<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: April 30, 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 June 8, 1998, 23,588,158 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
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements: Page
----
<S> <C>
Balance Sheets as of April 30, 1998 3-4
and October 31, 1997
Statements of Operations for the Three Months 5
Ended April 30, 1998 and April 30, 1997 and
Six Months ended April 30, 1998 and April 30,
1997
Statements of Cash Flows for the Six Months 6
Ended April 30, 1998 and April 30, 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>
APR. 30, OCT. 31, 1997
-------- -------------
1998 (NOTE)
----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 45,698 $ 73,112
Short-term investments 273,162 613,380
Accounts receivable, less allowances of $12,549 485,419 133,596
Interest receivable 761 1,207
Advances to suppliers 107,657 --
Inventories:
Finished goods 123,516 97,389
Work in process 2,098 1,506
Raw materials and parts 601,601 538,141
---------------------------------------------
727,215 637,036
Prepaid expenses 34,766 41,268
---------------------------------------------
Total current assets 1,674,678 1,499,599
Furniture and equipment, at cost 165,393 159,665
Less accumulated depreciation 103,644 84,633
---------------------------------------------
Net furniture and equipment 61,749 75,032
Patents, less accumulated amortization of $12,056 125,511 127,098
---------------------------------------------
Total assets $1,861,938 $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>
APR. 30, 1998 OCT. 31, 1997
------------- -------------
(UNAUDITED) (NOTE)
<S> <C> <C>
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable $ 66,151 $ 85,992
Accrued liabilities 76,854 69,943
Long-term debt due within one year 29,375 29,375
-----------------------------------
Total current liabilities 172,380 185,310
Long-term debt 24,762 39,011
Capital:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 1,319,490 issued and outstanding
(liquidation preference of $2.00 per share) 2,159,816 2,197,684
Common stock, $.01 par value; 45,000,000 shares authorized,
23,496,918 shares issued and outstanding 234,969 232,552
Additional paid in capital 5,021,973 4,973,523
Accumulated deficit (5,751,962) (5,926,351)
-----------------------------------
Net capital 1,664,796 1,477,408
-----------------------------------
Total liabilities and capital $1,861,938 $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 SIX MONTHS ENDED
------------------ ----------------
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
--------- --------- --------- ---------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 672,358 $ 433,183 $ 869,232 $ 855,979
Cost of Sales 201,729 129,293 307,430 248,743
------------ ---------- -------------- -----------
Gross profit 470,629 303,890 561,802 607,236
Selling, general and
administrative expenses 227,473 225,463 396,146 452,828
------- ------- ------- -------
243,156 78,427 165,656 154,408
Other income (expense):
Interest expense (1,769) (2,583) (3,751) (5,355)
Interest income 4,750 12,595 12,674 19,776
Loss on security sale (190) -- (190) --
------------ ---------- -------------- -----------
2,791 10,012 8,733 14,421
------------ ---------- -------------- -----------
Net income 245,947 88,439 174,389 168,829
------------ ---------- -------------- -----------
Less dividend requirement on
preferred stock (52,119) (54,819) (105,559) (109,600)
------------ ---------- -------------- -----------
Net income applicable to common
stock $ 193,828 $ 33,620 $ 68,830 $ 59,229
=========== =========== =========== ===========
Net income per common share
$ .01 $ -- $ -- $ --
=========== =========== =========== ===========
Weight Average Number
of Shares Outstanding 23,292,651 22,537,466 23,282,856 22,512,045
=========== =========== =========== ===========
</TABLE>
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<PAGE> 6
Angstrom Technologies, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED APR. 30,
-----------------------------------
1998 1997
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 174,389 $ 168,828
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 23,016 10,204
Changes in operating assets and liabilities:
Accounts receivable (351,823) 13,238
Interest receivable 446 90
Advances to suppliers (107,657) (19,148)
Inventories (90,179) (148,111)
Prepaid expenses 6,502 (11,578)
Accounts payable (19,842) (52,110)
Accrued liabilities 6,911 28,556
-----------------------------------
Net cash used in operating activities (358,237) (10,031)
INVESTING ACTIVITIES
Purchases of furniture and equipment (5,728) (12,585)
Proceeds from sale of investments 340,218 195,048
Capitalization of patents (2,418) (16,643)
-----------------------------------
Net cash provided by investing activities 332,072 165,820
FINANCING ACTIVITIES
Proceeds from stock option exercises 13,000 12,500
Principal repayments of long-term debt (14,249) (14,250)
-----------------------------------
Net cash used by financing activities (1,249) (1,750)
-----------------------------------
Net (decrease) increase in cash (27,414) 154,039
Cash and cash equivalents at beginning of year 73,112 24,175
-----------------------------------
Cash and cash equivalents at end of year $ 45,698 $ 178,214
===================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 3,751 $ 5,355
</TABLE>
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<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 April 30, 1998 are
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 Net income per common share is calculated based upon a weighted
average number 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, 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, 1996). No dividend has been accrued for the three-month
period ended April 30, 1998. The amount that would have been accrued at
April 30, 1998, if a dividend had been recorded, would have been
approximately $105,559.
Note 4 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 are 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 5 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 shares 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 April 30, 1998, preferred stock conversions were as
follows:
<TABLE>
<CAPTION>
Conversion Preferred Stock Common Stock
Date Converted Received
------------- ----------------- ------------------
<S> <C> <C> <C>
04/02/98 5,000 20,000
04/17/98 3,000 12,000
04/23/98 6,500 26,000
04/30/98 2,000 8,000
----- ------
16,500 66,000
====== =======
</TABLE>
The preferred stock has a liquidation preference of $2.00 per share, an
aggregate of $2,638,980.
Note 6 Effective November 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes."
The standard requires the use of the liability method to recognize
deferred income tax assets and liabilities, using expected future tax
rates.
The cumulative effect of adopting the standard and the effect of
applying the standard on the operating statement for the period ended
April 30, 1994 was zero. The tax effects of the net operating loss
carryforwards and temporary differences that give rise to deferred
income tax assets and a corresponding valuation allowance at April 30,
1998 and October 31, 1997 are presented below:
<TABLE>
<CAPTION>
April 30, October 31, 1997
1998
-------------- ------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 1,394,000 $1,468,000
Other, net 8,700 7,100
------------ -----------
Total deferred tax assets 1,402,700 1,475,100
Less: valuation allowance (1,402,700) (1,475,100)
----------- ----------
Net Deferred Tax Asset $ -0- $ -0-
============ ============
</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 7 Patents included in the other assets section of the balance sheet are
certain costs associated with patents, which are capitalized and
amortized over the shorter of their statutory lives or their estimated
useful lives using the straight-line method. The Company periodically
evaluates the recoverability of these assets in accordance with
Statement of Financial 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 8 The computation of basic and diluted earnings per share is shown below:
<TABLE>
<CAPTION>
Six Months Ended
April 30,
1998 1997
---------------------------------
Numerator:
<S> <C> <C>
Net income $174,389 168,829
Preferred stock dividend requirement (105,559) (109,600)
---------------------------------
Numerator for basic earnings per share - net income
applicable to common stock 68,830 59,229
Effect of dilutive securities - preferred stock dividends
and adjustments resulting from assumed conversions -- --
---------------------------------
Numerator for diluted earnings per share - net income
applicable to common stock after assumed conversion $68,830 $59,229
=================================
Denominator:
Denominator for basic earnings per share - weighted
average shares outstanding 23,282,856 22,512,045
Effect of dilutive securities:
Convertible preferred stock
-- --
Assumed issuance of stock under stock
plans based on treasury stock method 2,894,173 3,516,173
---------------------------------
Denominator for diluted earnings per share -
weighted average shares outstanding and
impact of dilutive securities 26,177,029 26,028,218
=================================
Earnings per common share
-- --
=================================
Fully diluted earnings per common share
-- --
=================================
</TABLE>
Securities that could potentially dilute basic earnings per share in the future
that were not included in the computation of diluted earnings per share above
because to do so would have been antidilutive are as follows: convertible
preferred stock (5,277,960 and 5,481,900 shares at April 30, 1998 and 1997,
respectively).
-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.
SIX MONTHS ENDED APRIL 30, 1998 COMPARED TO SIX MONTHS ENDED APRIL 30, 1997.
Net sales for the first six months of fiscal 1998 were $869,232, an
increase of approximately 1.5% from the approximately $855,979 in net sales in
the corresponding period of fiscal 1997. This increase was primarily a result of
significant sales of compounds for government security application to a
subcontractor of the United States Government in the second quarter of fiscal
1998, which offset significantly lower net sales in the first quarter of fiscal
1998 compared to the first quarter of fiscal 1997. The Company expects to
receive orders from this customer on an on-going basis. However, there can be no
assurance that such orders will be forthcoming. Net sales in the second quarter
of fiscal 1998 exceed net sales in any quarter since the Company's inception and
increased approximately 55.2% from the second quarter of fiscal 1997.
Cost of sales for the first six months of fiscal 1998 as a percentage
of overall sales increased to 35.4% from 29.1% for the first six months of
fiscal 1997. This increase was primarily due to the concentration of sales to
one customer in the second quarter of fiscal 1998.
Selling, general and administrative expenses decreased 12.5% from
$452,828 in the first six months of fiscal 1997 to $396,146 in the corresponding
period of fiscal 1998. This decrease was primarily due to 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 income of $174,389
before dividend requirements in the first six months of fiscal 1998 as compared
with net income of $168,829 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.
10
<PAGE> 11
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 $318,860
at the end of the second quarter of fiscal 1998 as compared with $686,492 as at
the end of fiscal 1997, reflecting a decrease in these categories of $367,632,
or 53.6%. This decrease is primarily a result of the Company building up its
inventory to enable it to fulfill future orders by the subcontractor of the
United States government and making advances to suppliers of components. There
can be no assurance that such orders will be forthcoming. The Company
experienced an increase in trade accounts receivable of $351,823, or 263.3%, due
to significant sales on account of compounds to a United States Government
subcontractor in the second quarter of fiscal 1998. The Company's inventories
increased at the end of the second quarter by $90,179 or 14.2% as compared to
the end of fiscal 1997 for the reason described above. As indicated in Note 3 to
these financial statements, no preferred dividend has been accrued for the first
two quarters of fiscal 1998 since management has determined to conserve
available funds and maintain the Company's liquidity in light of its need 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
<PAGE> 12
SIGNATURE
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: June 10, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 45,698
<SECURITIES> 273,162
<RECEIVABLES> 485,419
<ALLOWANCES> 12,549
<INVENTORY> 727,215
<CURRENT-ASSETS> 1,674,678
<PP&E> 61,749
<DEPRECIATION> 103,644
<TOTAL-ASSETS> 1,861,938
<CURRENT-LIABILITIES> 172,380
<BONDS> 24,762
0
2,159,816
<COMMON> 234,969
<OTHER-SE> 5,021,973
<TOTAL-LIABILITY-AND-EQUITY> 1,861,938
<SALES> 672,358
<TOTAL-REVENUES> 677,108
<CGS> 201,729
<TOTAL-COSTS> 429,202
<OTHER-EXPENSES> 190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,769
<INCOME-PRETAX> 245,947
<INCOME-TAX> 0
<INCOME-CONTINUING> 245,947
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 245,947
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
