<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 0-12646
ANGSTROM TECHNOLOGIES, INC.
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 31-1065350
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1895 Airport Exchange Boulevard, Erlanger, Kentucky 41018
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(606) 282-0020
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of June 8, 1999, 23,794,598 shares of common stock, no par value per share,
were outstanding.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE> 2
ANGSTROM TECHNOLOGIES, INC.
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements: Page
----
Balance Sheets as of April 30, 1999
and October 31, 1998 3-4
Statements of Operations for the Three Months
Ended April 30, 1999 and April 30, 1998 and
Six Months ended April 30, 1999 and April 30,
1998 5
Statements of Cash Flows for the Six Months
Ended April 30, 1999 and April 30, 1998 6
Notes to Financial Statements 7-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
2
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Angstrom Technologies, Inc.
---------------------------
Balance Sheet
-------------
<TABLE>
<CAPTION>
APR. 30, Oct. 31,
1999 1998
(UNAUDITED) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 976,564 $ 809,268
Accounts receivable, less allowances for doubtful
accounts of $4,615 68,818 209,448
Inventories:
Finished goods 123,726 111,596
Work in process --- 9,119
Raw materials and parts 743,257 719,370
----------------------------
866,983 840,085
Prepaid expenses 15,262 22,588
----------------------------
Total current assets 1,927,627 1,881,389
Furniture and equipment, at cost 176,453 173,820
Less accumulated depreciation 143,927 125,217
----------------------------
Net furniture and equipment 32,526 48,603
Patents, less accumulated amortization of $21,377 130,287 125,672
----------------------------
Total assets $2,090,440 $2,055,664
============================
</TABLE>
NOTE: The balance sheet at October 31, 1998 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
3
<PAGE> 4
Angstrom Technologies, Inc.
---------------------------
Balance Sheet (continued)
-------------------------
<TABLE>
<CAPTION>
APR. 30, Oct. 31,
-------- --------
1999 1998
---- ----
(UNAUDITED) (Note)
<S> <C> <C>
Liabilities AND CAPITAL
Current liabilities:
Accounts payable $ 56,189 $ 43,185
Accrued liabilities 46,909 71,427
Long-term debt due within one year 22,955 33,100
-------------------------------
Total current liabilities 126,053 147,712
Long-term debt --- 5,911
Capital:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 1,276,880 issued and outstanding
(liquidation preference of $2.00 per share) 2,100,152 2,128,780
Common stock, $.01 par value; 45,000,000 shares
authorized, 23,706,558 shares issued and outstanding 237,066 236,372
Additional paid in capital 5,087,666 5,059,732
Accumulated deficit (5,460,497) (5,522,843)
-------------------------------
Net capital 1,964,387 1,902,041
-------------------------------
Total liabilities and capital $ 2,090,440 $ 2,055,664
===============================
</TABLE>
NOTE: The balance sheet at October 31, 1998 has been derived from the audited
financial statements at that date, but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See accompanying notes.
4
<PAGE> 5
Angstrom Technologies, Inc.
---------------------------
Statements of Operations
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED Six Months Ended
------------------ ----------------
APRIL 30, April 30, April 30, April 30,
--------- --------- --------- ---------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 153,903 $ 672,358 $ 568,597 $ 869,232
Cost of Sales 87,517 201,729 209,911 307,430
------------ ------------ ------------ ------------
Gross profit 66,386 470,629 358,686 561,802
Selling, general and
administrative expenses 147,740 227,473 316,422 396,146
------------ ------------ ------------ ------------
Operating income (loss) (81,354) 243,156 42,264 165,656
Other income (expense)
Interest expense (852) (1,769) (1,944) (3,751)
Interest income 11,362 4,750 22,026 12,674
Loss on security sale -- (190) -- (190)
------------ ------------ ------------ ------------
10,510 (2,791) 20,082 8,733
------------ ------------ ------------ ------------
Net income (loss) (70,844) 245,947 62,346 174,389
------------ ------------ ------------ ------------
Less dividend requirement
on preferred stock (50,381) (52,119) (102,150) (105,559)
------------ ------------ ------------ ------------
Net income (loss) applicable
to common stock $ (121,225) $ 193,828 $ (39,804) $ 68,830
============ ============ ============ ============
Net income (loss) per
common share $ -- $ .01 $ -- $ --
============ ============ ============ ============
Weight Average Number
of Shares Outstanding 23,341,830 23,292,651 23,310,869 23,282,856
============ ============ ============ ============
</TABLE>
5
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Angstrom Technologies, Inc.
---------------------------
Statements of Cash Flows
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months ended Apr. 30,
1999 1998
---------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 62,346 $ 174,389
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 22,854 23,016
Changes in operating assets and liabilities:
Accounts receivable 140,630 (351,823)
Interest receivable --- 446
Advances to suppliers --- (107,657)
Inventories (26,897) (90,179)
Prepaid expenses 7,325 6,502
Accounts payable 13,004 (19,842)
Accrued liabilities (24,518) 6,911
---------------------------
Net cash provided by (used in) operating activities 194,744 (358,237)
INVESTING ACTIVITIES
Purchases of furniture and equipment (2,633) (5,728)
Proceeds from sale of investments --- 340,218
Capitalization of patents (8,759) (2,418)
---------------------------
Net cash provided by (used in) investing activities (11,392) 332,072
FINANCING ACTIVITIES
Proceeds from stock options exercises --- 13,000
Principal repayments of long-term debt (16,056) (14,249)
---------------------------
Net cash used by financing activities (16,056) (1,249)
---------------------------
Net increase (decrease) in cash 167,296 (27,414)
Cash and cash equivalents at beginning of year 809,268 73,112
---------------------------
Cash and cash equivalents at end of year $ 976,564 $ 45,698
===========================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 1,944 $ 3,751
</TABLE>
6
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ANGSTROM TECHNOLOGIES, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(UNAUDITED)
-----------
Note 1 The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the six month period ended April 30, 1999 is not necessarily
indicative of the results that may be expected for the year ended
October 31, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended October 31, 1998.
Note 2 In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings per Share." Statement No. 128
replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share exclude any dilutive
effects of stock options and convertible securities. Diluted earnings
per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have
been presented, and where necessary, restated to conform to Statement
No. 128 requirements.
Note 3 Earnings per common share are calculated based upon a weighted
average of shares outstanding after giving effect to the preferred
dividend requirements.
Note 4 The preferred stock issued December 22, 1993 provided for an annual
cumulative dividend to be paid on November 1st each year. Management
has determined that available funds would be more prudently utilized in
its ongoing research and development efforts and as a result no accrual
or payment of dividend will be made until such time as sufficient cash
flows are generated from operations. Management intends to hold the
dividend payable as of October 31, 1998 ($924,193) and 1997 ($717,116),
in arrears. No dividend was accrued for the years ended October 31,
1998 and 1997. The amount that would have been accrued at October 31,
1998 and 1997, if a dividend had been recorded, would have been
$207,077 and $213,758, respectively. ($.16 per preferred stock share
outstanding at November 1, 1998 and 1997). No dividend has been accrued
for the six month period ended April 30, 1999. The amount that would
have been accrued at April 30, 1999 and 1998, if a dividend had been
recorded, would have been $102,150 and $105,559, respectively.
Note 5 On December 3, 1993, the shareholders of the Company approved an
amendment to the Company's certificate of incorporation increasing the
authorized number of shares of common stock to 45,000,000 from
25,000,000, increasing the authorized number of preferred stock to
5,000,000 from 2,000,000 and reducing the par value of the preferred
stock to $.01 per share from $10.00 per share.
7
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ANGSTROM TECHNOLOGIES, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(UNAUDITED)
-----------
Note 5 (Continued)
On December 22, 1993, the Company completed the issuance of 1,725,000
units of its securities through a public offering, resulting in net
proceeds of $2,838,454 after offering expenses. Each unit consists of
one share of the redeemable convertible preferred stock and one Class A
redeemable common stock purchase warrant. Each share of preferred stock
is convertible into four shares of the Company's common stock.
The Class A purchase warrants expired on December 12, 1998.
For the three months ended April 30, 1999, preferred stock conversions
were as follows:
<TABLE>
<CAPTION>
Conversion Preferred Stock Common Stock
Date Converted Received
---------- --------------- ------------
<S> <C> <C>
02/03/99 3,500 14,000
02/09/99 2,000 8,000
02/11/99 6,850 27,400
02/17/99 5,000 20,000
-------- -------
17,350 69,400
======== =======
</TABLE>
The preferred stock has a liquidation preference of $2.00 per share, an
aggregate of $2,553,760.
Note 6 The tax effects of the net operating loss carryforwards and temporary
differences that give rise to deferred income tax assets and a
corresponding valuation allowance at April 30, 1999 and October 31,
1998 are presented below:
<TABLE>
<CAPTION>
April 30, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 1,270,700 $ 1,291,700
Other, net 10,200 9,700
----------- -----------
Total deferred tax assets 1,280,900 1,301,400
Less: valuation allowance (1,280,900) (1,301,400)
----------- -----------
Net Deferred Tax Asset $ -0- $ -0-
=========== ===========
</TABLE>
The company entered fiscal 1999 with cumulative net operating loss
carryforwards of approximately $3,270,000 for federal income tax
purposes, which expire in the years 2000 to 2010.
8
<PAGE> 9
ANGSTROM TECHNOLOGIES, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(UNAUDITED)
-----------
Note 7 The computation of basic and diluted earnings (loss) per share is shown
below:
<TABLE>
<CAPTION>
Six Months Ended
April 30,
1999 1998
------------------------------------------
<S> <C> <C>
Numerator:
Net income $ 62,346 $ 174,389
Preferred stock dividend requirement (102,150) (105,559)
------------------------------------------
Numerator for basic earnings per share - net income
(loss) applicable to common stock (39,804) 68,830
Effect of dilutive securities - preferred stock dividends
and adjustments resulting from assumed conversion -- --
------------------------------------------
Numerator for diluted earnings per share - net income
(loss) applicable to common stock after assumed
conversion $ (39,804) $ 68,830
==========================================
Denominator:
Denominator for basic earnings per share - weighted
average shares outstanding 23,310,869 23,282,856
Effect of dilutive securities:
Convertible preferred stock
Assumed issuance of stock under stock option
plans based on treasury stock method 1,059,193 2,894,173
------------------------------------------
Denominator for diluted earnings per share -
weighted average shares outstanding and
impact of dilutive securities 24,370,062 26,177,029
==========================================
Basic earnings (loss) per share $ --- $ ---
==========================================
Fully diluted earnings (loss) per common share $ --- $ ---
==========================================
</TABLE>
Securities that could potentially dilute basic earnings per share in the future
that were not included in the computation of diluted earnings per share above
because to do so would have been antidilutive are as follows: (convertible
preferred stock 5,107,520 and 5,277,960 respectively).
9
<PAGE> 10
ANGSTROM TECHNOLOGIES, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(UNAUDITED)
-----------
Note 8 Patents included in the other assets section of the balance sheet are
certain costs associated with patents, which are capitalized and
amortized over the shorter of their statutory lives or their estimated
useful lives using the straight-line method. The Company periodically
evaluates the recoverability of these assets in accordance with
Statement of Financial Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of (SAS #121)."
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
10
<PAGE> 11
SPECIAL CAUTIONARY NOTICE REGARD FORWARD-LOOKING STATEMENTS
-----------------------------------------------------------
Certain of the matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" may constitute
forward-looking statements for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. The words "expect," "estimate," "anticipate,"
"predict," "may," "should," and similar expressions are intended to identify
forward-looking statements. All written or oral forward-looking statements
attributable to the Company are expressly qualified as set forth herein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
SIX MONTHS ENDED APRIL 30, 1999 COMPARED TO SIX MONTHS ENDED APRIL 30, 1998.
Net sales for the first six months of fiscal 1999 were $568,597, a
decrease of approximately 34.6% from the approximately $869,232 in net sales in
the corresponding period of fiscal 1998. This decrease in sales was primarily a
result of the absence of a major sales order in the second quarter of fiscal
1999, especially in light of the significant sales of compounds for government
security applications to a subcontractor of the United States Government in the
second quarter of fiscal 1998.
Cost of sales for the first six months of fiscal 1999 as a percentage
of overall sales increased to 36.9% from 35.4% for the first six months of
fiscal 1998. This increase was primarily due to a change in the mix of compounds
used and products sold by the Company, which have varying costs and margins.
Selling, general and administrative expenses decreased 20.1% from
$396,146 in the first six months of fiscal 1998 to $316,422 in the corresponding
period of fiscal 1999. This decrease was primarily due to management's efforts
to place stricter controls on expenditures.
Interest expense decreased 48.1% from $3,751 in the first six months of
1998 to $1,944 in the corresponding period of fiscal 1999. Interest income
increased 73.8% from $12,674 in the first six months of 1998 to $22,026 in the
corresponding period of fiscal 1999. The changes in interest expense, which
includes service fees on cash accounts, and interest income were primarily a
result of the Company moving a portion of its cash balances into accounts
earning higher returns and charging lower service fees.
Due to the foregoing, the Company experienced a net income of $62,346
before dividend requirements in the first six months of fiscal 1999 as compared
with net income of $174,389 before dividend requirements in the prior year's
comparable period. Continuing
11
<PAGE> 12
its policy of conserving cash to meet operating requirements, the Company has
declined to accrue a preferred stock dividend for the periods in reference.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for cash is to support its programs and its
ongoing operating activities. The Company's primary sources of liquidity have
historically been cash provided by financing activities. The Company
historically has not 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 of $976,564 at the end of the
second quarter of fiscal 1999 as compared with $809,268 as at the end of fiscal
1998, reflecting an increase in these categories of $167,296, or 20.7%. This
increase was primarily a result of the Company collecting a large dollar volume
of receivables in the first quarter of Fiscal 1999. The Company experienced
decrease in trade accounts receivable of $140,630, or 67.1%, due to the timing
of payments by customers, while inventories remained flat. The Company
experienced an increase in accounts payable of $13,004, or 30.1%, as a result of
the timing of payments.
As indicated in Note 4 to these financial statements, no preferred
dividend has been accrued for the first two quarters of fiscal 1999 since
management has determined to conserve available funds and maintain the Company's
liquidity in light of its needs to continue developmental and marketing
expenditures. The Company anticipates that existing funds will enable it to fund
its operating and capital needs through at least October 31, 1999, 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.
YEAR 2000 ISSUES
The following is a discussion of the Year 2000 date issue ("Year 2000
issue") as it affects the Company. The Year 2000 issue arises from the fact that
many computer programs and embedded chips in other forms of technology use only
the last two digits to identify a year in a date field.
The Company's State of Readiness
The Company currently believes its potential exposure to problems
arising from the Year 2000 issue lies primarily in two areas: the Company's
internal operating systems which include both information technology ("IT") and
non-IT components (such as computer chips imbedded in hardware) and Year 2000
compliance by third parties with whom the Company has a material relationship.
12
<PAGE> 13
Internal operating systems. The Company has completed an assessment of
its Year 2000 compliance for its products and critical internal systems and
identified no major issues. The Company purchased its internal computer system
from IBM in 1996 and IBM documented that the system is Year 2000 compliant. If
the Company experiences Year 2000 issues, the Company intends to manually
maintain the Company's internal records until such issues are resolved.
Third party relationships. Ultimately, the potential impact of the Year
2000 issue will depend not only on the actions taken by the Company, but also
how the Year 2000 issue is addressed by customers, vendors, service providers,
utilities, governmental agencies and other entities with which the Company does
business. Although the Company is rarely dependent on a single source of supply
for its components, and purchases most of them off the shelf, it has
communicated with the most significant of these third parties regarding their
Year 2000 readiness, and believes they are Year 2000 compliant. If the Company
determines it may experience a shortage of supply, the Company has capacity to
maintain additional inventory. The Year 2000 efforts of third parties are not
within the Company's control, however, their failure to respond to Year 2000
issues successfully could result in business disruption and increased operating
costs for the Company.
Costs to Address the Company's Year 2000 Issues
To date, the Company has incurred costs of approximately $30,000 in
identifying or remedying Year 2000 issues, including approximately $15,000 in
the first quarter of Fiscal 1999 to upgrade software. The Company cannot
reasonably estimate costs which may be required for remediation or for
implementation of contingency plans with respect to third party relationships.
There can be no assurance that if additional Year 2000 issues are raised, the
Company's costs to remediate such issues will be consistent with its historical
costs.
Risks of the Company's Year 2000 Issues
The Company believes the most reasonably likely worst case Year 2000
scenario would include a combination of some or all of the following:
- - Non-IT components in HVAC, lighting, telephone, security and similar
systems might fail.
- - Communications with customers and vendors may fail or give erroneous
information. These types of problems could result in such difficulties
as the inability to receive or process customer orders, or shipping
delays.
- - The unavailability of product as a result of Year 2000 problems
experienced by one or more vendors of the Company.
The Company's Contingency Plans
The Company does not believe it will incur a material financial impact
from the risk of failure, or from the costs associated with assessing the risks
of failure, arising from the Year 2000 issue. Consequently, the Company does not
intend to create a contingency plan other than as set forth above.
13
<PAGE> 14
The foregoing discussion regarding the Year 2000 project's timing,
effectiveness, implementation, and cost contains forward-looking statements
which are based on management's best estimates derived using assumptions. These
forward-looking statements involve inherent risks and uncertainties, and actual
results could differ materially from those contemplated by such statements.
Factors that might cause material differences include, but are not limited to,
the readiness of third parties and the Company's ability to respond to
unforeseen Year 2000 complications. Such material differences could result in,
among other things, business disruptions, operational problems, financial loss
and similar risks.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<PAGE> 15
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGSTROM TECHNOLOGIES, INC.
By: /s/ Daniel A. Marinello
-----------------------
Daniel A. Marinello, Chief Executive
Officer and Chief Financial Officer
Dated: June 8, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 976,564
<SECURITIES> 0
<RECEIVABLES> 73,433
<ALLOWANCES> 4,615
<INVENTORY> 866,983
<CURRENT-ASSETS> 1,927,627
<PP&E> 176,453
<DEPRECIATION> 143,927
<TOTAL-ASSETS> 2,090,440
<CURRENT-LIABILITIES> 126,063
<BONDS> 0
0
2,100,152
<COMMON> 237,066
<OTHER-SE> 5,087,666
<TOTAL-LIABILITY-AND-EQUITY> 2,090,440
<SALES> 568,597
<TOTAL-REVENUES> 590,623
<CGS> 209,911
<TOTAL-COSTS> 526,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,944
<INCOME-PRETAX> 62,346
<INCOME-TAX> 0
<INCOME-CONTINUING> 62,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,346
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
