<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: January 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 0-12646
ANGSTROM TECHNOLOGIES, INC.
-----------------------------------------------
(Name of small business issuer in its charter)
Delaware 31-1065350
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1895 Airport Exchange Boulevard, Erlanger, Kentucky 41018
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(606) 282-0020
---------------------------
(Issuer's telephone number)
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 March 10, 1998, 23,280,918 shares of common stock, no par value per share,
were outstanding.
Transitional Small Business Disclosure Format: Yes No X
----- -----
<PAGE> 2
ANGSTROM TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements: Page
-----
<S> <C> <C>
Balance Sheets as of January 31, 1998 3-4
and October 31, 1997
Statements of Operations for the Quarters 5
Ended January 31, 1998 and 1997
Statements of Cash Flows for the Three 6
Months Ended January 31, 1998 and 1997
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE> 3
Angstrom Technologies, Inc.
---------------------------
Balance Sheet
-------------
<TABLE>
<CAPTION>
JAN. 31, OCT. 31,
-------- --------
1998 1997
---- ----
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 45,297 $ 73,112
Short-term investments 404,005 613,380
Accounts receivable, less allowances of $2,543 91,345 133,596
Interest receivable 761 1,207
Advances to suppliers 3,585 --
Inventories:
Finished goods 99,225 97,389
Work in process 24,132 1,506
Raw materials and parts 658,740 538,141
---------------------------------------------
782,097 637,036
Prepaid expenses 41,016 41,268
---------------------------------------------
Total current assets 1,368,106 1,499,599
Furniture and equipment, at cost 163,668 159,665
Less accumulated depreciation 94,138 84,633
---------------------------------------------
Net furniture and equipment 69,530 75,032
Patents, less accumulated amortization of $10,808 125,464 127,098
---------------------------------------------
Total assets $ 1,563,100 $ 1,701,729
=============================================
</TABLE>
NOTE: The balance sheet at October 31, 1997 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> 4
Angstrom Technologies, Inc.
---------------------------
Balance Sheet (continued)
-------------------------
<TABLE>
<CAPTION>
JAN. 31, OCT. 31,
-------- --------
1998 1997
---- ----
(UNAUDITED) (NOTE)
<S> <C> <C>
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable $ 51,599 $ 85,992
Accrued liabilities 44,284 69,943
Long-term debt due within one year 29,375 29,375
-----------------------------------
Total current liabilities 125,258 185,310
Long-term debt 31,993 39,011
Capital:
Preferred stock, $.01 par value; 5,000,000 shares authorized, 1,335,990
issued and outstanding (liquidation preference of $2.00
per share) 2,187,041 2,197,684
Common stock, $.01 par value; 45,000,000 shares authorized,
23,280,918 shares issued and outstanding 232,809 232,552
Additional paid in capital 4,983,908 4,973,523
Accumulated deficit (5,997,909) (5,926,351)
-----------------------------------
Net capital 1,405,849 1,477,408
-----------------------------------
Total liabilities and capital $ 1,563,100 $ 1,701,729
===================================
</TABLE>
NOTE: The balance sheet at October 31, 1997 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.
4
<PAGE> 5
Angstrom Technologies, Inc.
---------------------------
Statements of Operations
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JANUARY 31, JANUARY 31,
----------- -----------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 196,874 $ 422,796
Cost of Sales 105,701 119,450
------------ ------------
Gross profit 91,173 303,346
Selling, general and
administrative expenses 168,673 227,365
Interest expense 1,982 2,772
Interest income (7,924) (7,181)
Gain on security sale -- --
------------ ------------
162,731 222,956
------------ ------------
Net income (loss) (71,558) 80,390
Less dividend requirement on preferred stock (53,440) (54,819)
------------ ------------
Net income (loss) applicable to common stock $ (124,998) $ 25,571
============ ============
Net income (loss) per common share: $ (0.01) $ --
============ ============
Basic $ (0.01) $ --
============ ============
Diluted $ (0.01) $ --
============ ============
Weight Average Number
of Shares Outstanding 23,273,347 22,263,100
============ ============
</TABLE>
5
<PAGE> 6
Angstrom Technologies, Inc.
---------------------------
Statements of Cash Flows
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED JAN. 31,
---------------------------
1998 1997
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (71,558) $ 80,390
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 12,262 6,243
Changes in operating assets and liabilities:
Accounts receivable 42,251 (22,041)
Interest receivable 446 1,299
Advances to suppliers (3,585) --
Inventories (145,061) 1,177
Prepaid expenses 252 (1,970)
Accounts payable (34,393) (76,615)
Accrued liabilities (25,269) 11,308
-----------------------------------
Net cash used in operating activities (225,045) (209)
INVESTING ACTIVITIES
Purchases of furniture and equipment (4,003) (9,419)
Proceeds from sale of investments 209,375 120,169
Capitalization of patents (1,123) --
-----------------------------------
Net cash provided by investing activities 204,249 110,750
FINANCING ACTIVITIES
Principal repayments of long-term debt (7,019) (7,019)
-----------------------------------
Net cash used by financing activities (7,019) (7,019)
-----------------------------------
Net increase (decrease) in cash (27,815) 103,522
Cash and cash equivalents at beginning of year 73,112 24,175
===================================
Cash and cash equivalents at end of year $ 45,297 $ 127,697
===================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 1,982 $ 2,772
</TABLE>
6
<PAGE> 7
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, 1998 is not necessarily
indicative of the results that may be expected for the year ended
October 31, 1998. 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, 1997.
Note 2 In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings per Share." Statement No. 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive
effects of stock options and convertible securities. Diluted earnings
per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to Statement
No. 128 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 October 31, 1997, in arrears. No dividend was
accrued for the year ended October 31, 1997. The amount that would have
been accrued at October 31, 1997, if a dividend had been recorded,
would have been $213,758 ($.16 per preferred stock share outstanding at
November 1, 1997). No dividend has been accrued for the three month
period ended January 31, 1998. The amount that would have been accrued
at January 31, 1998, if a dividend had been recorded, would have been
approximately $53,440.
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.
7
<PAGE> 8
For the three months ended January 31, 1998, preferred stock conversions were as
follows:
<TABLE>
<CAPTION>
Conversion Preferred Stock Common Stock
Date Converted Received
------------- ----------------- ---------------
<S> <C> <C>
11/05/97 1,450 5,800
11/25/97 2,000 8,000
12/12/97 3,000 12,000
---------------- ---------------
6,450 25,800
================ ===============
</TABLE>
The preferred stock has a liquidation preference of $2.00 per share, an
aggregate of $2,671,980.
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, 1998 and October 31, 1996 are presented below:
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss $1,496,000 $1,468,100
Other, net 8,300 7,100
---------- ----------
Total deferred tax assets 1,504,300 1,475,100
Less: valuation allowance (1,504,300) (1,475,100)
---------- ----------
Net Deferred Tax Assets $ -- $ --
========== ==========
</TABLE>
The company entered fiscal 1998 with cumulative net operating loss
carryforwards of approximately $3,700,000 for federal income tax
purposes which expire in the years 2000 to 2010.
Note 6 Patents included in the other assets section of the balance sheet are
certain costs associated with patents, which are capitalized and
amortized over the shorter of their statutory lives or their estimated
useful lives using the straight-line method. The Company periodically
evaluates the recoverability of these assets in accordance with
Statement of Financial Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of (SFAS #121)."
In the opinion of management, inflation has not had a material
effect on the operations of the Company.
8
<PAGE> 9
Note 7 The computation of basic and diluted earnings (loss) per share is shown
below:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1998 1997
----------------------------------
<S> <C> <C>
Numerator:
Net income (loss) $ (71,558) $ 80,390
Preferred stock dividend requirement (53,440) (54,819)
----------------------------------
Numerator for basic earnings per share - net income
applicable to common stock (124,998) 25,571
Effect of dilutive securities - preferred stock dividends
and adjustments resulting from assumed conversion (a) -- 54,819
----------------------------------
Numerator for diluted earnings per share - net income
applicable to common stock after assumed conversion $ (124,998) $ 80,390
==================================
Denominator:
Denominator for basic earnings per share - weighted
average shares outstanding 22,273,347 22,263,100
Effect of dilutive securities:
Convertible preferred stock (a) -- 5,481,900
Assumed issuance of stock under stock option
plans based on treasury stock method (a) -- 4,531,087
----------------------------------
Denominator for diluted earnings per share -
weighted average shares outstanding and
impact of dilutive securities 22,273,347 32,276,087
==================================
Basic earnings (loss) per share $ (0.01) $ --
==================================
Diluted earnings (loss) per common share $ (0.01) $ --
==================================
</TABLE>
Options to purchase 130,000 shares of common stock at $ .4375 were outstanding
during the period ended January 31, 1998 but were not included in the
computation of diluted earnings per share because the exercise price of the
options was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
(a) No incremental shares are included due to loss in quarter.
9
<PAGE> 10
SPECIAL CAUTIONARY NOTICE REGARD FORWARD-LOOKING STATEMENTS
-----------------------------------------------------------
Certain of the matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" may constitute
forward-looking statements for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. The words "expect," "estimate," "anticipate,"
"predict," "may," "should," and similar expressions are intended to identify
forward-looking statements. All written or oral forward-looking statements
attributable to the Company are expressly qualified as set forth herein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
QUARTER ENDED JANUARY 31, 1998 COMPARED TO QUARTER ENDED JANUARY 31, 1997.
Net sales for the first quarter of Fiscal 1998 were approximately
$196,874, a decrease of approximately 53.0% from the approximately $422,796 in
net sales in the corresponding quarter of Fiscal 1997. This decrease in sales
was primarily a result of the absence of a major sales order in this quarter,
especially in light of the significant sales made in the corresponding quarter
of Fiscal 1997 to a contractor for the U.S. Postal Service. The Company received
an additional order from this postal contractor in the second quarter of Fiscal
1998, the revenue from which should be received in the second quarter of Fiscal
1998.
Cost of sales as a percentage of overall sales increased materially
from 28.3% to 53.7% due to the lower sales base over which to spread fixed
costs, loss of certain economies of scale due to decreased production rates and
a change in the mix of sales of lower margin products and higher margin
products.
Selling, general and administrative expenses decreased 25.8% from
approximately $227,365 in the first quarter of 1997 to approximately $168,673 in
the first quarter of fiscal 1998. This decrease was primarily due to the
reduction in sales commissions associated with the decrease in net sales and the
reduction of research and development expenditures as the Company approaches
completion of development of certain of its products.
Due to the foregoing, the Company experienced a net loss of $71,558
before dividend requirements in the first quarter of Fiscal 1998 as compared
with net income of $80,390 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.
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
10
<PAGE> 11
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 $449,302
at the end of the first quarter of Fiscal 1998 as compared with $686,492 as at
the end of Fiscal 1997, reflecting a decrease in these categories of $237,190,
or 34.6%. The Company experienced a decrease in trade accounts receivable of
$42,251, or 31.6%, and an increase in inventories of $145,061 or 22.8%, as the
Company prepared to deliver on orders expected to be received in the second
quarter of Fiscal 1998. There can be no assurance that such orders will be
forthcoming. As indicated in Note 3 to these financial statements, no preferred
dividend has been accrued for the first quarter of Fiscal 1998 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. The
Company anticipates that existing funds will enable it to fund its operating and
capital needs through at least October 31, 1998, 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.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGSTROM TECHNOLOGIES, INC.
By: /s/ Daniel A. Marinello
---------------------------------------
Daniel A. Marinello, Chief Executive
Officer and Chief Financial Officer
Dated: March 12, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 45,297
<SECURITIES> 404,005
<RECEIVABLES> 91,345
<ALLOWANCES> 2,543
<INVENTORY> 782,097
<CURRENT-ASSETS> 1,368,106
<PP&E> 69,530
<DEPRECIATION> 94,138
<TOTAL-ASSETS> 1,563,100
<CURRENT-LIABILITIES> 125,258
<BONDS> 31,993
0
2,187,041
<COMMON> 232,809
<OTHER-SE> 4,983,908
<TOTAL-LIABILITY-AND-EQUITY> 1,563,100
<SALES> 196,874
<TOTAL-REVENUES> 204,798
<CGS> 105,701
<TOTAL-COSTS> 274,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,982
<INCOME-PRETAX> (71,558)
<INCOME-TAX> 0
<INCOME-CONTINUING> (71,558)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,558)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
