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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, 1999


[   ]    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.
                           ---------------------------
                 (Name of small business issuer in its charter)

          Delaware                                     31-1065350
          --------                                     ----------
(State or other jurisdiction of                      (I.R.S. Employer
incorporation or organization)                      Identification No.)


               1895 Airport Exchange Boulevard, Erlanger, KY 41018
               ---------------------------------------------------
          (Address of principal executive offices, including zip code)


                                 (606) 282-0020
                                 --------------
                           (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 bast 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, 1999 were
$936,587.

         As of January 12, 2000, 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 $4,218,618. 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
12, 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, 1999, 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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         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 1993 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") was incorporated under the
laws of the State of Delaware on June 3, 1983. The Company derived its name from
the Angstrom units of measurement of wavelengths of light.

         The Company is engaged in the development, manufacture and sale of
Electro-Optical Control Systems, consisting of one or more ultraviolet scanners
and invisible flourescent chemical compounds. The Company has developed and
markets several ultraviolet fluorescent scanning units of varying cost and
sophistication. These units can be used individually and some of the units can
be combined with several other units, working in unison to provide statistical
process control for manufacturing lines. Individually, the unit can determine
the presence or absence of the fluorescent compound, the wavelength and
concentration of flourescent materials. When units are combined, a grid code is
formed where information is generated and stored, or read for a variety of
applications. In addition, the Company produces a number of fluorescent
compounds, each of which emits its own wavelength. When printed, sprayed, or
stamped, the marking compounds are non-visible under normal lighting conditions.
This allows for marking over existing graphics or on different materials without
product. An example of materials, among others, are printing inks, plastic
films, over-print, varnish, adhesives, and plastic molding compounds. Also, due
to the invisible nature of the compound, the system can also be used in a
variety of security applications.

         The Company's technology involves placing a mark, comprised of a
non-visible compound, on a product. These compounds emit a low level of visible
light when excited by ultraviolet light transmitted from a scanner designed and
sold by the Company. The scanner receives the visible light and converts it to
an electronic signal. Using one of the many outputs available, an operator can
be notified, an ejection device activated, and a programmable controller or
computer can be signaled to take the appropriate action. The scanner works
independent of varying background, color, shape, size, or ambient lighting
conditions.



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These features are intended to overcome many of the disadvantages associated
with conventional photoelectrics.

         The Company's products have historically been geared for use by the
printing,pharmaceutical and automobile parts manufacturing industries in
connection with a variety of functions including: label verification, quality
control, inspection, alignment, adhesive tracing, safety seal verification,
sorting, automatic identification, matching and inserting. In addition to the
foregoing applications, the Company has also developed and is marketing
applications to subcontractors of the U.S. Government and others in the document
security field, such as identification of counterfeit currency and verification
of credit cards, other identification cards and postal label sorting.

PRODUCTS

         The Company's products have traditionally consisted of a number of
ultraviolet optical scanners and various chemical compounds. To produce its
products, the Company primarily uses outside production subcontractors to reduce
the capital expenditures necessary to effect production and help expedite full
scale production of the new units. The Company has made significant developments
in its scanners in recent years. As a result, the Company has enhanced the
scanners' capability and reliability.

         The Company has developed improvements in its electronic components by
incorporating support electronics into a CMOS semiconductor chip, which assists
in the production of miniature or hand-held readers. The chip reduces the amount
of electronic noise and increases the sensitivity of the Company's readers and
scanners. The Company has also developed a universal card which incorporates the
semi-conductor chip. The universal card can be used in many of the Company's
readers and scanners. The Company believes this multiplicity of use should help
it in its efforts to reduce production costs.

         The Company has also developed improved chemical compounds to be used
in document security applications. The Company is working on the commercialized
production of these compounds which are intended to be marketed in the security
industry for a wide array of end-use products that will incorporate
sophisticated wavelength and non-visible encoding.

         The Company's scanners carry a sales price which varies depending on
the unit, and such prices are subject to volume discounts. The Company has found
that many customers or potential customers require specific customizing of these
scanning units, to meet the needs of the specific applications for which the
units are being purchased. Such customizing may result in an increase in the
price charged. In addition, existing customers who are using the Company's older
version scanners are offered a credit against the price of the new scanner for a
trade-in of their existing scanning devices.





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         The Company has developed and now offers for sale several different
scanning devices some of which are described below:

1.       Hand-held scanner used, among other things, for verifying tickets to
         sporting and entertainment events;

2.       Mid-range scanner used for a variety of commercial applications;

3.       High-end scanner, which has the ability to tie-into a computer, and is
         being used for the U. S. Postal Office Certified Mail Project;

4.       High-speed and high-security document scanner, which allows settings of
         upper and lower reading limits, to be used for check sorting and check
         verification application;

5.       Document reader, which is portable and desk top ready, to be used for
         verifying tickets to sporting and entertainment events, among other
         things;

6.       Various low-cost handheld first order authentication devices.

         The Company has also been developing its chemical compounds to keep
pace with both scanner development and the needs of its customers and markets.
Some of the newly developed chemicals are specifically targeted for document
security and entertainment applications.

         During Fiscal 1998 and 1999, the Company spent approximately
$206,000.00 and $162,000.00 respectively, on research and development of its
products. While the Company considers amounts spent on research and development
in pricing its products, the costs are not directly allocated to customers.

MANUFACTURE

         The components of the Company's scanners are manufactured by outside
contractors, in accordance to the Company's proprietary designs and standards,
pursuant to purchase orders issued by the Company on an as needed basis. No
manufacturer has been given an exclusive retention and the Company believes that
there are numerous alternative sources for securing production of such
components.

         Final assembly and quality control testing of the scanners are
performed on-sit by Company personnel.

         The scanning proprietary compounds are manufactured off-site by a
custom chemical manufacturer under a





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confidentiality agreement, providing protection for the Company's trade secrets.
The custom chemical manufacturer is responsible for EPA, NIOSH, and OSHA
compliance to the extent such laws are applicable. The Company has entered into
this agreement to produce its chemicals at a lower unit cost and with enhanced
capacity to meet the increasing production level which may be required by the
Company's marketing efforts, should the latter result in sales increases.
However, the Company believes that there are alternative sources for
manufacturing its chemical compounds and that it is not dependent on the
arrangement presently in effect.

         In an effort to enhance its optical and general development
laboratories, the Company employs a research chemist, at an annual compensation
of approximately $50,000, and is utilizing laboratory facilities for further
development of chemical compounds at the University of Cincinnati at a cost of
approximately $20,000 per annum. The Company also retains a world renowned
professor at the University of Cincinnati as a chemistry consultant. The Company
has also employs a product engineer, at an annual salary of approximately
$90,000, whose activities involve, among other things, developing improvements
to the Company's scanners. The anticipated source of funds for those expenses is
the Company's working capital, which is generated by operating cash flow.

SALES AND MARKETING

         The Company has been engaged in a program designed to upgrade its
products, expand its product lines and attempt to substantially increase its
customer base. In connection therewith, the Company commenced its sales and
marketing program in January, 1993 by the use of independent sales
representatives. Commencing in Fiscal 1994, the Company began a more intensive
sales and marketing program, which is ongoing.

         For its sales efforts, the Company utilized Messrs. Marinello and Ryan,
its two executive officers, who allocated a significant portion of their time to
sales and marketing efforts, up until August 2, 1999. From that point forward,
Louis Liang has adopted a more active role in this area after the resignation of
Mr. Marinello. During Fiscal 1998 and Fiscal 1999, approximately $293,000 and
$138,000, respectively, was paid as sales commissions to executive officers and
$6,000 and $3,000, respectively, was paid as royalties to the executive
officers. It is the Company's goal to attempt to increase its sales and
marketing by entering into strategic alliances and joint venturing endeavors
with well-placed firms in various business areas rather than expending large
sums in developing the Company's own independent direct selling structure.

         The Company's sales efforts were disappointing on a historical basis
until the third quarter of Fiscal 1995. In Fiscal 1995, net sales equaled
$1,050,281. compared to $531,339 in Fiscal 1994. This increase over prior years
was generated largely by sales to the sub-contractor for the U. S. Postal
Service in connection with production of labels for certified mail. These
customer orders covered both the purchase of chemical compounds for use in
printing ink to be utilized in labels for certified mail as well as the sale by
the Company of six scanners for use by the subcontractor in its internal
verification and process control in connection with the production of certified
mail labels. Such labels are used by the U. S. Postal Service in connection with
an



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automation system, using equipment of a third party, which among other things,
automatically sorts certified mail from other types of mail. During Fiscal 1996,
the Company's revenues decreased to $869,829 due in part to the completion of
the Postal Service contract. During Fiscal 1997, the Postal contract entered a
new phase wherein the Company received orders for additional amounts of its
chemical compound which contributed to net sales of $1,523,559 for that year.
During Fiscal 1998, the Company had net sales of $1,968,032 including
significant sales of compounds to a subcontractor of the U. S. government for
security applications. During Fiscal 1999, the Company saw net sales drop to
$936,587 largely due to the loss of business with a major customer, and delay in
the US Postal project.

         In Fiscal 1997, the Company entered into a Reseller Agreement (the
"Reseller Agreement") with Moore U.S.A., Inc. ("Moore"), pursuant to which the
Company appointed Moore as a non-exclusive reseller of certain of its
readers/scanners and flourescent ink products (the "Products") on a world-wide
basis. Under the Reseller Agreement, Moore has the right, but is not required,
to distribute the Products. During Fiscal 1998 and Fiscal 1999, sales to Moore
under the Reseller Agreement were not material. The Reseller Agreement is for an
initial term of five years commencing on September 2, 1997 and thereafter is
automatically renewed for annual consecutive periods of one year each unless
terminated by notice of non-renewal sent by either party, at least 90 days prior
to the expiration of the initial term or any renewal term. The Reseller
Agreement also may be terminated by either party upon 30 days prior written
notice if a party breaches the Reseller Agreement and fails to cure said breach
within 30 days or becomes subject to bankruptcy or ceases to be actively engaged
in business.

         The Company also entered into a Technology License Agreement with Moore
(the "License Agreement") in Fiscal 1997 pursuant to which the Company granted a
non-exclusive, non-transferable, non-assignable license (the "License") to Moore
to exploit the Company's technology relating to the Products (the "Technology"),
and to sell or otherwise provide the Products using the Technology. In exchange
for the License, Moore has agreed to pay a royalty to the Company based on a
percentage of sales of the Products based on the sales volume in any contract
year. During Fiscal 1998 and Fiscal 1999, royalties paid by Moore under the
License Agreement were not material. The Company also granted Moore a right of
first refusal for an exclusive license relating to the Technology prior to
granting such a license to a third party. The License Agreement is for an
initial term of five years commencing on September 2, 1997 and thereafter is
automatically renewed for consecutive renewal periods of three years each unless
terminated by notice of non-renewal sent by either party, at least 90 days prior
to the expiration of the initial term or any renewal term. The License Agreement
also may be terminated by either party upon 30 days prior written notice if a
party breaches the license Agreement and fails to cure said breach within 30
days or becomes subject to bankruptcy or ceases to be actively engaged in
business.

         The relationship between the Company and Moore is non-exclusive, and
there can be no assurances that Moore will be successful in selling the
Products. Furthermore, there can be no assurance that if Moore is successful in
selling the Products that such sales will be a significant source of revenue for
the Company.

         Products manufactured by the Company are presently sold to a limited
number of clients and customers under a relatively




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few contracts or purchase orders. During Fiscal 1999, sales to two customers
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. During Fiscal 1998, sales to
these two customers were approximately 60% and14% of the Company's sales,
respectively. The foregoing percentages aggregate sales made to the named
customer and to clients or sub-accounts of that customer. There can be no
assurance of revenue from these customers in the future.

         With the Company's new line of scanner and reader hardware and
broad-based chemicals to be used with these items, the Company is attempting to
broaden its sales base. Since August 2, 1999, the Company has restructured and
is now encouraging its employees to become actively involved in promoting sales
for the Company. Furthermore, the Company has begun selling into new market
sectors such as decoration and entertainment sectors. The Company is also
aggressively engaging in developing new partnerships and alliances that can help
to increase sales and expand customer base. There can be no assurance that the
Company will be successful in broadening its sales base, or that such an
increase, if any, will provide a significant source of revenue to the Company.

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, or, as
markets for additional products, are adhesive manufacturers, label
manufacturers, and stamp and paper currency manufacturers. 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
insure 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 adhesive presence in
sub-assembly components.

         In the packaging industries, the Company's products are used to ensure
label placement, in the sorting of various products and in adhesive detection.

         Management believes the improved scanners developed by the Company, and
the compact authentication and verification devices incident thereto, have
applications in various facets of the document security industry, as well as in






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the process control field previously serviced by the Company. Among such new
applications, would be the detection of counterfeiting of currencies, postage
labels and tickets to various sports and entertainment events, and marking of
items being sold to consumers through retail outlets. The Company is currently
exploring potential customers with an interest in a wide variety of security
applications which have been developed by the Company. Among other things, the
Company is marketing its technology to be used in connection with the
identification of counterfeits and sorting of bank checks. The Company has also
sold its ultraviolet chemical for use in inks being used on U.S. government
documentation, such as passports. More recently, since the fourth quarter of
Fiscal 1999, the company has made significant efforts to penetrate the
commercial and entertainment markets for faster growth.

COMPETITION

         The Company competes with a number of companies, and many of such
competitors have greater financial and other resources. In the labeling and
parts identification business, among its competitors are Data Logic, Inc. and
Sick Optic Electronic, GmbH, both of which have readers capable of reading broad
(rather than specific) bands of light and neither of which provide either
application engineering or scanning compounds. The Company's scanners are
capable of quantitative measurement, operating on a more defined basis. The
Company's scanners can differentiate among certain colors whereas many competing
scanners identify the presence or absence of a color, but do not differentiate
among colors. Accordingly, the Company believes that its scanners are capable of
sorting out various labels for different products whereas readers produced by
competitors are able to detect fluorescent chemicals on labels but cannot sort
out similar labels. The Company's existing products are generally comparable in
price to those of its competitors.

         The Company also competes with the machine vision industry, which
utilizes solid state cameras and complex computer programs for similar
applications to similar markets, such as product and label identification. The
Company's ultraviolet detection systems, which can also be used for industrial
applications, range in price from approximately $700 for less sophisticated
scanners to approximately $8,000 per system for its most sophisticated systems.
The Company believes its ultraviolet detection systems are generally less
expensive than its competitors systems. Such competing video systems are
produced and sold by several companies, including (a) General Electric Vision
division of General Electric Corporation; (b) GM Fanuk, a joint venture of
General Motors Corporation and Fanuk Corporation (a Japanese firm); and (c) Penn
Video, Inc.

         With respect to document security, the Company's later model scanners
compete with a number of other products used for this purpose, including
holograms (which are three-dimensional representations designed with certain


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visual attributes for the purpose of thwarting counterfeits). The Company also
competes with technology which places water marks and/or fabric threads within
paper and currency. The Company believes that, if its later model scanners prove
commercially feasible, it will enjoy an advantage against counterfeiting over
these other technologies since the Company's non-visible specific frequency
ultra-violet chemical compounds will be more difficult to duplicate, and also
less expensive. The basis for this belief is that the Company's products can
differentiate its chemistry within a narrow band of the spectrum whereas its
competitors have thus far produced sensors which principally read in the broad
band of the spectrum; by having greater specificity in its reading capacity, the
Company can blend other flourescent colors into a variety of inks and read such
flourescent colors with greater particularity, thereby giving the Company's
products a broader range of application. The Company has recently introduced
patent pending low cost first order detectors, the Authenticator and Luminators.
They are designed for general commercial applications such as currency
authentication by shop merchants, flooring finishers, document security
inspectors, among others. There can be no assurance that the Company's latest
model scanner and low cost detectors will be commercially feasible.

INTELLECTUAL PROPERTY RIGHTS AND TECHNOLOGY PROTECTION

         The Company has a trademark registration in the United States for
"Angstrom Technologies, Inc.". 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 Angstrom trademark was registered on June 23, 1987, and remains in effect
through June 23, 2007.

         The Company has been awarded four patents from the U.S. Patent Office
during the Fiscal 1999 . A total of eleven patents are now in the Company
intellectual property portfolio. Despite this fact, there can be no assurance
that any present or future patents which may issue in the Company's favor would
necessarily protect the Company from competition or potential competition.
Accordingly, the Company anticipates reliance for the foreseeable future on both
its patents and on contractual rights, trade secrets and copyright laws.

         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 therein to the Company, which is obligated to cover the cost of filing
fees and fees of patent counsel. 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 1999, the Company paid royalties of approximately
$3,000.00 pursuant to said





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employment agreement. Pursuant to the terms of the employment agreement, the
Management team is paid at a royalty equal to 10% of gross revenue for exclusive
rights, and 5% of gross revenues for non-exclusive rights, both of which are
applicable only for post employment. The post-employment agreement is applicable
to Messrs. Liang, Ryan and Marinello for patents to which they are a party.


PUBLIC OFFERING AND PREFERRED STOCK 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 is currently
evaluating its options upon expiration of the current term. The Company also
leases adjacent storage space on a month-to-month basis at a rate of
approximately $900 per annum.



ITEM 3.  LEGAL PROCEEDINGS

         The Company is not subject to any legal proceedings.




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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matter was submitted to a vote of the security holders during the
Fiscal Year ended October 31, 1999.





                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The shares of Common Stock are traded in the over-the-counter market
and 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 November 1, 1997 through
January 14, 2000, 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.








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<TABLE>
<CAPTION>




                                              BID
Fiscal 1998                         High              Low
-----------                         ----              ---

<S>                                 <C>               <C>
11/1/97 to 1/31/98                  .78               .38
2/1/98 to 4/30/98                   .72               .34
5/1/98 to 7/31/98                   .62               .41
8/1/98 to 10/31/98                  .53               .25

Fiscal 1999
-----------

11/1/98 to 1/31/99                  .41               .22
2/1/99 to 4/30/99                   .32               .19
5/1/99 to 7/31/99                   .26               .15
8/1/99 to 10/31/99                  .20               .12


Fiscal 2000
-----------

11/1/99 to 1/31/2000                .26               .11
(through 1/12/2000)

</TABLE>







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         On January 12, 2000, the high bid price for the Common Stock was $.26
per share. The number of holders of the Common Stock was approximately 465 on
January 14, 2000, computed by the number of record holders; this does not take
account of stockholders for whom shares are being held in the names of brokerage
houses and clearing agencies.

         The Company has never paid a cash dividend upon the Common Stock and
does not presently anticipate doing so in the foreseeable future, but expects to
retain earnings, if any, for use in its business. The terms of the Preferred
Stock prohibit the Company from paying dividends on the Common Stock until all
accrued dividends on the Preferred Stock have been paid.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

SUMMARY OF OPERATIONS

YEAR END OCTOBER 31, 1999 ("FISCAL 1999") COMPARED TO YEAR ENDED OCTOBER 31,
1998 ("FISCAL 1998").

         Net sales of $936,587 for Fiscal 1999 reflect a decrease of 52% from
the $1,968,032 in net sales in Fiscal 1998. This decrease in sales was a result
of the loss of a major customer, and a delay in the project involving the United
States Postal Service. In August of 1999, there was a major change in the
management of the Company. As a result, present management has aggressively
sought new business, and tried to repair relationships with former customers.
However, there can be no assurances that these actions will result in an
increase of sales.

         Selling, general and administrative expenses decreased 33% from
approximately $868,728 in Fiscal 1998 to approximately $581,940 in Fiscal 1999.
This decrease was primarily due to a decrease in commision paid and reduction in
expenditure associated with research and development, marketing and consulting
fees.

         The Company experienced a net loss of $51,095 before dividend
requirements during Fiscal 1999 as compared with net income of $403,508 for
Fiscal 1998, before dividend requirements. Continuing its policy of conserving
cash to meet operating requirements, the Company declined to accrue a preferred
stock dividend for Fiscal 1999.

         It should be noted that the fourth quarter revenue for Fiscal 1999 is
$234,715 representing a 79% improvement over third quarter Fiscal 1999 results
of $131,146.




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         Interest income of approximately $30,742 for Fiscal 1999 was more than
the interest income of approximately $24,231 in Fiscal 1998 as a result of
higher interest rates, which produced a higher return on investment.

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
acitivities

         The Company had cash and cash equivalents, of $456,857 as at the end of
Fiscal 1999 as compared with $809,268 at the end of Fiscal 1998, resulting in an
decrease in these categories of $352,411, primarily due to shifting most of the
cash equivalent investments to short term investment instruments. The Company
experienced a decrease in trade accounts receivable of $150,161, an decrease in
inventory of $75,274 and a decrease in accounts payable of $22,549. The decrease
in inventory reflects an inventory writeoff in third quarter Fiscal 1999 and
lower production levels. The decrease in accounts payable and receivables were
primarily due to lower sales. Prepaid expenses at such dates decreased from
$41,268 to $22,588 primarily due to a decrease in commision paid to a marketing
consultant..

         The Company expects an increase in chemical inventories in Fiscal 2000
due to the loss of a major customer. The Company is aggressively reengaging the
customers , and promotes other business that might be able to use the materials.
The Company is also working with its chemical subcontractor to reduce the
inventory burden to the company.

         As indicated in Note 2 to these financial statements, no dividend has
been accrued for Fiscal 1999 since management has determined to conserve
available funds and maintain the Company's liquidity in light of its needs to
continue developmental and marketing expenditures referred to hereinabove. The
Company anticipates that existing funds will enable it to fund its operating and
capital needs through at least October 31, 2000, the end of its current fiscal
year, and for some time thereafter. The Company may require additional financing
after such time depending on the status of its sales efforts and whether
sufficient revenues and contractual commitments have been received from its
customers to enable it to function with sufficient liquidity. The Company is not
able at this time to predict the amount or potential source of such additional
funds and has no commitment to obtain such funds.

FEDERAL INCOME TAXES




                                       15
<PAGE>   16

         The tax effects of temporary differences that give rise to deferred
income tax assets, a corresponding valuation allowance and deferred tax
liabilities at October 31, 1999 and October 31, 1998 is presented below.
<TABLE>
<CAPTION>

Deferred tax assets                           October 31, 1999             October 31, 1998
-------------------                           ----------------             ----------------
<S>                                           <C>                             <C>
         Net operating loss                   $1,315,700                      $1,291,700
         Other, Net                               11,200                           9,700

Total deferred tax assets                     $1,326,900                      $1,301,400
         Less Valuation Allowance             (1,326,900)                     (1,301,400)

Net deferred tax asset                              0                              0
</TABLE>



         The Company has cumulative net operating loss carry forwards of
approximately $3,300,000 for federal income tax purposes which expire between
the years 2000 to 2011.

YEAR 2000 ISSUES

         The following is a discussion of the Year 2000 date issue ("Year 2000
issue") as it affects the Company. The Year 2000 issues arises from the fact
that many computer programs and embedded chips in other forms of technology use
only the last two digits to identify a year in a date field.

The Company's State of Readiness

         The Company currently believes its potential exposure to problems
arising from the Year 2000 issue lies primarily in two areas: the Company's
internal operating systems which include both information technology ("IT") and
non-IT components (such as computer chips imbedded in hardware) and Year 2000
compliance by third parties with whom the Company has a material relationship.

         Internal operating systems. The Company has completed an assessment of
its Year 2000 compliance for its products and critical internal systems and
identified no major issues. The Company purchased its internal computer




                                       16
<PAGE>   17

system from IBM in 1996 and IBM documented that the system is Year 2000
compliant. If the Company experiences Year 2000 issues, the Company intends to
manually maintain the Company's internal records until such issues are resolved.

         Third party relationships. Ultimately, the potential impact of the Year
2000 issue will depend not only on the actions taken by the Company, but also
how the Year 2000 issue is addressed by customers, vendors, service providers,
utilities, governmental agencies and other entities with which the Company does
business. Although the Company is rarely dependent on a single source of supply
for its components, and purchases most of them off the shelf, it intends to
communicate with the most significant of these third parties to obtain reports
of their Year 2000 readiness. If the Company determines it may experience a
shortage of supply, the Company has capacity to maintain additional inventory.
The Year 2000 efforts of third parties are not within the Company's control,
however, their failure to respond to year 2000 issues successfully could result
in business disruption and increased operating costs for the Company.

Costs to address the Company's Year 2000 issues

         The Company has not incurred any significant costs in identifying or
remedying year 2000 issues. The Company cannot reasonably estimate costs which
may be required for remediation or for implementation of contingency plans with
respect to third party relationships. There can be no assurance that if
additional year 2000 issues are raised, the Company's costs to remediate such
issues will be consistent with its historical costs.

Risks of the Company's Year 2000 issues

         The Company believes the most reasonably likely worst case Year 2000
scenario would include a combination of some or all of the following:

-        Non-IT components in HVAC, lighting, telephone, security and similar
         systems might fail.

-        Communications with customers and vendors may fail or give erroneous
         information. These types of problems could result in such difficulties
         as the inability to receive or process customer orders, or shipping
         delays.

-        The unavailability of product as a result of Year 2000 problems
         experienced by one or more vendors of the Company.





                                       17
<PAGE>   18

The Company's contingency plans.

         The Company does not believe it will incur a material financial impact
from the risk of failure, or from the costs associated with assessing the risks
of failure, arising from the Year 2000 issue. Consequently, the Company does not
intend to create a contingency plan other than as set forth above.

         The foregoing discussion regarding the Year 2000 project's timing,
effectiveness, implementation, and cost contains forward-looking statements
which are based on management's best estimates derived using assumptions. These
forward-looking statements involve inherent risks and uncertainties, and actual
results could differ materially from those contemplated by such statements.
Factors that might cause material differences include, but are not limited to,
the readiness of third parties and the Company's abilities to respond to
unforeseen Year 2000 complications. Such material differences could result in,
among other things, business disruptions, operational problems, financial loss
and similar risks.

OTHER

         In the opinion of management, inflation has not had a material effect
on the operations of the Company.

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.



                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(a) OF EXCHANGE ACT.




                                       18
<PAGE>   19

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
Name                        Age               Title
----                        ---               -----
<S>                         <C>               <C>
Louis Liang                 55                Interim President/CEO & Director

William J. Ryan             60                Interim Chief Financial Officer, Executive
                                              Vice-President & Director

Douglas B. Kruger           56                Secretary & Director

Vivek Dutta                 51                Director & Chairman of the
                                              Compensation Committee
</TABLE>



         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 September 1995. 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 an 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 February1, 1994 and was also Executive Vice-President -Operations from May
1994 to January 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 serves as Director to E-Tech Systems,
Inc. since 1996. Prior to becoming engaged in the consulting business, Mr. Ryan
was employed at the IBM Corporation for



                                       19
<PAGE>   20

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 B.S. 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 several 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 October 1999. Dr. Dutta has been a Consultant to the electronics
and semiconductor industries since April 1999 and from 1989-1992.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, Portugese,
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 in 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.
 .
         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. The Company's executive officers are appointed
annually by the Company's directors. Each of the Company's officers continue 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





                                       20
<PAGE>   21

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 during Fiscal Years 1999, 1998 and 1997 for Daniel
A. Marinello, who was the Chief Executive Officer and President and Chief
Operating Officer at the end of fiscal years 1997, 1998 and through August 2,
1999. No other executive officers of the Company received salary and bonus
compensation which exceeded $100,000 in such fiscal years.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

Name and                                                                                         All other
Principal Position                  Year                      Salary            Options          compensation
------------------                  ----                      ------            -------          ------------

<S>                                 <C>                       <C>               <C               <C>
Daniel Marinello,                   1999                      ------            ------           $103,781(1)
Chief Executive Officer,            1998                      ------            150,000          $205,914(1)
President & Chief Financial         1997                      ------            ------           $161,256(1)
 Officer

<FN>


(1)      Comprised of commissions and royalties.
</TABLE>


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



                                       21
<PAGE>   22

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. Consequently, the gross sales component of
compensation is divided among Messrs. Liang and Ryan in the amounts of 10% and
3.0%, respectively, beginning August 2, 1999. The Team has decided to contribute
the remaining 2% to employees as an incentive for their active participation in
promoting sales for the Company. 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.

         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 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 for the Company on intellectual property matters. 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 from
products sold utilizing such patents. During Fiscal 1999, aggregate royalties of
approximately $3,000 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. The Plans
are administered by a stock option committee of the Board of Directors. No
options were granted under the Plans in Fiscal 1999.



                                       22
<PAGE>   23

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. No options were granted under the 1994 Plan in Fiscal 1999.
         On September 8, 1999, the Board granted incentive & stock options to
executives as follows: Louis Liang-300,000 shares, William J. Ryan-100,000
shares and Douglas B. Kruger-100,000 shares. The shareholders subsequently
approved the grant of the options on December 6, 1999.

                          OPTION GRANTS IN FISCAL 1999

         No other options were granted to the named executive officer in Fiscal
1999.

                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                            AND FY-END OPTIONS VALUES

         The following table 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, 1999:

There was no exercise of stock options by the named executive officer, Daniel
Marinello during Fiscal 1999.





                                       23
<PAGE>   24



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, 1998 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.
<TABLE>
<CAPTION>

NAME AND ADDRESS                            AMOUNT AND NATURE OF               PERCENT OF
OF BENEFICIAL OWNER                         BENEFICIAL OWNERSHIP               CLASS
-------------------                         --------------------               -----

<S>                                           <C>                              <C>
Kenneth J. Koock                              3,309,846(3)(9)                  13.9%
2 Robin Hill Road
North Caldwell, NJ 07006

Louis Liang(3)                                1,535,000(5)                      6.4%

William J. Ryan(3)                            1,300,000(6)                      5.4%

Douglas Kruger(3)                               675,000(7)                      2.8%

Vivek Dutta(3)                                  100,000                         Less than 1%

All officers and directors as a group         3,610,000                        15.1%
</TABLE>




                                       24
<PAGE>   25



(1)      Based on a total of 23,794,598 shares of Common Stock issued and
         outstanding as of October 31, 1998.

(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)      Exercisable only after one (1) year.

(5)      Includes presently exercisable options to acquire 1,000,000 shares.

(6)      Includes presently exercisable options to acquire 1,075,000 shares.

(7)      Includes presently exercisable options to acquire 125,000 shares.

(8)      Includes 3,550,000 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.


(9)      Information regarding Mr. Koock's Amount of Beneficial Ownership was
         unavailable at time of filing.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Since November 1, 1994 Messrs. Marinello and Ryan have been employed
under an Employment Agreement. (See "Executive Compensation"). During Fiscal
1999, the Company paid aggregate commissions of approximately $138,000 to
Messrs. Marinello and Ryan pursuant to the Employment Agreement. In addition,
pursuant to the 1994 Stock Option Plan the Company granted each such individual
options to acquire one million share of Common Stock at a price of $.125 per
share. Mr. Liang, who was formerly an employee of and is currently a consultant
to the Company and a director, also received options to acquire one million
shares.

         Messrs. Marinello, Liang and Ryan have been jointly engaged in a plan
of activity designed to establish and




                                       25
<PAGE>   26

expand the patent and other intellectual property coverage afforded the
Company's products and developments. While the applications are filed in the
names of the individuals, they have agreed to a sign 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.

         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.




                                       26
<PAGE>   27







                                     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, 1999...............  F-2
                      Statements of Operations for the Years
                               ended October 31, 1999 and 1998...........  F-4
                      Statements of Capital for the Years
                               ended October 31, 1999 and 1998...........  F-5
                      Statements of Cash Flows for the Years
                               ended October 31, 1999 and 1998...........  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.


<PAGE>   28

               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.




<PAGE>   29


(b)      Reports on Form 8-K:

         There was a Form 8-K filed on August 6, 1999. The purpose of that 8-K
was to announce the resignation of Dan Marinello as President, CEO, CFO and
Director of the Company.





<PAGE>   30


                                   SIGNATURES


Pursuant to the requirements of Section 13 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:  1/25/2000                            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                                                   1/25/2000
______________________              Interim President, Chief    ________________
Louis Liang                         Executive Officer and
                                    Director

/s/ William J. Ryan                                               1/25/2000
______________________              Interim Chief Financial     ________________
William J. Ryan                     Officer, Executive Vice-
                                    President and Director

/s/ Douglas B. Kruger                                             1/25/2000
______________________              Secretary and Director      ________________
Douglas B. Kruger

/s/ Vivek Dutta                                                   1/25/2000
______________________             Chairman of the              ________________
Vivek Dutta                        Compensation Committee
                                   and Director









<PAGE>   31
                              Financial Statements

                           Angstrom Technologies, Inc.

                                   Years ended
                            October 31, 1999 and 1998
                       with Report of Independent Auditors






<PAGE>   32






                           Angstrom Technologies, Inc.

                              Financial Statements

                      Years ended October 31, 1999 and 1998





                                    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



<PAGE>   33






                         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, 1999, and the related statements of operations, capital and cash
flows for each of the two years in the period ended October 31, 1999. 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, 1999, and the results of its operations and its cash flows for each
of the two years in the period ended October 31, 1999, in conformity with
accounting principles generally accepted in the United States.


                                              ERNST & YOUNG LLP



Cincinnati, Ohio
December 9, 1999


                                      F - 1
<PAGE>   34

<TABLE>
<CAPTION>


                           Angstrom Technologies, Inc.
                                  Balance Sheet
                                October 31, 1999


<S>                                                                                          <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                                 $   456,857
   Short-term investments                                                                        511,346
   Accounts receivable, less allowance for bad debts of $10,000                                   59,287
   Inventories:
     Finished goods                                                                              108,628
     Work in process                                                                               6,097
     Raw materials and parts                                                                     650,086
                                                                                          ------------------
                                                                                                 764,811
   Prepaid expenses                                                                               13,981
                                                                                          ------------------
Total current assets                                                                           1,806,282

Furniture and equipment, at cost                                                                 178,722
   Less accumulated depreciation                                                                 162,864
                                                                                          ------------------
Net furniture and equipment                                                                       15,858

Patents, less accumulated amortization of $25,570                                                141,310
                                                                                          ------------------

Total assets                                                                                  $1,963,450
                                                                                          ==================


</TABLE>




                                     F - 2






<PAGE>   35
<TABLE>
<CAPTION>



                           Angstrom Technologies, Inc.
                            Balance Sheet (continued)



<S>                                                                                               <C>
LIABILITIES AND CAPITAL
Current liabilities:
   Accounts payable                                                                               $    20,636
   Accrued liabilities                                                                                 52,847
   Customer deposits                                                                                   27,535
   Debt due within one year                                                                             5,911
                                                                                                  -----------
Total current liabilities                                                                             106,929


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                                                                       5,110,165
   Accumulated deficit                                                                             (5,573,988)
                                                                                                  -----------
Net capital                                                                                         1,856,521
                                                                                                  -----------

Total liabilities and capital                                                                     $ 1,963,450
                                                                                                  ===========

</TABLE>

















See accompanying notes.


                                     F - 3

<PAGE>   36
<TABLE>
<CAPTION>



                           Angstrom Technologies, Inc.
                            Statements of Operations


                                                                          YEAR ENDED OCTOBER 31
                                                                        1999                 1998
                                                                 ----------------------------------

<S>                                                               <C>                  <C>
Net sales                                                         $    936,587         $  1,968,032

Cost of sales                                                          444,980              713,401
                                                                 ----------------------------------
Gross profit                                                           491,607            1,254,631

Selling, general and administrative expenses                           581,940              868,728
Interest expense                                                         2,900                6,626
Interest income                                                        (30,742)             (24,231)
Dividend income                                                        (11,346)                --
                                                                 ----------------------------------
                                                                       542,752              851,123
                                                                 ----------------------------------

Net (loss) income                                                      (51,145)             403,508
                                                                 ----------------------------------

Less dividend requirement on preferred stock                          (202,579)            (207,077)
                                                                 ----------------------------------

Net (loss) income applicable to common stock                      $   (253,724)        $    196,431
                                                                 ==================================

NET (LOSS) INCOME PER COMMON SHARE (BASIC AND DILUTED)
                                                                  $      (0.01)        $       0.01
                                                                 ==================================

Weighted average number of shares outstanding                       23,724,864           23,449,728
                                                                 ==================================

</TABLE>














See accompanying notes.



                                     F - 4
<PAGE>   37

<TABLE>
<CAPTION>

                                                              Angstrom
                                                         Technologies, Inc.
                                                        Statements of Capital



                                         PREFERRED STOCK              COMMON STOCK           ADDITIONAL
                                   ------------------------------------------------------      PAID IN     ACCUMULATED        NET
                                     SHARES        AMOUNT         SHARES        PAR VALUE      CAPITAL       DEFICIT       CAPITAL
                                   ------------------------------------------------------------------------------------------------

<S>                                <C>          <C>             <C>          <C>           <C>           <C>            <C>
Balance at October 31, 1997        1,335,990    $ 2,197,684     23,255,118   $   232,552   $ 4,973,523   $(5,926,351)   $ 1,477,408
   Conversion of preferred stock     (41,760)       (68,904)       167,040         1,670        67,234                         --
   Exercise of stock options                                       215,000         2,150        18,975                       21,125
   Net income                                                                                                403,508        403,508
                                   ------------------------------------------------------------------------------------------------
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
                                   ================================================================================================



</TABLE>


                                     F - 5





See accompanying notes.



<PAGE>   38



<TABLE>
<CAPTION>



                                                     Angstrom Technologies, Inc.
                                                      Statements of Cash Flows


                                                                                 YEAR ENDED OCTOBER 31
                                                                               1999                 1998
                                                                        -----------------------------------
OPERATING ACTIVITIES
<S>                                                                        <C>                  <C>
Net (loss) income                                                          $ (51,145)           $ 403,508
Adjustments to reconcile net (loss) income to net cash provided by
   operating activities:
     Depreciation and amortization                                            45,984               48,257
     Changes in operating assets and liabilities:
       Accounts receivable                                                   150,161              (75,852)
       Interest receivable                                                      --                  1,207
       Inventories                                                            75,274             (203,049)
       Prepaid expenses                                                        8,607               18,680
       Accounts payable                                                      (22,548)             (42,807)
       Accrued liabilities                                                   (18,580)               1,484
       Customer deposits                                                      27,534                 --
                                                                        -----------------------------------
Net cash provided by operating activities                                    215,287              151,428

INVESTING ACTIVITIES
Purchases of furniture and equipment                                          (4,902)             (14,155)
Proceeds from sale of available-for-sale investments                            --                613,380
Changes in short term investments                                           (511,346)                --
Capitalization of patents                                                    (23,975)              (6,247)
                                                                        -----------------------------------
Net cash (used in) provided by investing activities                         (540,223)             592,978

FINANCING ACTIVITIES
Proceeds from stock option exercises                                           5,625               21,125
Principal repayments of long-term debt                                       (33,100)             (29,375)
                                                                        -----------------------------------
Net cash used by financing activities                                        (27,475)              (8,250)
                                                                        -----------------------------------

Net (decrease) increase in cash and cash equivalents                        (352,411)             736,156
Cash and cash equivalents at beginning of year                               809,268               73,112
                                                                        -----------------------------------
Cash and cash equivalents at end of year                                   $ 456,857            $ 809,268
                                                                        =================================

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest                                                     $   2,900            $   6,626
Conversion of preferred stock to common stock                              $  46,382            $  68,904

</TABLE>


See accompanying notes.


                                       F - 6
<PAGE>   39

                           Angstrom Technologies, Inc.
                          Notes to Financial Statements

                            October 31, 1999 and 1998

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 eight 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 debt instruments with a maturity of three months or less
         at date of purchase to be cash equivalents.



                                     F - 7
<PAGE>   40



                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 1   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         NET (LOSS)/INCOME PER COMMON SHARE

         Calculations of net (loss)/income per common share are based on the
         weighted average number of shares outstanding during each year. The
         weighted average number of shares outstanding was 23,724,864 for 1999
         and 23,449,728 for 1998.

         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, 1999, consist of an Institutional Fund
         which is comprised of U. S. Government and agency issues, $89,997,
         Commercial Paper, $148,802, repurchase agreements, $27,613,
         certificates of deposit, $79,770, bank and corporate notes, $133,973,
         and other assets, $31,191. The investments are classified as held to
         maturity. All investments inside the fund mature within one year and
         are carried at market value which approximates cost at October 31,
         1999.

                                     F - 8
<PAGE>   41

                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 3   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 1999 and 1998, 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, 1999
         ($1,126,772) and 1998 ($924,193), in arrears. No dividend has been
         accrued for the year ended October 31, 1999 and 1998. The amount that
         would have been recorded at October 31, 1999 and 1998, if a dividend
         had been declared, would have been $202,579 and $207,077, respectively.
         The preferred stock is subject to redemption at the company's option at
         $2.00 per share on 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.


NOTE 4   LONG-TERM DEBT
<TABLE>

         Long-term debt at October 31, 1999 consists of the following:

        <S>                                                                          <C>
         Promissory note, payable in monthly installments through
            January 1, 2000, imputed at an annual rate of 12%                         $5,911
         Less current maturates                                                        5,911
                                                                                      ------

         Total long term debt                                                         $ --
                                                                                      ======
</TABLE>

         The required payments of principal subsequent to October 31, 1999 are
         $5,911 for 1999.


                                     F - 9
<PAGE>   42

                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 5   RESEARCH AND DEVELOPMENT COSTS

         Research and development costs charged to expense during the fiscal
         years ended October 31, 1999 and 1998 were approximately $162,000 and
         $206,000, respectively.


NOTE 6   LEASES

         Minimum future rental payments under commitments for noncancelable
         operating leases in effect at October 31, 1999, principally for
         facilities is:
<TABLE>

                         <S>                      <C>
                          1999                        $ 2,522
                          2000
                                                       15,132
                          2001                         15,132
                          2002                          6,305
                                                    ---------

                                                     $ 39,091
                                                     ========
</TABLE>


         Total rent expense under operating leases was $25,509 and $25,794 for
         the years ended October 31, 1999 and 1998, 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 of 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 who options will be grants to, 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.



                                     F - 10
<PAGE>   43

                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 7   STOCK OPTION PLANS (CONTINUED)

         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"). The 1994 Plan provides
         that the number of shares subject thereto and outstanding options and
         their exercise prices, are to be appropriately adjusted for mergers,
         consolidations, recapitalizations, stock dividends, stock splits or
         combination of shares. Shares allocated to options and stock
         appreciation rights which have terminated for reasons other than the
         exercise thereof may be reallocated to other options and/or stock
         appreciation rights. Ratification and approval of the 1994 Plan with
         stockholders also constituted ratification and approval of the options
         to be granted thereunder to the Company's executive officers and
         directors.

         Certain key executives (the Team) received grants under the 1994 Stock
         Option Plan to acquire one million shares of the common stock of the
         Company at a price per share equal to $.125. Such options are
         exercisable to the extent of 500,000 shares immediately, an additional
         250,000 on the first anniversary of the date of grant and the balance
         of 250,000 shares exercisable from and after the second anniversary of
         the date of grant, with such options expiring ten years from the date
         of grant unless sooner terminated in accordance with its provisions.
         Subsequent to October 31, 1999, 900,000 of these options were returned
         to the Plan.

         Options expire through 2007 based upon the date of grant. Changes in
         options outstanding under the Plans are as follows:
<TABLE>
<CAPTION>

                                                                                    STOCK OPTION
                                                            SHARES                  PRICE RANGE
                                                       ------------------------------------------

<S>                                                    <C>                        <C>      <C>
         Balance at October 31, 1997                     3,595,000                $0.01 to $.438
            Granted                                              0
            Exercised                                     (215,000)
                                                       --------------
         Balance at October 31, 1998                     3,380,000                $0.01 to $.438
            Granted                                        535,000                     $0.17
            Exercised                                      (45,000)
                                                       ==============
         Balance at October 31, 1999                     3,870,000                $0.01 to $.438
                                                       ==============
         </TABLE>

         At October 31, 1999, 6,800,000 shares of common stock are reserved for
         issuance under the Plans.




                                     F - 11
<PAGE>   44


                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 7   STOCK OPTION PLANS (CONTINUED)

         At a special meeting of the Company's Shareholders on January 20, 1992,
         options were granted outside of the Company's stock option plans to the
         chief executive officer to purchase 400,000 shares of common stock for
         $.0125 per share. Subsequent to October 31, 1999, these options were
         retired.

         At a special meeting of the Board of Directors on September 14, 1993,
         options were granted outside of the Company's stock option plans to the
         Team to purchase a total of 300,000 shares of common stock at an option
         price of $0.125 per share for a period expiring September 14, 2002. In
         1997, 100,000 of these options were exercised. Subsequent to October
         31, 1999, 200,000 of these options were returned in exchange for
         options in the registered plans.

         At October 31, 1999, 35,000 of the outstanding stock options are
         exercisable starting on September 9, 2000 and after. All remaining
         stock options are exercisable immediately.

         As permissible under Statement of Financial Accounting Standards No.
         123, the Company accounts for stock options granted 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.

         The following table represents pro-forma net income (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 1999 and 1998, the Company used
         the Black Scholes option pricing model, a risk-free interest rate of
         8%, expected dividend yield of zero, expected option lives of 5 years,
         and expected volatility of 79.4%.
<TABLE>
<CAPTION>

                                                                 1999                1998
                                                            ----------------    ---------------

<S>                                                           <C>                 <C>
         Net (loss) income applicable to common stock as
              reported                                        $  (253,724)        $   196,431
         Pro-forma net (loss) income                          $  (314,924)        $   196,431
         Net (loss) income per common share as reported       $     (0.01)        $      0.01
         Pro-forma net (loss) income per common share         $     (0.01)        $      0.01

</TABLE>


                                     F - 12
<PAGE>   45





                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 8   FEDERAL 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, 1999 is
         presented below:
<TABLE>

          <S>                                                 <C>
           Deferred tax assets:
             Net operating loss                                 $ 1,315,700
             Other, net                                              11,200
                                                              ----------------
           Total deferred tax assets                              1,326,900
           Less: valuation allowance                             (1,326,900)
                                                              ================
           Net deferred tax asset                               $      --
                                                              ================
</TABLE>

         The Company has cumulative net operating loss carryforwards of
         approximately $3,300,000 for federal income tax purposes which expire
         in the years 2000 to 2019.

         The reconciliation of income tax at the U.S. Federal statutory rate to
         income tax expense:
<TABLE>
<CAPTION>

                                                                                YEAR ENDED OCTOBER 31
                                                                              1999                 1998
                                                                         -------------------------------

<S>                                                                       <C>                   <C>
         Tax at U.S. statutory rate                                       $ (18,000)            $ 160,000
         Tax benefit of net operating loss carryforward                        --                (160,000)
         Loss for which benefit not provided                                 18,000                  --
                                                                         ===========             =========
         Actual tax provision                                             $    --               $    --
                                                                         ===========             =========
</TABLE>

NOTE 9   RELATED PARTY TRANSACTIONS

         During the fiscal year ended October 31, 1999 the Company paid
         approximately $138,000 ($293,000 in 1998) in commissions to the Team in
         accordance with the employment agreements with the Team which provides
         that the Team receive 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
         Company paid consulting fees of approximately $8,000 in 1999 ($22,000
         in 1998) to various members of the Board of Directors and/or Corporate
         Officers or to entities controlled by them.




                                     F - 13
<PAGE>   46


                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 9   RELATED PARTY TRANSACTIONS (CONTINUED)

         The Company is required to assign to the Team a 1/3rd interest in any
         patents or other intellectual property created by the Team which is
         used in the Company's business. The Company is required to pay the Team
         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 Team 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, 1999 the Company paid
         royalties of approximately $3,000 to the Team ($6,000 in 1998).


NOTE 10  SIGNIFICANT CUSTOMERS

         Customers in excess of 10% of net sales for each respective year is as
         follows:
<TABLE>
<CAPTION>

                                                    YEAR ENDED OCTOBER 31
                                                    1999             1998
                                               ---------------- ----------------

<S>                                                   <C>              <C>
Customer A                                            18%              60%
Customer B                                            26%              14%
</TABLE>


NOTE 11  YEAR 2000 ISSUE (UNAUDITED)

         The Company has implemented a plan to modify its information technology
         to be ready for the Year 2000. Management estimates that amounts spent
         on Year 2000 issues will not have a material impact on the financial
         position of the Company or the results of its operations.




                                     F - 14
<PAGE>   47







                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 12  BASIC AND DILUTED INCOME PER SHARE

         The computation of basic and diluted earnings per share is shown below:
<TABLE>
<CAPTION>

                                                                                   OCTOBER 31,
                                                                               1999           1998
                                                                       ------------------------------
         Numerator:

<S>                                                                     <C>             <C>
         Net (loss) income                                              $    (51,145)   $    403,508
         Preferred stock dividend requirement                               (202,579)       (207,077)
                                                                       ------------------------------

         Number for basic income per share - net (loss)
          income applicable to common stock                                 (253,724)        196,431

         Effect of dilutive securities - preferred stock dividends
           and adjustments resulting from assumed conversions                   --              --
                                                                       ------------------------------

         Numerator for diluted income per share - net (loss)
          income applicable to common stock after assumed
          conversion                                                    $   (253,724)   $    196,431
                                                                       =============================

         Denominator:

         Denominator for basic income per share - weighted
           average shares outstanding                                     23,724,864      23,449,728

         Effect of dilutive securities:
            Convertible preferred stock                                         --              --
            Assumed issuance of stock under stock
               Plans based on treasury stock method                             --         2,134,827
                                                                       ------------------------------

         Denominator for diluted income per share -
            weighted average shares outstanding and
            impact of dilutive securities                                 23,724,864      25,584,555
                                                                       =============================

         Basic (loss) income per common share                           $       (.01)   $        .01
                                                                       =============================

         Diluted (loss) income per common share                         $       (.01)   $        .01
                                                                       =============================

</TABLE>


                                     F - 15
<PAGE>   48



                           Angstrom Technologies, Inc.
                    Notes to Financial Statements (continued)


NOTE 12  BASIC AND DILUTED EARNINGS PER SHARE (CONTINUED)

         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 and 5,176,920
         shares at October 31, 1999 and 1998, respectively) and options
         outstanding (3,870,000 at October 31, 1999).









                                     F - 16