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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, 2000
[ ] 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 41018
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(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, 2000 were
$1,180,693.
As of January 22, 2001, 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 $3,523,813. 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
22, 2000, 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 October 31, 2000, there were 23,794,598 shares of Common Stock
and 1,266,120 shares of Preferred Stock, outstanding, respectively.
Documents incorporated by reference: NONE
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01/20/01
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
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 Ace 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 word "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" or "Angstrom") was
incorporated under the laws of the State of Delaware on June 3, 1983. The
Company derived its name, Angstrom, from the unit measurement of light
wavelengths.
The Company is engaged in the development, manufacture and sale of
Electro-Optical detection systems, consisting of one or more ultraviolet
fluorescent or phosphorescent scanners and invisible fluorescent or
phosphorescent chemical compounds. The Company has developed and markets several
ultraviolet fluorescent detection scanners of varying prices and sophistication.
These units can be used individually or combined with several other units,
working in unison, to provide statistical process control, multi-target
authentication, quality monitor for manufacturing lines and high speed document
processing. Individually, the unit can determine the presence or absence of the
fluorescent chemicals, the wavelength and concentration of the fluorescent
materials. When the units are combined, a detection grid code is created where
information is read or generated and stored, for a variety of applications. In
addition, the Company produces a number of fluorescent and phosphorescent
chemical compounds, each of which emits its own wavelength and intensity. When
printed, sprayed, embedded, tagged or stamped, the markings, indicia, substrates
and articles are typically colorless or transparent under normal lighting
conditions. This allows for marking over existing
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graphics, documents and articles or on different materials without altering the
appearance or aesthetics of the object. Some of the chemical products that the
Company markets are printing inks, plastic films, over-print, varnishes,
adhesives, and plastic molding compounds. Also, due to the normally invisible
nature of the chemicals, the system can be used in a variety of security
applications and 2nd level coding systems.
The Company's technology involves placing a mark or codes, comprised of
an invisible chemical or chemicals, on a product. These chemical compounds emit
a low level of visible light with a variety of colors or wavelengths when
excited by ultraviolet light source transmitted from an Angstrom Fluorescent
Detector. The scanner detects the visible light and converts it to a distinct
electronic signal. Using one of the many outputs available, an operator can be
notified, and/or an ejection device activated, and/or a programmable controller
or computer can be signaled to take appropriate actions. The detector
performance is not affected by varying background, color, shape, size, or
ambient lighting conditions.
The Company's products have historically been designed for use by the
printing, pharmaceutical and automobile parts manufacturing industries in
connection with label verification, quality and process control, inspection,
alignment, adhesive tracing, safety seal verification, sorting, automatic
identification, matching and inserting. In addition to the foregoing
applications, Angstrom's products are now also used in document security
applications, such as identification of counterfeit currency and high value
documents such as checks, stock certificates, credit cards, and others. Future
potential applications include games, decoration, cosmetics, gaming, arts and
crafts and many others limited only by capacity to imagine and innovate.
PRODUCTS
The Company's products have traditionally consisted of a number of
ultraviolet fluorescent electro-optical scanners and various fluorescent
chemical compounds. The Company has invested substantial funds to continue the
development and improvement of its detection products in order to penetrate new
market sectors. Special emphasis has been placed in low cost first order
authentication devices and chemicals suitable for high volume commercial
applications. These efforts are beginning to attract new customers and new
markets. Examples are the MoneyCheckers, Luminators, Authenticators, and
scanners for the gaming market.
The Company has also developed, improved, and substantially expanded
its chemical compound product line to include phosphorescent chemicals and many
new colors that can be used in leisure, entertainment, decoration, cosmetics,
and commercial markets in addition to document security applications. The
Company believes these low cost, high volume products will
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accelerate its revenue growth and expand its market and customer base.
By broadening its product offerings and focusing on high volume
applications and lowering its product pricing structure, the Company believes it
can transform itself from a niche player to a leading, low cost, high volume,
multi-market product supplier. By repositioning the strategic business targets
to the commercial sectors, the Company should be able to accelerate its new
product introductions due to the fact it no longer has to wait for agency
approvals or industry adaptations. However, it must be noted that the Company is
not abandoning or ignoring the ongoing activities in the Government and
Industrial sectors. Angstrom has continuously improved its services and products
for these sectors and has successfully secured new businesses and customers,
albeit the growth and potential are lower than in the commercial sectors.
Some of the new products introduced in fiscal 2000 included:
1. MoneyChecker(tm): Counterfeit currency detectors that have won several
marquis customers such as McDonald's, Trump Casino, etc.
2. Stock Certificate Authenticator: A revolutionary secured document
authentication scanner that employs all new solid state technology in
conjunction with the Medallion Stamp 2000.
3. Luminator: A powerful, all solid state high performance black light that
has been adapted by several federal and local law enforcement agencies.
4. Authenticators: A key chain size solid-state black light that has begun to
attract notice by commercial as well as novelty businesses.
5. GlowHardtm Products (substantially revamped and expanded): The glow in the
dark paints and varnishes are being distributed nationally and in Canada
for floor finishing and decoration. We plan to broaden the product
offerings to include gaming, games, and entertainment applications.
6. Low cost security laser toner: The Company intends to take this lower cost
product line to the merchant market for both low level document security
applications as well as arts and crafts.
7. Phosphorescent chemicals: Angstrom is currently working with several
companies in cosmetic and novelty applications.
The Company is pleased to report the new products have been extremely
well received in the market place. However volume product shipments are not
projected to occur until March 2001 because of the long lead-time of components
created by the booming electronic high-tech industry. The Company also believes
that by moving high volume production overseas it will significantly reduce cost
and improve profitability.
The Board of Directors along with Mr. Roger Malmrose, then a new Board
Member designate, held a two-day strategic business meeting in mid October 2000
in California to
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comprehensively review our business and develop a strategic direction for the
Company. The Board of Directors has also approved a plan to invest substantial
funds for new product introductions in fiscal 2001.
During fiscal 2000 and fiscal 1999, the Company spent approximately
$217,980 and $161,740, respectively, on research and development of its
products. This represents an increase of 35% over fiscal 1999. The Company feels
it is imperative to continue to invest heavily in R&D and new product
development in order to make the successful transition from a niche product
player to a high volume, fast growing broad band supplier. The Company expects
to see the fruits of these efforts to begin to contribute to both revenue and
profit in the 3rd quarter of fiscal 2001.
MANUFACTURING
The Company's detectors are manufactured by outside subcontractors, in
accordance to the Company's proprietary designs and specifications. Most of
Angstrom's hardware is protected by our patents or are under patent pending
positions. No subcontractor has been granted exclusive retention and the Company
believes that there are numerous alternative sources for securing production of
its products.
Company personnel perform final tests, setup and quality control of the
scanners prior to shipment to customers.
The proprietary chemical compounds are manufactured by a major chemical
manufacturer under a confidentiality agreement, providing protection for the
Company's trade secrets. The custom chemical manufacturer complies with EPA,
NIOSH, and OSHA regulations to the extent such laws are applicable. The Company
believes that there are alternative sources for manufacturing its chemical
compounds and as such is not bound to the arrangement presently in effect. A
strategic supplier partnership with this chemical manufacturer is, however,
strongly implied and practiced since 4th quarter, 1999.
In an effort to continue development and to enhance its chemical
products, the Company employs a research chemist and utilizes the laboratories
and assistance from graduate students at the University of Cincinnati. The
Company also retains a world-renowned professor at the University as a chemistry
consultant. Angstrom is a proud corporate sponsor of the Graduate Program in the
Chemistry Department at the University of Cincinnati. The Company has also
retained several product design and development engineers and technical
consultants for new product development in addition to the services from Interim
President and Chief Executive Officer Louis Liang, and Chief Financial Officer
William J. Ryan. The required source of funds for all R&D and product
development programs are generated by the Company's operating cash flow and from
its cash funds.
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SALES AND MARKETING
During fiscal 2000, sales to one customer accounted for approximately
31% of the Company's sales, with two other customers representing 18% and 10% of
the sales, respectively. No other customer accounted for 10% or more of the
Company's sales. During fiscal 1999, sales to two customers, distinct of the
customers mentioned above, accounted for approximately 44 % of the Company's
sales, with one customer representing 18% and the other customer representing
26%. No other customer accounted for 10% or more of the company's sales. There
can also be no assurance of future revenue from these customers.
Historically, the Company has been technology driven and weak in
Marketing and Sales. There was no full time sales personnel prior to 4th
quarter, fiscal 1999. The Resell and Technology Agreement with Moore Business
had produced little revenue and royalties. Since 1st Quarter, fiscal 2000, the
Company has eliminated the royalty requirement and reduced prices to Moore.
However, these efforts had not increased revenue. Angstrom's new marketing and
sales philosophy was adopted toward the end of fiscal 1999 by hiring a full time
sales person and encouraging all employees to engage in sales activities.
Messrs. Liang and Ryan also contributed part of their commissions to the
employees as incentive bonuses payable quarterly based on revenue received. New
incentive and concession programs have been implemented to attract distributors
and sales representatives. Under the "Win-Win" philosophy, several major catalog
houses and distributors have been signed to promote and sell the Company's new
products. The Company has also actively participated in several floor finishing
trade shows, the National Postal Forum, Security Conference, and the 2000
International Gaming Expo to promote the Company's products. The Company's
employees, including Messrs. Liang and Ryan, also broke new ground by traveling
frequently to actively engage customers and promote sales. Due to these efforts,
an exclusive partnership has been established with Hampton Technologies for the
Medallion Stamp 2000 Stock Certificate security. In addition, several major new
customers were also signed. The Company believes these new customers will
contribute significantly to the revenue beginning 3rd quarter, fiscal 2001.
In fiscal 2000, the Company produced several new product brochures,
market promotion materials and demonstration samples to support marketing and
sales. New domain names related to new products have been acquired. The Company
also plans on creating several new advertisement and marketing campaigns jointly
with its distributors.
During the Board of Directors Strategic Review meeting in California,
the Board of Directors approved a plan to hire additional senior marketing and
sales personnel. The Management Team has interviewed several highly qualified
candidates. Additionally, the Company plans to form strategic partnerships in
different market sectors with selected distributors/marketers on an
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exclusive basis. The Company believes outside marketing partners are key to the
Company's future success. In December 2000, an experienced marketing
professional, Mr. Tony Petrucci, formerly director of marketing with Moore
Business Forms, was hired as the Director of Marketing and Sales to lead the
marketing and sales efforts.
MARKETS
Among the principal industries which presently utilize or constitute
potential clients for the Company's products are the U.S. government (for
documentation, sorting and security applications), pharmaceutical firms (for
labels and bottling), automobile parts manufacturers, and printers. 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 used to
ensure the correct label is placed on the correct pharmaceutical product. In
addition, in the food and drug industries, the Company's products are used to
verify label alignment and safety seal presence.
In the automotive industry, the Company's products are used to identify
correct labels on assembly parts and the detection of the correct quantity of
adhesive presence in sub-assembly components.
In the packaging industry, the Company's products are used to ensure
precise label placement, and in sorting products.
The Company will continue to engage these traditional market sectors
and customers by improving services, enhancing products, broadening product
offerings, developing new applications and reducing prices. As a result of our
employees' efforts and perseverance, the Company has recovered a major customer
that was lost in fiscal 1999. The Company has regained some limited sales to
this customer late in fiscal year 2000 and hopes to see substantial increase in
sales beginning 2nd quarter, fiscal 2001.
In order to successfully transform the Company to a broad band high
volume supplier in the commercial sectors, the Company must have new products
and application support for the new markets and customers. The Company's product
development efforts are focused and aggressive. We have been very actively
engaging potential marketing partners. New markets identified are as follows:
1. Gaming Industry: Both security and new games.
2. Apparel Industry: Brand protections and coding.
3. Cosmetic Industry: Fad and gadgets. Containers, security and brand
protections.
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4. Entertainment and Leisure: Security, decorations, novelties,
collectibles and memorabilia, etc.
5. Financial Industry: Document Security.
Management believes the improved detection and the compact authentication
devices, developed by the Company, have applications in various facets of the
document and brand security industries as well as in the process control field
previously serviced by the Company. Among such new applications, would be the
detection of counterfeit currencies, stock certificates, postage labels, gaming
cards and tickets to various sports and entertainment events.
COMPETITION
The Company competes with a number of companies. In the labeling and
parts identification business, among its competitors are several major sensor
manufacturers that have readers capable of detecting broad (rather than
specific) bands fluorescent signals. However, neither provides application
engineering service or scanning compounds. Angstrom's strength is in its ability
to provide integrated solutions to its customers. The Company also provides
responsive customer and application support. Angstrom is known for its high
performance fluorescent chemicals and detection devices. With the introduction
of low cost phosphorescent chemicals and compact scanners, the Company expects
to command advantages over its bigger competitors.
With respect to document security, the Company's latest model scanners
compete with a number of other products. These products are comprised of
technologies that detect watermarks, fabric threads within the paper, currency
denomination (pattern and image recognition) and paperless electronic documents
and financial transactions. Angstrom believes that its low cost MoneyCheckertm
has advantages over competitors in counterfeiting detection due to its ease of
use, upgradability, cost effectiveness, versatile features and options. The
Luminators have advantages in reliability, durability, higher intensity and
superior battery life. This translates into a lower total cost of ownership in
spite of higher initial cost of the unit.
INTELLECTUAL PROPERTY RIGHTS AND TECHNOLOGY PROTECTION
The Company has trademark registration in the United States for
"Angstrom Technologies, Inc.". The Angstrom trademark was registered on June 23,
1987, and remains in effect through June 23, 2007. The Company has filed for
trademark registrations for MoneyCheckertm, GlowHard and SecurityToner.
Furthermore, the Company has also acquired domain names in glow-hard.com,
moneycheckers.com and moneychecker.net. 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 Company has filed four patent applications with the U.S. Patent
Office during fiscal
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2000. A total of eleven patents are now in the Company's intellectual property
portfolio and six more are pending. Accordingly, the Company anticipates
reliance for the foreseeable future on its patents, on contractual rights, trade
secrets and copyright laws. There can be, however, no assurance that any present
or future patents that may be issued in the Company's favor would necessarily
protect the Company from competition or potential competition.
Pursuant to its Executive Employment Agreement with Messrs. Liang and
Ryan (See "Certain Relationships and Related Transactions"), these individuals
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 to the Company, which is obligated to cover the cost of filing fees and
patent counsel fees. 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 2000 and fiscal 1999, the Company accrued $8,378 and
$3,000, respectively, in royalties pursuant to said employment agreement.
PUBLIC OFFERING AND PREFERRED 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 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 "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 Warrants expired on December 12, 1998.
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
consisting of approximately 2,000 square feet. Such offices are leased for a
period through May 2002 at a cost of approximately $15,132 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.
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ITEM 3. LEGAL PROCEEDINGS
The Company was sued in Boone Circuit on August 1, 2000 by Daniel A.
Marinello. Mr. Marinello was the former Chief Executive Officer and Chief
Financial Officer for the Company. The suit alleges that Mr. Marinello is due
certain royalties from products he allegedly helped develop while employed with
the Company. The Company denies all of Mr. Marinello's claims and intends to
vigorously defend the suit. The Company has reserved $25,000 related to this
claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 6, 1999, the Company held their Annual Meeting for
stockholders. The following matters were submitted for a vote: 1. Election of
Directors. Vivek Dutta, Douglas B. Kroger, Louis Liang and William J. Ryan were
elected to serve until the next meeting. 2. The ratification by the stockholders
regarding the Board granting stock options to Directors, Officers, outside
Directors and the enactment of a Compensation Plan for outside Directors were
approved.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of Common Stock are traded in the over-the-counter market
and are 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 quotations as representing
prices at which sizable transactions could have been or were effected.
The following table sets forth the range of high and low bid prices for
the Common Stock for each quarter during the period 11/2/98 through 1/22/01 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:
Fiscal 1999 High Low
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11/2/98 to 1/29/99 .59 .23
2/1/99 to 4/30/99 .295 .205
5/3/99 to 7/30/99 .247 .16
8/2/99 to 10/29/99 .19 .127
Fiscal 2000 High Low
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11/1/99 to 1/31/00 .255 .12
2/1/00 to 4/28/00 .44 .16
5/1/00 to 7/31/00 .235 .155
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Fiscal 2000(cont'd) High Low
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8/1/00 to 10/31/00 .16 .10
Fiscal 2001 High Low
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11/1/00 to 1/31/00 .115 .10
(through 1/22/01)
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SUMMARY OF OPERATIONS
YEAR-END OCTOBER 31, 2000 ("FISCAL 2000") COMPARED TO YEAR ENDED OCTOBER 31,
1999 ("FISCAL 1999")
Net sales of $1,180,693 for fiscal 2000 reflects an increase of 26.1% from the
$936,587 in net sales in fiscal 1999. This increase in sales was primarily due
to improved revenue stream in the postal project in the first two quarters.
Scanner sales and adhesive applications were also strong throughout the year.
The Company also received revenue generated by new products in the 4th quarter.
Gross profit margin was healthy. The Company realized gross profit of $712,875
in fiscal year 2000 versus $491,607 in fiscal year 1999 representing an
improvement of 45%.
Selling, general and administrative expenses increased only 17% from $420,200 in
fiscal 1999 to $492,776 in fiscal 2000. This was due to Management's continuing
efforts in expense control. Research and Development expenses increased 35% to
$217,980. In spite of the increase, operating income was positive at $2,119 for
fiscal year 2000 versus operating loss of $90,333 for fiscal 1999. Overall, the
Company experienced a net income of $53,722 before dividend for fiscal 2000 as
compared to net loss of $51,145 for fiscal 1999. Included in operating income is
an accrual of $25,000 related to the pending lawsuit, filed against the Company
by its former President and CEO. Both Operating Income and Net Income would have
been noticeably better than reported without this reserve. Continuing its policy
of conserving cash to meet operating requirements, the Company declined to
accrue preferred stock dividend for fiscal 2000. It is important to note that
the financial performance for fiscal 2000 was achieved under an average of 20%
price reduction for our product
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Although we have made solid improvements over last year in most areas,
Management was disappointed to see our quarter to quarter growth slowed in
comparison to the previous three-quarters. The main factor was the softness in
the Postal business. The Company does not expect to see revenue from the Postal
project until 2nd quarter in fiscal 2001 at the earliest. Several new
opportunities with Government agencies continued to experience postponement due
to federal budget impasse. The Company's dependency on the Postal project is a
re-affirmation of the importance to have new products, markets, and customers so
that we will be less dependent on one or two customers. Management continues to
believe the current restructuring direction for the Company is the correct one.
It will take time for the Company's transformation efforts to produce results
that will become contributing factors to our bottom line as we continue to
re-invent ourselves and as new businesses mature.
On the positive side, we continue to experience very positive receptions for our
new products such as the LuminatorTM and MoneyCheckerTM. Angstrom has begun
shipments of these new products and the Stock Certificate scanners towards the
later part of the Quarter just ended. The adaptation of the Luminators by
several law enforcement agencies could lead to additional opportunities in high
performance black light sales for Inspection Stations and commercial
applications. The MoneyCheckertm has been very well received in the market place
and the Company has become a supplier partner to the McDonald's West Division.
The all new, all solid state Stock Certificate scanner employs revolutionary
electro-optical technology that has improved both performance and reliability by
an order of magnitude. This new detector has enabled the Company to conclude an
exclusive partnership agreement with Hampton Technologies in the Medallion Stamp
2000 project.
We continue to manage our general and administrative expenses aggressively,
while substantially increasing our spending in marketing, new product promotions
and R&D, mainly in the MoneyCheckerTM and the Stock Certificate scanner. The
Company is committed to high volume production of the MoneyCheckertm products.
We have been aggressively recruiting highly qualified marketing individuals to
lead our marketing and sales thrust. The Board of Directors has approved funds
from the Company's cash accounts to support these efforts. As a result, an
experienced marketing professional has been hired to direct our marketing and
sales activities.
Our cash, cash equivalent and short-term investment positions remain steady at
$952,221 and Account Receivables continues to be strong at $146,375. There is no
major delinquent account. Inventory has increased slightly due to
work-in-process for the MoneyCheckers and Stock Certificate scanners. Overall,
we are pleased with our healthy balance sheet and we do not anticipate a need to
seek outside financial sources even with the planned new spending in product
introduction and marketing.
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As indicated in Note 4 to these financial statements, no preferred dividend has
been accrued for fiscal 2000 since management has determined to conserve
available funds and maintain the Company's liquidity in light of its needs to
continue development and marketing expenditures.
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. In recent years, the
Company has been able to generate sufficient cash flow to support its operating
activities
The Company had cash, cash equivalents and short term investment of $952,221 at
the end of fiscal 2000 as compared with $968,203 at the end of fiscal 1999. The
Company experienced an increase in trade accounts receivable of $87,088, an
increase in inventory of $22,983 and an increase in accounts payable of $10,082
over fiscal year 1999. The increase in inventory reflects an increase in
work-in-process for the MoneyCheckers and the Stock Certificate scanners.
Prepaid expenses decreased from $13,981 to $9,305, essentially unchanged.
As indicated in Note 4 to these financial statements, no dividend has been
accrued for fiscal 2000 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 October 31,
2001, the end of its current fiscal year. 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
The Company has cumulative net operating loss carry forwards of
approximately $3,300,000 for federal income tax purposes, which expire between
the fiscal years 2001 to 2019.
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.
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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:
Name Age Title
Louis Liang 56 Interim President/CEO & Director
William J. Ryan 61 Interim Chief Financial Officer, Executive
Vice-President & Director
Douglas B. Kruger 57 Secretary & Director
Vivek Dutta 52 Director & Chairman of the
Compensation Committee
Roger Malmrose 42 Director
Louis Liang has been Interim Chief Executive Officer and President
since August 2, 1999. Mr. Liang has been a director since February 1, 1994 and
serving as a consultant to the Company since May 1993. He was also Executive
Vice President - Strategic Business from May 1994 to August 1999 in addition to
serving as an unpaid consultant and Director to the Company from September 1995
to August 1999. Mr. Liang has also been active as a technical, business,
marketing and management consultant to companies in the Silicon Valley since
1993. He has been employed, since 1972, in various capacities in the electronics
and semiconductor industries, including operations, engineering, new venture and
business development matters for VLSI Technology, Intel, Fairchild, Raychem and
National Semiconductor. Prior thereto, he engaged in research and development in
the Aerospace Industry. Mr. Liang has a BA and a MS degrees in Applied Physics
from the University of California, San Diego and Santa Barbara campuses, and is
a holder of over twenty-five (25) patents.
William J. Ryan has been Interim Chief Financial Officer and Executive
Vice President Operations since August 2, 1999. Mr. Ryan has been a Director
since February 1, 1994 and was also Executive Vice-President -Operations from
May 1994 to August 1999. Mr. Ryan has been active as an Executive Management
Consultant to several high technology companies since 1992. His responsibilities
include market strategy development, product design and implementing cost
effective manufacturing processes. He also served as Director to E-Tech Systems,
Inc. from 1996
14
16
until the Company was sold in 2000. 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 BS degree in Mechanical Engineering from the
University of Vermont and has published technical papers and spoken extensively
at executive management and technical management seminars. He is a holder of
over 20 patents.
Douglas B. Kruger has been a director since November 1, 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 as an executive with the International Procurement
Group. Currently, Mr. Kruger is also a paid business consultant to the Company.
Vivek Dutta has been a Director and Chairman of the Compensation
Committee since September 1999. Dr. Dutta has been a Consultant to the
electronics and semiconductor industries since April 1999 and from 1989-1992.
Dr. Dutta is also currently the CEO of Advanced Packaging Solutions (APS), a
company headquartered in the Republic of Singapore. He was most recently, Vice
President-Worldwide Marketing and Sales for Johnson Matthey. Since 1984 he has
been employed in various capacities in engineering, manufacturing, business
development and marketing for Cirrus Logic, Fairchild and National
Semiconductors. From 1972 to 1981, he worked for Nippon Steel both in Japan and
Brazil. At present, he also serves as an Advisor to the Board of the Pacific
Institute (MITI Think Tank). He is fluent in Japanese, Portuguese, and Indian.
He is an expert on Japanese manufacturing and management systems and is active
in various professional societies. Dr. Dutta received his MS and Ph.D. degrees
in Materials Sciences from the University of California at Berkeley and was a
graduate from University of Roorkee in India. He is a holder of six (6) patents
and has twenty-nine (29) publications in various journals and international
conferences.
Roger Malmrose joined the Board of Directors on January 5, 2001. Mr.
Malmrose is currently Vice President, Cisco Account Management at Flextronics.
Prior thereto, he was Vice President of Sales, Western Region for Benchmark
Electronics, and Business Development Manager at Cisco. Mr. Malmrose has been
employed in the High Tech industry since 1984 in various marketing and sale
management positions. He has worked at Flip Chip Technologies, Cirrus Logic,
Western Digital, William G. Ouchi Consultants, and Hewlett Packard. Mr. Malmrose
received his Juris Doctorate with concentrations in business and economics from
Stanford Law
15
17
School in 1994, a MBA from UCLA in 1989 and a BS degree in Computer Science with
Minor in English from Brigham Young University in 1984. He is a member in the
Texas State Bar. Mr. Malmrose speaks Spanish, Italian, and Mandarin Chinese.
Messrs. Liang, Ryan, Kruger and Dutta were 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. On August 2, 1999, Daniel
Marinello resigned as President, CFO, and CEO of the Company. During the meeting
of September 8, 1999, Dr. Vivek Dutta was asked to join the Board of Directors
by unanimous consent. Mr. Malmrose was asked to join the Board of Directors by
unanimous consent on January 5, 2001. The Company's executive officers are
appointed annually by the Company's directors. Each of the Company's officers
continues 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 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.
ITEM 10. EXECUTIVE COMPENSATION
The following Summary Compensation Table shows compensation paid by the
Company for services rendered from August 2, 1999 through October 31, 1999 and
during fiscal 2000. The table also reflects commissions and options paid to
former Chief Executive Officer, Chief Financial Officer and President Daniel
Marinello during fiscal 1998, and fiscal 1999 through August 2, 1999. No other
executive officers of the Company received salary and bonus compensation, which
exceeded $100,000 in such fiscal years.
SUMMARY COMPENSATION TABLE
Name and All other
Principal Position Year Salary Options compensation
Louis Liang 2000 ------- 350,000 $83,097 (1)
Interim President and
Chief Executive Officer, 1999 ------- 300,000 $29,761 (1)
(from August)
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18
Daniel Marinello 1999 ------- $103,781(1)
President and (through July)
CEO, CFO
1998 ------- 150,000 $205,914 (1)
(1) Comprised of commissions and royalties.
EXECUTIVE EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND MESSRS. LIANG AND RYAN
The Company and Messrs. Liang and Ryan, its two highest-ranking
executive officers, as a team (the "Team"), are parties to an Executive
Employment Agreement (the "Employment Agreement"). The initial term of the
Employment Agreement was a three-year period commencing November 1, 1994 and
ending October 31, 1997, for the team consisting of Liang, Ryan and Marinello.
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 sixty (60) days
prior to the expiration of any renewal term; provided, however, that the Company
may terminate the Employment Agreement in the event that its net profits after
taxes during the preceding twelve (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 twelve (12) month period, or its sales do not show at
least a fifteen percent (15%) increase between periods.
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 10% of the first million dollars in pre-tax
profits is apportioned 6.25% and 3.75%, respectively, and maintained in the same
ratio, as such percentage may be reduced.
Beginning August 2, 1999 the gross sales component of compensation is
divided among Messrs. Liang and Ryan in the amounts of 10% and 3.0%
respectively. The Team has decided to contribute the remaining 2% to employees
as an incentive for their active participation in promoting sales for the
Company. Mr. Liang has also agreed to share a certain percentage of his
commissions with certain consultants as incentives to promote marketing and
sales of the Company's products.
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
17
19
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. Ryan and Liang in the amounts of 2-1/2% and 2-1/2%, respectively. Mr.
Liang continues to receive royalty payments since he consults continuously,
unpaid, for the Company on intellectual property matters and serves as a
Director, unpaid, to the Company. 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 (Liang, Marinello and Ryan) 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, payable to the Team, from products sold utilizing such
patents. During fiscal 2000 and fiscal 1999, aggregate royalties of
approximately $8,378 and $3,000, respectively, were paid to the Team pursuant to
the Employment Agreement.
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. A stock
option committee of the Board of Directors administers the Plans. No options
were granted under the Plans in fiscal 1999 or fiscal 2000.
1994 STOCK OPTION PLAN
Under the Company's 1994 Stock Option Plan (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"). 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. The term of any option may not exceed ten years from the date of
grant. In fiscal 2000 and fiscal 1999, 1,030,000 options and 645,000 options,
respectively, were granted under the 1994 Plan to certain directors, employees
and consultants.
On February 2, 2000, the Board granted 700,000 incentive stock options
to Louis Liang for his commitment to stay on as the Interim President and CEO
until February 1, 2001 and as a Director until at least February 1, 2002 if
re-elected or when a permanent President and CEO is hired. Of the 700,000
shares, 350,000 shares are immediately exercisable and the remaining 350,000
shares become exercisable only when certain performance criteria are met. Mr.
Liang
18
20
has agreed, at the request of the Board of Directors on January 5, 2001, to
continue to serve as Interim President and CEO, without additional compensation
other than the extension of his Performance Stock Option Grant, beyond February
1, 2001 and until a new President and CEO is hired. No other Officers and
Directors have been granted any stock options.
OPTION GRANTS IN FISCAL 2000
No other options were granted to the executive officer in fiscal 2000,
except those listed above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTIONS
VALUES
The following paragraph sets forth information concerning exercise of options
and all unexercised options (whether or not issued under one of the Company's
Plans) held by the named executive officer at October 31, 2000.
There was no exercise of stock options by Louis Liang during fiscal 2000. The
table under Item 11 more accurately sets out the number of unexercised options
held by the named executive officer, Louis Liang.
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, 2000 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.
19
21
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
Kenneth J. Koock 3,309,846(2) 13.9%
2 Robin Hill Road
North Caldwell, NJ 07006
Louis Liang (3) 1,997,000(4) 8.4%
William J. Ryan (3) 1,300,000(5) 5.4%
Douglas Kruger (3) 675,000(6) 2.8%
Vivek Dutta (3) 102,000(7) Less than 1%
All officers and directors as a group 4,154,000(8) 17.5%
(1) Based on a total of 23,794,598 shares of Common Stock issued and
outstanding as of October 31, 2000.
(2) All shares are owned directly, except for 50,000 shares held by
custodian for a family member of Mr. Koock and 100,000 shares owned by
Mr. Koock's spouse which are included in this total; he disclaims
beneficial ownership of such share as well as of any shares which may
be owned by other officers and/or stockholders of M.H. Meyerson & Co.
(3) Address is c/o of the Company.
(4) Includes presently exercisable options to acquire 1,650,000 shares.
(5) Includes presently exercisable options to acquire 1,175,000 shares.
(6) Includes presently exercisable options to acquire 275,000 shares.
(7) Includes presently exercisable options to acquire 50,000 shares.
(8) Includes 3,150,000 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.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since November 1, 1994 Messrs. Liang and Ryan have been employed under
an Employment Agreement. (See "Executive Compensation"). During fiscal 2000 and
fiscal 1999,
20
22
the Company paid aggregate commissions of approximately $112,000 and $138,000,
respectively, to certain key executives of the Company pursuant to the
Agreement.
Messrs. 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 in addition to
participating in the promotion, marketing and sales of the Company's products.
While the applications are filed in the names of the individuals, 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 paid consulting fees of approximately $28,300 in fiscal
2000 as compared with $8,000 in fiscal 1999.
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.
On September 8, 1999, the Board of Directors adopted a compensation
package for outside directors in order to attract highly qualified candidates to
serve on the board. This resolution was subsequently approved by the
shareholders on December 6, 1999.
On January 5, 2001, the Board of Directors passed a resolution to
increase the number of the members of the Board to seven (7) with a minimum of
five (5) filled at any given time.
21
23
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report:
1. Financial Statements:.....................................Page
Report of Independent Auditors..................... F-1
Balance Sheet as of October 31, 2000............... F-2
Statements of Operations for the Years
ended October 31, 2000 and 1999........... F-4
Statements of Capital for the Years
ended October 31, 2000 and 1999........... F-5
Statements of Cash Flows for the Years
ended October 31, 2000 and 1999........... F-6
Notes to Financial Statements...................... F-7
2. Exhibits Filed Herewith
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
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.
24
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
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.
The following were filed as exhibits to the Company's annual report on
Form 10-KSB for its year ending October 31, 1997 and are incorporated herein by
reference.
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.
3. Reports on Form 8-K:
There were no reports filed on Form 8-K during Fiscal
2000.
25
SIGNATURES
Pursuant to the requirements of Section 12 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.
Date: 1/26/2001 ANGSTROM TECHNOLOGIES, INC.
------------
/s/ Louis Liang
-------------------------------
By: Louis Liang
Louis Liang, Interim President
Chief Executive Officer and Director
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.
SIGNATURES TITLE DATE
/s/ Louis Liang Interim President, Chief 1/26/2001
----------------------- Executive Officer and ------------------
Louis Liang Director
/s/ William J. Ryan Interim Chief Financial 1/26/2001
----------------------- Officer, Executive Vice- ------------------
William J. Ryan President and Director
/s/ Douglas B. Kruger Secretary and Director 1/26/2001
----------------------- ------------------
Douglas B. Kruger
/s/ Vivek Dutta Chairman of the 1/26/2001
----------------------- Compensation Committee ------------------
Vivek Dutta and Director
/s/ Roger Malmrose Director 1/26/2001
----------------------- ------------------
Roger Malmrose
26
Financial Statements
Angstrom Technologies, Inc.
Years ended
October 31, 2000 and 1999
with Report of Independent Auditors
27
Angstrom Technologies, Inc.
Financial Statements
Years ended October 31, 2000 and 1999
CONTENTS
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
28
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, 2000, and the related statements of operations, capital and cash
flows for each of the two years in the period ended October 31, 2000. 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 auditing standards generally accepted
in the United States. 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, 2000, and the results of its operations and its cash flows for each
of the two years in the period ended October 31, 2000, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Cincinnati, Ohio
December 14, 2000
F-1
29
Angstrom Technologies, Inc.
Balance Sheet
October 31, 2000
Assets
Current assets:
Cash and cash equivalents $ 409,248
Short-term investments 542,973
Accounts receivable 146,375
Inventories:
Finished goods 98,841
Work in process 47,587
Raw materials and parts 661,366
----------
807,794
Less: inventory reserve 20,000
----------
787,794
Prepaid expenses 9,305
----------
Total current assets 1,895,695
Furniture and equipment, at cost 190,608
Less: accumulated depreciation 172,568
----------
Net furniture and equipment 18,040
Patents, less accumulated amortization of $35,001 152,804
----------
Total assets $2,066,539
==========
F-2
30
Angstrom Technologies, Inc.
Balance Sheet (continued)
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable $ 30,718
Accrued liabilities 101,460
-----------
Total current liabilities 132,178
Capital:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
1,266,120 issued and outstanding (liquidation preference
of $2.00 per share) 2,082,398
Common stock, $.01 par value; 45,000,000 shares authorized,
23,794,598 shares issued and outstanding 237,946
Additional paid in capital 5,132,164
Accumulated deficit (5,518,147)
-----------
Net capital 1,934,361
-----------
Total liabilities and capital $ 2,066,539
===========
See accompanying notes.
F-3
31
Angstrom Technologies, Inc.
Statements of Operations
YEAR ENDED OCTOBER 31,
2000 1999
---------------------------------
Net sales $ 1,180,693 $ 936,587
Cost of sales 467,818 444,980
------------ ------------
Gross profit 712,875 491,607
Operating expenses:
Selling, general and administrative expenses 492,776 420,200
Research and development expense 217,980 161,740
------------ ------------
Total operating expenses 710,756 581,940
------------ ------------
Operating income (loss) 2,119 (90,333)
Other income (expense):
Interest expense (89) (2,900)
Interest income 13,476 30,742
Dividend income 31,627 11,346
Other income 8,708 -
------------ ------------
Total other income (expense) 53,722 39,188
------------ ------------
Net income (loss) 55,841 (51,145)
Less dividend requirement on preferred stock (202,579) (202,579)
------------ ------------
Net loss applicable to common stock $ (146,738) $ (253,724)
============ ============
BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.01) $ (0.01)
============ ============
Weight average number of shares outstanding 23,794,598 23,724,864
============ ============
See accompanying notes.
F-4
32
Angstrom Technologies, Inc.
Statements of Capital
Preferred Stock Common Stock Additional
------------------------- ------------------------- Paid in Accumulated Net
Shares Amount Shares Par Value Capital Deficit Capital
---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at October 31, 1998 1,294,230 $ 2,128,780 23,637,158 $ 236,372 $ 5,059,732 $(5,522,843) $ 1,902,041
Conversion of preferred stock (28,110) (46,382) 112,440 1,124 45,258 - -
Exercise of stock options - - 45,000 450 5,175 - 5,625
Net loss - - - - - (51,145) (51,145)
---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at October 31, 1999 1,266,120 2,082,398 23,794,598 237,946 5,110,165 (5,573,988) 1,856,521
Modification of stock options - - - - 21,999 - 21,999
Net income - - - - - 55,841 55,841
---------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at October 31, 2000 1,266,120 $ 2,082,398 23,794,598 $ 237,946 $ 5,132,164 $(5,518,147) $ 1,934,361
========== =========== =========== =========== =========== =========== ===========
See accompanying notes.
F-5
33
Angstrom Technologies, Inc.
Statements of Cash Flows
YEAR ENDED OCTOBER 31
OPERATING ACTIVITIES 2000 1999
---- ----
Net income (loss) $ 55,841 $ (51,145)
Adjustment to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 19,135 45,984
Changes in operating assets and liabilities:
Accounts receivable (87,088) 150,161
Inventory (22,983) 75,274
Prepaid expenses 4,676 8,607
Accounts payable 10,082 (22,548)
Accrued liabilities 48,613 (18,580)
Customer deposits (27,535) 27,534
--------- ---------
Net cash provided by operating activities 741 215,287
INVESTING ACTIVITIES
Purchases of furniture and equipment (11,886) (4,902)
Changes in short-term investments (31,627) (511,346)
Capitalization of patents (20,925) (23,975)
--------- ---------
Net cash used in investing activities (64,438) (540,223)
FINANCING ACTIVITIES
Exercise of stock options - 5,625
Modification of stock options 21,999 -
Principal repayments of debt (5,911) (33,100)
--------- ---------
Net cash provided by (used in) financing activities 16,088 (27,475)
--------- ---------
Net decrease in cash and cash equivalent (47,609) (352,411)
Cash and cash equivalents at beginning of year 456,857 809,268
--------- ---------
Cash and cash equivalents at end of year $ 409,248 $ 456,857
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ 89 $ 2,900
Conversion of preferred stock to common stock $ - $ 46,382
See accompanying notes.
F-6
34
Angstrom Technologies, Inc.
Notes to Financial Statements
October 31, 2000 and 1999
NOTE 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 eleven 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 instruments with a maturity of three months or less at
date of purchase to be cash equivalents.
F-7
35
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE
Calculations of net loss per common share are based on the weighted
average number of shares outstanding during each year. The weighted
average number of shares outstanding was 23,794,598 for 2000 and
23,724,864 for 1999.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Compensation cost for stock
options, if any, is measured as the excess of the quoted market price
of the Company's stock at the date of grant over the amount an employee
must pay to acquire the stock. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee
compensation plans. The Company has elected to remain on its current
method of accounting as described above, and has adopted the disclosure
requirements under SFAS No. 123.
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.
NOTE 2 INVESTMENTS
All investments at October 31, 2000, consist of a money market fund
which is an Institutional Fund comprised of U. S. Government and
agency issues, $54,297, commercial paper, $108,595, repurchase
agreements, $32,578, certificates of deposit, $124,884, bank and
corporate notes, $168,322, and time deposits, $54,297. The investments
are classified as held to maturity. All investments inside the fund
mature within one year and are carried at cost which approximates
market price at October 31, 2000.
See accompanying notes.
F-8
36
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
NOTE 3 ACCRUED LIABILITIES
At October 31, 2000 accrued liabilities are comprised of the following:
2000
----------------
Accrued litigation $ 25,000
Accrued professional fees 28,000
Accrued commissions 24,657
Accrued royalties 8,378
Accrued vacation 6,651
Accrued salaries 8,774
----------------
$ 101,460
================
NOTE 4 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 2000 and 1999, 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, 2000
($1,329,351) and 1999 ($1,126,772), in arrears. No dividend has been
accrued for the year ended October 31, 2000 and 1999. The amount that
would have been recorded at October 31, 2000 and 1999, if a dividend
had been declared, would have been $202,579 each year. The preferred
stock is subject to redemption at the Company's option at $2.00 per
share plus any unpaid cumulative dividends with 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.
See accompanying notes.
F-9
37
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
NOTE 5 LEASES
Minimum future rental payments under commitments for noncancelable
operating leases in effect at October 31, 2000, principally for
facilities is:
2001 $15,132
2002 15,132
2003 6,305
-------
$36,569
=======
Total rent expense under operating leases was $34,779 and $25,509 for
the years ended October 31, 2000 and 1999, respectively.
NOTE 6 RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to expense during the fiscal
years ended October 31, 2000 and 1999 were $217,980 and $161,740,
respectively.
NOTE 7 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 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.
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").
See accompanying notes.
F-10
38
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
NOTE 7 STOCK OPTION PLANS (CONTINUED)
At October 31, 2000, 6,800,000 shares of common stock are reserved for
issuance under the Plans.
Options expire through 2010 based upon the date of grant. Changes in
options outstanding under the Plans are as follows:
WEIGHTED
AVERAGE STOCK OPTION
SHARES EXERCISE PRICE PRICE RANGE
--------------- ---------------- -----------------
Balance at October 31, 1998 3,380,000 $ 0.14 $0.01 to $0.44
Granted 645,000 0.17
Exercised (45,000) 0.13
--------------- ----------------
Balance at October 31, 1999 3,980,000 0.15 $0.01 to $0.44
Granted 1,030,000 0.14
Canceled (900,000) 0.13
Forfeited (85,000) 0.14
--------------- ----------------
Balance at October 31, 2000 4,025,000 $ 0.14 $0.01 to $0.44
=============== ================
The weighted-average fair value of options granted was $0.09 in 2000
and $0.11 in 1999 using the Black-Scholes option pricing model. The
weighted-average remaining contractual life of the options outstanding
as of October 31, 2000 was 4.48. The weighted-average exercise price of
3,515,000 options exercisable as of October 31, 2000 was $0.14.
As permissible under Statement of Financial Accounting Standards No.
123, the Company accounts for stock options granted to employees as
prescribed by Accounting Principles Board Opinion No. 25, which
recognizes compensation cost based upon the intrinsic value of the
equity award. The option price under the Plans equals or exceeds the
fair market value of the common shares on the date of the grant and,
accordingly, no compensation cost have been recognized for stock
options granted to employees.
Compensation expense recorded by the Company for the stock options
awarded to non-employees and for award modifications was $26,499 in
2000.
See accompanying notes.
F-11
39
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
NOTE 7 STOCK OPTION PLANS (CONTINUED)
The following table represents pro-forma net loss per share had the
Company elected to account for the options under the fair-value-based
method. In estimating the pro-forma compensation expense for each
option granted during 2000 and 1999, the Company used the Black Scholes
option pricing model, a risk-free interest rate of 7% and 8%,
respectively, expected dividend yield of zero, expected option lives of
1-10 years and 5 years, respectively and expected volatility of 79.4%
and 51.80%, respectively.
2000 1999
------------ ------------
Net loss applicable to common stock as reported $ (146,738) $ (253,724)
Pro-forma net loss (173,006) (134,924)
Net loss per common share as reported (0.01) (0.01)
Pro-forma net loss per common share (0.01) (0.01)
NOTE 8 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, 2000 is
presented below:
Deferred tax assets:
Net operating loss $ 1,297,800
Other, net 13,100
-------------
Total deferred tax assets 1,310,900
Less: valuation allowance (1,310,900)
-------------
Net deferred tax asset $ -
=============
The Company has cumulative net operating loss carryforwards of
approximately $3,300,000 for federal income tax purposes which expire
in the years 2001 to 2018.
See accompanying notes.
F-12
40
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
NOTE 8 INCOME TAXES (CONTINUED)
The reconciliation of income tax at the U.S. Federal statutory rate and
applicable state tax rates to income tax expense is:
YEAR ENDED OCTOBER 31
----------------------------
2000 1999
Tax at U.S. statutory rate and applicable state tax rates $ 22,100 $ (18,000)
Tax benefit of net operating loss carryforward (22,100) -
Loss for which benefit not provided - 18,000
--------- ----------
Actual tax provision $ - $ -
========= ==========
NOTE 9 RELATED PARTY TRANSACTIONS
During the fiscal year ended October 31, 2000, the Company paid
approximately $112,000 ($138,000 in 1999) in commissions to certain key
executives of the Company in accordance with the employment agreements
with the executives which provides that the executives receive an
aggregate of 15% of eligible 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 $28,300 in 2000 ($8,000 in 1999) to various members of
the Board of Directors and/or Corporate Officers or to entities
controlled by them.
The Company is required to assign to certain executives a 1/3rd
interest in any patents or other intellectual property created by the
executives which is used in the Company's business. The Company is
required to pay the executives 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 executives 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, 2000 the Company accrued royalties of
approximately $8,378 to the executives ($3,000 in 1999).
See accompanying notes.
F-13
41
Angstrom Technologies, Inc.
Notes to Financial Statements (continued)
NOTE 10 SIGNIFICANT CUSTOMERS
Customers in excess of 10% of net sales for each respective year is as
follows:
Year ended October 31,
-------------------------------
2000 1999
-------------- --------------
Customer A 2% 18%
Customer B 0% 26%
Customer C 31% 0%
Customer D 18% 0%
Customer E 10% 0%
NOTE 11 BASIC AND DILUTED LOSS PER SHARE
The computation of basic and diluted loss per share is shown below:
YEAR ENDED OCTOBER 31
---------------------------------
2000 1999
------------ ------------
Numerator:
Net income (loss) $ 55,841 $ (51,145)
Preferred stock dividend requirement (202,579) (202,579)
------------ ------------
Numerator for basic loss per
share - net loss applicable to common stock $ (146,738) $ (253,724)
============ ============
Denominator:
Denominator for basic and diluted loss per share - weighted
average shares outstanding 23,794,598 23,724,864
============ ============
Basic and diluted loss per share $ (0.01) $ (0.01)
============ ============
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 5,064,480 shares at October
31, 2000 and 1999 and options outstanding of 4,025,000 and 3,980,000 at
October 31, 2000 and 1999, respectively.
See accompanying notes.
F-14