<PAGE>
FORM 10-Q SB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-Q SB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the period ended September 30, 1995
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _______________ to _______________
Commission File Number: 0-18880
ATRIX INTERNATIONAL, INC.
-------------------------
(Exact Name of registrant as specified in its charter)
Minnesota 41-1591075
--------- ----------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
14301 Ewing Avenue South, Burnsville, MN 55306
- - - - - -----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(612) 894-6154
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
As of September 30, 1995 the following securities of the registrant were
outstanding: 5,653,644 shares of Common Stock, $.01 per value per share.
<PAGE>
PART I.
ITEM 1. FINANCIAL STATEMENTS
This report includes the financial position of Atrix International, Inc.,
("Atrix" or the "Company") as of September 30, 1995 and June 30, 1995, the
results of operations for the three months ended September 30, 1995 and 1994,
and the cash flows for the three months ended September 30, 1995 and 1994.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET SALES. For the three months ended September 30, 1995, the Company reported a
4% net sales increase to $1,468,433 from $1,408,729 for the same period in the
prior year. The Company recorded $130,572 of royalty revenue from patent
licenses in the first quarter of fiscal 1995 as compared to only $6,398 in
fiscal 1996. Accordingly, the Company's revenues from the sale of products
increased approximately 14% from the first fiscal quarter of 1995.
The increase in revenues is due to increased sales of the R3 Copy Control
products and distribution sales, which more than offset decreases in royalty
revenues and manufacturing products. Atrix shipped $138,081 of the new R3 Copy
Control product line during the first quarter of fiscal 1996. This represents an
increase of $129,442 over sales of $8,639 in the first quarter of the prior
year. While most of the R3 shipments were made to Pitney Bowes, shipments were
also made to two other major customers.
The following table shows the Company's revenues for the periods indicated by
product line, total manufactured products and total distributed products.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
---------- ----------
<S> <C> <C>
Product Line
Vacuums and Supplies $ 260,496 $ 369,256
ESD Equipment 67,630 58,920
Circuit Board Cases 30,188 9,372
Special Assemblies 44,689 181,839
---------- ----------
Total Manufacturing 403,003 619,387
Loose Tools 624,484 429,778
Tool Kits 94,225 89,042
Instrumentation 202,242 131,311
---------- ----------
Total Distribution 920,951 650,131
R3 Office Machine Monitor 138,081 8,639
Royalty Revenue 6,398 130,572
---------- ----------
Total Revenue $1,468,433 $1,408,729
</TABLE>
Manufacturing sales were $403,003 and $619,387 in the quarters ended September
30, 1995 and 1994, respectively. The primary reason for the decrease is due to
completion of shipments under a major contract for special cases in October of
1994.
Distribution sales were $920,951 for the quarter ended September 30, 1995,
compared to $650,131, an increase of 42%. The increase is due to greater
acceptance of the distribution products by one of the Company's larger customer
and the addition of several other large customers.
Form 10-Q SB September 30, 1995
Page 2
<PAGE>
GROSS PROFIT
The gross profit margin as a percentage of sales was 29.9% and 34.9% for the
periods ended September 30, 1995, and 1994, respectively. The decrease is due to
the royalty revenue. The lower royalty revenue reduces the gross margin as the
royalty revenue carries a margin of approximately 75%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
September 30, 1995 and 1994 decreased from $436,029 to $389,333 an improvement
of $46,696. The decrease is primarily due to patent legal expenses and other
expenses not being incurred in the quarter ended September 30, 1995. The Company
expects its selling, general and administrative expenses to remain at these
lower levels for the remainder of fiscal 1996.
NET INCOME
Net income for the quarter ended September 30, 1995 increased to $50,158 from
$46,959 for the quarter ended September 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and restricted cash at September 30, 1995 was $1,405,514
compared to $1,157,255 at June 30, 1995. Working capital increased to $1,610,692
at September 30, 1995 from $1,217,401 at June 30, 1995. The increases in the
Company's cash and working capital position were due primarily to operating
profits and a private offering of common stock.
On September 30, 1995, the Company completed a private sale of 451,666 shares of
Common Stock. The private offering was made to a limited number of shareholders
of the Company that held warrants to purchase shares of Common Stock. The
Company received net proceeds of $308,750 from the private offering. The purpose
of the offering was to increase the Company's capital and surplus in order to
comply with NASDAQ Small Cap Market rules that require that the Company maintain
capital and surplus of $2 million.
The Company's plan of operations currently does not call for additional capital.
The Company plans to finance its operations for the remainder of fiscal year
ending June 30, 1996 with working capital and bank borrowings. The Company
expects to generate cash from operations for the remainder of fiscal 1996 by
continued increases in sales, gross margin improvement and controlled operating
expenses.
In October, 1995, the Company's line of credit was increased by $250,000 to
$1,250,000 at prime. Further the restricted cash was reduced from $400,000 to
$250,000.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 5. OTHER INFORMATION
The Company announced the purchase of the UltiVac(TM) Product Line from Porous
Media on November 9, 1995. The assets acquired by the Company include production
equipment, customer lists and the UltiVac trademark. The purchase price will be
paid in cash over the next four to five years. The other terms of the
acquisition are confidential and the size of the transaction does not require
that the transaction be disclosed on a Form 8K. This expands the Company's
offering of toner vacuum products to the photocopier and laser printer
industries. In addition, the product acquisition includes filtration products
for the asbestos and HEPA markets.
Form 10-Q SB September 30, 1995 Page 3
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
a. Exhibit 27.1 filed herewith
b. Form 8-K filed on October 9, 1995 with Securities and Exchange
Commission
Form 10-Q SB September 30, 1995 Page 4
<PAGE>
ATRIX INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1995 1995
------------- -----------
(unaudited)
<S> <C> <C>
Current Assets:
Cash $ 1,005,514 $ 757,255
Restricted Cash 400,000 400,000
Accounts receivable less allowance for doubtful accounts
($17,554 and $17,000, respectively) 877,048 746,490
Inventories 827,701 851,671
Prepaid Expenses 110,646 33,978
----------- -----------
Total Current Assets 3,220,909 2,789,394
----------- -----------
Property and equipment, net 281,411 299,832
Intangible assets, net 14,804 14,424
Capitalized software development costs, net 258,924 276,465
----------- -----------
TOTAL ASSETS $ 3,776,048 $ 3,380,115
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 534,821 $ 661,640
Notes payable - bank 995,153 812,653
Current maturities of long-term debt 5,575 5,742
Accrued liabilities 74,668 91,958
----------- -----------
Total current liabilities 1,610,217 1,571,993
Notes payable - long term 6,907 8,106
----------- -----------
Shareholders' Equity:
Preferred stock, $.01 par value
3,000,000 shares authorized,
no shares issued
Common stock, $0.01 par value,
50,000,000 shares authorized, 5,653,644
and 5,201,978 respectively shares
issued and outstanding 56,536 52,019
Capital in excess of par value 3,261,969 2,957,736
Accumulated deficit (1,159,581) (1,209,739)
----------- -----------
Total shareholders' equity 2,158,924 1,800,016
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,776,048 $ 3,380,115
=========== ===========
See accompanying notes to financial statements.
</TABLE>
Form 10-Q SB September 30, 1995 Page 5
<PAGE>
ATRIX INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1995 1994
----------- ----------
<S> <C> <C>
Product Revenue $ 1,462,035 $1,278,157
Royalty Revenue 6,398 130,572
----------- ----------
Net Revenue $ 1,468,433 $1,408,729
Cost of Sales (1,029,009) (916,907)
----------- ----------
Gross Profit 439,424 491,822
Selling, general and
administrative expenses (389,333) (436,029)
----------- ----------
Income from operations 50,091 55,793
Interest income/(expense), net (1,315) (7,984)
----------- ----------
Income before income taxes 48,776 47,809
Income tax expense/benefit 1,382 (850)
----------- ----------
Net income $ 50,158 $ 46,959
=========== ==========
Net Income per share 0.01 0.01
Weighted average number
of common stock equivalents 5,206,888 5,201,978
</TABLE>
See accompanying notes to financial statements.
Form 10-Q SB September 30, 1995 Page 6
<PAGE>
ATRIX INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
Cash Flows from operating activities: 1995 1994
---------- --------
<S> <C> <C>
Net income $ 50,158 $ 46,959
Adjustments to reconcile net income to net
Cash provided (used) by operating activities:
Depreciation and amortization 48,796 93,967
Change in current assets and liabilities:
Accounts receivable (130,559) 265,450
Inventories 23,971 17,434
Prepaid expenses (76,668) (15,748)
Accounts payable (126,819) (5,304)
Accrued liabilities (17,290) (59,780)
---------- --------
Net cash provided (used) by operating activities (228,411) 342,978
Cash flow from investing activities:
Purchase of equipment, leasehold
Improvements and other assets, net (12,834) (22,315)
Capitalized software development costs 0 (75,170)
Additions intangible assets (380) 0
---------- --------
Net cash used by investing activities (13,214) (97,485)
Cash flow from financing activities:
Proceeds (repayments) from notes payable - bank net 182,500 (4,500)
Repayment from notes payable - shareholders 0 (65,015)
Repayments of capital lease obligations (1,366) (1,128)
Proceeds from exercise of warrants to common stock 308,750 0
---------- --------
Net cash (used) provided by financing activities 489,884 (70,643)
Net increase (decrease) in cash
and cash equivalents 248,259 174,850
Cash - beginning of the period 757,255 317,678
---------- --------
Cash - end of the period $1,005,514 $492,528
========== ========
</TABLE>
See accompanying notes to financial statements.
Form 10-Q SB September 30, 1995 Page 7
<PAGE>
ATRIX INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. CORPORATE ORGANIZATION
Atrix International, Inc. (the Company) designs and manufactures toner vacuums,
vacuum filters and circuit board transport cases. The Company also designs the
hardware and software for R3 Remote Metering and Copy Control products. In
addition, Atrix distributes tools, meters, electrostatic discharge (ESD) and
static control products and assembles tool kits for the telecommunication,
office machine and computer industries.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements, which are unaudited except for the
balance sheet as of June 30, 1995, have been prepared in accordance with
instructions to Form 10-Q SB and do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have been
included. These financial statements should be read in conjunction with the
financial statements and accompanying notes included in the Company's Annual
Report on Form 10-KSB, for the year ended June 30, 1995 filed with the
Securities and Exchange Commission.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments generally with
original maturities of three months or less at the time of purchase which are
readily convertible to cash.
RESTRICTED CASH
Restricted cash is comprised of a 90-day certificate of deposit. Pursuant to the
line of credit agreement discussed in Note 5 below, the Company is restricted
from using the cash to the extent amounts are outstanding on the line of credit.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being determined on
the weighted average method. Inventories are evaluated on a quarterly basis to
identify obsolete, slow-moving and non-saleable items. The Company establishes a
reserve to reduce the inventory to net realizable value when necessary.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization, which
includes the amortization of assets recorded under capital leases, are computed
using the straight-line method over the estimated useful lives of five to seven
years or the initial lease terms. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts,
with any resulting gain or loss reflected in income for the period. Expenditures
for replacements and betterments are capitalized, while maintenance and repairs
are charged against income as incurred. Accumulated depreciation was $1,239,379
and $1,208,123 at September 30, 1995 and June 30, 1995, respectively.
Form 10-Q SB September 30, 1995 Page 8
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense when incurred. These costs
were approximately $43,562 and $4,470 for the three months ended September 30,
1995 and 1994, respectively. See the capitalized software development costs
section for additional discussion on development activities.
INTANGIBLE ASSETS
Intangible assets were recorded in conjunction with the Versa-Link, Inc.
acquisition and are comprised primarily of patented technology which reads,
records and transmits information via telephone lines. The Company is amortizing
the intangible assets on a straight-line basis over the legal lives of the
patents. Accumulated amortization was $697,947 at both September 30, 1995 and
June 30, 1995, respectively.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company develops software and firmware that is an integral part of a product
expected to be sold in future years. Software development costs are capitalized
only upon the establishment of technological feasibility for the related
product. Capitalized costs consist mainly of salaries and programming fees
related to the development of software and firmware. The Company commences
amortization when the related product is available for general release to
customers. The Company assesses the realizability of the capitalized software
development costs on a quarterly basis by comparing the amount of capitalized
software costs with the expected future gross revenues of the related product.
The annual amortization for these capitalized costs reflects the greater of the
proportion of the current year's product revenues to total expected product
revenues or a straight-line basis over their estimated useful life of six years.
Accumulated amortization was $242,086 and $236,655 at September 30, 1995 and
June 30, 1995, respectively.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of the product.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share computations are based on the weighted average
number of common shares equivalents outstanding during the year.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Board Statement 109, "Accounting for Income Taxes," which uses an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future consequences of events that have been
recognized in the Company's financial statements or tax returns.
NOTE 3. INVENTORIES
Inventories are comprised of the following at:
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
---------------------- --------------
<S> <C> <C>
Raw Materials $ 210,782 $ 196,624
Finished goods 616,919 655,047
----------- -----------
Total $ 827,701 $ 851,671
</TABLE>
Form 10-Q SB September 30, 1995 Page 9
<PAGE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, are comprised of the following at:
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
------------------ -------------
<S> <C> <C>
Tooling and molds $ 846,509 $ 836,805
Office Furniture and
fixtures 436,274 434,034
Manufacturing equipment 104,540 103,649
Leasehold improvements 79,443 79,443
Warehouse equipment 54,024 54,024
----------- -----------
Total $ 1,520,790 $ 1,507,955
Accumulated depreciation (1,239,379) (1,208,123)
----------- -----------
Net $ 281,411 $ 299,832
</TABLE>
NOTE 5. NOTES PAYABLE
BANK
The Company maintains a line of credit with Riverside Bank. As of September 30,
1995, the borrowing base under the line of credit was the lesser of a $1,000,000
or (b) the sum of (i) 85% of eligible accounts receivable and (ii) 50% of
eligible inventory. The Company is also required to maintain tangible net worth
of $1,100,000. The line of credit is secured by the Company's assets and by a
$400,000 certificate of deposit. In October, 1995, the line of credit was
increased to $1,250,000 and the amount of the certificate of deposit was
decreased to $250,000. The interest rate is at prime. The Company is required to
pay accrued interest on a monthly basis.
NOTE 6. SALE OF COMMON STOCK
On September 30, 1995, the Company completed a private sale of 451,666 shares of
Common Stock. The private offering was made to a limited number of shareholders
of the Company that held warrants to purchase shares of Common Stock. The
Company received net proceeds of $308,750 from the private offering. The purpose
of the offering was to increase the Company's capital and surplus in order to
comply with NASDAQ Small Cap Market rules that require that the Company maintain
capital and surplus of $2 million.
Form 10-Q SB September 30, 1995 Page 10
<PAGE>
NOTE 7. INCOME TAXES
The Company has available net operating loss and tax credit carryforwards for
income tax purposes of approximately $1,432,000 and $83,688, respectively, on
June 30, 1995. These carryforwards expire in the years ending June 30, 2003
through 2008. Utilization of the net operating loss and tax credit carryforwards
are subject to certain limitations under Section 382 of the Internal Revenue
Code. A valuation allowance exists for the entire net tax benefit associated
with all carryforwards and temporary differences at September 30, 1995 and June
30, 1995 as their realization is not presently assured.
INVENTORY OF DEFERRED ITEMS AND NOL CARRYFORWARD
The composition of the net deferred tax are as follows:
<TABLE>
<CAPTION>
June 30, 1995 September 30, 1995
-------------- -------------------
<S> <C> <C>
Loss Carryforwards $ 647,756 605,316
Research & Development
Credits 83,688 83,688
Inventory 28,473 26,610
Bad Debts 6,722 6,965
Fixed Assets 91,200 95,030
Amortization (100,586) (107,788)
Other 4,658 4,658
--------- ---------
761,911 714,479
Less: Valuation Allowance (761,911) (714,479)
$ 0 $ 0
========= =========
</TABLE>
During 1995 and 1994 the Company accrued $7,350 and $8,500, respectively, for
alternative minimum taxes.
NOTE 8. RETIREMENT SAVINGS PLAN
The Company maintains a defined contribution plan which qualifies under the
Internal Revenue Code Section 401(K). Substantially all full time employees are
eligible to participate under the plan. Company contributions are discretionary.
Form 10-Q SB September 30, 1995 Page 11
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATRIX INTERNATIONAL, INC.
Date: November 13, 1995 ________________________________
Steven D. Riedel
Chief Executive Officer
(Principal Executive, Financial and
Accounting Officer)
_________________________________
Denice J. Bloomer
Vice President/Controller
Form 10-Q SB September 30, 1995 Page 12
<PAGE>
ATRIX INTERNATIONAL, INC.
EXHIBIT INDEX ON FORM 10QSB
For the quarter ended September 30, 1995
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
- - - - - -------- ---- ----------------
<S> <C> <C>
27.1 Article 6 of Regulation S-X Financial Data Schedule
Investment Companies Worksheet filed herewith
</TABLE>
Form 10-Q SB September 30, 1995 Page 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND> This schedule contains summary financial information extracted from
10-Q Pages 4-6 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 1,405,514
<INVESTMENTS-AT-VALUE> 1,405,514
<RECEIVABLES> 877,048
<ASSETS-OTHER> 938,347
<OTHER-ITEMS-ASSETS> 555,139
<TOTAL-ASSETS> 3,776,048
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 6,907
<OTHER-ITEMS-LIABILITIES> 1,610,217
<TOTAL-LIABILITIES> 1,617,124
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 56,536
<SHARES-COMMON-STOCK> 5,653,644
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 2,102,388
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 3,776,048
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,213
<OTHER-INCOME> 0
<EXPENSES-NET> 389,333
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 451,666
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 17,604
<GROSS-EXPENSE> 390,724
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> .01
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
