UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
EXCHANGE ACT
[ ] For the transition period from to
Commission file number 0-12646
ANGSTROM TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 31-1065350
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1895 Airport Exchange Boulevard, Erlanger, KY 41018
(Address of principal executive offices)
(606) 282-0020
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
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 July 31, 1997, there were 22,879,878 shares of Common Stock outstanding.
TOTAL PAGES IN THIS REPORT: 13 (excluding cover but including signature page)
INDEX
PART I. Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Balance Sheets 2-3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-11
PART II. Other Information
-----------------
Item 6. Exhibits 12
SIGNATURES 13
-1-
Angstrom Technologies, Inc.
Balance Sheet
July 31, 1997 Oct. 31, 1996
------------- -------------
(Unaudited) (Note)
Assets
Current assets:
Cash and cash equivalents $ 349,476 $ 24,175
Short-term investments 354,844 816,517
Accounts receivable 180,292 110,940
Interest receivable 6,013 6,093
Advances to suppliers 19,148 --
Inventories:
Finished goods 39,257 30,168
Work in process 39,075 12,906
Raw materials and parts 556,811 522,931
------------------------------------
635,143 566,005
Prepaid expenses 46,833 1,181
------------------------------------
Total current assets 1,591,749 1,524,911
Furniture and equipment, at cost 145,966 141,789
Less accumulated depreciation 60,810 46,609
------------------------------------
Net furniture and equipment 85,156 95,180
Patents, less accumulated
amortization of $8,274 112,273 97,877
------------------------------------
Total assets $1,789,178 $1,717,968
====================================
NOTE: The balance sheet at October 31, 1996 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.
-2-
Angstrom Technologies, Inc.
Balance Sheet (continued)
July 31, 1997 Oct. 31, 1996
------------- -------------
(Unaudited) (Note)
Liabilities and capital
Current liabilities:
Accounts payable $ 98,030 $ 190,938
Accrued liabilities 90,464 55,520
Long-term debt due within one year 27,672 26,068
--------------------------------
Total current liabilities 216,166 272,526
Long-term debt 47,525 68,386
Capital:
Preferred stock, $.01 par value;
5,000,000 shares authorized,
1,357,300 issued and outstanding
(liquidation preference of $2.00
per share) 2,233,203 2,439,483
Common stock, $.01 par value;
45,000,000 shares authorized,
22,879,878 shares issued and
outstanding 231,699 224,690
Additional paid in capital 4,938,857 4,726,086
Accumulated deficit (5,878,272) (6,013,203)
--------------------------------
Net capital 1,525,487 1,377,056
--------------------------------
Total liabilities and capital $1,789,178 $1,717,968
================================
NOTE: The balance sheet at October 31, 1996 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-
Angstrom Technologies, Inc.
Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
July 31, July 31, July 31, July 31,
1997 1996 1997 1996
---- ---- ---- ----
Net sales $ 416,001 $ 175,673 $ 1,271,981 $ 618,256
Cost of Sales 207,170 111,874 455,912 372,180
------- ------- ------- -------
Gross profit 208,831 63,799 816,069 246,076
Selling, general and
administrative expenses 249,627 222,825 702,455 618,022
------- ------- ------- -------
(40,796) (159,026) 113,614 (371,946)
Other income (expense)
Interest expense (2,389) (3,143) (7,743) (9,921)
Interest income 9,286 15,889 29,062 50,814
Gain on security sale -- (733) -- 3,295
--------- ----------- --------- -------
6,897 13,479 21,319 37,598
-------- ---------- ------ ------
Net income (loss) (33,899) (147,013) 134,933 (327,758)
-------- --------- ------- ---------
Less dividend requirement on
preferred stock (53,300) (60,100) (162,900) (180,200)
-------- -------- --------- ---------
Net (loss) applicable to common
stock $(87,199) $ (207,113) $(27,967) $ (507,958)
========= =========== ========= ==========
Net income (loss) per common share $ -- $ (0.01) $ -- $ (0.02)
=========== =========== =========== ==========
Weight Average Number
of Shares Outstanding 22,942,997 22,189,528 22,737,833 21,821,384
========== ========== ========== ==========
-4-
Angstrom Technologies, Inc.
Statements of Cash Flows
(Unaudited)
Nine Months ended July 31,
--------------------------
1997 1996
---- ----
Operating activities
Net income (loss) $ 134,933 $ (327,758)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 16,448 11,258
Changes in operating assets and liabilities:
Accounts receivable (69,352) 23,202
Interest receivable 80 --
Advances to suppliers (19,148) --
Inventories (69,137) (202,692)
Prepaid expenses (45,653) 50,368
Other assets -- (145)
Accounts payable (92,908) 32,785
Accrued liabilities 36,548 (6,685)
---------- ----------
Net cash used in operating activities (108,189) (419,665)
Investing activities
Purchases of furniture and equipment (4,179) (27,314)
Proceeds from sale of investments 461,673 422,833
Capitalization of patents (16,643) (27,208)
---------- ----------
Net cash provided by investing activities 440,851 368,311
Financing activities
Proceeds from stock options exercises 13,500 --
Principal repayments of long-term debt (20,861) (17,089)
---------- ----------
Net cash used by financing activities (7,361) (17,089)
---------- ----------
Net increase (decrease) in cash 325,301 (68,443)
Cash and cash equivalents at beginning of year 24,175 129,308
========== ----------
Cash and cash equivalents at end of year $ 349,476 $ 60,865
========== ==========
Supplemental cash flow disclosures
Cash paid for interest $ 7,743 $ 9,921
-5-
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 nine month period ended July 31, 1997 is not
necessarily indicative of the results that may be expected for the
year ended October 31, 1997. 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, 1996.
Note 2 Earnings per common share are calculated based upon a weighted
average of shares outstanding after giving effect to the preferred
dividend requirements.
Note 3 The preferred stock issued December 22, 1993 provided for an annual
cumulative dividend to be paid on November 1, 1995. Management has
determined that available funds would be more prudently utilized in
its ongoing research and development efforts and as a result no
accrual or payment of dividend will be made until such time as
sufficient cash flows are generated from operations. Management
intends to hold the dividend payable as of November 1, 1996, in
arrears. No dividend was accrued for the year ended October 31, 1996.
The amount that would have been accrued at October 31, 1996, if a
dividend had been recorded, would have been $237,206 ($.16 per
preferred stock share outstanding at November 1, 1996). No dividend
has been accrued for the three month period ended July 31, 1997. The
amount that would have been accrued at July 31, 1997, if a dividend
had been recorded, would have been approximately $162,900.
Note 4 On December 3, 1993, the shareholders of the Company approved an
amendment to the Company's certificate of incorporation increasing the
authorized number of shares of common stock to 45,000,000 from
25,000,000, increasing the authorized number of preferred stock to
5,000,000 from 2,000,000 and reducing the par value of the preferred
stock to $.01 per share from $10.00 per share.
On December 22, 1993, the Company completed the issuance of 1,725,000
units of its securities through a public offering, resulting in net
proceeds of $2,838,454 after offering expenses. Each unit consists of
one share of the redeemable convertible preferred stock and one Class A
redeemable common stock purchase warrant. Each share of preferred stock
is convertible into four shares of the Company's common stock and each
Class A warrant entitles the holder to purchase one share of the
Company's common stock for $1.00 and to receive one Class B redeemable
common stock purchase warrant which entitles the holder to purchase one
share of the Company's common stock for $1.50.
For the three months ended July 31, 1997, preferred stock conversions were as
follows:
Conversion Preferred Stock Common Stock
Date Converted Received
------------- ----------------- --------------
02/04/97 20,000 80,000
02/05/97 2,300 9,200
02/11/97 9,100 36,400
02/12/97 29,900 119,600
02/26/97 6,370 25,480
02/28/97 5,450 21,800
03/12/97 5,000 20,000
04/09/97 1,000 4,000
05/13/97 625 2,500
06/18/97 11,200 44,800
06/24/97 1,350 5,400
----- -----
92,295 369,180
====== =======
The preferred stock has a liquidation preference of $2.00 per share, an
aggregate of $2,714,600.
Note 5 Effective November 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes."
The standard requires the use of the liability method to recognize
deferred income tax assets and liabilities, using expected future tax
rates.
The cumulative effect of adopting the standard and the effect of
applying the standard on the operating statement for the period ended
July 31, 1997 was zero. The tax effects of the net operating loss
carryforwards and temporary differences that give rise to deferred
income tax assets and a corresponding valuation allowance at July 31,
1997 and October 31, 1996 are presented below:
July 31, 1997 October 31, 1996
------------- ----------------
Deferred tax assets:
Net operating loss $1,466,000 $1,498,000
Other, net 8,000 5,800
------------ -----------
Total deferred tax assets 1,474,000 1,503,800
Less: valuation allowance (1,474,000) (1,503,800)
---------- ----------
Net Deferred Tax Asset $ -0- $ -0-
============ ==========
The company entered fiscal 1997 with cumulative net operating loss
carryforwards of approximately $3,800,000 for federal income tax
purposes which expire in the years 2000 to 2010.
In the opinion of management, inflation has not had a material effect
on the operations of the Company.
-7-
Note 6 On March 3, 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128 "Earnings
Per Share" (SFAS No. 128). This pronouncement provides a different
method of calculating earnings per share than is currently used in
accordance with Accounting Board Opinion (APS) No. 15, "Earnings Per
Share." SFAS 128 provides for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to
fully diluted earnings per share. The Company will adopt SFAS No. 128
in 1997 and its implementation is not expected to have a material
effect on the financial statements.
Note 7 Patents
Included in the other assets section of the balance sheet are certain
costs associated with patents, which are capitalized and amortized over
the shorter of their statutory lives or their estimated useful lives
using the straight-line method. The Company periodically evaluated the
recoverability of these assets in accordance with statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-lived Assets and for Long Lived Assets to be Disposed of ("SFAS
121").
-8-
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Fiscal 1997 Third Quarter Compared to Fiscal 1996
Net sales for the initial nine month period of Fiscal 1997 were
approximately $1,272,000, an increase of approximately 206% from the
approximately $618,250 in net sales in the corresponding period of 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 clients. Cost of sales decreased materially
from 60.1% to 35.8% due to management's focus on reducing manufacturing costs
and increasing production efficiencies.
Selling, general and administrative expenses increased from
approximately $618,000 in the prior year's nine months to approximately $702,500
in the corresponding period of fiscal 1997. These increases were non-recurring
items such as legal, accounting and related expenses incurred in updating
registration statements dealing with outstanding public warrants, convertible
preferred stock and contract negotiations. These increases amounted to $86,000.
The Company generated net income of $134,933 before dividend
requirements in this nine-month period of Fiscal 1997 as compared with a net
loss of $327,758 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.
Research and development expenses totaled approximately $203,000 during
the recent nine months, as compared to approximately $249,000 in the prior
year's comparative period, as the Company completed development of hardware and
chemical advancements and moved to completion on its efforts to sweep various
electronic functions into a single microprocessor chip of special design, as
well as development of additional chemical compounds and refinements to its
existing line of scanners and readers.
Liquidity and Capital Resources
The Company's primary need for cash is to support its programs and its
ongoing operating activities. The Company's
9
primary sources of liquidity have historically been cash provided by financing
activities.
The Company had cash and cash equivalents, and investments of $704,320
as at the end of the third quarter of Fiscal 1997 as compared with $840,692 as
at the end of Fiscal 1996, reflecting in a decrease in these categories of
$136,372. 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. It experienced an
increase in trade accounts receivable of $69,352, while inventory increased by
$69,138; the increase in inventory reflected increased production to meet the
sales increases experienced and to also afford the Company a lower cost of unit
production and the ability to meet any future orders on a timely basis. As
indicated in Note 3 to these financial statements, no preferred dividend has
been accrued for the first three quarters of 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 next 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.
10
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 July 31, 1997 and October 1, 1996 is presented below.
Deferred tax assets: July 31, 1997 October 31, 1996
------------- ----------------
Net Operating Loss $1,466,000 $ 1,498,000
Other Net 8,000 5,800
------------- -----------
Total deferred tax assets $1,472,200 1,503,800
Less: Valuation allowance (1,472,200) (1,503,800)
------------- -----------
Net deferred tax asset $ -0- $ -0-
============= ===========
Deferred tax liabilities:
Note payable; rate differential - -
------------- -----------
Net deferred tax liability - $ -
------------- ===========
Net deferred tax $ -0- $ -0-
============= ===========
The Company has cumulative net operating loss carryforwards of
approximately $3,800,000 for federal income tax purposes which expire between
the years 2000 to 2010.
Other
In the opinion of management, inflation has not had a material effect on
the operations of the Company.
11
Part II
Other Information
Item 6. Exhibits
(a) Exhibits
(i) Exhibit 11--Calculation of earnings per Share.
(ii)Exhibit 27--Financial Data Schedules.
12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
has caused this report on Form 10-QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANGSTROM TECHNOLOGIES, INC.
DATE: September 11, 1997 By: /s/ Daniel A. Marinello
----------------------------
Daniel A. Marinello
Chief Executive Officer
and Chief Financial Officer