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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ______ to ______
Commission File Number 0-12646
ANGSTROM TECHNOLOGIES, INC.
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(Name of small business issuer in its charter)
Delaware 31-1065350
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1895 Airport Exchange Boulevard, Erlanger, KY
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41018 (Address of principal executive offices, including zip code)
(606) 282-0020
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value ("Common Stock"); 8% Redeemable Convertible
Preferred Stock, $.01 par value ("Preferred Stock").
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
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ending October 31, 1997 were
$1,523,559.
As of January 21, 1998, the aggregate market value, based on the
average bid and asked prices, of the issuer's voting stock (Common Stock) held
by non-affiliates was approximately $8,234,900. For purposes of this
calculation, shares of Common Stock held by directors, officers and stockholders
whose ownership exceeds five percent of the Common Stock outstanding at January
21, 1998 were excluded. Exclusion of shares held by any person should not be
construed to indicate that such person possesses the power, direct or indirect,
to direct or cause the direction of management or policies of the issuer, or
that such person is controlled by or under common control of the issuer.
As of January 21, 1998, there were 23,280,918 shares of Common Stock
and 1,329,540 shares of Preferred Stock, outstanding, respectively.
Documents incorporated by reference: NONE
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SPECIAL CAUTIONARY NOTICE REGARD FORWARD-LOOKING STATEMENTS
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Certain of the matters discussed under the captions "Description of Business"
and "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.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
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 six ultraviolet fluorescent scanning units of varying cost and
sophistication. These units can be used individually and some of the units can
be 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 wavelength. 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
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can be notified, an ejection device activated, and a programmable controller or
computer can be signaled 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 marketing applications to
subcontractors of the U.S. government and others in the document security field,
such as identification of counterfeit currency and verification of credit cards,
other identification cards and postal label sorting.
The Company is aware of and is assessing Year 2000 issues. The Company
does not expect that the expense of any modification of its systems will have a
material adverse effect on the Company.
PRODUCTS
The Company's products have traditionally consisted of an ultraviolet
optical scanner and various chemical compounds. To produce its products, the
Company primarily uses outside production facilities to reduce the capital
expenditures necessary to effect production and help expedite full scale
production of the new units. The Company has made significant developments in
its scanners in recent years. As a result, the Company has enhanced the
scanners' capability and reliability.
The Company has developed improvements in its electronic components by
incorporating or "sweeping" support electronics into a semi-conductor chip,
which assists in the production of miniature or hand-held readers and further
developing the mechanical and optical portions of its scanner. The chip reduces
the amount of electronic noise and increases the sensitivity of the Company's
readers and scanners. The Company has also developed a universal card which
incorporates the semi-conductor chip. The universal card can be used in any of
the Company's readers and scanners, whereas prior to the development of this
card, the Company was required to use a different card for each reader or
scanner. The Company believes this multiplicity of use should help it in its
efforts to reduce production costs. The Company has also developed improved
chemical compounds to be used in document security applications. In this regard,
the Company has taken multiple electronic components and incorporated 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 is working on the commercialized production of 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.
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The Company's scanners carry a sales price which varies depending on
the unit, and such prices are 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 six 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 application;
5. Document reader, which is portable and easily moveable, to be
used for verifying tickets to sporting and entertainment
events, among other things;
6. High-End and high-security portable document reader which
could be used at bank teller stations to verify checks and
currency, 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 received
a purchase order from a subcontractor of the US Postal Service for this compound
which was fulfilled in fiscal 1997 (see "Sales and Marketing"). In addition, the
Company has begun commercial production of compound number 27, which the Company
believes has several advantages over existing compounds, and is conducting
performance and related testing on over 100 new ultraviolet compounds to
determine which compounds will be placed into manufacturing for commercial use.
During Fiscal 1996 and 1997, the Company spent approximately $350,000
and $286,000, respectively, on research and development of its products. While
the Company considers amounts spent on research and development in pricing its
products, the costs are not directly allocated to customers.
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MANUFACTURE
The components of the Company's 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 marketing efforts, should the latter
result in sales increases. However, the Company believes that there are numerous
alternative sources for manufacturing its chemical compounds and that it is 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 $20,000 per annum. The Company has also
retained a product engineer, at an annual cost of approximately $80,000, whose
activities involve, among other things, developing improvements to the Company's
scanners. The anticipated source of funds for those expenses is the Company's
working capital, derived from its public offering in Fiscal 1994.
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. Commencing in Fiscal 1994, the Company began a more intensive
sales and marketing program, which is ongoing.
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 year 1995, approximately $158,000
was paid as sales commissions to executive officers. During Fiscal 1996 and
Fiscal 1997, approximately $133,000 and $227,985, respectively, was paid as
sales commissions to executive officers and $3,701 and $5,556, respectively, was
paid as royalties. It is the Company's goal to attempt to increase its sales and
marketing by 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.
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The Company's sales efforts were disappointing on a historical basis
until the third quarter of Fiscal 1995. In Fiscal 1995, net sales equaled
$1,050,281 compared to $531,339 in Fiscal 1994. This increase over prior years
was generated largely 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 used by the U.S. Postal Service in connection with an automation system,
using equipment of a third party, which among other things, automatically sorts
certified mail from other types of mail. During Fiscal 1996, the Company's
revenues decreased to $869,829 due in part to the completion of the Postal
Service contract. During Fiscal 1997, the Postal contract entered a new phase
wherein the Company received orders for additional amounts of its chemical
compound which contributed to net sales of $1,523,559 for that year.
In Fiscal 1997, the Company entered into a Reseller Agreement (the
"Reseller Agreement") with Moore U.S.A., Inc. ("Moore"), pursuant to which the
Company appointed Moore as a non-exclusive reseller of certain of its
readers/scanners and florescent ink products (the "Products") on a world-wide
basis. Under the Reseller Agreement, Moore has the right, but is not required,
to distribute the Products. The Reseller Agreement is for an initial term of
five years commencing on September 2, 1997 and thereafter is automatically
renewed for annual consecutive renewal periods of one year each unless
terminated by notice of non-renewal sent by either party, at least 90 days prior
to the expiration of the initial term or any renewal term. The Reseller
Agreement also may be terminated by either party upon 30 days prior written
notice if a party breaches the Reseller Agreement and fails to cure said breach
within 30 days or becomes subject to bankruptcy or ceases to be actively engaged
in business.
The Company also entered into a Technology License Agreement with Moore
(the "License Agreement") in Fiscal 1997 pursuant to which the Company granted a
non-exclusive, non-transferable, non-assignable license (the "License") to Moore
to exploit the Company's technology relating to the Products (the "Technology"),
and to sell or otherwise provide the Products using the Technology. In exchange
for the License, Moore has agreed to pay a royalty to the Company based on a
percentage of sales of the Products based on the sales volume in any contract
year. The Company also granted Moore a right of first refusal for an exclusive
license relating to the Technology prior to granting such a license to a third
party. The License Agreement is for an initial term of five years commencing on
September 2, 1997 and thereafter is automatically renewed for consecutive
renewal periods of three years each unless terminated by notice of non-renewal
sent by either party, at least 90 days prior to the expiration of the initial
term or any renewal term. The License Agreement also may be terminated by either
party upon 30 days prior written notice if a party breaches the License
Agreement and fails to cure said breach within 30 days or becomes subject to
bankruptcy or ceases to be actively engaged in business.
The relationship between the Company and Moore is non-exclusive, and
there can be no assurances that Moore will be successful in selling the
Products. Furthermore, there can be no
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assurance that if Moore is successful in selling the Products that such sales
will be a significant source of revenue for the Company.
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 Fiscal 1995 sales to one customer, Webbcraft Technologies, Inc.
("Webbcraft"), exceeded 10% of net sales and amounted to approximately 50% of
the Company's sales. During Fiscal 1996, sales to Loctite (P.R.), International
Security Printers and Sicpa Ink Systems were approximately 15%, 17% and 17% of
the Company's sales, respectively. During Fiscal 1997, sales to Webbcraft and
Technical Graphics, Inc. were approximately 33% and 24% of the Company's sales,
respectively. The foregoing percentages aggregate sales made to the named
customer and to clients or sub-accounts of that customer. It should also be
noted that sales to Webbcraft ranged from 50% of sales during Fiscal 1995 to
approximately 6% of sales in Fiscal 1996, and increased to approximately 33% of
sales during Fiscal 1997; this was because sales to this customer were derived
from the U.S. Postal Service's certified mail label printing and sorting
contract which was completed early in Fiscal 1996 and renewed and extended in
the latter part of Fiscal 1996, so that renewed sales were generated therefrom
in the first six months of Fiscal 1997. There can be no assurance of future
revenue from renewals of this contract in the future. 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 broaden its sales base. There can be
no assurance that the Company will be successful in broadening it sales base, or
that such an increase, if any, will provide a significant source of revenue to
the Company. 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 the U.S. government and others
(for documentation, sorting and security applications), 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.
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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 improved scanners 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 detection of counterfeiting of currencies, postage labels 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
which have been developed by the Company. Among other things, the Company is
marketing 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.
COMPETITION
The Company competes with a number of companies, and 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 neither of which provide either
application engineering or scanning compounds. The Company's scanners are
capable of quantitative measurement, operating on a more defined basis. The
Company's scanners can differentiate among certain colors whereas many competing
scanners identify the presence or absence of a color, but do not differentiate
among 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 generally 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 to similar markets, such as product and label identification. The
Company's ultraviolet detection system, which can also be used for industrial
applications, is priced at approximately $8,000 per system compared to a range
of $12,000 to $15,000 for video systems generally available for bottling and
production line identification. Such competing video systems are produced and
sold by several companies, including (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 later model scanners
compete 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 later model scanner proves
commercially feasible, it will enjoy an advantage against counterfeiting over
these other technologies since the Company's non-visible specific frequency
ultra-violet chemical compounds will be more difficult
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to duplicate. 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. There can be no assurance that the Company's later model
scanner will be commercially feasible.
INTELLECTUAL PROPERTY RIGHTS AND TECHNOLOGY PROTECTION
The Company has a trademark registration in the United States for
"Angstrom Technologies, Inc". 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 Angstrom trademark was registered on June 23, 1987, and remains in effect
through June 23, 2007.
The Company currently has rights to seven patents. Furthermore, two
patents have been allowed by the U.S. Patent & Trademark Office but have not yet
issued, and five patent applications are pending. 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.
Pursuant to its Executive Employment Agreement with Messrs. Marinello,
Liang and Ryan (See "Certain Relationships and Related 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. In Fiscal 1997, the Company paid royalties of
approximately $5,556 pursuant to said employment agreement.
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
various engineering matters.
PUBLIC OFFERING AND PREFERRED STOCK DIVIDEND
On December 22, 1993 the Company consummated a public offering of its
securities consisting of 1,725,000 units. Each unit was comprised of one share
of 8% redeemable convertible
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preferred stock ("Preferred Stock"), convertible into shares of the Company's
Common Stock ("Common Stock") at a rate of $.50 per share and one Class A
redeemable common stock purchase warrant. The Company received net proceeds of
approximately $2,838,000 from such offering, after underwriting discounts and
commissions and other expenses of the offering.
The Company declared an initial cash dividend of .15 cents per share
upon its shares of Preferred Stock, such dividend being paid on December 5, 1994
to holders of record as of the close of business on November 30, 1994. In order
to conserve capital resources, the Board of Directors of the Company has
determined not to declare a dividend on the shares of Preferred Stock for the
subsequent period through the date hereof.
ITEM 2. PROPERTIES
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.
ITEM 3. LEGAL PROCEEDINGS
(a) The Company is not engaged in any litigation.
(b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended October 31, 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The 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 OTC Bulletin Board. However,
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.
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The following table sets forth the range of high and low bid prices for
the Common Stock for each quarter during the period November 1, 1995 through
January 21, 1998, 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.
<TABLE>
<CAPTION>
BID
High Low
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Fiscal 1996
- -----------
<S> <C> <C>
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
Fiscal 1997
- -----------
11/1/96 to 1/31/97 1.06 .56
2/1/97 to 4/30/97 .97 .62
5/1/97 to 7/31/97 .72 .44
8/1/97 to 10/31/97 .78 .41
Fiscal 1998
- -----------
11/1/97 to 1/31/98
(through January 21, 1998) .68 .34
</TABLE>
On January 21, 1998, the high bid price for the Common Stock was $.4375
per share. The number of holders of the Common Stock was approximately 493 on
January 21, 1998, 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.
The Company has never paid a cash dividend upon the Common Stock and
does not presently anticipate doing so in the foreseeable future, but expects to
retain earnings, if any, for use in its business. The terms of the Preferred
Stock prohibit the Company from paying dividends on the Common Stock until all
accrued dividends on the Preferred Stock have been paid.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SUMMARY OF OPERATIONS
YEAR ENDED OCTOBER 31, 1997 ("FISCAL 1997") COMPARED TO YEAR ENDED OCTOBER 31,
1996 ("FISCAL 1996").
Net sales of $1,523,559 for Fiscal 1997 reflect an increase of 75.2%
from the $869,829 in net sales in Fiscal 1996. This increase in sales was a
result of significantly higher sales of chemicals made to two subcontractors for
U.S. government agencies relating to projects involving sorting and prevention
of counterfeiting, as well as increased sales of scanners and chemicals to other
customers. The cost of sales, as a percentage of overall sales, decreased from
50.8% in Fiscal 1996 to 37.8% in Fiscal 1997 due to management's focus on
reducing manufacturing costs and increasing production efficiencies and certain
economies of scale which are realized at higher sales levels.
Selling, general and administrative expenses decreased from
approximately $946,000 in Fiscal 1996 to approximately $888,000 in Fiscal 1997.
This decrease was primarily due to a decrease in research and development
expenses from approximately $350,000 in Fiscal 1996 to approximately $286,000 in
Fiscal 1997 as the Company completed development of its semi-conductor chip for
use in the Company's readers.
The Company generated net income of $86,852 before dividend
requirements during Fiscal 1997 as compared with a net loss of $467,207 for
Fiscal 1996, before dividend requirements. Continuing its policy of conserving
cash to meet operating requirements, the Company declined to accrue a preferred
stock dividend for Fiscal 1997.
After taking into account research and development and interest
expenses, the Company produced operating income (before applicable interest
income) in Fiscal 1996 of approximately $313,000 on chemicals and incurred
operating losses of approximately $248,000 on scanner and hardware sales. On the
same basis, in Fiscal 1997, the Company generated operating income on chemical
sales of approximately $770,000 and incurred operating losses of $108,000 on
scanners and hardware sales.
Net interest income of approximately $37,000 for Fiscal 1997 was less
than the net interest income of approximately $64,000 in Fiscal 1996 as a result
of both lower interest rates, which produced a lower return on investment, and
the fact that the Company's cash balances available for investment were lower.
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
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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 $686,492
as at the end of Fiscal 1997 as compared with $840,692 as at the end of Fiscal
1996, resulting in a decrease in these categories of $154,200. This reflects, in
part, continuing expenditures by the Company to expand and protect its patent
and intellectual property position, as well as continued development of its
hardware and chemical compounds. The Company experienced an increase in trade
accounts receivable of $22,656, an increase in inventory of $71,031 and a
decrease in accounts payable of $104,946. The increase in inventory reflects
increased production to meet the sales increases experienced and to afford the
Company a lower cost of unit production and the ability to meet any future
orders on a timely basis. The decease in accounts payable was primarily a result
of amounts the Company had set off against pre-paid expenses being converted to
accounts payable in late Fiscal 1996, requiring repayment in Fiscal 1997.
Prepaid expenses at such dates increased materially from $1,181 to $41,268. The
increase was primarily a result of the Company paying a retainer to a marketing
consultant.
As indicated in Note 2 to these financial statements, no dividend has
been accrued for Fiscal 1997 since management has determined to conserve
available funds and maintain the Company's liquidity in light of its needs to
continue developmental and marketing expenditures referred to hereinabove. The
Company anticipates that existing funds will enable it to fund its operating and
capital needs through at least October 31, 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.
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, 1997 and October 31, 1996 is presented below.
14
<PAGE> 15
<TABLE>
<CAPTION>
Deferred tax assets: October 31, 1997 October 31, 1996
---------------- ---------------
<S> <C> <C>
Net Operating Loss $ 1,468,000 $ 1,498,000
Other, Net 7,100 5,800
----------- -----------
Total deferred tax assets 1,475,100 1,503,800
Less: Valuation allowance (1,475,100) (1,503,800)
----------- -----------
Net deferred tax asset 0 0
=========== ===========
</TABLE>
The Company has cumulative net operating loss carryforwards of
approximately $3,700,000 for federal income tax purposes which expire between
the years 2000 to 2011.
OTHER
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
ITEM 7. FINANCIAL STATEMENTS
The financial statements and supplementary data required by this Item
are set forth at the pages indicated in Item 13(a)(1).
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Name Age
---- ---
<S> <C> <C>
Daniel A. Marinello 57 President, Chief Executive Officer and Chief Financial
Officer and a director
Louis Liang 54 Executive Vice President-Strategic Business and a director
William J. Ryan 58 Executive Vice President-Operations and a director
Douglas B. Kruger 54 Secretary and a director
</TABLE>
15
<PAGE> 16
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. From June
1993 until being formally employed by the Company in May 1994, Mr. Liang acted
as a consultant to the Company. 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 the IBM Corporation 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.
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 last 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
16
<PAGE> 17
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. Due to
administrative oversight, Messrs. Kruger and Ryan did not report extensions of
the expiration date of stock options which occured in Fiscal 1997.
ITEM 10. EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation paid by the
Company for services rendered during Fiscal Years 1997, 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
Name and All Other
Principal Position Year Salary Options Compensation
- -------------------------- ---- ------ ------- ------------
<S> <C> <C> <C> <C>
Daniel A. Marinello Chief 1997 -- -- $ 161,256(3)
Executive Officer and Chief 1996 -- -- 94,169(3)
Financial and Accounting 1995 -- 1,000,000(2) 97,468(3)
Officer (1)
<FN>
(1) Commenced to serve as such on October 28, 1992.
(2) Options covering 1,000,000 shares at a price of $.125 per share were granted in November,
1994.
(3) Comprised of commissions and royalties.
</FN>
</TABLE>
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 "Employment
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 Employment Agreement has become effective on and as of November 1,
1994 and supersedes existing employment arrangements with the Team. 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 Employment
Agreement is as follows:
17
<PAGE> 18
Term
- ----
The initial term of the Employment Agreement was a three year period
commencing November 1, 1994 and ending October 31, 1997. The Employment
Agreement currently 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 any
renewal term; provided, however, that the Company may only terminate the
Employment 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.
Compensation
- ------------
The 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 gross sales component of compensation is divided
among Messrs. Marinello, Ryan and Liang in the amounts of 9%, 3% and 3%,
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 Employment 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
18
<PAGE> 19
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 Employment 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.
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 Employment 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 became immediately
exercisable, with 250,000 becoming 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. All such options are now exercisable.
Intellectual Property Rights
- ----------------------------
The Team is required to assign to the Company a two-thirds 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. The royalty is divided among Messrs. Marinello, Ryan and Liang in the
amounts of 1.5%, 1.75% and 1.75%, respectively. In the event of termination of
the Employment 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
19
<PAGE> 20
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.
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. 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 to whom options will be granted, 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. No options were granted under the Plans in Fiscal 1997.
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. No options were granted in Fiscal 1997 outside of the Company's
stock option plans.
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 allocated to options
20
<PAGE> 21
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.
21
<PAGE> 22
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 $.125, the fair market price of the Shares on both June 23,
1994, the date on which the options were granted as well as November 7, 1994 the
date on which the 1994 Stock Option Plan was ratified and approved by
stockholders at the Annual Meeting of Stockholders and such grants were
reconfirmed and reissued. All of such options are exercisable currently and
expire ten years from the date of grant unless sooner terminated in accordance
with its respective provisions. During Fiscal 1997, options to purchase 130,000
shares were granted to Company employees under the 1994 Plan.
OPTION GRANTS IN FISCAL 1997
No options were granted to the named executive officer in Fiscal 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
No options were exercised by the named executive officer in Fiscal
1997. The following table sets forth information concerning all unexercised
options (whether or not issued under one of the Company's Plans) held by the
named executive officer at October 31, 1997:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised in-
Underlying Unexercised the-Money Options at FY-
Shares Acquired Value Options at FY-End (#) End ($) Exercisable/
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Unexercisable (1)
- ---- --------------- ------------ ------------------------- -----------------
<S> <C> <C> <C> <C>
Daniel Marinello 0 ---- 1,450,000/0 $866,688/$0
- ----------------
<FN>
(1) Based on the average of the high and low sales price ($.71875) on October 31, 1997.
</FN>
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table and notes thereto set forth information regarding
the beneficial ownership of the Company's shares of Common Stock as of October
31, 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) the named
executive officer 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. Unless otherwise indicated, all
persons listed below have sole voting and sole investment power over the shares
of Common Stock owned.
22
<PAGE> 23
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP CLASS (2)
- ---------------------- -------------------- ---------
<S> <C> <C>
Kenneth J. Koock 3,484,846(3) 14.9%
2 Robin Hill Road
North Caldwell, New Jersey 07006
Daniel A. Marinello 2,115,000(4) 8.6%
Louis Liang 1,370,000(5) 5.2%
William J. Ryan 1,200,000(6) 4.9%
Douglas Kruger 675,000(7) 2.9%
All officers and directors as a
group (four persons) 5,360,000(8) 19.9%
- ----------
<FN>
(1) Unless otherwise indicated, address is c/o the Company.
(2) Based on a total of 23,255,118 shares of Common Stock issued and outstanding as of
October 31, 1997.
(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 1,450,000 shares.
(5) Includes presently exercisable options to acquire 1,000,000 shares.
(6) Includes presently exercisable options to acquire 1,100,000 shares.
(7) Includes presently exercisable options to acquire 175,000 shares.
(8) Includes 3,725,000 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 the officers and
directors as a group.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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 the 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 six new patents have been granted, two patents have
been approved but not yet issued and five other applications are in process.
While the applications are filed in the names of the individuals,
23
<PAGE> 24
they have agreed to assign a two-thirds interest therein to the Company 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. The Company paid royalties of
approximately $5,556 in Fiscal 1997 pursuant to the Employment Agreement.
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.
PART IV
<TABLE>
<CAPTION>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-KSB.
(a) Documents filed as part of this report:
<S> <C> <C> <C>
1. Financial Statements:..........................................................Page
Report of Independent Auditors..............................................F-1
Balance Sheet as of October 31, 1997........................................F-2
Statements of Operations for the
Years ended October 31, 1997 and 1996....................................F-4
Statements of Capital for the
Years ended October 31, 1997 and 1996....................................F-5
Statements of Cash Flows for the
Years ended October 31, 1997 and 1996....................................F-6
Notes to Financial Statements...............................................F-7
2. Exhibits Filed Herewith
</TABLE>
10(a) Reseller Agreement between the Company and Moore U.S.A., Inc.
dated September 2, 1997.
10(b) Amendment to Reseller Agreement dated September 24, 1997.
10(c) Technology License Agreement between the Company and Moore
U.S.A., Inc. dated September 2, 1997.
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
24
<PAGE> 25
3. Exhibits and Index:
The following were filed as an exhibit to the Company's Registration
Statement on Form SB-2 (File No. 33-86754) and are incorporated by reference
herein:
10.7 1994 Stock Option Plan.
10.8 Form of Employment Agreement between the Company and executive
team of Messrs Marinello, Liang and Ryan.
10.9 Form of Indemnity Agreement between the Company and its
executive officers and directors.
The following were filed as an exhibit to the Company's Registration
Statement on Form SB-2 (File No. 33-69190) and are incorporated by reference
herein:
3.1 Restated Certificate of Incorporation of the Company.
3.2 Form of Amendment to Certificate of Incorporation.
3.3 By-Laws of the Company.
4.1 Form of Warrant Agreement between the Company and American Stock
Transfer & Trust Company, including forms of Class A and Class B Warrants.
10.5 Form of Underwriter's Unit Purchase Option between the Company
and the Underwriter (M.H. Meyerson & Co., Inc.).
The following were filed as an Exhibit to the Company's Registration
Statement on Form S-1 (File No. 2-85945) and are incorporated by reference
herein:
3(a) Certificate of Incorporation
3(b) By-laws
10(c) Incentive Stock Option Plan (1983)
10(d) Form of Option under Incentive Stock Option Plan
The following were filed as an Exhibit to the Company's Annual Report
on Form 10-KSB for its year ended October 31, 1991 and are incorporated by
reference herein:
3 Certificate of Incorporation and Bylaws
25
<PAGE> 26
10.1 1983 Stock Option Plan
10.2 1985 Stock Option Plan
The following was filed as an exhibit to the Company's annual report on
Form 10-KSB for its year ending October 31, 1994 and is incorporated by
reference herein:
2. Stock Option Grants dated November 7, 1994 between the Company each
of Messrs. Marinello, Liang and Ryan.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended
October 31, 1997.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C>
Date: January 23, 1998 ANGSTROM TECHNOLOGIES, INC.
By: /s/ Daniel A. Marinello
------------------------------------------
Daniel A. Marinello, Chief Executive Officer
and Chief Financial Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Daniel A. Marinello Chief Executive Officer, January 23, 1998
- ---------------------------------
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 - January 23, 1998.
- -------------------------------------
Louis Liang Strategic Business and a Director
/s/ William J. Ryan Executive Vice President - January 23, 1998
- ----------------------------------
William J. Ryan Operations and a Director
/s/ Douglas B. Kruger Secretary and a Director January 23, 1998
- --------------------------------
Douglas B. Kruger
</TABLE>
27
<PAGE> 28
Financial Statements
Angstrom Technologies, Inc.
Years ended October 31, 1997 and 1996
with Report of Independent Auditors
<PAGE> 29
Angstrom Technologies, Inc.
Financial Statements
Years ended October 31, 1997 and 1996
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors .......................................F-1
Audited Financial Statements
Balance Sheet.........................................................F-2
Statements of Operations..............................................F-4
Statements of Capital ................................................F-5
Statements of Cash Flows ............................................F-6
Notes to Financial Statements ........................................F-7
</TABLE>
<PAGE> 30
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, 1997, and the related statements of operations, capital and cash
flows for each of the two years in the period ended October 31, 1997. 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, 1997, and the results of its operations and its cash flows for each
of the two years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Cincinnati, Ohio
December 9, 1997
<PAGE> 31
Angstrom Technologies, Inc.
Balance Sheet
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 73,112
Short-term investments 613,380
Accounts receivable 133,596
Interest receivable 1,207
Inventories:
Finished goods 97,389
Work in process 1,506
Raw materials and parts 538,141
----------
637,036
Prepaid expenses 41,268
----------
Total current assets 1,499,599
Furniture and equipment, at cost 159,665
Less accumulated depreciation 84,633
----------
Net furniture and equipment 75,032
Patents, less accumulated amortization of $ 8,051 127,098
----------
Total assets $1,701,729
==========
</TABLE>
F-2
<PAGE> 32
<TABLE>
<CAPTION>
<S> <C>
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable $ 85,992
Accrued liabilities 69,943
Long-term debt due within one year 29,375
-----------
Total current liabilities 185,310
Long-term debt 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) 2,197,684
Common stock, $.01 par value; 45,000,000 shares 232,552
authorized, 23,255,118 shares issued and outstanding
Additional paid in capital 4,973,523
Accumulated deficit (5,926,351)
-----------
Net capital 1,477,408
-----------
Total liabilities and capital $ 1,701,729
===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 33
Angstrom Technologies, Inc.
Statements of Operations
YEAR ENDED OCTOBER 31
1997 1996
--------------------------------
Net sales $1,523,559 $ 869,829
Cost of sales 575,350 441,886
---------- ---------
Gross profit 948,209 427,943
Selling, general and administrative expenses 888,385 945,906
Interest expense 9,932 12,876
Interest income (36,960) (63,632)
---------- ---------
861,357 895,150
---------- ---------
Net income (loss) 86,852 (467,207)
Less dividend requirement on preferred stock (213,758) (237,206)
---------- ---------
Net (loss) applicable to common stock $ (126,906) $(704,413)
========== =========
Net (loss) per common share $ (0.01) $ (0.03)
========== =========
See accompanying notes.
F-4
<PAGE> 34
Angstrom Technologies, Inc.
Statements of Capital
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------------------------------------------- PAID IN ACCUMULATED NET
SHARES AMOUNT SHARES PAR VALUE CAPITAL DEFICIT CAPITAL
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Conversion of preferred stock (146,545) (241,799) 586,180 5,862 235,937 --
Exercise of stock options 200,000 2,000 11,500 13,500
Net income 86,852 86,852
---------------------------------------------------------------------------------------------------
Balance at October 31, 1997 1,335,990 $ 2,197,684 23,255,118 $ 232,552 $ 4,973,523 $ (5,926,351) $ 1,477,408
===================================================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 35
Angstrom Technologies, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 86,852 $(467,207)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation 38,023 15,505
Amortization 3,534 4,119
Changes in operating assets and liabilities:
Accounts receivable (22,656) 9,682
Interest receivable 4,886 5,396
Inventories (71,031) (274,589)
Prepaid expenses (40,087) 110,780
Accounts payable (104,946) 85,606
Accrued liabilities 17,730 8,297
--------- ---------
Net cash used by operating activities (87,695) (502,411)
INVESTING ACTIVITIES
Purchases of furniture and equipment (17,876) (73,113)
Proceeds from sale of investments 203,137 533,208
Capitalization of patents (32,754) (40,920)
Other assets -- 1,237
--------- ---------
Net cash provided by investing activities 152,507 420,412
FINANCING ACTIVITIES
Proceeds from the exercise of stock options 13,500 --
Principal repayments of long-term debt (29,375) (23,134)
--------- ---------
Net cash used by financing activities (15,875) (23,134)
--------- ---------
Net increase (decrease) in cash 48,937 (105,133)
Cash and cash equivalents at beginning of year 24,175 129,308
--------- ---------
Cash and cash equivalents at end of year $ 73,112 $ 24,175
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 9,932 $ 12,876
Conversion of preferred stock to common stock 241,799 297,692
</TABLE>
See accompanying notes.
F-6
<PAGE> 36
Angstrom Technologies, Inc.
Notes to Financial Statements
October 31, 1997 and 1996
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. 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. The Company periodically reviews inventory levels for
obsolete, slow-moving and non-salable inventory and records a reserve against
those inventories when deemed necessary.
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 seven 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 a life not to exceed 20 years which is deemed to
be the economic life of the patents.
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.
F-7
<PAGE> 37
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE
Calculations of net loss per common share is based on the weighted average
number of shares outstanding during each year. The weighted average number of
shares outstanding was 22,862,028 for 1997 and 22,084,393 for 1996.
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 Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations in
accounting for the participants' options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for Stock
Based Compensation," requires use of option valuation models that were not
developed for use in valuing such options. However, the effect of applying
Statement No. 123's fair value results in net earnings that are not materially
different from amounts reported.
NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share," which is required to be adopted for interim and
annual periods ending after December 15, 1997. At the time of adoption, the
Company will be required to change the method currently used to compute income
per share and to restate all prior periods. Under the new requirements primary
income per share will be replaced with basic income per share. Basic income per
share excludes the dilutive effect of stock options. Under the provisions of the
new standard, income per share at October 31, 1997 and 1996, would not be
materially different than income per share calculated using the current method.
F-8
<PAGE> 38
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized when a product is shipped or a service is performed. The
Company provides for product returns and warranties based on historical
experience.
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. PREFERRED STOCK
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 1997 and 1996, 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 October 31, 1997 ($717,116) and 1996 ($503,358), in
arrears. No dividend has been accrued for the year ended October 31, 1997 and
1996. The amount that would have been recorded at October 31, 1997 and 1996, if
a dividend had been declared, would have been $213,758 and $237,206,
respectively. The preferred stock is subject to redemption at the company's
option at $2.00 per share on 30-60 days written notice, provided that the
closing high bid price for common stock shares is at least $1.00 per share for
10 consecutive trading days.
F-9
<PAGE> 39
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
3. INVESTMENTS
Investments at October 31, 1997 are comprised of U.S. Treasury bills, $263,380,
classified by management as available for sale, and Commercial Paper, $350,000,
classified as held to maturity. The available for sale securities are recorded
at fair value with any aggregate net unrealized gain/loss reported as a separate
component of shareholders' equity, in accordance with Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." At October 31, 1997 and 1996, there was no requirement to
record unrealized gain/loss as a separate component of shareholders' equity. The
held to maturity investments mature within one year and are carried at amortized
cost which approximates market value at October 31, 1997.
Interest income of $36,960 and $63,632 includes approximately $2,900 and $12,000
from the amortization of discounts on investments in 1997 and 1996,
respectively.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C>
Long-term debt at October 31, 1997 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% $68,386
Less current maturities 29,375
=======
$39,011
=======
</TABLE>
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%.
F-10
<PAGE> 40
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
The following payments of principal are required subsequent to October 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
1998 $29,375
1999 33,100
2000 5,911
=======
$68,386
=======
</TABLE>
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.
F-11
<PAGE> 41
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
5. STOCK OPTION PLANS (CONTINUED)
Certain key executives (the Team) 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.
Options expire through 2007 based upon the date of grant. Changes in options
outstanding under the Plans are as follows:
<TABLE>
<CAPTION>
STOCK OPTION
SHARES PRICE RANGE
------------------------------------------
<S> <C> <C>
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 to $.406
Granted 130,000 $.438
------------
Balance at October 31, 1997 3,695,000 $0.01 to $.438
============
</TABLE>
At October 31, 1997, 6,800,000 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 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, 2003.
F-12
<PAGE> 42
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
5. STOCK OPTION PLANS (CONTINUED)
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, 2002.
All options outstanding at October 31, 1997 are fully exercisable.
6. RELATED PARTY TRANSACTIONS
During the fiscal year ended October 31, 1997 the Company paid approximately
$228,000 ($133,000 in 1996) in commissions to the Team in accordance with the
employment agreements with 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. The Company paid consulting fees of approximately $30,000 ($207,000 in
1996) 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, 1997 the Company paid royalties of approximately $5,556
to the Team ($3,701 in 1996).
F-13
<PAGE> 43
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
7. LEASES
Minimum future rental payments under commitments for noncancelable operating
leases in effect at October 31, 1997, principally for facilities is
approximately $20,000 in 1997.
Total rent expense under operating leases was $26,107 and $25,260 for the years
ended October 31, 1997 and 1996, respectively.
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, 1997 is presented below:
<TABLE>
<CAPTION>
OCTOBER 31,
1997
--------------
<S> <C>
Deferred tax assets:
Net operating loss $ 1,468,000
Other, net 7,100
-----------
Total deferred tax assets 1,475,100
Less valuation allowance (1,475,100)
===========
Net deferred tax asset $ --
===========
</TABLE>
The Company has cumulative net operating loss carryforwards of approximately
$3,700,000 for federal income tax purposes which expire in the years 2000 to
2011.
The reconciliation of income tax at the U.S. Federal statutory rate to income
tax expense is:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
------------ ----------
<S> <C> <C>
Tax at U.S. statutory rate $ 14,000 $(159,000)
Tax benefit of net operating loss carryforward (14,000)
Loss for which benefit not provided 159,000
--------- ---------
Actual tax provision $ -0- $ -0-
========= =========
</TABLE>
F-14
<PAGE> 44
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
9. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to expense during the fiscal years ended
October 31, 1997 and 1996 were approximately $285,723 and $349,590,
respectively.
10. SIGNIFICANT CUSTOMERS
Customers in excess of 10% of net sales for each respective year is as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1997 1996
--------- --------
<S> <C> <C>
Customer A 33% 6%
Customer B 24% 0%
Customer C 6% 15%
Customer D 5% 17%
Customer E 1% 17%
</TABLE>
F-15
<PAGE> 1
1
Exhibit 10(a)
RESELLER AGREEMENT
This Reseller Agreement ("Agreement") dated this 2nd day of September,
1997, by and between Moore U.S.A, Inc., a Delaware Corporation with offices at
275 N. Field Drive Lake Forest, IL 60045 ("Moore") and Angstrom Technologies,
Inc. a Delaware corporation with offices at 1895 Airport Exchange Blvd., Suite
110, Erlanger, KY 41018 ("Angstrom") are mutually desirous of entering into an
Agreement pursuant to which Angstrom will provide Moore with certain products
and Moore may purchase such products from Angstrom.
1. DEFINITIONS
-----------
1.1. "Products" shall mean readers/scanners and fluorescent
inks as more fully set forth on Schedule A.
1.2 Territory shall mean the world.
1.3 Applications shall mean applications for Products
identified by Moore in connection with any bid being developed by Moore.
2. APPOINTMENT
-----------
Subject to the terms and conditions set forth herein, Angstrom hereby appoints
Moore as its non-exclusive reseller for the Products in the Territory. As
Angstrom's reseller, Moore will have the right to obtain Products from Angstrom
and to market and distribute such Products to customers and for Applications
identified in the Territory.
3. PAYMENT
-------
Payment for Products will be in United States dollars and will be subject to all
applicable governmental regulations and rulings, including the withholding of
any taxes required by law.
4. TERMS AND CONDITIONS FOR SUPPLY OF PRODUCTS
-------------------------------------------
4.1 ORDERS All purchases and sales between Moore and Angstrom will be
initiated by Moore's issuance of written purchase orders sent via airmail or
facsimile. Additionally, Moore may initiate purchase orders verbally, provided
that it confirms such orders in writing within seven (7) shipping days. All
orders will state unit quantities, unit descriptions, requested delivery dates,
and shipping instructions. The use of any acknowledgement or other instrument by
Angstrom in connection with this Agreement shall be considered only as a
convenience for the Angstrom, and any provision therein shall not modify,
supersede or supplement the terms and conditions of this Agreement.
4.2 SHIPPING All Products delivered pursuant to the terms of this
Agreement will be suitably packed for shipment in standard containers, marked
for shipment to Moore's address set forth above or to an address specified in
Moore's purchase order, and delivered to a carrier
<PAGE> 2
2
or forwarding agent chosen by Moore. Shipment will be F.O.B. Angstrom's
manufacturing or warehousing facility ("Delivery Point"). All freight, insurance
and other shipping expenses from the Delivery Point, as well as any special
packing expenses requested by Moore will be borne by Moore. Risk of loss passes
to Moore on acceptance by Moore.
4.3 INSPECTION AND ACCEPTANCE Moore will inspect all Products for
obvious physical damage upon receipt thereof and may reject any Product that
fails in a material way. Any Product not properly rejected within thirty (30)
days of receipt of that Product (the "Rejection Period") will be deemed
accepted. To reject a Product, Moore will, within the Rejection Period, notify
Angstrom of its rejection and request a return material authorization number
from Angstrom. As promptly as possible, Angstrom will, at Moore's option and
expense either replace or credit Moore for the returned Products.
5. PRICE AND PAYMENT
-----------------
5.1 PRICE The purchase price to Moore for Products is noted in Schedule
A, or pursuant to specific pricing as agreed to by both parties pursuant to an
alternate requirement with respect to meeting a specific customer bid.
5.2 PAYMENT Angstrom will issue invoices to Moore upon shipment of
Products to Moore or its customer. Moore will pay such invoices within thirty
(30) days of the date of receipt of such invoice. In the event that Moore
becomes more then sixty (60) days delinquent in the payment of any sum due
hereunder, Angstrom shall have right to suspend performance until such
delinquency is corrected.
5.3 PRICE CHANGES Angstrom reserves the right to revise the prices
charged for Products upon ninety (90) days notice to Moore. Price increases will
apply to all purchase orders received after the effective date of the revision.
Decreases in Angstrom's list prices will apply to all accepted but unshipped
orders.
5.4 ADDITION/DELETION OF PRODUCTS Angstrom may at its own discretion
may from time to time amend Schedule A to include or delete such Products as it
deems necessary. Angstrom will provide Moore with one hundred twenty (120) days
notice of such change and in the event of a deletion, Moore shall have the
option of purchasing all remaining inventory or portion thereof of the
discontinued products.
5.5 TAXES All amounts due under this Section are payable in full to
Angstrom without deduction and are net of taxes (including any withholding tax)
customs duties or other charges.
6. ADDITIONAL OBLIGATIONS OF ANGSTROM
----------------------------------
6.1 PROMOTION OF PRODUCTS Angstrom will, at its own expense, use its
reasonable efforts to actively promote the Products. Such promotion may include
but is not limited to:
<PAGE> 3
3
(i) advertising the Products in trade publications,
participating in appropriate trade shows, and directly soliciting orders from
customers for the Products within the Territory;
(ii) providing adequate contact with existing and potential
customers within the Territory on a regular basis, consistent with good business
practice; and
(iii) assisting Moore in assessing customer requirements for
the Products, including modifications and improvements thereto, in terms of
quality, design, functional capability, and other features.
6.2 LEAD TIMES Products will be supplied to Moore in accordance with
Angstrom's published lead times or in connection with forecasts established
between Moore and Angstrom.
6.3 MARKETING MATERIALS Angstrom will provide Moore with marketing and
sales information concerning the Products. Upon the execution of this Agreement,
at Angstrom's expense, Angstrom will provide Moore with a reasonable supply of
its brochures, instructional materials, advertising literature, and other
associated data for the Products that Angstrom deems necessary.
6.4 TRAINING Upon request, Angstrom may provide sales and marketing
training to Moore's employees free of charge at a location and manner which can
be mutually determined.
7. TERM AND TERMINATION
--------------------
7.1 This Agreement shall be in effect for five (5) years from the date
first written above (initial term), unless earlier terminated in accordance with
this Agreement. This Agreement will automatically renew for an additional one
(1) year terms, unless either party provides the other with written notice at
least ninety (90) days in advance of the end of such initial term or any such
additional term.
7.2 This Agreement may be terminated by either party upon thirty (30)
days written notice, if a party hereto (i) breaches any term or condition of
this Agreement and fails to remedy the breach within thirty (30) days after
being given notice thereof, (ii) becomes the subject of any voluntary or
involuntary proceeding under U.S. Bankruptcy Code or state insolvency proceeding
or similar proceeding or (iii) cease to be actively engaged in business.
7.3 In the event of a termination or expiration of this Agreement,
Moore will have the right to terminate all outstanding purchase orders. Those
purchase orders not terminated will remain subject to the provisions of this
Agreement.
7.4 Moore will not by reason of the expiration or termination of this
Agreement in accordance with the provisions of this Agreement, be liable to the
Angstrom for any compensation, reimbursement or damages whatsoever, including
without limitation loss of prospective profits or anticipated sales or on
account of expenditures, investments, leases, or
<PAGE> 4
4
commitments made in connection with this Agreement or the anticipation of
extended performance hereunder. In the event of such termination, Angstrom
agrees that it shall take no action whatsoever to impede the conduct of Moore's
business in the Territory or anywhere else throughout the world.
8. CONFIDENTIALITY
---------------
8.1 Moore and Angstrom are parties to a confidentiality agreement dated
October 10, 1996 the terms and conditions of which shall govern any future
disclosures.
8.2 All proprietary notices incorporated in, marked on, or fixed to the
Products by Angstrom will not be removed by Moore.
9. LIABILITY MOORE'S LIABILITY UNDER THIS AGREEMENT WILL NOT EXCEED THE VALUE OF
THE PRODUCTS PURCHASED IN THE PRECEDING SIX (6) MONTH PERIOD OR $10,000
WHICHEVER IS LESS. IN NO EVENT, WILL MOORE HAVE ANY LIABILITY FOR ANY SPECIAL,
INDIRECT, OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION, DAMAGES FOR
LOST PROFITS, LOSS OF DATA OR COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES, ARISING IN ANY WAY OUT OF THIS AGREEMENT UNDER ANY CAUSE OF ACTION,
WHETHER OR NOT MOORE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE
LIMITATIONS WILL APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF
ANY LIMITED REMEDY.
10. WARRANTIES
----------
10.1 Angstrom warrants for a period of one (1) year from the date of
manufacture, that all Products are free from defect in materials and workmanship
and conform substantially to specifications delivered to Moore. This warranty
shall not extend to Products which Angstrom determines have been tampered with
or damaged during shipment. FURTHER, ANGSTROM DOES NOT WARRANT THAT ITS PRODUCTS
ARE FIT, LEGALLY OR OTHERWISE, FOR THEIR INTENDED PURPOSE OR USE. ANGSTROM AT
MOORE'S OPTION SHALL REPLACE OR REWORK THE DEFECTIVE PRODUCTS OR RETURN THE
PORTION OF THE PURCHASE PRICE APPLICABLE TO THE DEFECTIVE PRODUCTS.
10.2 THE FOREGOING COMPRISES ANGSTROM'S SOLE AND ENTIRE WARRANTY, ALL
OTHER WARRANTIES, EXPRESS OR IMPLIED, AND INCLUDING BUT NOT LIMITED TO THE
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY
EXCLUDED.
11. INDEMNIFICATION Angstrom shall indemnify and hold Moore harmless against any
losses, claims, damages, judgments, liabilities or expenses (including
reasonable attorney's fees
<PAGE> 5
5
and expenses) including claims of infringement as to anything arising in
connection with its performance under this Agreement or any actions, failure to
act, representations or omissions, of Angstrom, its employees, agents or
authorized assigns.
12. MISCELLANEOUS
-------------
12.1 GOVERNING LAW This Agreement will be governed by the laws of the
State of Illinois, excluding its conflict of laws provisions and the parties
agree in the In Personam jurisdiction and exclusive subject matter jurisdiction
of the courts situated in Illinois in regard to any claim arising under this
Agreement.
12.2 RELATIONSHIP The relationship of Angstrom and Moore established by
this Agreement is that of independent contractors, and nothing contained in this
Agreement shall be construed (i) to give either party the power to direct or
control the day-to-day activities of the other (ii) to constitute the parties as
partners, joint ventures, co-owners or otherwise as participants in a joint or
common undertaking to authorize either party or (iii) to make any statements or
representations or create any legal obligation on behalf of the other. All sales
and other agreements between Angstrom and its customers are the Angstrom's
exclusive responsibility and will not affect Moore's obligations under this
Agreement. Angstrom will be solely responsible for, and will indemnify, defend
and hold Moore harmless against all claims, damages, and lawsuits arising from
the acts and omissions of Angstrom, its employees, servants, agents or any of
them.
12.3 ASSIGNMENT, MODIFICATION SEVERABILITY Neither party shall assign
or otherwise transfer this Agreement without the prior express written consent
of the other party, such consent not to be unreasonably withheld. This Agreement
shall not be modified or altered except by written instrument duly executed by
both parties. If any provision of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall in no way be affected or impaired thereby.
12.3.1 SUBCONTRACTOR From time to time it may be necessary to
subcontract all or a portion of this Agreement to third parties. Moore agrees to
provide reasonable advance notice to Angstrom of the name of the subcontractor
for approval by Angstrom, with such approval not to be unreasonably withheld.
Moore will ensure that its subcontractors execute a non-disclosure agreement
similar to that existing between Moore and Angstrom and that the subcontractor
complies with all reasonable security requests made by Angstrom.
12.4 DISPUTE RESOLUTION In the event a dispute arises between Moore and
Angstrom relating to this Agreement the parties agree, prior to either party
pursuing other available remedies to conduct a meeting regarding the dispute, to
be attended by representatives with decision-making authority, to attempt in
good faith to negotiate a mutually acceptable resolution of the dispute. If
within thirty (30) days after the first day of such meeting the parties have not
successfully concluded a resolution, then the parties agree to submit the
dispute to non-binding arbitration, Alternative Dispute Resolution ("ADR"),
under the then current rules of the
<PAGE> 6
6
American Arbitration Association applicable to the resolution of commercial
disputes in Chicago, Illinois. Arbitration shall be by three (3) arbitrators,
one to be selected by each party and the third to be selected by mutual
agreement of the parties. If no agreement is reached as to the third arbitrator,
then the American Arbitration Association shall select the third arbitrator.
Should the ADR not be agreed upon or not result in a final resolution of the
dispute then either party may pursue other available remedies.
12.5 FORCE MAJEURE Neither party shall be liable to the other for any
default hereunder if such default is caused by an event beyond such party's
reasonable control, including without limitation acts or failures to act,
strikes or labor disputes, component shortages, unavailability of
transportation, floods, fires, governmental requirements and acts of God (a
"Force Majeure Event"). In the event of threatened or actual non-performance as
a result of any of the above causes, the non-performing party will exercise
commercially reasonable efforts to avoid and cure such non-performance. The
provisions of this Section 12.5 shall not excuse Moore's or Angstrom's failure
to pay any credit or make any payment requested hereunder when due.
12.6 All notices, consents and other communications between the parties
shall be in writing and shall be sent by either first class mail, certified or
registered return receipt requested, or by facsimile transmission with the
confirmation sent via first class mail or by overnight courier to each party at
the above referenced address.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
MOORE U.S.A., INC. ANGSTROM TECHNOLOGIES, INC.
By: /s/ Sheldon B. Saidman By: /s/ Daniel A. Marinello
---------------------- -----------------------
Name: Sheldon B. Saidman Name: Daniel A. Marinello
Title: V.P. Product Management & Title: President & CEO
Development
Moore Document Solutions
<PAGE> 1
Exhibit 10(b)
AMENDMENT
---------
THIS AMENDMENT is dated this 24th day of September, 1997 by and between
Moore U.S.A. Inc. ("Moore") and Angstrom Technologies, Inc. ("Angstrom").
Moore and Angstrom are parties to an Agreement dated September 2, 1997,
and are mutually desirous of further amending and modifying that Agreement as
more particularly set forth in this Amendment.
NOW THEREFORE, in consideration of the mutual promises set forth
herein, the parties hereto agree as follows:
1. Schedule A is amended to reflect the addition of US patent 5,666,417
which issued September 9, 1997. A revised Schedule A is attached hereto.
2. Except to the extent that the Agreement is modified by this
Amendment, the Agreement continues in full force and effect and remains a valid
and binding obligation on each of the parties thereto.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date written above.
Moore U.S.A. Inc. Angstrom Technologies, Inc.
By: /s/ Michael C. Maier By: /s/ Daniel A. Marinello
-------------------- -----------------------
Name: Michael C. Maier Name: Daniel A. Marinello
Title: Assistant Secretary Title: President & CEO
<PAGE> 1
Exhibit 10(c)
TECHNOLOGY LICENSE AGREEMENT
THIS AGREEMENT, effective as of September 2, 1997, by and between Moore
U.S.A., Inc. a Delaware Corporation, having offices at 100 North Field Drive,
Lake Forest, IL 60045 ("Moore") and Angstrom Technologies, Inc. a Delaware
corporation with offices at 1895 Airport Exchange Blvd., Erlanger, KY 41018
("Angstrom").
WHEREAS, Angstrom has developed and is the owner of certain innovative
and proprietary technology in the security filed and;
WHEREAS, Moore is engaged in the business of selling security products
and is interested in licensing Angstrom's technology and;
WHEREAS, Angstrom is willing license Moore on the terms and conditions
hereinafter set forth;
NOW THEREFORE, for and in consideration of the premises and the
respective rights and obligations recited hereinafter, the parties agree as
follows:
When used in this Agreement, the following terms shall have the meaning set
forth below (terms defined in the singular shall have the same meaning when used
in the plural and vice versa).
DEFINITIONS
TECHNOLOGY shall mean technology owned by Angstrom relating to fluorescent inks
and scanners and readers as more particularly set forth in Schedule A, including
Improvements thereto developed during the Term of this Agreement.
TERRITORY shall mean the world.
LICENSED RIGHTS shall mean all patents, copyrights, trade secrets and know how,
relating to the Technology licensed to Moore under this Agreement.
PRODUCT shall mean any products (i.e. documents, business forms) produced using
the fluorescent inks.
IMPROVEMENTS shall mean any improvement, modification or enhancement of the
Technology.
CONTRACT YEAR shall mean each year during the Term commencing on the date of
this Agreement and each anniversary thereof.
TERM shall mean the Initial Term and any additional term as defined in Section
10.
NET SALES shall mean the invoice price for Products after deductions of regular
trade and quantity discounts, but before deduction of any other items including
but not limited to freight allowances, cash discounts, and agents' commission.
1. LICENSE GRANT In consideration of the mutual promises contained herein
including the royalty provisions of Section 4, Angstrom hereby grants to Moore
subject to the terms and conditions of this Agreement. A non-exclusive,
non-transferable, non-assignable license during the Term of this Agreement to
make, use, service and support the Technology and to sell, transfer and
otherwise provide Products utilizing the Technology, throughout the Territory.
1
<PAGE> 2
1.1 Prior to granting an exclusive license to the Technology or under the
Licensed Rights, Angstrom agrees to promptly notify Moore, and Moore shall have
the option of acquiring the exclusive license to the Technology and Licensed
Rights and will communicate its intent to Angstrom within thirty (30) days after
notice.
2. IMPROVEMENTS Angstrom agrees to promptly notify and fully disclose to Moore
any Improvements to the Technology of which it becomes aware and to offer to
include such Improvements in the Licensed Rights.
3. TECHNOLOGY/DOCUMENTATION
3.1 TRAINING/SUPPORT Upon request, Angstrom agrees to provide sales and
marketing training, support and assistance to Moore during the Term at a
mutually acceptable facility, in a manner calculated to enable the professional
use of the Technology. Angstrom will make available to Moore telephone and
facsimile support.
3.2 TECHNICAL PUBLICATIONS Angstrom will provide Moore with a reasonable supply
of supporting material including but not limited to technical publications,
technical documentation, instructional materials and other associated text and
date for the Technology that Angstrom deems necessary or advisable to facilitate
the use of the Technology.
4. ROYALTY Moore agrees to pay Angstrom for the license granted herein a
continuing royalty as set forth below:
Percent Amount of Sales
------- ---------------
6% $0-$3,000,000
5% $3,000,001-$10,000,000
4% $10,000,001-$35,000,000
3% $35,000,001+
Calculation for royalty payments will be made according to each Contract Year.
5. PAYMENTS Moore shall make the payments of royalties required hereunder within
sixty (60) days following the expiration of each calendar quarter (i.e. within
thirty days of March 31, June 30, September 30 and December 31) each year, and
shall accompany each such payment with a report stating the volume of Products
sold in the preceding quarter and showing the calculation of royalties payable.
6. U.S. DOLLARS All payments hereunder by Moore shall be made in United States
dollars by company check.
7. REVENUES The use, sale, provision or transfer of the Products shall be
recorded for purposes of royalty payment in the calendar quarter in which they
occur. A credit will be given to Moore in the amount of royalties paid to
Angstrom on Products accepted for return by Moore.
2
<PAGE> 3
8. RECORDS/AUDIT Moore agrees to keep accurate records, for two (2) years from
the date of entry, showing the total volume of Products sold under this
Agreement in such detail as to enable the amounts payable hereunder to be
determined. Moore agrees to permit its books and records to be examined from
time to time to the extent necessary to verify the written reports provided
herein; such examination may be made by an accountant designated by Moore and
upon written notice given thirty (30) days in advance. Such examination maybe
done no more than twice annually. Such an examination will be at Angstroms'
expense, except that if a discrepancy of more than ten percent (10%) is found
between the amount actually due and that reported by Angstrom, then the
examination will be at Moore's expense.
9. NOTICE The parties respective addresses for notices or reports under this
Agreement shall be the addresses set forth at the head of this Agreement. In the
future, either party hereto may request, in writing, to the other to direct
notices, reports or other communications to specific persons and/or addresses
other than those set forth above.
10. TERM AND TERMINATION
10.1 TERM Unless terminated sooner or otherwise varied pursuant to the terms and
conditions of this Agreement, this Agreement shall continue for a period of five
(5) years from the date set forth above ("Initial Term") and shall thereafter
automatically renew for additional three (3) year terms, unless either party
provides the other with written notice of its intent not to renew the Agreement
at least ninety (90) days prior to the end of the Initial Term or any such
additional Term.
10.2 TERMINATION This Agreement may be terminated by either party upon thirty
(30) days written notice, if a party hereto (i) breaches any term or condition
of this Agreement and fails to remedy the breach within thirty (30) days after
being given notice thereof, (ii) becomes the subject to any voluntary or
involuntary bankruptcy or insolvency proceeding or (iii) cease to be actively
engaged in business.
10.3 CONTINUATION OF USE AFTER TERMINATION In the event that this Agreement is
terminated, then upon request of Moore, the parties shall enter into good faith
negotiations to agree upon reasonable terms and conditions, including reasonable
compensation to Angstrom, to enable Moore to continue using Technology.
10.4 CONTINUANCE OF OBLIGATIONS All the rights and obligations of the parties
hereto shall remain in effect throughout the Term of this Agreement, and it is
understood and agreed that the cancellation, expiration or other termination of
this Agreement shall not relieve any party hereto of any obligation hereunder
which shall have accrued prior to such cancellation, expiration or other
termination.
10.5 REMEDIES The parties hereto agree that each shall be entitled to all
remedies available at law or in equity for the breach of this Agreement,
including the remedies of specific performance and injunctive relief. Failure of
any party to execute such rights shall not constitute or be construed as a
waiver of any such rights.
3
<PAGE> 4
11. CONFIDENTIALITY Moore and Angstrom are parties to a confidentiality
agreement dated October 10, 1996 the terms and conditions of which shall govern
future disclosures.
12. INDEMNITY Angstrom shall indemnify and hold Moore harmless from and against
any and all liabilities, costs, damages, and expenses (including reasonable
attorneys' fees) incurred by Angstrom in responding to or defending any demand,
assessment, action, cause of action, suit, claim (including infringement claim),
or investigation resulting from or relating to the fact that a Product infringes
on any patent or copyright of a third party; provided, however, this paragraph
shall not apply if such infringement is caused in whole or in part, by any
changes or modifications made to Angstrom's Technology by Moore or the
combination by Moore of any Technology with other technology components where
the Technology alone would not be infringing. Angstrom's obligation to indemnify
Moore shall be conditioned on Moore giving prompt notice of any such claim and
all information and assistance reasonably required by Angstrom to defend against
such claim. Angstrom shall have the right to assume full responsibility for the
defense and to approve in advance, any settlement of such claim.
(a) In the event that a Product is determined to be infringing,
Angstrom's sole responsibility to Moore, in addition to any indemnification
obligation, and at Moore's option shall be to (1) obtain for Moore the right to
use the infringing Product, (2) replace the infringing Product with a
non-infringing alternative, or (3) modify the infringing Product so that it
becomes non-infringing.
13. LIABILITY IN NO EVENT, WILL EITHER PARTY HAVE ANY LIABILITY FOR ANY
SPECIAL, INDIRECT, OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT LIMITATION,
DAMAGES FOR LOST PROFITS, LOSS OF DATA OR COSTS OF PROCUREMENT OF SUBSTITUTE
GOODS OR SERVICES, ARISING IN ANY WAY OUT OF THIS AGREEMENT UNDER ANY CAUSE OF
ACTION, WHETHER OR NOT A PARTY HERETO HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES. THESE LIMITATIONS WILL APPLY NOTWITHSTANDING THE FAILURE OF THE
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
14. FORCE MAJEURE Neither party shall be liable to the other for any default
hereunder if such default is caused by an event beyond the non-performing
party's control, including without limitation acts or failures to act, strikes
or labor disputes, component shortages, unavailability of transportation,
floods, fires, governmental requirements and acts of God (a "Force Majeure
Event"); provided however, that a Force Majeure Event shall not operate to
excuse Angstrom's failure to make any payment required hereunder when due. In
the event of threatened or actual non-performance as a result of any of a Force
Majeure Event, the non-performing party will exercise commercially reasonable
efforts to avoid and cure such non-performance. Provided however, that a Force
Majeure Event shall not operate to excuse Moore's or Angstrom's obligation to
make any payment or provide any credit which may be due.
15. COMPLIANCE
15.1 MARKINGS Moore will make the Products in accordance with written
instructions received from Angstrom.
4
<PAGE> 5
15.2 HEALTH, SAFETY AND ENVIRONMENTAL STANDARDS Angstrom represents and warrants
that the manufacture and use of the Products does not violate any applicable
health, safety or environmental standards and requirements, and Angstrom
covenants for Moore's benefit and for the benefit of Moore's agents, employees
and controlling persons that it will comply with all such standards and
requirements.
16. RELATIONSHIP The relationship between the parties created hereunder is that
of licensor and Angstrom only and not, a partnership, joint venture or any other
relationship. Each party is acting as an independent contractor.
17. ENTIRE AGREEMENT This is the entire Agreement between the parties and
supersedes all other agreements, discussions, understandings and communications
between the parties relating to the subject matter hereof. This Agreement shall
not be modified or altered except by written instrument duly executed by both
parties. If any provision of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall in no way be affected or impaired thereby.
18. ASSIGNMENT All rights and obligations provided herein shall be binding upon
and inure to the benefit of the parties hereto, their assigns acquiring all or
substantially all of the business of the parties comprising the subject matter
of this license, trustees in bankruptcy or receivers.
19. LAWS This Agreement will be governed by the laws of the State of Illinois,
excluding its conflict of laws provisions and the parties agree to the In
Personam jurisdiction and exclusive subject matter jurisdiction of the courts
situated in Illinois in regard to any claim arising under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized Officers.
Moore U.S.A., Inc. Angstrom Technologies, Inc.
By: /s/ Sheldon B. Saidman By: /s/ Daniel A. Marinello
---------------------- -----------------------
Name: Sheldon B. Saidman Name: Daniel A. Marinello
Title: V.P. Product Management & Title: President & CEO
Development
Moore Document Solutions
5
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in Post Effective Amendment No.
1 to the Registration statement (Form S-8 No. 33-1432) pertaining to the 1983
and 1985 Stock Option Plans of Angstrom Technologies, Inc. of our report dated
December 9, 1997, with respect to the financial statements of Angstrom
Technologies, Inc. included in the Annual Report (Form 10-KSB) for the year
ended October 31, 1997.
ERNST & YOUNG LLP
Cincinnati, Ohio
January 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 73,112
<SECURITIES> 613,380
<RECEIVABLES> 133,596
<ALLOWANCES> 0
<INVENTORY> 637,036
<CURRENT-ASSETS> 1,499,599
<PP&E> 75,032
<DEPRECIATION> 84,633
<TOTAL-ASSETS> 1,701,729
<CURRENT-LIABILITIES> 185,310
<BONDS> 39,011
0
2,197,684
<COMMON> 232,552
<OTHER-SE> 4,973,523
<TOTAL-LIABILITY-AND-EQUITY> 1,701,729
<SALES> 1,523,559
<TOTAL-REVENUES> 1,560,519
<CGS> 575,350
<TOTAL-COSTS> 1,463,735
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,932
<INCOME-PRETAX> 86,582
<INCOME-TAX> 0
<INCOME-CONTINUING> 86,582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 86,582
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
