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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission file number: 0-12646
ANGSTROM TECHNOLOGIES, INC.
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(Name of small business issuer in its charter)
Delaware 31-1065353
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1895 Airport Exchange Boulevard, Erlanger, Kentucky 41018
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(Address of principal executive offices, including zip code)
(606) 282-0020
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of October 31, 2000, there were 23,794,598 shares of Common Stock and
1,266,120 shares of Preferred Stock, outstanding, respectively.
Transitional Small Business Disclosure Format: Yes No X
--- ---
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INDEX
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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 12
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Angstrom Technologies, Inc.
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Balance Sheets
--------------
JULY 31, OCTOBER 31,
-------- -----------
2001 2000
---- ----
(UNAUDITED) (NOTE)
ASSETS
Current assets:
Cash and cash equivalents $ 534,746 $ 409,248
Short-term investments -- 542,973
Accounts receivable, no allowance necessary 143,826 146,375
Advances to suppliers 33,371 --
Inventories:
Finished goods 128,415 98,841
Work in process -- 47,587
Raw materials and parts 594,673 661,366
---------- ----------
723,088 807,794
Less: inventory reserve -- 20,000
---------- ----------
723,088 787,794
Prepaid expenses 13,503 9,305
---------- ----------
Total current assets 1,448,534 1,895,695
Furniture and equipment, at cost 218,408 190,608
Less: accumulated depreciation 180,854 172,568
---------- ----------
Net furniture and equipment 37,554 18,040
Patents, less accumulated amortization of $42,278
and $35,001, respectively 172,687 152,804
---------- ----------
Total assets $1,658,775 $2,066,539
========== ==========
NOTE: The balance sheet at October 31, 2000 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.
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Angstrom Technologies, Inc.
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Balance Sheets (continued)
--------------------------
JULY 31, OCTOBER 31,
-------- -----------
2001 2000
---- ----
(UNAUDITED) (NOTE)
LIABILITIES AND CAPITAL
Current liabilities:
Accounts payable $ 38,363 $ 30,718
Accrued liabilities 80,146 101,460
----------- -----------
Total current liabilities 118,509 132,178
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 2,082,398
Common stock, $.01 par value; 45,000,000
shares authorized, 23,794,598 shares issued
and outstanding 237,946 237,946
Additional paid in capital 5,132,164 5,132,164
Accumulated deficit (5,912,242) (5,518,147)
----------- -----------
Net capital 1,540,266 1,934,361
----------- -----------
Total liabilities and capital $ 1,658,775 $ 2,066,539
=========== ===========
NOTE: The balance sheet at October 31, 2000 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.
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Angstrom Technologies, Inc.
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Statements of Operations
------------------------
(Unaudited)
-----------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
JULY 31, JULY 31, JULY 31, JULY 31,
-------- -------- -------- --------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $ 163,642 $ 262,369 $ 449,466 $ 987,812
Cost of sales 76,490 155,741 282,450 361,405
------------ ------------ ------------ ------------
Gross profit 87,152 106,628 167,016 626,407
Selling, general and
administrative expenses 118,995 100,929 382,387 347,114
Research and development
expense 76,939 70,692 204,262 205,892
------------ ------------ ------------ ------------
Operating income (loss) (108,782) (64,993) (419,633) 73,401
Other income (expense):
Interest expense -- -- -- (89)
Interest income 3 3,777 3,810 9,585
Dividend income 4,607 8,234 18,204 22,950
Other income 351 6,838 3,524 6,838
------------ ------------ ------------ ------------
4,961 18,849 25,538 39,284
------------ ------------ ------------ ------------
Net income (loss) (103,821) (46,144) (394,095) 112,685
Less dividend requirement on
preferred stock (50,644) (50,644) (151,934) (151,934)
------------ ------------ ------------ ------------
Net loss applicable to
common stock $ (154,465) $ (96,788) $ (546,029) $ (39,249)
Net loss per common share $ (0.01) $ (0.00) $ (0.02) $ (0.00)
============ ============ ============ ============
Weighted average number of
shares outstanding 23,794,598 23,794,598 23,794,598 23,794,598
============ ============ ============ ============
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Angstrom Technologies, Inc.
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Statements of Cash Flows
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(Unaudited)
-----------
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------ ------------------------
JULY 31, JULY 31, JULY 31, JULY 31,
OPERATING ACTIVITIES 2001 2000 2001 2000
--------- --------- --------- ---------
Net income (loss) $(103,821) $ (46,144) $(394,095) $ 112,685
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 7,037 4,629 15,563 14,532
Changes in operating assets
and liabilities:
Accounts receivable 6,178 87,847 2,549 (58,705)
Advances to suppliers (33,371) -- (33,371) --
Inventory 3,462 34,210 64,706 (12,397)
Prepaid expenses (9,037) (2,638) (4,198) (3,901)
Accounts payable (30,853) (9,367) 7,645 519
Accrued liabilities 1,387 5,670 (21,314) 18,115
Customer deposits -- -- -- (27,534)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities (159,018) 74,207 (362,515) 43,314
INVESTING ACTIVITIES
Purchases of furniture and equipment (3,617) (2,095) (27,800) (6,436)
Changes in short-term investments -- (8,235) 542,973 (22,950)
Capitalization of patents (6,580) (1,315) (27,160) (12,875)
--------- --------- --------- ---------
Net cash provided by (used in)
investing activities (10,197) (11,645) 488,013 (42,261)
FINANCING ACTIVITIES
Principal repayments of long-term debt -- -- -- (5,911)
--------- --------- --------- ---------
Net cash used in financing activities -- -- -- (5,911)
--------- --------- --------- ---------
Net increase (decrease) in cash (169,215) 62,562 125,498 (4,858)
Cash and cash equivalents at
beginning of period 703,961 389,437 409,248 456,857
--------- --------- --------- ---------
Cash and cash equivalents at
end of period $ 534,746 $ 451,999 $ 534,746 $ 451,999
========= ========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest $ -- $ -- $ -- $ 89
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ANGSTROM TECHNOLOGIES, INC.
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NOTES TO FINANCIAL STATEMENTS
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(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, 2001 is not
necessarily indicative of the results that may be expected for the
year ended October 31, 2001. 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, 2000.
Note 2 The preferred stock issued December 22, 1993 provided for an annual
cumulative dividend to be paid on November 1st each year. Management
has determined that available funds would be more prudently utilized
in its ongoing research and development efforts and as a result no
accrual or payment of dividend will be made until such time as
sufficient cash flows are generated from operations. Management
intends to hold the dividend payable as of October 31, 2000
($1,329,351) and 1999 ($1,126,772), in arrears. No dividend was
accrued for the years ended October 31, 2000 and 1999. The amount that
would have been accrued at October 31, 2000 and 1999, if a dividend
had been recorded, would have been $202,579 each year ($.16 per
preferred stock share outstanding at November 1, 2000 and 1999). No
dividend has been accrued for the nine month period ended July 31,
2001. The amount that would have been accrued at July 31, 2001 and
2000, if a dividend had been recorded, would have been $ 151,934 each
year.
Note 3 On December 22, 1993, the Company completed the issuance of 1,725,000
units of its securities through a public offering, resulting in net
proceeds of $2,838,454 after offering expenses. Each unit consists of
one share of the redeemable convertible preferred stock and one Class
A redeemable common stock purchase warrant. Each share of preferred
stock is convertible into four shares of the Company's common stock.
The Class A purchase warrant expired on December 12, 1998. There were
no preferred stock conversions for the nine months ended July 31,
2001. The preferred stock has a liquidation preference of $2.00 per
share, an aggregate of $2,532,240.
Note 4 Patents included in the other assets section of the balance sheet are
certain costs associated with patents, which are capitalized and
amortized over the shorter of their statutory lives or their estimated
useful lives using the straight-line method. The Company periodically
evaluates the recoverability of these assets in accordance with
Statement of Financial Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of (SFAS #121)."
Note 5 Earnings per common share are calculated based upon a weighted average
of shares outstanding after giving effect to the preferred dividend
requirements.
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ANGSTROM TECHNOLOGIES, INC.
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
(UNAUDITED)
-----------
Note 6 The computation of basic and diluted loss per share is shown below:
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- ------------------------------
JULY 31, JULY 31,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Numerator:
Net income (loss) $ (103,821) $ (46,144) $ (394,095) $ 112,685
Preferred stock dividend requirement (50,644) (50,644) (151,934) (151,934)
------------ ------------ ------------ ------------
Numerator for basic and diluted loss per
share - net loss applicable to common
stock after assumed conversion $ (154,465) $ (96,788) $ (546,029) $ (39,249)
============ ============ ============ ============
Denominator:
Denominator for basic and diluted loss per
share - weighted average shares outstanding 23,794,598 23,794,598 23,794,598 23,794,598
============ ============ ============ ============
Basic and diluted loss per share $ (0.01) $ (0.00) $ (0.02) $ (0.00)
============ ============ ============ ============
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 July
31, 2001 and 2000 and options outstanding of 4,225,000 and 3,295,000
at July 31, 2001 and 2000, respectively.
Note 7 The tax effects of the net operating loss carryforwards and temporary
differences that give rise to deferred income tax assets and a
corresponding valuation allowance at July 31, 2001 and October 31,
2000 are presented below:
JULY 31, October 31,
2001 2000
----------- -----------
Deferred tax assets:
Net operating loss 1,281,500 1,297,800
Other, net 14,500 13,100
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Total deferred tax assets 1,296,000 1,310,900
Less: valuation allowance (1,296,000) (1,310,900)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
The company entered fiscal 2001 with cumulative net operating loss
carryforwards of approximately $2,800,000 for federal income tax
purposes, which expire in the years 2001 to 2018.
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Note 8 In August 2000, the former President and CEO of the Company filed a
lawsuit against the Company alleging that he is due certain royalties
from products he allegedly helped to develop while employed by the
Company. The case is currently in the discovery stage. The Company in
conjunction with outside legal counsel has assessed the Company's
exposure relative to this claim to be approximately $25,000 which was
reserved in fiscal year 2000. While the Company believes that the
lawsuit is without merit, the Company will continue to assess the
adequacy of the reserve.
Note 9 In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" (SAB 101), which provides guidance in applying generally
accepted accounting principles to revenue recognition in financial
statements. SAB 101, as amended, requires implementation by the
Company in the fourth quarter of fiscal 2001. The Company has reviewed
the provisions of SAB 101 and anticipates that implementation of the
Bulletin will not have a significant effect on the Company's
consolidated financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation-an interpretation of
APB Opinion No. 25" (FIN 44). FIN 44 applies prospectively to new
awards, exchanges of awards in a business combination, modifications
to outstanding awards, and changes in grantee status that occur on or
after July 1, 2000, except for the provisions related to repricings
and the definition of an employee which apply to awards issued after
December 15, 1998. The Company reviewed the provisions of FIN 44 and
implementation of these guidelines did not have a material impact on
the Company's consolidated financial statements.
In September 2000, the Emerging Issues Task Force (EITF) reached a
consensus on Issue 00-10, "Accounting for Shipping and Handling Fees
and Costs." The EITF requires that all shipping and handling amounts
billed to a customer in a sale transaction be classified as revenue.
The EITF also states that a company cannot net the shipping and
handling costs against the shipping and handling revenues in the
financial statements. The EITF requires implementation by the Company
in the fourth quarter of fiscal 2001. The Company has reviewed the
provisions of EITF 00-10 and does anticipate that the implementation
of the consensus will have a significant effect on the Company's
consolidated financial statements.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142, "Goodwill and Intangible Assets" (FASB No. 142)
which supersedes APB Opinion No. 17, "Intangible Assets". FASB No. 142
eliminates the current requirement to amortize goodwill and
indefinite-lived intangible assets, addresses the amortization of
intangible assets with a defined life and addresses the impairment
testing and recognition for goodwill and intangible assets. SFAS 142
will apply to goodwill and intangible assets arising from transactions
completed before and after the Statement's effective date. FASB No.
142 is effective for fiscal 2002. The Company is currently assessing
the Statement and does not anticipate that the adoption of FASB No.
142 will have a material impact on the consolidated financial
statements.
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10Q: QUARTER ENDING JULY 31, 2001
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" may constitute
forward-looking statements for purposes of the Security Act of 1933 and the
Security Exchange Act of 1934, as amended, and as such may involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from future results, performance or achievements expressed or implied by such
forward-looking statements. The words "expect," "estimate," "anticipate,"
"predict," "may," "should," "plan," 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Gross revenue for the Third Fiscal Quarter 2001 just ended July 31, 2001 was
$163,642 versus $262,369 for the same fiscal Quarter a year ago and it
represented a decrease of 37.6%. It was essentially flat when compared to the
last fiscal (2nd) Quarter ($168,993). Net loss before tax and dividend was
$103,821 versus a net loss of $46,144 for the same fiscal quarter last year and
net loss of $185,255 for the last fiscal (2nd) Quarter. Had we not invested
resources in marketing, sales, product promotions and R&D for future revenue and
growth, we would be close to breaking even. Gross profit margin improved from
40.6% to 53.3% comparing to the same fiscal Quarter a year ago and 26% for the
last fiscal (2nd) Quarter. One of the contributing factors for the improvement
was the availability of volume manufactured Money-Checkers for sales. We
anticipate gross profit margin to remain at about 50% in the coming quarter.
Selling, general and administrative expenses were $118,995 for the fiscal
quarter just ended versus $100,929 for the same period a year ago (or a 17.9%
increase). Selling, general and administrative expenses reflected lower sales
commission paid, continuing cost control efforts and significant increase in
marketing and sales expenditures. We expect to continue investing in marketing
and sales programs for at least one more fiscal quarter. Research and
development expenses were slightly higher than the same fiscal Quarter a year
ago ($76,939 Vs $70,692 or an 8.8% increase). All R&D programs will be reviewed
at the end of fiscal 2001 to determine if they should be continued. Inventory
continues to shrink (8.2%) comparing to the same period a year ago. Cash, cash
equivalent and short-term investments
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decreased about 44% or $417,475 as compared to the same quarter a year ago.
We continue to manage our general and administrative expenses prudently while
substantially increased our spending in marketing, new product introductions and
R&D, as stated in our Annual Report on Form 10-K for the year ended October 31,
2000. We expect to see continuing shrinkage in our cash accounts in the coming
fiscal quarter due to these activities. The current cash balance, $534,746,
remains strong relative to our size and expenditures. We do not anticipate a
need to seek outside financial sources in the near future and expect to operate
at least through December 31, 2001, the end of the current calendar year, with
the existing funds at hand.
The Company experienced weakness across many market segments of its business
except the new products. We do not anticipate relief in our traditional
businesses in the present economic and business environment. The Company must
continue its focus on new products and new applications. Postal business
remained weak in spite of successfully signing an exclusive supplier agreement
with a major postal contractor. We were pleased to see continuing chemical
shipments to a key customer we have recently regained, the steady demand in
Stock Certificate authentication market, and healthy business for the
MoneyCheckers. Another bright spot was the Government sector where we made small
shipments to the INS after repeated postponements due to their lack of funds. We
anticipate receiving additional purchase orders from the INS prior to the end of
the current Federal fiscal year (September 30, 2001). We also received a letter
of intent from a major security document printer for the laser SecurityTonertm
technology. It is too early, however, to forecast if any substantial business
would develop from the aforementioned activities.
Although we have introduced a series of new products and made headway in
transforming the Company, the sell cycles of our new products are taking longer
than anticipated. The down economy and federal budget issues also presented
major obstacles to our progress. The Management continues to believe the new
business strategy and product positioning we have adapted are the right ones for
the Company. It will, however, take time for the new products, new markets and
new applications to become contributing factors to our bottom line as we
re-invent ourselves and the new businesses evolve. Moving forward, we must make
do with the diminishing benefits of the postal business. For the next three to
five months, it will be most crucial for us to turn our recent efforts and
progresses into revenue and profits. We are aggressively working toward these
goals.
The end of the fiscal Third Quarter in 2001 also marked the second anniversary
of the interim management. We have not been successful in
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recruiting qualified candidates at affordable compensations to replace the
interim management. We shall continue to recruit and investigate alternative
options. For the time being, interim management has agreed to continue to serve
the Company on an interim basis until the end of the current fiscal year.
The US PTO has recently allowed a new continuation-in-process (CIP) OCR patent
with 26 claims. This patent should further strengthen our Intellectual Property
position in fluorescent image detection and signal processing. We also expect
several international patents to be granted in the coming months under PCT.
In August 2000, the former President and CEO of the Company filed a lawsuit
against the Company alleging that he is due certain royalties from products he
allegedly developed while employed by the Company. The case is currently in the
discovery stage and the Company has recently won a protective order on documents
pertaining to Company confidential financial and business matters. While the
Company believes that the lawsuit is without merit, the Company will continue to
assess the adequacy of the reserve.
As indicated in Note 2 to these financial statements, no preferred dividend has
been accrued for the first nine months of fiscal 2001 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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(b) Reports on Form 8-K
None were filed in this quarter.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANGSTROM TECHNOLOGIES, INC.
By: /s/ Louis Liang
--------------------------------------
Louis Liang, Interim Chief Executive
Officer
By: /s/ William Ryan
--------------------------------------
William Ryan, Interim Chief Financial
Officer
Dated: September 14, 2001
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