by other officers and/or stockholders of M.H. Meyerson & Co.,
Inc.

(4) Includes presently exercisable options to acquire 1,200,000 shares.

(5) Includes presently exercisable options to acquire 850,000 shares; also
includes 4,000 shares held in custodial trust for a child, beneficial
ownership of which is disclaimed.

(6) Includes presently exercisable options to acquire 850,000 shares.

(7) Includes presently exercisable options to acquire 175,000 shares.

- 36 -

<PAGE>
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS

Commencing as of November 1, 1994 and following ratification and approval
of the proposed Employment Agreement by the stockholders at the Annual Meeting
on November 7, 1994, Messrs. Marinello, Ryan and Liang are, and have been,
employed under the terms and conditions contained in Employment Agreement
described hereinabove. (See "Executive Compensation"). In addition, incident
thereto, the stockholders ratified and approved the Company's 1994 Stock Option
Plan pursuant to which such three individuals each received options to acquire
one million shares of Common Stock at a price of $.125 per share. As of the date
hereof, Messrs. Marinello, Liang and Ryan have been jointly engaged in a plan of
activity designed to establish and expand the patent and other intellectual
property coverage afforded the Company's products and developments. One prior
patent which had lapsed because of technical requirements was successfully
recovered and five new patents have been granted and four other applications are
in process. While the applications are filed in the names of the individuals,
they have agreed to assign a two-thirds interest therein when any patents issue.
The Company has been paying filing fees and fees of patent counsel in connection
with this endeavor. The Company has exclusive rights to use such patents during
the term of the Employment Agreement for an aggregate royalty fee of 5% of the
gross profits of products sold utilizing such patents or other such intellectual
property; following termination of such Employment Agreement, the Company may
retain exclusive use of the patents and other intellectual property, by payment
of a royalty equal to 10% of the gross revenues of products sold utilizing the
same.

On November 7, 1994, the Board of Directors of the Company adopted a form
of Indemnity Agreement to be entered into with all executive officers and
directors of the Company, providing for indemnification to be made to them for
expenses and liabilities relating to their services for the Company, to the
fullest extent permitted under Delaware law.

- 37 -

<PAGE>
PLAN OF DISTRIBUTION

Common Stock Underlying Preferred Stock and Class A and Class B Warrants

There are a total of 4,932,535 shares of Common Stock covered by this
Prospectus which are reserved for issuance upon conversion of Preferred Stock
(1,482,535 shares), exercise of Class A Warrants (1,725,000 shares) and Class B
Warrants (1,725,000), respectively. See "Description of Securities." The shares
of Preferred Stock remain convertible while they are outstanding but the Class A
Warrants and Class B Warrants expire at 5:00 p.m. eastern daylight time on
December 12, 1998; the foregoing is subject to the provisions respecting the
Company's right to redeem these securities at an earlier date. See "Description
of Securities."

The shares of Common Stock are available for issuance as provided above
without solicitation of the holders of the derivative securities (i.e.,
Preferred Stock, Class A Warrants or Class B Warrants) and there will be no
sales commissions charged against, or payable by, the Company in connection with
the conversion or exercise of the derivative securities.

Securities to Prior Underwriter

M.H. Meyerson & Co., Inc. acted as the underwriter in the Company's 1993
public offering and received an option ("underwriter's option") as part of its
compensation therein. This Prospectus also covers a total of 900,000 shares of
Common Stock reserved for issuance in connection with the underwriter's option
to acquire 150,000 Units at a price of $2.40 per Unit, exercisable at any time
and from time to time through the close of business on December 12, 1998. In
connection therewith, this Prospectus covers 600,000 shares of Common Stock
reserved for issuance upon conversion of the 150,000 shares of Preferred Stock
contained in the underwriter's option, 150,000 shares of common stock reserved
for exercise of the Class A Warrants contained in the underwriter's option and
150,000 shares of Common Stock reserved for issuance upon exercise of the Class
B Warrants contained therein. There will be no commissions or sales charges
incurred in connection with the issuance of the 900,000 shares of Common Stock
underlying the derivative securities contained in the underwriter's option.

DESCRIPTION OF SECURITIES

The Company's authorized capital stock consists of 45,000,000 shares of
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred Stock,
par value $.01 per share. As of January 4, 1997, 22,468,938 shares of Common
Stock and 1,482,535 shares of Preferred Stock were outstanding.

Common Stock

Subject to the rights and preferences of any holders of Preferred Stock
that may be issued, the holders of Common Stock are entitled to one vote per
share on all matters on which stockholders are entitled to vote, to receive pro
rata such dividends as are available from the net assets of the Company upon
liquidation, after distribution of such amounts to holders of Preferred Stock as
are required by the terms thereof. There are no cumulative voting, pre-emptive,
conversion or redemption rights applicable to the Common Stock.

- 38 -
<PAGE>
8% Redeemable Convertible Preferred Stock

The Board has designated 1,875,000 shares of the Preferred Stock as 8%
Redeemable Convertible Preferred Stock (the "Preferred Stock"), out of which
1,482,535 shares are issued and outstanding as of January 4, 1997 with the
following rights, designations and preferences:

Conversion. Each share of Preferred Stock may be converted at any time, at
the holder's option, into four (4) shares of Common Stock, subject to adjustment
in certain events, including (i) subdivisions or combinations of shares of
Common Stock, and (ii) reclassifications, consolidations, mergers and similar
transactions.

Dividends. Holders of the Preferred Stock are entitled to receive, out of
funds legally available therefor, annual cash dividends at the rate of $.16 per
share (8% of the liquidation value) in preference to and priority over dividends
(other than stock dividends) upon shares of Common Stock. Dividends on the
Preferred Stock, which are cumulative, accrue quarterly and are payable
annually, beginning with the last day of November, to the holders of record 15
days prior to such date. No dividends have been paid thereon since the start of
Fiscal 1995.

If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (e.g., distributions of evidences of indebtedness or
assets of the Company, but generally not stock dividends or rights to subscribe
for Common Stock) and pursuant to the antidilution provisions relating to the
Preferred Stock the nominal conversion price thereof is reduced, for federal
income tax purposes such reduction may be deemed to be the payment of a taxable
dividend to holders of the Preferred Stock.

Voting Rights. Holders of the Preferred Stock have no voting rights except
as may be required by law.

Liquidation Rights. Upon any liquidation, dissolution or winding-up of the
Company, whether voluntary or involuntary, the holders of the Preferred Stock
shall have preference and priority over any Common Stock upon liquidation,
dissolution or winding up, for payment out of the assets of the Company or
proceeds thereof available for distribution to stockholders of $2.00 per share,
plus all dividends payable and unpaid thereon to the date of such distribution,
and after such payment the holders of the Preferred Stock shall be entitled to
no other payments. If, in the case of any such liquidation, dissolution or
winding up of the Company, the assets of the Company or proceeds thereof shall
be insufficient to make the full liquidation payment of $2.00 per share plus all
payable and unpaid dividends on the Preferred Stock and full liquidation
payments on any other series of preferred stock ranking as to liquidation on a
parity with the Preferred Stock, then such assets and proceeds shall be
distributed among the holders of the Preferred Stock and any such other
preferred stock ratably in accordance with the respective amounts which would be
payable upon liquidation, dissolution or winding-up on such shares of Preferred
Stock and any such other series of preferred stock if all amounts payable

thereof were paid in full. Neither the consolidation nor merger of the Company
into or with another corporation or corporations, nor the sale of all or
substantially all of the assets of the Company, shall be deemed a liquidation,
dissolution or winding up of the affairs of the Company.

- 39 -
<PAGE>
Redemption. The Preferred Stock is subject to redemption by the Company
commencing December 12, 1994, in whole or in part, at the redemption price of
$2.00 per share, provided that the closing high bid price for the Company's
Common Stock is in excess of $1.00 per share for any 10 consecutive trading days
ending within fifteen (15) days of the date of mailing the notice of redemption,
as provided below.

Any redemption shall be effected by mailing notices of such redemption to
the holders of the Preferred Stock to be redeemed at their respective addresses
as the same may appear on the record of stockholders of the Company, specifying
the time and place of redemption, such notice to be mailed at least 30 days and
not more than 60 days prior to the date specified therein for redemption. From
and after the date specified in any such notice as the redemption date, unless
the Company shall fail to provide monies at the time and place specified in such
notice for the payment of the redemption price, all rights of the holders
thereof as stockholders of the Company, except the right to receive the
redemption price, shall terminate. Any redemption hereunder shall be had in the
manner determined by the Board of Directors of the Company and in accordance
with all applicable provisions of law.

If less than all of the outstanding shares of Preferred Stock not
previously called for redemption are to be redeemed, shares to be redeemed shall
be selected by the Company from outstanding shares not previously called for
redemption by lot or pro rata as determined by the Board of Directors of the
Company. The Company may not redeem any outstanding shares of Preferred Stock
unless all dividends required to have been paid shall have been declared and
paid or set apart for payment upon all outstanding shares of Preferred Stock.
Shares of Preferred Stock redeemed for cash by the Company will be restored to
the status of authorized but unissued shares of Preferred Stock, without
designation as to series, and may thereafter be reissued.

Other. Holders of Preferred Stock are not entitled to any preemptive rights
and no sinking fund provisions are applicable to such shares.

Other Preferred Stock

The other shares of preferred stock may be issued by resolutions of the
Company's Board of Directors from time to time without any action of the
stockholders. Such resolutions may authorize issuances in one or more classes or
series and may fix and determine any liquidation preferences, voting rights,
conversion privileges, redemption terms, and other privileges and rights of the
stockholders of each class or series so authorized. Such actions could adversely
affect the voting power of the holders of the Company's Common Stock. Under
certain circumstances, the Preferred Stock could have the effect of acting as an
anti-takeover device to prevent a change of control of the Company.

Warrants

Class A Warrants. There are 1,725,000 Class A Warrants issued and
outstanding as of January 4, 1997. The holder of each Class A Warrant is
entitled, upon payment of the exercise price of $1.00, to purchase one share of
Common Stock and one Class B Warrant. Unless previously redeemed, the Class A
Warrants are exercisable at any time until December 12, 1998, provided that at
such time a current prospectus relating to (i) the Common Stock to be issued
upon exercise of the Class A Warrants, and (ii) the Class B Warrants to be
issued upon

- 40 -
<PAGE>
exercise of the Class A Warrants, is in effect and such shares of Common Stock
and Class B Warrants are qualified for sale or exempt from qualification under
applicable state securities laws. The Class A Warrants are subject to
redemption, as described below.

Class B Warrants. No Class B Warrants are issued and outstanding as of
January 4, 1997. The holder of each Class B Warrant is entitled to purchase one
share of Common Stock at an exercise price of $1.50. Unless previously redeemed,
the Class B Warrants are exercisable at any time after they are issued (upon
exercise of the Class A Warrants) until December 12, 1988, provided that at such
time a current prospectus relating to the Common Stock to be issued upon
exercise thereof is then in effect and such shares of Common Stock are qualified
for sale or exempt from qualification under applicable state securities laws.
The Class B Warrants are subject to redemption, as described below.

Redemption. The Warrants are subject to redemption by the Company, upon 30
days' written notice, at a price of $.001 per Warrant, if the closing high bid
price of the Common Stock for any 10 consecutive business days ending within 15
days of the date on which the notice of redemption is given shall have exceeded
$1.50 per share with respect to the Class A Warrants and $2.00 per share with
respect to the Class B Warrants. Holders of Warrants will automatically forfeit
their rights to purchase the shares of Common Stock issuable upon exercise of
such Warrants unless the Warrants are exercised before the close of business on
the business day immediately prior to the date set for redemption. All of the
outstanding Warrants of a class, except for those in the Underwriter's Unit
Purchase Option, must be redeemed if any of that class are redeemed. A notice of
redemption shall be mailed to each of the registered holders of the Warrants by
first class mail, postage prepaid, no earlier than the sixtieth nor later than
the thirtieth day before the date fixed for redemption. The notice of redemption
shall specify the redemption price, the date fixed for redemption, the place
where the Warrant certificates shall be delivered and the redemption price to be
paid, and that the right to exercise the Warrants shall terminate at 5:00 p.m.
(New York time) on the business day immediately preceding the date fixed for
redemption.

General. The Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to the expiration of the redemption date (as explained
above) at the offices of the Company's warrant agent (the "Warrant Agent") with
the form of "Election to Purchase" on the reverse side of the certificate(s)
filled out and executed as indicated, accompanied by payment (in the form of
certified or cashier's check payable to the order of the Company) of the full
exercise price for the number of Warrants being exercised.

The Warrants contain provisions that protect the holders thereof against
dilution by adjustment of the exercise price in certain events, such as stock
dividends, stock splits, mergers, sale of substantially all of the Company's
assets, and other extraordinary events.

The Company is not required to issue fractional shares of Common Stock, and
in lieu thereof will make a cash payment based upon the current market value of
such fractional shares. The holder of the Warrants will not possess any rights
as a stockholder of the Company unless and until he exercises the Warrants.

Directors' Liability. As authorized by the Delaware General Corporation Law
(the "GCL"), the Company's Certificate of Incorporation (the "Company
Certificate") provides that no director of the Company shall be personally
liable to the Company or its stockholders for

- 41 -
<PAGE>
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derived an improper personal
benefit. The effect of the provision in the Company Certificate is to eliminate
the rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the situations
described in clauses (i) through (iv) above. This provision does not limit nor
eliminate the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach of a
director's duty of care. In addition, the Company Certificate provides that if
the GCL is amended to authorize the further elimination or limitation of the
liability of a director, then the liability of the directors shall be eliminated
or limited to the fullest extent permitted by the GCL as so amended. On November
7, 1994, the Board of Directors, at the Annual Meeting, adopted and approved an
Indemnity Agreement to be entered into and between the Company, on the one hand,
and each of its executive officers and directors, on the other hand. This
Indemnity Agreement provides that the Company shall indemnify such persons to
the fullest extent permitted under the laws of the state of Delaware, (including
reimbursement for expenses incurred) from and against claims, suits or
proceedings arising by reason of the fact that such person is or was a director,
officer, employee or agent of the Company or any subsidiary or joint venture
thereof. Indemnification is not provided where such person has been adjudicated
to have been engaged in conduct which is fraudulent or constitutes willful
misconduct, or in certain other circumstances. Such persons have also been
advised that it is the position of the Securities and Exchange Commission that
indemnification for liabilities arising under the federal securities laws is
against public policy and is, therefore, unenforceable, and that claims for
indemnification therefor should be submitted to the appropriate court for
adjudication). The foregoing provisions will not alter the liability of
directors under federal securities laws.

Section 203 of the Delaware General Corporation Law. The Company is subject
to the provisions of Section 203 of the GCL. That section provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or affiliate or associate of such person
who is an "interested stockholder" for a period of three years from the date
that such person became an interested stockholder unless: (i) the transaction
resulting in a person's becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before the
person becomes an interested stockholder, (ii) the interested stockholder
acquires 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes it an interested stockholder (excluding certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (i) the owner of 15% or more of
the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within the three year period
immediately prior to the date on which it is sought to be determined whether
such person is an interested stockholder.

- 42 -

<PAGE>
TRANSFER AGENT AND WARRANT AGENT

The Registrar and Transfer Agent for the Common Stock is American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10005.

SHARES ELIGIBLE FOR FUTURE SALE

The Company's Common Stock has been publicly traded in the over-the-counter
market and is quoted on the NASD's non-NASDAQ "Electronic Bulletin Board". See
"Price Range of Common Stock". The shares of Preferred Stock and the Class A
Warrants have been publicly traded in the over-the-counter market. Future sales
of substantial amounts of Common Stock in the public market could adversely
affect the prevailing market prices.

The Company had outstanding as of January 4, 1997, 22,468,938 shares of
Common Stock, 1,482,535 shares of Preferred Stock and 1,725,000 Class A
Warrants. See "Capitalization". The shares of Common Stock to be sold in this
Offering will be freely tradeable in the public market without restriction or
further registration under the Securities Act unless purchased by "affiliates"
of the Company within the meaning of Rule 144 under the Securities Act ("Rule
144"). Of the shares of Common Stock outstanding, approximately 15,300,000 are
"restricted securities" within the meaning of Rule 144. All of such restricted
shares, have been held for two years or more and are thus qualified for sale by
the holders under Rule 144, may be sold free of the volume and reporting
requirements and limitations contained in Rule 144, pursuant to the provisions
of Rule 144(k). In addition, holders of stock options could exercise their
options and sell certain of the shares issued upon exercise as described below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner other than an affiliate)
is entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (or approximately 215,530
shares immediately after this Offering) or (ii) generally, the average weekly
trading volume in the Common Stock during the four calendar weeks preceding the
required filing of a Form 144 with respect to such sale. Sales under Rule 144
are generally subject to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, is entitled to sell such shares without compliance with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.

As of the date hereof, there are options outstanding to officers, directors
and employees covering 1,990,000 shares issued under the Company's Stock Option
Plans, which are presently exercisable. Both such stock options and the shares
of Common Stock to be issued upon exercise thereto are covered by a current
registration statement making such shares of Common Stock to be acquired upon
exercise of such stock options immediately saleable. In addition to the options
outstanding under the Company's Stock Option Plans, there are options
outstanding to acquire 700,000 shares of Common Stock which are held by officers

and directors (See "Plan of Distribution - Sales by Holders of Certain Stock
Options); the shares of Common Stock underlying such options, when and if they
are to be publicly offered and sold, are among the

- 43 -
<PAGE>
shares covered by this Prospectus. In addition, the underwriter of the Company's
December, 1993 public offering of Units of Preferred Stock and Class A Warrants,
M.H. Meyerson & Co., Inc. and/or its controlling persons, holds options to
purchase 150,000 Units at a price of $2.40 per Unit, for a four year period
commencing December 12, 1994; the holders thereof also hold rights to compel the
Company to register such Units and/or underlying securities. See "Security
Ownership of Certain Beneficial Owners and Management".

LITIGATION

The Company is not involved in any material litigation.

LEGAL MATTERS

The validity of the Common Stock being offered hereby, which has been or
will be issued pursuant to the laws of Delaware, will be passed upon for the
Company by Hartman & Craven LLP, 460 Park Avenue, New York, New York 10022.

EXPERTS

The financial statements of Angstrom Technologies, Inc. at October 31, 1996
and for each of the two years in the period ended October 31, 1996, included in
this Prospectus and Registration Statement of which this Prospectus is a part,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

- 44 -

<PAGE>
INDEX TO FINANCIAL STATEMENTS

TITLE PAGE
----- ----
1. Report of Independent Auditors ........................................ F-1

2. Balance Sheet as of October 31, 1996................................... F-2

3. Statements of Operations for the Years Ended
October 31, 1996 and 1995.............................................. F-4

4. Statements of Capital for the
Years Ended October 31, 1996 and 1995.................................. F-5

5. Statements of Cash Flows for the Years Ended
October 31, 1996 and 1995.............................................. F-6

6. Notes to Financial Statements.......................................... F-7

- 45 -

<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

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
===========

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

Preferred Stock Common Stock Additional Net
----------------------- ------------------------ Paid in Accumulated Capital
Shares Amount Shares Par value Capital Deficit (Deficiency)
------ ------ ------ --------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994 1,711,500 $ 2,816,240 21,553,078 $ 215,531 $ 4,358,488 $(5,328,785) $ 2,061,474
Conversion of preferred stock (48,050) (79,065) 192,200 1,922 77,143 ---
Net loss (217,211) (217,211)
--------- ----------- ---------- ---------- ----------- ----------- ----------

Balance at October 31, 1995 1,663,450 2,737,175 21,745,278 217,453 4,435,631 (5,545,996) 1,844,263
Conversion of preferred stock (180,915) (297,692) 723,660 7,237 290,455 ---
Net loss (467,207) (467,207)
--------- ----------- ---------- ---------- ----------- ----------- ----------
Balance at October 31, 1996 1,482,535 $ 2,439,483 22,468,938 $ 224,690 $ 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 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

See accompanying notes.

</TABLE>

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. During the year ended
October 31, 1995, sales to one customer exceeded 10% of net sales and amounted
to 50%. 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.

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 the life of the patent.

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.

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.

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. These 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.

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. 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 substantially limit the future
utilization of the net operating loss carryforward existing at that date.

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>
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any Underwriter.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date of this Prospectus. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation.

----------------

The Company has undertaken to amend this Prospectus under certain
circumstances to reflect herein fundamental changes in the information set forth
herein or in the Registration Statement of which this Prospectus is a part.

----------------

TABLE OF CONTENTS

Page
----
Available Information................................... 3
Prospectus Summary...................................... 4
Risk Factors............................................ 7
Use of Proceeds......................................... 13
Price Range of Common Stock............................. 13
Capitalization.......................................... 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 16
Business ............................................... 20
Dividends............................................... 27
Management.............................................. 28
Share Ownership of Certain Beneficial
Owners and Management.................................. 36
Interests of Management and Others
in Certain Transactions................................ 37
Plan of Distribution.................................... 38
Description of Securities............................... 38
Transfer Agent and Warrant Agent........................ 43
Shares Eligible for Future Sale......................... 43
Litigation.............................................. 44
Legal Matters........................................... 44
Experts................................................. 44
Index to Financial Statements........................... 45

----------------

Until March 12, 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

- - --------------------------------------------------------------------------------

ANGSTROM TECHNOLOGIES, INC.

5,832,535 Shares
of Common Stock, $.01 par value

1,725,000 Class B Redeemable Warrants

------------
PROSPECTUS
------------

February 14, 1997

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

Reference is made to Section 145 of the Delaware General Corporation Law
(the "GCL"), Article 8 of the Registrant's Restated Certificate of
Incorporation, as amended, and Article VII of the Company's By-Laws.

Section 145 of the GCL generally provides that a corporation is empowered
to indemnify any person who is made a party to any threatened, pending or
completed action, suite or proceeding by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving, at
the request of the corporation, in any of such capacities of another corporation
or other enterprise, if such director, officer, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. This
statute describes in detail the right of the Registrant to indemnify any such
person.

Article 8 of the Restated Certificate of Incorporation of the Registrant,
as amended, provides generally for indemnification of all such persons to the
full extent permitted under the above-referenced Delaware statute.

Pursuant to Article VII of the Company's By-Laws, the Company may
indemnify, to the fullest extent permitted by the GCL, any person, including
officers and directors, with regard to any action or proceeding.

On November 7, 1994, the Board of Directors the Board of Directors of the
Company adopted a form of Indemnity Agreement to be entered into with all
executive officers and directors of the Company, providing for Indemnification
to be made to them to the fullest extent permitted under Delaware law. The form
of such Indemnity Agreement has been filed as Exhibit 10.9 hereto.

Item 25. Other Expenses of Issuance and Distribution.

The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of the securities being
registered.

Legal Fees and Expenses $15,000.00
Printing and EDGAR Transmission Costs 4,000.00
Accounting Fees 3,000.00
Blue Sky Expenses and Counsel Fees 1,000.00
Miscellaneous 1,000.00
----------
Total $24,000.00

Item 26. Recent Sales of Unregistered Securities.

The Company has not sold any securities without registration during the
last three years.

II-1

<PAGE>

Item 27. Exhibits.

Exhibit
No. DESCRIPTION
- - ------- -----------
3.1 Restated Certificate of Incorporation of the Registrant.(1)
3.2 Form of Amendment to Certificate of Incorporation.(1)
3.3 By-Laws of the Registrant.(1)
4.1 Form of Warrant Agreement between the Registrant and American Stock
Transfer & Trust Company, including forms of Class A and Class B
Warrants.(1)
4.2 Certificate of Designation of 8% Redeemable Convertible Preferred
Stock(1).
4.3 Specimen Common Stock Certificate(2).
4.4 Specimen Preferred Stock Certificate(1).
5 Opinion of Hartman & Craven LLP on legality of securities being
registered.*
10.1 Amended 1983 Stock Option Plan(2).
10.2 1985 Stock Option Plan(3).
10.3 Employment Agreement, dated October 28, 1992, between the Registrant and
Mr. Daniel A. Marinello(4).
10.4 Form of Option Agreement under 1983 Stock Option Plan(2).
10.5 Option Agreement, dated October 14, 1992, between the Registrant and
Daniel A. Marinello.(1)
10.6 Form of Agency Agreement for independent sales and marketing agents of
the Registrant.(1)*
10.7 1994 Stock Option Plan.*
10.8 Form of Employment Agreement between Registrant and executive team of
Messrs Marinello, Liang and Ryan.*
10.9 Form of Indemnity Agreement between Registrant and its executive,
officers and directors.*
10.10 Consultation Agreement between Registrant and Arnold J. Wasserman.*
10.11 Stock Option Grants dated November 7, 1994 between the Company each of
Messrs. Marinello, Liang and Ryan.*
23.1 Consents of Hartman & Craven (contained in, and incorporated herein by
reference to, Exhibits 5 and 7 of this Registration Statement).*
23.2 Consent of Ernst & Young LLP (dated December 3, 1993).*
23.3 Consent of Ernst & Young LLP (dated February 13, 1997).
24 Power of Attorney (contained in, and incorporated herein by reference to,
included page II-5 of Registration Statement).*

- - ------------
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form SB-2
(File No. 33-69190) and hereby incorporated by reference herein.

(2) Filed as an Exhibit to the Registrant's Registration Statement on Form S-1
(File No. 2-85945) and hereby incorporated by reference herein.

(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the

fiscal year ended October 31, 1991 (File No. 0- 12646) and hereby
incorporated by reference herein.

(4) Filed as an Exhibit to the Registrant's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1992 (File No. 0-12646) and hereby
incorporated by reference herein.

* Previously filed.

II-2
<PAGE>
Item 28. Undertakings.

(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business owner in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue; and

(2) The small business issuer will file, during any period in which it
offers or sells securities, a post-effective amendment to this registration
statement to:

(i) Include any prospectus required by section 10(a)(3) of the Securities
Act;

(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and

(iii) Include any additional or changed material information on the plan of
distribution.

(3) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.

(4) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.

II-3

<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Post-Effective
Amendment No. 1 to its registration statement to be signed on its behalf by the
undersigned, in the City of Erlanger, State of Kentucky, on February 14, 1997.

ANGSTROM TECHNOLOGIES, INC.

By: s/ Daniel A. Marinello
Daniel A. Marinello,
Chief Executive Officer and
Chief Financial Officer

In accordance with the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to this registration statement was signed by the
following persons in the capacities and on the dates stated.

Signature Title Date
--------- ----- ----
s/Daniel A. Marinello Chief Executive Officer, February 14, 1997
- - ---------------------
Daniel A. Marinello Chief Financial Officer and a
Director (Principal Executive
Officer, Principal Financial Officer
and Principal Accounting Officer)

s/Louis Liang Executive Vice President - February 14, 1997
- - ---------------------
Louis Liang Strategic Business and a Director

s/William J. Ryan Executive Vice President - February 14, 1997
- - ---------------------
William J. Ryan Operations and a Director

s/Douglas B. Kruger Secretary and a Director February 14, 1997
- - ---------------------
Douglas B. Kruger

<PAGE>
EXHIBIT INDEX

Exhibit
No.
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5 Opinion of Hartman & Craven LLP on legality of securities being
registered.*
10.7 1994 Stock Option Plan.*
10.8 Form of Employment Agreement between Registrant and executive team of
Messrs Marinello, Liang and Ryan.*
10.9 Form of Indemnity Agreement between Registrant and its executive,
officers and directors.*
10.10 Consultation Agreement between Registrant and Arnold J. Wasserman.*
10.11 Stock Option Grants dated November 7, 1994 between the Company each of
Messrs. Marinello, Liang and Ryan.*
23.1 Consents of Hartman & Craven (contained in, and incorporated herein by
reference to, Exhibits 5 and 7 of this Registration Statement).*
23.2 Consent of Ernst & Young LLP (dated December 3, 1993).*
23.3 Consent of Ernst & Young LLP (dated February 13, 1997).
24 Power of Attorney (contained in, and incorporated herein by reference to,
included page II-5 of Registration Statement).*

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* Previously filed.

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[LETTERHEAD OF ERNST & YOUNG LLP]

Consent of Independent Auditors

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 6, 1997, in the Post-Effective Amendment No. 1
to the Registration Statement (Form SB-2, No. 33-69190) and related Prospectus
of Angstrom Technologies, Inc. for the registration of 5,832,535 shares of its
common stock and 1,725,000 of Class B Warrants.

ERNST & YOUNG LLP

Cincinnati, Ohio
February 13, 1997