<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: January 31, 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1895 Airport Exchange Boulevard, Erlanger, Kentucky 41018
--------------------------------------------------------
(Address of principal executive offices,
including zip code)
(606) 282-0020
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of March 3, 1999, 23,731,558 shares of common stock, no par value per share,
were outstanding.
Transitional Small Business Disclosure Format: Yes No X
--- ---
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ANGSTROM TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I. Financial Information
<S> <C> <C>
Item 1. Financial Statements: Page
----
Balance Sheets as of January 31, 1999 3-4
and October 31, 1998
Statements of Operations for the Quarters 5
Ended January 31, 1999 and 1998
Statements of Cash Flows for the Three 6
Months Ended January 31, 1999 and 1998
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</TABLE>
2
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Angstrom Technologies, Inc.
---------------------------
Balance Sheet
-------------
<TABLE>
<CAPTION>
JAN. 31, Oct. 31,
-------- --------
1999 1998
---- ----
(UNAUDITED) (Note)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,056,329 $ 809,268
Accounts receivable, less allowance for doubtful 70,252 209,448
Accounts of $4,615
Inventories:
Finished goods 123,726 111,596
Work in process 9,119
Raw materials and parts 716,089 719,370
------------------------------
839,815 840,085
Prepaid expenses 25,264 22,588
------------------------------
Total current assets 1,991,660 1,881,389
Furniture and equipment, at cost 174,852 173,820
Less accumulated depreciation 134,457 125,217
------------------------------
Net furniture and equipment 40,395 48,603
Patents, less accumulated amortization of $19,257 124,602 125,672
------------------------------
Total assets $2,156,657 $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
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Angstrom Technologies, Inc.
---------------------------
Balance Sheet (continued)
-------------------------
<TABLE>
<CAPTION>
JAN. 31, Oct. 31,
-------- --------
1999 1998
---- ----
(UNAUDITED) (Note)
LIABILITIES AND CAPITAL
Current liabilities:
<S> <C> <C>
Accounts payable $ 39,783 $ 43,185
Accrued liabilities 50,540 71,427
Long-term debt due within one year 31,103 33,100
----------- -----------
Total current liabilities 121,426 147,712
Long-term debt 5,911
Capital:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 1,294,230 issued and outstanding
(liquidation preference of $2.00 per share) 2,128,780 2,128,780
Common stock, $.01 par value; 45,000,000 shares
authorized, 23,637,158 shares issued and outstanding 236,372 236,372
Additional paid in capital 5,059,732 5,059,732
Accumulated deficit (5,389,653) (5,522,843)
---------- ----------
Net capital 2,035,231 1,902,041
---------- ----------
Total liabilities and capital $2,156,657 $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
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Angstrom Technologies, Inc.
---------------------------
Statements of Operations
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JANUARY 31, January 31,
----------- -----------
1999 1998
---- ----
<S> <C> <C>
Net sales $ 414,694 $ 196,874
Cost of Sales 122,394 105,701
----------- ----------
Gross profit 292,300 91,173
Selling, general and
administrative expenses 168,682 168,673
Interest expense 1,092 1,982
Interest income (10,664) (7,924)
----------- ----------
159,110 162,731
----------- ----------
Net income (loss) 133,190 (71,558)
Less dividend requirement on preferred stock (51,769) (53,440)
----------- ----------
Net income (loss) applicable to common stock $ 81,421 $ (124,998)
=========== ==========
Net income (loss) per common share: $ -- $ (0.01)
=========== ===========
Basic $ -- $ (0.01)
=========== ===========
Diluted $ -- $ --
=========== ==========
Weight Average Number
Of Shares Outstanding 23,280,918 23,273,347
=========== ==========
</TABLE>
5
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Angstrom Technologies, Inc.
---------------------------
Statements of Cash Flows
------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months ended Jan. 31,
1999 1998
------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 133,190 $ (71,558)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 11,263 12,262
Changes in operating assets and liabilities:
Accounts receivable 139,197 42,251
Interest receivable 446
Advances to suppliers (3,585)
Inventories 270 (145,061)
Prepaid expenses (2,676) 252
Accounts payable (3,402) (34,393)
Accrued liabilities (20,887) (25,269)
------------------------------------
Net cash provided by (used in) operating activities 256,955 (225,045)
INVESTING ACTIVITIES
Purchases of furniture and equipment (1,032) (4,003)
Proceeds from sale of investments 209,375
Capitalization of patents (954) (1,123)
------------------------------------
Net cash provided by (used in) investing activities (1,986) 204,249
FINANCING ACTIVITIES
Principal repayments of long-term debt (7,908) (7,019)
------------------------------------
Net cash used by financing activities (7,908) (7,019)
------------------------------------
Net increase (decrease) in cash 247,061 (27,815)
Cash and cash equivalents at beginning of year 809,268 73,112
Cash and cash equivalents at end of period $ 1,056,329 $ 45,297
====================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 1,092 $ 1,982
</TABLE>
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ANGSTROM TECHNOLOGIES, INC.
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
(UNAUDITED)
-----------
Note 1 The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the three month period ended January 31, 1999 are 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 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 year 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
$213,578, respectively. ($.16 per preferred stock share outstanding at
November 1, 1998 and 1997). No dividend has been accrued for the three
month period ended January 31, 1999. The amount that would have been
accrued at January 31, 1999, if a dividend had been recorded, would
have been $51,769.
Note 4 On December 3, 1993, the shareholders of the Company approved an
amendment to the Company's certificate of incorporation increasing the
authorized number of shares of common stock to 45,000,000 from
25,000,000, increasing the authorized number of preferred stock to
5,000,000 from 2,000,000 and reducing the par value of the preferred
stock to $.01 per share from $10.00 per share.
On December 22, 1993, the Company completed the issuance of 1,725,000
units of its securities through a public offering, resulting in net
proceeds of $2,838,454 after offering expenses. Each unit consists of
one share of the redeemable convertible preferred stock and one Class A
redeemable common stock purchase warrant. Each share of preferred stock
is convertible into four shares of the Company's common stock.
The Class A purchase warrants expired on December 12, 1998.
For the three months ended January 31, 1999, there were no preferred
stock conversions. The preferred stock has a liquidation preference of
$2.00 per share, an aggregate of $2,588,460.
Note 5 Net income per common share is calculated based upon a weighted
average of shares outstanding after giving effect to the preferred
dividend requirements.
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Note 6 The computation of basic and diluted earnings (loss) per share is shown
below:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
1999 1998
----------------------------------
Numerator:
<S> <C> <C>
Net income (loss) $ 133,190 $ (71,558)
Preferred stock dividend requirement (51,769) (53,440)
----------------------------------
Numerator for basic earnings per share - net income
applicable to common stock 81,421 (124,998)
Effect of dilutive securities - preferred stock dividends
and adjustments resulting from assumed conversion -- 53,440
----------------------------------
Numerator for diluted earnings per share - net income
applicable to common stock after assumed conversion $ 81,421 $ (71,558)
==================================
Denominator:
Denominator for basic earnings per share - weighted
average shares outstanding 23,280,918 22,273,347
Effect of dilutive securities:
Convertible preferred stock
Assumed issuance of stock under stock option
plans based on treasury stock method 1,749,122 2,801,938
----------------------------------
Denominator for diluted earnings per share -
weighted average shares outstanding and
impact of dilutive securities 25,030,040 25,075,285
==================================
Basic earnings (loss) per share $ 0.00 $ (0.01)
==================================
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 antidulitive
are as follows: (convertible preferred stock 5,176,920 and 5,343,960
respectively).
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Note 7 The tax effects of the net operating loss carryforwards and temporary
differences that give rise to deferred income tax assets and a
corresponding valuation allowance at January 31, 1999 and October 31,
1998 are presented below:
<TABLE>
<CAPTION>
January 31, October 31,
1999 1998
--------------- ------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss $ 1,242,700 $ 1,291,700
Other, net 10,200 9,100
------------- ------------
Total deferred tax assets 1,252,900 1,301,400
Less: valuation allowance (1,252,900) (1,301,400)
------------- ------------
Net Deferred Tax Assets $ -- $ --
============= ============
</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.
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 (SFAS #121)."
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
9
<PAGE> 10
SPECIAL CAUTIONARY NOTICE REGARD FORWARD-LOOKING STATEMENTS
-----------------------------------------------------------
Certain of the matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" may constitute
forward-looking statements for purposes of the Securities Act of 1933 and the
Securities Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. The words "expect," "estimate," "anticipate,"
"predict," "may," "should," and similar expressions are intended to identify
forward-looking statements. All written or oral forward-looking statements
attributable to the Company are expressly qualified as set forth herein.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
QUARTER ENDED JANUARY 31, 1999 COMPARED TO QUARTER ENDED JANUARY 31, 1998.
Net sales for the first quarter of Fiscal 1999 were approximately
$414,694, an increase of approximately 110.6% from the approximately $196,874 in
net sales in the corresponding quarter of Fiscal 1998. This increase in sales
was primarily a result of significant sales of compounds made for US government
security applications to a subcontractor of the US government in the first
quarter of Fiscal 1999 which did not occur in the first quarter of Fiscal 1998,
and the timing of receiving of orders from the Company's core customers. The
Company expects to receive orders from these customer on an on-going basis.
However, there can be no assurances that such orders will be forthcoming.
Cost of sales as a percentage of overall sales decreased materially
from 53.7% to 29.5% due to a change in the mix of compounds used and products
sold by the Company, which have varying costs and margins, and economies of
scale due to increased production rates.
Due to the foregoing, the Company experienced net income of $133,190
before dividend requirements in the first quarter of Fiscal 1999 as compared
with a net loss of $71,558 before dividend requirements in the prior year's
comparable period. Continuing its policy of conserving cash to meet operating
requirements, the Company has declined to accrue a preferred stock dividend for
the periods in reference.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for cash is to support its programs and its
ongoing operating activities. The Company's primary sources of liquidity have
historically been cash 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.
10
<PAGE> 11
The Company had cash and cash equivalents, and investments of $1,056,329
at the end of the first quarter of Fiscal 1999 as compared with $809,268 as at
the end of Fiscal 1998, reflecting an increase in these categories of $247,061,
or 30.5%. The increase is primarily a result of the Company earning a profit and
collecting a large dollar volume of receivables in the first quarter of Fiscal
1999. The Company experienced a decrease in trade accounts receivable of
$139,196, or 66.5%, due to the timing of payments by customers, while
inventories remained flat. The Company experienced a decrease in accounts
payable of $3,402, or 7.9%, as a result of the timing of payments. As indicated
in Note 3 to these financial statements, no preferred dividend has been accrued
for the first quarter 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.
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
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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.
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.
12
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PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE> 14
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGSTROM TECHNOLOGIES, INC.
By: /s/ Daniel A. Marinello
-----------------------
Daniel A. Marinello, Chief Executive
Officer and Chief Financial Officer
Dated: March 4, 1999
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 1,056,329
<SECURITIES> 0
<RECEIVABLES> 74,867
<ALLOWANCES> 4,615
<INVENTORY> 839,815
<CURRENT-ASSETS> 1,991,660
<PP&E> 174,852
<DEPRECIATION> 134,857
<TOTAL-ASSETS> 2,156,657
<CURRENT-LIABILITIES> 121,426
<BONDS> 0
0
2,126,780
<COMMON> 236,372
<OTHER-SE> 5,059,732
<TOTAL-LIABILITY-AND-EQUITY> 2,156,657
<SALES> 414,694
<TOTAL-REVENUES> 425,358
<CGS> 122,394
<TOTAL-COSTS> 291,076
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,092
<INCOME-PRETAX> 81,421
<INCOME-TAX> 0
<INCOME-CONTINUING> 81,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81,421
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
