<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-12646
ANGSTROM TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 31-1065350
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1895 Airport Exchange Boulevard, Erlanger, KY 41018
(Address of principal executive offices)
(606) 282-0020
(Issuer's telephone number)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
As of February 28, 1997, there were 22,893,178 shares of Common Stock
outstanding.
TOTAL PAGES IN THIS REPORT: 11 (excluding cover but including signature page)
<PAGE>
INDEX
PART I. Financial Information Page No.
--------
Item 1. Financial Statements
Balance Sheets 2-3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-9
PART II. Other Information
Item 6. Exhibits 10
SIGNATURES 11
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Angstrom Technologies, Inc.
Balance Sheet
<TABLE>
<CAPTION>
Jan. 31, Oct. 31,
1997 1996
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 127,697 $ 24,175
Short-term investments 696,348 816,517
Accounts receivable 132,981 110,940
Interest receivable 4,794 6,093
Inventories:
Finished goods 31,054 30,168
Work in process 11,963 12,906
Raw materials and parts 521,811 522,931
-----------------------------------
564,828 566,005
Prepaid expenses 3,151 1,181
-----------------------------------
Total current assets 1,529,799 1,524,911
Furniture and equipment, at cost 151,208 141,789
Less accumulated depreciation 51,343 46,609
-----------------------------------
Net furniture and equipment 99,865 95,180
Patents, less accumulated amortization of $6,027 96,367 97,877
-----------------------------------
Total assets $1,726,031 $1,717,968
===================================
</TABLE>
NOTE: The balance sheet at October 31, 1996 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
-2-
<PAGE>
Angstrom Technologies, Inc.
Balance Sheet (continued)
<TABLE>
<CAPTION>
Jan. 31, Oct. 31,
1997 1996
(Unaudited) (Note)
<S> <C> <C>
Liabilities and capital
Current liabilities:
Accounts payable $ 114,323 $ 190,938
Accrued liabilities 66,037 55,520
Long-term debt due within one year 26,858 26,068
----------- ----------
Total current liabilities 207,218 272,526
Long-term debt 61,367 68,386
Capital:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 1,449,595 issued and outstanding
(liquidation preference of $2.00 per share) 2,385,132 2,439,483
Common stock, $.01 par value; 45,000,000 shares
authorized, 22,600,698 shares issued and outstanding 226,007 224,690
Additional paid in capital 4,779,120 4,726,086
Accumulated deficit (5,932,813) (6,013,203)
----------------------------
Net capital 1,457,446 1,377,056
----------------------------
Total liabilites and capital $1,726,031 $1,717,968
============================
</TABLE>
NOTE: The balance sheet at October 31, 1996 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
-3-
<PAGE>
Angstrom Technologies, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Jan. 31
1997 1996
---------------------------
<S> <C> <C>
Net sales $ 422,796 $ 198,499
Cost of Sales 119,450 140,157
---------------------------
Gross profit 303,346 58,342
Selling, general and administrative expenses 227,365 179,859
Interest expense 2,772 (3,472)
Interest income (7,181) 17,510
Gain on security sale - 4,028
---------------------------
222,956 197,925
Net income (loss) 80,390 (103,451)
Less dividend requirement on preferred stock (45,984) (44,045)
===========================
Net loss applicable to common stock $ 34,406 $ (147,496)
---------------------------
Net loss per common share $ - $ (0.01)
===========================
Weight Average Number of Shares Outstanding 22,486,623 21,760,958
===========================
</TABLE>
See accompanying notes.
-4-
<PAGE>
Angstrom Technologies, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Jan. 31,
1997 1996
-----------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 80,390 $ (103,451)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 6,243 3,672
Changes in operating assets and liabilities:
Accounts receivable (22,041) 60,008
Interest receivable 1,299 -
Inventories 1,177 (49,295)
Prepaid expenses (1,970) 51,287
Accounts payable (76,615) (12,980)
Accrued liabilities 11,308 (26,426)
-----------------------------------
Net cash used by operating activities (209) (77,185)
Investing activities
Purchases of furniture and equipment (9,419) (24,214)
Proceeds from sale of investments 120,169 66,267
Capitalization of patents - (15,730)
-----------------------------------
Net cash provided by investing activities 110,750 26,323
Financing activities
Payment of preferred stock dividend - -
Principal repayments of long-term debt (7,019) (5,537)
-----------------------------------
Net cash used by financing activities (7,019) (5,537)
-----------------------------------
Net increase (decrease) in cash 103,522 (56,399)
Cash and cash equivalents at beginning of year 24,175 129,308
-----------------------------------
Cash and cash equivalents at end of year $ 127,697 $ 72,909
===================================
Supplemental cash flow disclosures
Cash paid for interest $ 2,772 $ 3,473
</TABLE>
See accompanying notes.
-5-
<PAGE>
ANGSTROM TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the three month period ended January 31, 1997 is not necessarily
indicative of the results that may be expected for the year ended
October 31, 1997. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended October 31, 1996.
Note 2 Earnings per common share are calculated based upon a weighted
average of shares outstanding after giving effect to the preferred
dividend requirements.
Note 3 The preferred stock issued December 22, 1993 provided for an annual
cumulative dividend to be paid on November 1, 1995. Management has
determined that available funds would be more prudently utilized in its
ongoing research and development efforts and as a result no accrual or
payment of dividend will be made until such time as sufficient cash
flows are generated from operations. Management intends to hold the
dividend payable as of November 1, 1996, in arrears. No dividend was
accrued for the year ended October 31, 1996. The amount that would have
been accrued at October 31, 1996, if a dividend had been recorded,
would have been $237,206 ($.16 per preferred stock share outstanding at
November 1, 1996). No dividend has been accrued for the three month
period ended January 31, 1997. The amount that would have been accrued
at January 31, 1997, if a dividend had been recorded, would have been
approximately $45,984.
Note 4 On December 3, 1993, the shareholders of the Company approved an
amendment to the Company's certificate of incorporation increasing the
authorized number of shares of common stock to 45,000,000 from
25,000,000, increasing the authorized number of preferred stock to
5,000,000 from 2,000,000 and reducing the par value of the preferred
stock to $.01 per share from $10.00 per share.
On December 22, 1993, the Company completed the issuance of 1,725,000
units of its securities through a public offering, resulting in net
proceeds of $2,838,454 after offering expenses. Each unit consists of
one share of the redeemable convertible preferred stock and one Class A
redeemable common stock purchase warrant. Each share of preferred stock
is convertible into four shares of the Company's common stock and each
Class A warrant entitles the holder to purchase one share of the
Company's common stock for $1.00 and to receive one Class B redeemable
common stock purchase warrant which entitles the holder to purchase one
share of the Company's common stock for $1.50.
For the three months ended January 31, 1997, preferred stock
conversions were as follows:
Conversion Preferred Stock Common Stock
Date Converted Received
---------- ------------ ------------
12/24/96 2,000 8,000
12/26/96 4,780 19,120
01/03/97 2,500 10,000
01/20/97 17,000 68,000
01/30/97 6,660 26,640
------- -------
32,940 131,760
====== =======
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<PAGE>
The preferred stock has a liquidation preference of $2.00 per share, an
aggregate of $2,899,190.
Note 5 Effective November 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes."
The standard requires the use of the liability method to recognize
deferred income tax assets and liabilities, using expected future tax
rates.
The cumulative effect of adopting the standard and the effect of
applying the standard on the operating statement for the period ended
January 31, 1994 was zero. The tax effects of the net operating loss
carryforwards and temporary differences that give rise to deferred
income tax assets and a corresponding valuation allowance at January
31, 1997 and October 31, 1996 are presented below:
January 31, October 31,
1997 1996
------------ -----------
Deferred tax assets:
Net operating loss $1,466,000 $1,498,000
Other, net 6,200 5,000
------------ -----------
Total deferred tax assets 1,472,200 1,503,800
Less: valuation allowance (1,472,200) (1,503,800)
---------- ----------
Net Deferred Tax Asset $ -0- $ -0-
=============== ===============
The company entered fiscal 1997 with cumulative net operating loss
carryforwards of approximately $3,800,000 for federal income tax
purposes which expire in the years 2000 to 2010. 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.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 First Quarter Compared to Fiscal 1996
Net sales for the first quarter of Fiscal 1997 were approximately
$422,800, an increase of approximately 113% from the approximately $198,500 in
net sales in the corresponding quarter of fiscal 1996. This increase in sales
was a result of significantly higher sales of chemicals made to the
subcontractor for the U.S. Postal Service on a new order relating to the
Company's prior work on certified mail labels, as well as increased sales of
scanners and chemicals to other clients. Cost of sales decreased materially from
70.6% to 28.3% due to the higher margins associated with the high volume
of first quarter chemical sales, as well as reflecting increased efficiencies
in production methods put in place.
Selling, general and administrative expenses increased from
approximately $179,900 in the prior year's first quarter to approximately
$227,400 in the first quarter of fiscal 1997. These increases were primarily due
to the increase in sales commissions, which were directly tied into the increase
in sales.
The Company generated net income of $80,390 before dividend requirements
in the first quarter of Fiscal 1997 as compared with a net loss of $103,451
before dividend requirements in the prior year's comparable period. Continuing
its policy of conserving cash to meet operating requirements, the Company has
declined to accrue a preferred stock dividend for the periods in reference.
Research and development expenses totaled approximately $93,600 during
the recent quarter, as compared to approximately $90,000 in the prior year's
comparative period, as the Company continued to focus its efforts on sweeping
various electronic functions into a single microprocessor chip of special
design, while continuing its development of additional chemical compounds and
refinements to its existing line of scanners and readers.
Liquidity and Capital Resources
The Company's primary need for cash is to support its programs and its
ongoing operating activities. The Company's primary sources of liquidity have
historically been cash provided by financing activities. The Company has never
generated significant cash flows from its operations and has depended upon
financing from outside sources to maintain itself.
The Company had cash and cash equivalents, and investments of $824,045
as at the end of the first quarter Fiscal 1997 as compared with $840,692 as at
the end of Fiscal 1996, reflecting in a decrease in these categories of $16,647.
It experienced a slight increase in trade accounts receivable of $22,041, while
inventory remained at relatively constant levels. As indicated in Note 3 to
these financial statements, no preferred dividend has been accrued for the first
quarter of Fiscal 1997 since management has determined to conserve available
funds and maintain the Company's liquidity in light of its needs to continue
developmental and marketing expenditures referred to hereinabove. The Company
anticipates that existing funds will enable
8
<PAGE>
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.
Federal Income Taxes
Effective November 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". The standard
requires the use of the liability method to recognize deferred income tax assets
and liabilities, using expected future tax rates.
The tax effects of the net operating loss carryforwards and temporary
differences that give rise to deferred income tax assets and a corresponding
valuation allowance and deferred tax liabilities at January 31, 1997 and
October 31, 1996 is presented below.
Deferred tax assets: January 31, 1997 October 31, 1996
---------------- ----------------
Net Operating Loss $1,466,000 $ 1,498,000
Other Net 6,200 5,800
---------- -----------
Total deferred tax assets $1,472,200 1,503,800
Less: Valuation allowance (1,472,200) (1,503,800)
---------- -----------
Net deferred tax asset $ -0- $ -0-
========== ===========
The Company has cumulative net operating loss carryforwards of
approximately $3,800,000 for federal income tax purposes which expire between
the years 2000 to 2010. 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.
9
<PAGE>
Part II
Other Information
Item 6. Exhibits
(a) Exhibits
No exhibits are being filed with this Quarterly Report on
Form 10-QSB.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report on Form 10-QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANGSTROM TECHNOLOGIES, INC.
DATE: March 14, 1997 By: s/Daniel A. Marinello
---------------------
Daniel A. Marinello
Chief Executive Officer
and Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financal information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 127,697
<SECURITIES> 696,348
<RECEIVABLES> 132,981
<ALLOWANCES> 0
<INVENTORY> 564,828
<CURRENT-ASSETS> 1,529,799
<PP&E> 99,865
<DEPRECIATION> 51,343
<TOTAL-ASSETS> 1,726,031
<CURRENT-LIABILITIES> 207,218
<BONDS> 61,367
0
2,385,132
<COMMON> 226,007
<OTHER-SE> 4,779,120
<TOTAL-LIABILITY-AND-EQUITY> 1,726,031
<SALES> 422,796
<TOTAL-REVENUES> 429,977
<CGS> 119,450
<TOTAL-COSTS> 327,365
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,772
<INCOME-PRETAX> 80,390
<INCOME-TAX> 0
<INCOME-CONTINUING> 80,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,390
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
