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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
June 30, 1996 0-18880
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ATRIX INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1591075
(State of Incorporation) (I.R.S. Employer Identification No.)
14301 Ewing Avenue South
Burnsville, MN 55306
(Address of principal (zip code)
executive offices)
Registrant's telephone number, including area code: (612) 894-6154
----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
----------------------------
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 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [_]
The Registrant's revenues for the fiscal year ended June 30, 1996 were
$6,028,427.
As of September 16, 1996, 5,653,644 shares of Common Stock of the
Registrant were outstanding, and the aggregate market value of the Common Stock
of the Registrant (based upon the average closing bid and asked prices of the
Common Stock at that date, as reported by NASDAQ), excluding shares owned
beneficially by officers and directors, was approximately $4,107,143.
Part II of this Annual Report on Form 10-KSB incorporates by reference
information (to the extent specific pages are referred to herein) from the
Registrant's Annual Report to Shareholders for the year ended June 30, 1996 (the
"1996 Annual Report"). Part III of this Annual Report on Form 10-KSB
incorporates by reference information (to the extent specific sections are
referred to herein) from the Registrant's Proxy Statement for its annual meeting
to be held October 22, 1996 (the "1996 Proxy Statement").
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PART I
ITEM 1. BUSINESS
INTRODUCTION
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The Company was formed in 1987 under the name Tiempo Equities, Inc. for use
as a vehicle to raise capital for investment in an operating business. In
October 1990, Tiempo completed a merger with Atrix Tool, Inc., in which Atrix
Tool was merged into Tiempo, and Tiempo changed its name to Atrix International,
Inc. Atrix Tool was incorporated in Minnesota in 1981 and, prior to the merger,
was privately held. Prior to the merger, Tiempo had no business operations. As
used in this report the term "Company" or "Atrix" refers to the combined entity
and its predecessors.
In late 1992, Atrix began significant marketing of its newest product, the
R3 Office Machine Monitor, which is a modular device installed on a copy machine
to remotely read, record and report various data and automatically transmit the
data to a central computer over a shared telephone line. The device is designed
to be used for such purposes as automatic billing and servicing of copy
machines.
In April of 1994, Atrix completed the study of the remote metering market
and decided to start a development effort to expand the R3 product into the Copy
Control market that the Company believes is generating approximately $40 million
in sales annually. Development began in May of 1994 and the prototype Copy
Control unit was demonstrated at the NOMDA show in July 1994. Atrix negotiated a
five year non-exclusive agreement with Pitney Bowes for the new copy management
system which became active on September 30, 1994. Pre-production units were
shipped to Pitney Bowes in December of 1994 and final production units were
shipped in March of 1995. Atrix filed a U.S. patent application for the new R3
copy control system in March of 1995.
During fiscal 1996, the Company introduced two new software packages to
enhance the sales and reporting capabilities for the Copy Control system.
WinTrax - TR, a transactional based software system for the legal, public
relations, and Copy Center markets was released in March of 1996. This was
followed with the introduction of WinTrax - PNP, a notebook software package
allowing the user to automatically retrieve, format, and report data from R3
Copy Control modules. Both of these packages have been field tested and are now
available for commercial application.
The Company has developed and is currently manufacturing and marketing a
line of field service vacuum cleaners for capturing toner from copy machines.
Atrix currently has five models of vacuum cleaners which vary in size and
capacity. All of the models are available with a rubber flex neck, crevice tool,
detachable crevice tool brush and stretch hose, which are statically dissipative
for maximum static protection. In May of 1994, the Company released a new
Universal Filter for toner vacuums that is compatible with 3M, Eltrex, and Ulti
Vac vacuums. This unique product has better retention than the competitors
products and is priced aggressively. The Company has been issued a design patent
covering this filter by the U.S. Patent and Trademark Office.
In November of 1995, the Company purchased the Porous Media line of ultra
fine filtration vacuums. These products expanded Atrix's vacuum products into
the asbestos, soot, and ultra fine color toner markets. Sales from this product
acquisition exceeded $350,000 in fiscal 1996.
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The Omega, a new low cost full size field service vacuum was introduced in
June of 1996. This new vacuum is the lowest price full sized field service
vacuum available in the market. Additionally, the Omega vacuum offers finer
filtration, and durability than competitive models.
Since 1981, Atrix has distributed tools, custom tool kits and related
products to field service technicians for servicing office machines, computers,
and telecommunication products. The Company has developed what it believes to be
a unique procedure for supplying customers with specialized tools by providing
custom catalogs with competitive pricing for Fortune 2,000 Companies.
PRODUCT AND SERVICES
- --------------------
The Company's products and services consist of the following:
. R3 Copy Control System and Software
. Vacuum Cleaners, Cleaning Equipment and Supplies
. Hand Tools and Custom Tool Kits
. Static Protection Products
. Instrumentation
. Specialty Tools
R3 COPY CONTROL SYSTEM
----------------------
The R3 copy control system is a modular device that is installed on a copy
machine to remotely read, record and report a number of specific events and
automatically transmit the data to a central computer over a standard telephone
line. The copy control system is available in four configurations. Depending on
the model, the copy control system can provide some or all of the following
functions:
. Meter reading for reporting the number of copies made for billing
purposes, scheduling of preventative maintenance and/or measuring usage
of supplies
. Service enable/disable to permit an operator to remotely disable and
enable the machine
. Control the access and to account for copy usage by user, group and
division
Selected configurations communicate over existing telephone lines, without
the need for a dedicated line, and multiple monitors may share the same
telephone line. Also, the communication can be initiated by either the host
computer or the monitor. The device consists of hardware, software and firmware
including a complete set of scheduling and reporting software.
Atrix acquired the technology used in the R3 copy control system in
February 1991. The Company believes that the Office Machine Monitor may have a
number of applications, in addition to copy machines. In July 1994, the Company
introduced a new version of the R3 that is enhanced to compete in the copy
control market. Atrix believes that this is a significant change as the R3 will
be sold into an existing market that generates approximately $40 million in
sales annually. Further, the Company will be
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the first to introduce copy control that can be networked using the R3 patent,
which will provide the user with automatic down loading and retrieving of data.
The specifications of the hardware and software were designed by the Company in
conjunction with Pitney Bowes.
During fiscal 1996, the Company introduced two new software packages to
enhance the sales of the R3 Copy Control product line. WinTrax - TR, a
transactional based system for the legal, public relations, and copy center
market was released in March of 1996. Atrix has installations at several large
customers and has recently trained its outside force on the benefits of the
WinTrax - TR system.
WinTrax - PNP was introduced to the sales force in June of 1996. This
unique software package permits end users to automatically extract data from
Copy Control units and formats the data into meaningful reports for the user.
The Company believes that this provides a strong competitive edge over known
competition.
The R3 copy control system is priced competitively over traditional copy
machine control devices. The retail price ranges from $175 to $930, depending on
the configuration.
VACUUM CLEANERS, CLEANING EQUIPMENT AND SUPPLIES
------------------------------------------------
Every equipment service business needs cleaning supplies and equipment for
the maintenance of office equipment and other products. These supplies include
vacuum cleaners, solvents, detergents, towels and optical cleaners.
The Company has developed and is currently manufacturing and marketing a
line of field service vacuum cleaners for capturing toner from copy machines.
Atrix currently has five models of vacuum cleaners which vary in size and
capacity. The Atrix junior model is the smallest vacuum and is designed for
field service technicians who generally walk from job to job. The AAA model is a
medium-sized vacuum and is the Company's most popular model. The HCTV is a large
capacity vacuum for use with large volumes of toner or developer and is designed
for use by in-house servicing technicians. The HCTV has 3.5 or 5 gallon
disposable toner filter. The UK model is a medium-sized vacuum designed for the
European market and targeted to high volume service and laser cartridge
recyclers. The three domestic models have high capacity filters that are able to
trap particles as small as 0.3 micron. All of the models are available with a
rubber flex neck, crevice tool, detachable crevice tool brush and stretch hose,
which are statically dissipative for maximum static protection. Atrix also sells
these utensils separately. The personal, AAA and UK models have UL, CSA, CE, and
TUV approval.
In November of 1995, Atrix purchased the ultra fine filtration line of
vacuum cleaners from Porous Media Corporation. This new line opens the markets
of asbestos abatement, lead abatement, and other fine filtration applications
for the Company. As part of this purchase the Company acquired a pleating
machine that is used in the manufacturing of filters, which has enabled the
Company to produce filters at a lower cost. During 1996, Atrix recorded
approximately $350,000 in sales of the newly acquired product line.
Along with vacuum cleaners, the Company also supplies the other expendable
cleaning supplies used by service technicians, such as solvents, detergents,
towels and optical cleaners. These items are readily available from numerous
alternative sources. Atrix has introduced a line of "universal" filters that can
be used in toner vacuums of its major competitors, including 3M Corporation.
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The suggested retail prices for the Company's vacuum cleaners range from
$99 to $300, depending on the model. Atrix believes that its personal model is
the lowest priced static-free, micro toner vacuum on the market.
Atrix now produces custom catalogs for Avnet Industrial, Ikon, Ricoh,
Unisys, Danka Companies, and Pitney Bowes. The Company believes that this unique
plan of distribution will continue to gain acceptance by many copy machine and
computer manufactures.
Vacuums, cleaning equipment and supplies accounted for approximately 29%
and 25%, respectively, of net sales in fiscal 1996 and 1995.
HAND TOOLS AND CUSTOM TOOL KITS
-------------------------------
The Company distributes hand tools and assembles and distributes customized
hand tool kits to businesses engaged in servicing office and telecommunication
equipment. These tools are generally manufactured by a third party and include
such tools as screwdrivers, pliers, wire strippers, wrenches, files, chisels,
crimpers, gauges, hammers, knives and ratchets. Customers that purchased more
than $50,000 of products in fiscal 1996 include AT&T, Avnet Industrial, Unisys,
OCE Office Systems, Sears, Hewlett Packard, MCI, Longs Ltd., Ames Supply,
Storage Technology, and Idea Servcom. Sales to theses customer currently
comprise approximately 70% to 80% of the Company's sales of tools and tool kits.
For many of these customers, servicing of their products has become and is an
important part of their revenues.
The Company's marketing strategy for its tools and tool kits is to assist
its customers in maintaining a high level of quality and service, while offering
improved cost control. Atrix has been selling tools and tool kits since 1981
and, during that time, has developed the knowledge and experience necessary to
provide its customers with high quality tools and kits while controlling costs.
Whenever possible, the Company assists its customers in the selection of
individual tools and in the design and selection of a tool kit. The Company is
also able to provide most replacement tools the same day ordered. In addition,
the Company monitors the performance of the various tools that it provides to
its customers. The Company works with its suppliers and customers to minimize
problems with tools and provide the best tool for the task to be performed.
Atrix also works directly with the customer's tool committee or engineering
group to assist the customers in finding appropriate solutions or substitutions
for tools that are not satisfactory. The Company believes that this strategy
helps customers reduce their tool costs and avoid costly mistakes.
The Company has developed a specialized tool support system for Unisys.
Atrix provides storage for the tools to be purchased by Unisys on a consignment
basis and provides detailed reporting, including product description, unit
quantity, unit cost and total cost.
The Company believes that the primary factors in successfully competing in
this market are competitive pricing, inventory availability and product support.
Atrix believes that it competes favorably with respect to these factors and has
received the top supplier ratings from AT&T and Unisys.
Tools and tool kit revenues accounted for approximately 44% and 40%,
respectively, of net sales in fiscal 1996 and 1995.
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STATIC PROTECTION PRODUCTS
--------------------------
In response to the problems associated with static electricity, the Company
has developed and supports many products which protect expensive electronic
components from damage caused by static electricity. One of the products that
the Company markets is a complete line of storage cases which are used by field
service personnel to carry static sensitive electronic components, such as
printed circuit boards, to and from service sites. Another static protection
product offered by the Company is the Field Service Workstation. The Workstation
consists of a mat along with an anti-static wrist strap, which provide for the
safety of technicians as well as the static sensitive components. The mat and
wrist strap enables the technician to ground himself and allows for static to
dissipate into the workstation mat for proper grounding. The Company also sells
an anti-static watch that combines the function of a wrist strap with a digital
chronograph. The anti-static watch encourages technicians to wear a wrist strap
when servicing a machine, and the Company believes that it is the only one of
its kind.
Static protection products accounted for approximately 5% and 6%,
respectively, of net sales in fiscal 1995 and 1994. Sales of static protection
products have increased recently as the computer industry has improved and
manufacturers seek to comply with ISO 9000 standards.
INSTRUMENTATION
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At the present time, the Company markets recognized brand names in meters
and other instrumentation, such as Fluke, Beckman and Simpson. The Company also
markets a number of diagnostic instruments for electronic equipment such as
EPROM duplicators, telephone test sets, hard and floppy disk analyzers, break
out boxes, electrometers and power surge suppressers. Atrix supplies meters to
field service technicians directly and also handles warranty repair on behalf of
the manufacturers to reduce down time to the technician.
Instrumentation accounted for approximately 12% and 13%, respectively, of
net sales in fiscal 1996 and 1995.
SPECIALTY TOOLS
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The Company also has the expertise to design and manufacture specialty and
custom tools to meet customer needs in unique or problem areas. Specialty tools
are designed by the Company's engineers along with the customer to the
customer's specifications and are purchased and assembled by the Company. For
example, Atrix assisted Xerox in designing a tool called the RHHD which is a
remote hand-held device used by the technician to enable and disable various
copier functions. Atrix is currently producing and selling approximately ten
specialty tools.
The Company's gross margins on specialty tools range from 40% to 60%.
Specialty tools accounted for approximately 3% and 8%, respectively, of net
sales in fiscal 1996 and 1995.
MARKETS
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The Company believes there is a developing market in several industries for
the technology used in the new R3 Copy Management System. Initially, Atrix has
focused on the copy machine market. In July of 1995, the Company introduced a
new version of the R3 at the NOMDA show in Las Vegas. This new
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product features the ability to accumulate date stamped transactions for
detailed billing and accounting. It is estimated that over $40 million of copy
control products are shipped annually, and Atrix began shipping product into
this market in March of 1995.
Based on the number of field service technicians and an assumed usage rate
of vacuum cleaners, Atrix estimates the world-wide market for vacuum cleaners
and filters used in the maintenance of office equipment to be approximately $15-
$20 million annually.
The Company's markets tools and tool kits, instrumentation, repair and
replacement parts, and cleaning equipment and supplies to field service
technicians for servicing office products, computers, and telecommunication
equipment. This market has continued to grow as the use of copying machines,
printers, FAX machines, personal computers, digital key sets and other office
and telecommunication equipment has increased throughout the workplace. The
growth of this market must be supported with trained field service technicians
who are generally responsible for installation and removal, maintenance and
repair, rehabilitation and upgrading, parts and consumable supplies, and
operator training and technical support. Atrix believes that as the U.S. economy
grows and shifts to a service economy, the opportunities for companies that
provide office machine service and support, like Atrix, will increase.
Currently, emerging service market opportunities exist in the
telecommunication industry, office automation and the personal computer
industry. In the past, manufacturers of office equipment generally included
field service as a function of sales and marketing and treated service as an
overhead cost of doing business. Today it is emerging as its own industry. This
emergence evolved through the development of high technology electronic products
such as personal computers, peripherals (such as printers and data storage
devices) copying machines and FAX machines, which are now used extensively in
day-to-day business operations. Today, field service has attained departmental
status and has become its own profit center within manufacturers of this type of
equipment.
According to industry estimates, there are approximately 1,100,000 field
service technicians in the U.S., approximately 5,900 field service organizations
servicing office equipment and approximately 3,300 field service organizations
servicing telecommunications equipment.
SALES AND MARKETING
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The Company's customers include manufacturers, dealers and purchasers of
office equipment. The Company maintains active personal contact with its current
customers, as well as prospective customers, by telephone, through personal
visits and at trade shows. Atrix also occasionally places advertisements in
trade journals, such as Field Service Manager and Business Technology
Association. Atrix also sells certain of its products through major office
supply catalogs; currently products are sold through five domestic catalogs and
four European catalogs. The Company's sales strategy is to persuade potential
customers that the Company's products and services will benefit the customer's
present method of doing business, and that the Company's products and services
have significant advantages over the products and services of competitors.
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Atrix has invested in a desk top publishing system to produce customized
catalogs for large customers. The customized catalogs typically contain tools,
vacuum cleaners, cleaning supplies, instrumentation and various other products
which are frequently purchased by the customer. The Company has produced
customized catalogs for Avnet Industrial, Ricoh, Alco Standard, Danka, and
Unisys. The Company also plans to offer customized catalogs to other large
customers.
Atrix currently employs ten people in sales and marketing positions. Eight
are located in the Minneapolis area and two in other locations. Six of the ten
are outside salesmen who are responsible for calling directly on larger
customers to stimulate business using outside catalogs. In June of 1996, Atrix
hired a experienced national sales manager to promote the new R3 Copy Control
Product. His responsibilities include outside sales force and developing sales
of the R3 Copy Control products to the facility management industry.
In Europe, sales are made through seven independent European distributors
and two sales representatives in Germany. Atrix has also appointed nonexclusive
distributors covering Australia, Canada Korea and South America. Atrix had
foreign sales of approximately $829,000 (approximately 14% of net sales) and
approximately $738,000 (approximately 13% of net sales) respectively, in fiscal
1996 and 1995. Since May 1994, the Company's vacuums have been carried in one of
Europe's largest office equipment catalogs, INMAC. The Company anticipates that
foreign sales will continue to be a significant part of its business.
MAJOR CUSTOMERS AND DISTRIBUTORS
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In fiscal 1996, the Company had one customer that accounted for 23% of
total sales. The loss of this customer could have a material adverse effect on
the Company. Important customers and distributors include: Ames Supply, Pitney
Bowes, MCI, Copy Duplicating Products, Digital Equipment Corporation, Global,
Hewlett Packard, IBM, Inmac Corporation, OCE, Ricoh Corporation, Storage
Technologies, Avnet Industrial, Unisys Corporation, AT&T, Unisys Company, Longs
International, Xerox and Rank Germany.
The Company generally conducts business with its customers with letter
agreements, contracts and/or purchase orders.
COMPETITION
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While the Company has applied for a patent covering certain aspects of the
new R3 Copy Management System, it faces substantial competition in this area of
its business from companies seeking to provide automated billing and tracking of
office machine usage using other technologies.
At the present time, there are a few other U.S. companies which sell vacuum
cleaners for use in the maintenance of office equipment and other products,
including 3M Corporation and Eltrex Corporation. The Company's AAA model
competes directly with a product manufactured by 3M Corporation. In the European
market, Convac is the Company's most significant competitor.
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There are many national, regional and local companies which assemble and
sell hand tools and hand tool kits to businesses engaged in servicing office
equipment. The Company's primary competitors on a national basis are Jensen
Tool, Arizona; Marshall Industries, California; Kaufman Distributing Company,
Georgia; Ames Supply Company, Illinois; and Katun, Minnesota. In addition, any
one of the many companies that manufacture and sell hand tools could develop
hand tools kits that would directly compete with Company products and services.
Similarly, companies or persons not now recognized in the industry may design
and develop products and services which are competitive with and superior to the
Company's products and services.
Some of the present and potential competitors of the Company have greater
manufacturing and marketing capabilities than the Company and greater research,
development, financial, and personnel resources and more extensive business
experience than the Company. Although the Company believes that its products and
marketing system possess advantages over competing products currently being
marketed, there can be no assurance that Company will be able to continue to
compete effectively in the marketplace as its present and potential competitors
are able to duplicate or improve upon its products, marketing system, or other
services.
RESEARCH AND DEVELOPMENT
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The Company's research and development activities are generally focused in
two areas: designing specialty tools and cleaning equipment in response to
specific customers or industry needs, and the design and development of software
and hardware to further the acceptance of the R3 Monitoring Device. The demand
for these products continue to grow for the following reasons:
. Existing electronic equipment generates demand for new servicing tools
and equipment due to cost containment pressures.
. New products and technology for the office environment, such as laser
printers, fax machines, and multi-purpose copiers, printers, fax
machine create a demand for new servicing and reporting technology.
Atrix has recently developed several new products, including:
. The new Universal toner filter that can be used in 3M, Eltrex, Ulti Vac
and Atrix AAA Vacuums.
. The new Omega vacuum cleaner introduced in June of 1996.
. The new copy management system packages WinTrax - TR and WinTrax - PNP.
The Company believes that its ability to develop specialty products for its
customers and to develop its own products is important to the success of its
business operations. However, there can be no assurance that the Company will be
able to continue to develop such products, or that such products will achieve
any degree of market acceptance.
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PATENTS AND PROPRIETARY PROTECTION
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The Company has been issued a U.S. design patent relating to certain
features of its universal vacuum filter product. In addition, the Company has
filed a patent application for certain features of its R3 copy management
system. There can be no assurance, however, that any patents applied for will be
granted or, if granted, will be valid or otherwise of value to the Company. The
Company currently relies on trade secret law to protect its rights to
proprietary information. No assurance can be given, however, that the Company
will be successful in maintaining the confidentiality of its proprietary
information. In the absence of valid patent or trade secret protection, the
Company may be vulnerable to competitors who could lawfully attempt to copy the
Company's products. Moreover, there can be no assurance that other competitors
may not independently develop the same or similar technology. Similarly, while
the Company believes that is has all rights necessary to manufacture and sell
its products without infringement of patents or other rights held by others, the
Company has not conducted a formal infringement search and there can be no
assurance that such conflicting rights do not exist.
SUPPLIERS
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The Company believes that supplies and component parts for all of the
products that it distributes (but does not manufacture) are available from a
number of suppliers and subcontractors and that the loss of any one supplier or
subcontractor would not have a material adverse effect on the Company.
The Company has single-source suppliers for three of the components used in
products that the Company manufactures and multiple suppliers for the remaining
components. One of these single-source suppliers has a named back-up supplier,
and the other two make plastic parts with tooling that is owned by the Company.
Although the loss of one of these suppliers could take up to two months to
replace, the Company does not believe that the loss of any of these three
suppliers would have a material adverse effect on the Company.
EMPLOYEES
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As of June 30, 1996, the Company had 31 full-time employees, 4 in
management, 6 administration, 2 in research and development, 10 in sales and
marketing and 9 in manufacturing and warehouse. The Company is not subject to
any collective bargaining agreement and believes that its employee relations are
good.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES
- ----------
The Company's facilities are located at 14301 Ewing Avenue South,
Burnsville, Minnesota 55306, and consist of approximately 37,500 square feet of
office, manufacturing and warehouse space. The Company leases this space
pursuant to a lease which provides for rent of approximately $16,650 per month
(including operating expenses and real estate taxes). The lease expires in 1998,
and the Company has an option to renew the lease for one additional five year
period at an increased rental rate. The Company anticipates that it will be able
to find suitable space at another location on satisfactory terms if it chooses
not to renew the lease.
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ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers and their ages along with the offices held
as of September 15, 1996, are as follows:
<TABLE>
<CAPTION>
NAMES OF NOMINEES AGE POSITION
- ----------------- --- --------
<S> <C> <C>
Steven D. Riedel 53 President, Chief Executive Officer,
Chief Financial Officer and Director
Clifford B. Meacham 62 Vice Chairman of the Board of Directors
</TABLE>
STEVEN D. RIEDEL joined Atrix as President on December 8, 1992. He became
Chief Executive Officer and was appointed to the Board of Directors in May of
1993. He also was appointed Chief Financial Officer in November of 1993. Prior
to joining Atrix, he was President and Chief Executive Office of EnerconData.
Mr. Riedel was also employed by Northern Telecom as Vice President of Product
Management for IOS division in Minneapolis. Previously, he held numerous
management positions with Burroughs Corporation with the most recent being
regional sales manager for the 15 state midwest region.
CLIFFORD B. MEACHAM was the President and Treasurer of Atrix Tool, Inc., as
well as one of the directors and the majority shareholder of Atrix Tool, Inc.
from the date of its incorporation in 1981. He was elected as a member of the
Board of Directors and as an officer and as president of the Company effective
with the merger of Atrix Tool, Inc. into Tiempo Equities, Inc. on October 17,
1990. Mr. Meacham is an engineer, having graduated from the Utica Institute of
Technology, Utica, New York in 1952.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information under the caption "Stock Trading Prices" on page 6 of the
Company's 1996 Annual Report is incorporated herein by reference.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's management discussion and analysis on pages 7 through 9 of
the Company's 1996 Annual Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements and the report of its independent
accountants included on pages 10 through 18 of the Company's 1996 Annual Report
are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. Directors of the Company.
------------------------
The information under the captions "Election of Directors -- Information
About Nominees" and "Election of Directors -- Other Information About Nominees"
in the Company's 1996 Proxy Statement is incorporated herein by reference.
B. Executive Officers of the Company.
---------------------------------
Information concerning Executive Officers of the Company is included in
this Report under Item 4A "Executive Officers of the Registrant."
C. Compliance with Section 16(a) of the Exchange Act.
-------------------------------------------------
The information under the caption "Compliance with section 16(a) of the
Exchange Act" in the Company's 1996 proxy statement is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors -- Director
Compensation" and "Compensation and Other Benefits" in the Company's 1996 Proxy
Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Principal Shareholders and Ownership of
Management" in the Company's 1996 Proxy Statement is incorporated herein by
reference.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Transactions" in the Company's
1996 Proxy Statement is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
The exhibits to this Report are listed in the Exhibit Index on pages 15
through 16 of this Annual Report on Form 10-KSB.
A copy of any of the exhibits listed or referred to above will be furnished
at a reasonable cost to any person who was a shareholder of the Company as of
September 16, 1996, upon receipt from any such person of a written request for
any such exhibit. Such request should be sent to Atrix International, Inc.,
14301 Ewing Avenue South, Burnsville, MN 55306, Attention: Sharon Maras
The following is a list of each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this Annual Report on Form 10-
KSB pursuant to Item 14(c):
1. Employment Agreement between the Company and Clifford Meacham dated March
30, 1995. Incorporated by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1995.
2. Supplemental Retirement Benefit Agreement between the Company and Clifford
Meacham, dated April 1, 1996. Filed herewith.
3. 1994 Stock Option Plan. Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-KSB for the year ended June 30, 1994.
(b.) Reports on Form 8-K: None during the fourth quarter of the fiscal year
ended June 30, 1995.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: September 24, 1996 ATRIX INTERNATIONAL, INC.
/s/Steven D. Riedel
By --------------------------------------
Steven D. Riedel
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on September 24, 1996 by the following persons
on behalf of the Company and in the capacities indicated.
Signature Title
--------- -----
/s/Steven D. Riedel
- ----------------------------------- President (Principal Executive Officer,
Steven D. Riedel Principal Financial Officer and Principal
Accounting Officer) and Director
/s/Clifford B. Meacham Vice Chairman and Director
- -----------------------------------
Clifford B. Meacham
/s/W. William Bednarczyk Chairman of the Board and Director
- -----------------------------------
W. William Bednarczyk
/s/ Gordon H. Ritz, Sr. Director
- -----------------------------------
Gordon H. Ritz, Sr.
/s/ Charles J. B. Mitchell, Jr. Director
- -----------------------------------
Charles J. B. Mitchell, Jr.
/s/ William E. Bennett Director
- -----------------------------------
William E. Bennett
14
<PAGE>
ATRIX INTERNATIONAL, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
ITEM NO. ITEM METHOD OF FILING
- -------- ---- ----------------
<TABLE>
<CAPTION>
<S> <C> <C>
3.1 Restated Articles of Incorporation,
as amended, of the Company .......... Incorporated by reference to Exhibit 2C to the Company's Registration
Statement on Form S-1 (File No. 33-40571).
3.2 Bylaws of the Company ............... Incorporated by reference to Exhibit 3B to the Company's Registration
Statement on Form S-18 (File No. 33-2448C).
4.1 Specimen form of the Company's
Common Stock Certificate ............ Incorporated by reference to Exhibit 4B to the Company's Registration
Statement on Form S-1 (File No. 33-40571).
4.2 Restated Articles of Incorporation,
as amended, of the Company .......... See Exhibit 3.1.
4.3 Bylaws of the Company ............... See Exhibit 3.2.
10.1 Employment Agreement between the
Company and Clifford Meacham
dated March 30, 1995 ............... Incorporated by reference to Exhibit 10.1 to the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1995 (File No. 0-18880).
10.2 Supplemental Retirement Benefit
Agreement between the Company and
Clifford Meacham dated
April 1, 1996 ...................... Filed herewith.
10.3 1994 Stock Option .................. Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1995 (File No. 0-18880).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.4 Form of Warrant dated
November 5, 1993................ Incorporated by reference to Exhibit 10.5
to the Company's Registration Statement on
Form SB-2 (File No. 33-75092).
10.5 Form of Warrant dated
September 30, 1995.............. Filed herewith.
10.6 Form of Investment Agreement,
dated September 30, 1995........ Filed herewith.
10.7 Loan Agreement dated
April 25, 1995 between the
Company and Riverside Bank...... Incorporated by reference to Exhibit
10.7 to the Company's Annual Report on
Form 10-KSB for the year ended June 30,
1995 (File No. 0-18880).
10.8 Amendment to Riverside Loan
Agreement, dated
October 25, 1995................ Incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form
10-QSB for the quarter ended December 31,
1995 (File No. 0-18880).
10.9 Lease Agreement dated
December 29, 1987 between Paul
and Lillian P. Strom and the
Company......................... Incorporated by reference to Exhibit 10G
to the Company's Registration Statement on
Form S-18 (File No. 33-2448C).
10.10 Settlement Agreement between
the Company and Interactive
Technologies, Inc. ............. Incorporated by reference to Exhibit
10.12 to the Company's Registration
Statement on Form SB-2 (File No. 33-
75092).
13.1 1996 Annual Report to
Shareholders.................... Filed herewith.
23.1 Consent of Independent
Accountants..................... Filed herewith.
27.1 Financial Data Schedule......... Filed herewith.
</TABLE>
<PAGE>
EXHIBIT 10.2
SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT
This Supplemental Retirement Benefit Agreement is made effective as of this 1st
day of April, 1996, by and between ATRIX INTERNATIONAL, INC. ("ATRIX") and
CLIFFORD MEACHAM ("Meacham").
RECITALS
--------
A. Prior to the date hereof, Meacham has been an employee of Atrix.
B. Meacham attained age 62 on March 1, 1996, and he desires to retire from the
employ of Atrix and forego the salary he would otherwise receive as an
employee, and Atrix desires to evidence its consent to Meacham's retirement
and to provide a supplemental retirement benefit to Meacham and other
insured benefits as a retired employee.
C. The supplemental retirement benefit described in this Agreement is a term
and condition of Meacham's employment with Atrix. If the Employee
Retirement Income Security Act of 1974, as amended, would otherwise be
applicable, this Agreement is intended to be exempt from the provisions of
Parts 2, 3 and 4 of Subtitle B of Title I thereof as an unfunded plan
maintained primarily for the purpose of providing deferred compensation for
a select group of management or highly compensated employees. The benefit
provided pursuant to this Agreement is also intended to be unfunded for tax
purposes.
Therefore, Atrix and Meacham agree as follows:
ARTICLE 1
Definitions, Construction and Interpretation
--------------------------------------------
The definitions and rules of construction and interpretation set forth in this
article apply in construing this Agreement unless the context otherwise
indicates.
1.1 Agreement. "Agreement" means this Supplemental Retirement Benefit
Agreement, as it may be amended from time to time.
1.2 Beneficiary. "Beneficiary" is Meacham's spouse, if any, at the time of
Meacham's death. If Meacham is not married at the time of his death, there
shall be no Beneficiary under this Agreement. A Beneficiary under the terms
of this Agreement has no interest in or rights under the Agreement until
Meacham has died.
<PAGE>
1.3 BOARD. "Board" means the Board of Directors of Atrix.
1.4 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time. Any reference to a section of the Code refers to that section
or to the corresponding section of the Code as amended.
1.5 GOVERNING LAW. To the extent that state law is not preempted by any laws
of the United States, all questions arising in connection with this
Agreement, including, without limitation, those pertaining to construction,
validity, effect, enforcement and remedies, will be governed by the
determined exclusively in accordance with the internal, substantive laws of
the State of Minnesota without regard to the conflict of law principles of
the State of Minnesota or any other jurisdiction.
1.6 HEADINGS. The heading of articles and sections in this Agreement are
included solely for convenience of reference; if there exists any conflict
between such headings and the text of this Agreement, the text will
control.
ARTICLE 2
RETIREMENT BENEFIT
------------------
2.1 PAYMENT. The Company shall pay Meacham, or his Beneficiary in the case
of his death, monthly payments in the amount of Two Thousand Eight Hundred
Dollars ($2,800,00) commencing in April 1996 and continuing through
February 1999, payable monthly.
2.2 DEATH BENEFIT. If Meacham is married on the date of his death, and if his
death occurs prior to February 1999, then the remaining monthly payments
provided by Section 2.1 shall be paid to his spouse through February 1999
or her death, whichever is earlier.
2.3 PAYMENT IN EVENT OF INCAPACITY. If Meacham or any Beneficiary entitled to
receive a payment under this Agreement is, in the judgement or Atrix,
physically, mentally or legally incapable of receiving or acknowledging
receipt of the payment, and no legal representative has been appointed for
the individual, Atrix may (but is not required to) cause the payment to be
made to any one or more of the following as may be chosen by Atrix: the
Beneficiary (in the case of Meacham's incapacity), the institution
maintaining Meacham or the Beneficiary. Atrix is not required to see to the
proper application of any payment so made, and any such payment completely
discharges all claims under this Agreement against Atrix to the extent of
the payment.
2
<PAGE>
ARTICLE 3
Unfunded Benefit
----------------
3.1 Source and Payment. Atrix will make the payments described in Article 2 of
this Agreement directly to Meacham or to his Beneficiary in the case of his
death. The payments will be made from the general revenue and assets of
Atrix and nothing contained in this Agreement is to be construed as
providing for assets to be held for Meacham or his Beneficiary and their
only interest under this Agreement being the right to receive the benefits
set forth herein. The right of Meacham and his Beneficiary to receive
benefits under this Agreement shall be no greater than the right of any
unsecured general creditor of Atrix.
3.2 Non-Assignable Benefit. The benefits payable under this Agreement may not
be anticipated, alienated, sold, pledged or assigned or subjected to any
legal process.
3.3 Health Insurance. Atrix will pay the employer's portion of the premiums
under its health insurance plan for Meacham and his spouse through February
1999.
ARTICLE 4
Miscellaneous
-------------
4.1 Amendment. This Agreement may not be amended, altered or modified, except
by a written instrument signed on behalf of Atrix by its President and by
Meacham.
4.2 Inurement. This Agreement is binding upon and inures to the benefit of
Atrix and its successors and assigns, and Meacham, his successors, heirs,
executors, administrators and Beneficiaries.
4.3 Withholding and Offsets. Atrix retains the right to withhold from any
benefit payment under this Agreement and from any other amounts payable to
Meacham, any and all income, employment, excise and other tax as Atrix
deems necessary and Atrix may offset against amounts then payable to
Meacham any amounts then owing to Atrix by Meacham.
4.4 No Employment Rights. Nothing in this Agreement either (a) confers on
Meacham any right to continued employment with Atrix or employment with
Atrix in any particular position or (b) alters, impairs or modifies any
such right arising under the employment agreement between Atrix and
Meacham.
4.5 Disputes. Atrix and Meacham agree that if they have any dispute concerning
this Agreement, Meacham and the President of Atrix will first attempt in
good faith to resolve the dispute to their mutual satisfaction. If they
are unable to
3
<PAGE>
do so, Atrix and Meacham agree that they will submit the dispute to
mediation in Minneapolis, Minnesota in accordance with the Commercial
Mediation Rules of the American Arbitration Association then in effect.
4.6 No Waiver. The waiver by either of the parties, express or implied, of any
right under this Agreement or any failure to perform under this Agreement
by the other party does not constitute a waiver of any other right under
this Agreement or of any other failure to perform under this Agreement by
the other party.
4.7 Entire Agreement. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter of this Agreement
have been made by either party which are not expressly set forth in this
Agreement.
4.8 Further Assurances. The parties to this Agreement agree to perform, or
cause to be performed, such further acts and deeds and to execute and
deliver, or cause to be executed and delivered, such additional or
supplemental documents or instruments as may reasonably be required by the
other party to carry into effect the provisions of this Agreement.
4.9 Other Benefits. Except to the extent otherwise expressly provided under a
specific benefit plan, practice, policy or procedure of Atrix, amounts paid
pursuant to this Agreement do not constitute salary or compensation to
Meacham for the purpose of computing benefits to which he may be entitled
thereunder.
4.10 No Warranties Regarding Tax Treatment. Meacham acknowledges that he has
consulted independent advisors whose input has been incorporated in
structuring this Agreement. Atrix makes no warranties regarding the tax
treatment to Meacham of any payments made pursuant to this Agreement and
Meacham will hold Atrix and its officers, directors, employees, agents and
advisors harmless from any liability resulting from any tax position taken
by Atrix in good faith in connection with this Agreement.
4.11 Notice. All notices, requests, demands and all other communications
required or permitted by either party to the other party by this Agreement
must be in writing and will be deemed to have been duly given when
delivered personally or received by certified or registered mail, return
receipt requested, postage prepaid, at the address of the other party, as
follows:
If to Atrix, to:
Atrix International, Inc.
14301 Ewing Avenue South
4
<PAGE>
Burnsville, Minnesota 55337
Attention: President
If to Meacham, to:
Clifford Meacham
8730 East 195th Street
Prior Lake, Minnesota 55372
Either party may change its address for purposes of this section by giving
ten (10) days' prior notice to the other party.
4.12 SEVERABILITY. The invalidity or unenforceability of all or any part of any
provision of this Agreement will not affect the validity or enforceability
of the remainder of such provision or of any other provision of this
Agreement, which will remain in full force and effect.
To acknowledge and affirm their respective rights and obligations, Atrix and
Meacham have signed this Agreement as of the date first above written.
ATRIX INTERNATIONAL, INC.
/s/ Clifford Meacham /s/ Steven D. Riedel
_______________________________________ ____________________________________
Clifford Meacham President
5
<PAGE>
EXHIBIT 10.5
WARRANT FOR PURCHASE OF SHARES OF
COMMON STOCK
OF
ATRIX INTERNATIONAL, INC.
September , 1995
For value received, ______________________ (the "Holder"), is entitled to
purchase from Atrix International, Inc., a Minnesota corporation (the
"Company"), on or before __________________, 2000, __________ fully paid and
nonassessable shares of the Company's Common Stock, $.01 par value (such class
of stock being hereinafter referred to as the "Common Stock" and such Common
Stock as may be acquired upon exercise hereof being hereinafter referred to as
the "Warrant Stock"), at an exercise price equal to $.75 per share.
This Warrant is issued by the Company in connection with the Private
Placement Memorandum dated September 13, 1995 (The "Offering Memorandum").
This Warrant is subject to the following provisions, terms and conditions:
1. The rights represented by this Warrant may be exercised by the Holder,
in whole or in part (but not as to a fractional share), by written notice of
exercise delivered to the Company accompanied by the surrender of this Warrant
(properly endorsed if required) at the principal office of the Company and upon
payment to it, by cash, certified check or bank draft, of the warrant exercise
price for such shares. In addition, the Holder may elect to pay the full
purchase price by receiving a number of shares of Common Stock computed using
the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the Holder.
Y = the number of shares of Common Stock as to which this Warrant is
being exercised.
A = the Fair Market Value of one share of Common Stock.
B = Warrant exercise price.
For purposes of this Section 1, "Fair Market Value" means, with respect to
the Company's Common Stock, as of any date:
(a) if the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the NASDAQ
National Market System, the reported closing price of the Common Stock on
such exchange or by the NASDAQ National Market System as of such date (or,
if no shares were traded on such date, as of the next preceding day on
which there was such a trade); or
(b) if the Common Stock is not so listed or admitted to unlisted
trading privileges or
<PAGE>
reported on the NASDAQ National Market System, and bid and asked prices
therefor in the over-the-counter market or on the NASDAQ SmallCap Market
are reported by NASDAQ or National Quotation Bureau, Inc. (or any
comparable reporting service), the mean of the closing bid and asked prices
as of such date, as so reported by NASDAQ, or, if not so reported thereon,
as reported by National Quotation Bureau, Inc. (or such comparable
reporting service); or
(c) if the Common Stock is not so listed or admitted to unlisted
trading privileges, or reported on the NASDAQ National Market System, and
such bid and asked prices are not so reported on the NASDAQ SmallCap Market
by NASDAQ or National Quotation Bureau, Inc. (or any comparable reporting
service), such price as the Company's Board of Directors determines in good
faith in the exercise of its reasonable discretion.
The Company agrees that the Warrant Stock so purchased shall be and is
deemed to be issued as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such Warrant Stock as
aforesaid. Certificates for the shares of Warrant Stock so purchased shall be
delivered to the Holder within 15 days after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of shares of Warrant Stock, if any, with
respect to which this Warrant has not been exercised shall also be delivered to
the Holder within such time. Notwithstanding the foregoing, however, the Company
shall not be required to deliver any certificates for shares of Warrant Stock,
except in accordance with the provisions and subject to the limitations of
Paragraph 5 below.
2. The Company covenants and agrees that all shares of Warrant Stock that
may be issued upon the exercise of this Warrant will, upon issuance, be duly
authorized and issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof. The Company further
covenants and agrees that until expiration of this Warrant, the Company will at
all times have authorized, and reserved for the purpose of issuance or transfer
upon exercise of this Warrant.
3. The foregoing provisions are, however, subject to the following:
(a) The Warrant exercise price shall be subject to adjustment from
time to time as hereinafter provided. Upon each adjustment of the Warrant
exercise price, the holder of this Warrant shall thereafter be entitled to
purchase, at the Warrant exercise price resulting from such adjustment, the
number of shares obtained by multiplying the Warrant exercise price in
effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Warrant exercise price resulting from
such adjustment.
(b) In case the Company shall at any time subdivide the outstanding
Common Stock into a greater number of shares or declare a dividend payable
in Common Stock, the Warrant exercise price in effect immediately prior to
such subdivision shall be proportionately reduced, and conversely, in case
the outstanding Common Stock shall be combined into a smaller number of
shares, the Warrant exercise price in effect immediately prior to such
combination shall be proportionately increased.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets
to another corporation shall be effected in such a way that holders
2
<PAGE>
of Common Stock shall be entitled to receive stock, securities or assets
("Substituted Property") with respect to or in exchange for such Common
Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, the Holder shall have the right to purchase
and receive upon the basis and upon the terms and conditions specified in
this Warrant and in lieu of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby, such Substituted Property as would have been issued or
delivered to the Holder if it had exercised this Warrant and had received
upon exercise of this Warrant the Common Stock prior to such
reorganization, reclassification, consolidation, merger or sale. The
Company shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (if other than
the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the Holder at the last address of the Holder appearing on the
books of the Company, the obligation to deliver to the Holder such shares
of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase.
(d) If the Company takes any other action, or if any other event
occurs which does not come within the scope of the provisions of Paragraphs
3(b) or 3(c), but which should result in an adjustment in the Warrant
exercise price and/or the number of shares subject to the Warrant in order
to fairly protect the purchase rights of the Holder, an appropriate
adjustment in such purchase rights shall be made by the Company.
(e) Upon any adjustment of the Warrant exercise price, the Company
shall give written notice thereof, by first-class mail, postage prepaid,
addressed to the Holder at the address of the Holder as shown on the books
of the Company, which notice shall state the Warrant exercise price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
4. This Warrant shall not entitle the Holder to any voting rights or other
rights as a shareholder of the Company.
5. The Holder, by acceptance hereof, represents and warrants that:
(a) it is acquiring this Warrant for its own account for investment
purposes only and not with a view to its resale or distribution; and
(b) it has no present intention to resell or otherwise dispose of all
or any part of this Warrant. Other than pursuant to registration under
federal and state securities laws or an exemption from such registration,
the availability of which the Company shall determine in its sole
discretion, (y) the Company will not accept the exercise of this Warrant or
issue certificates for shares of Warrant Stock and (z) neither this Warrant
nor any shares of Warrant Stock may be sold, pledged, assigned or otherwise
disposed of (whether voluntarily or involuntarily). The Company may
condition such issuance or sale, pledge, assignment or other disposition on
the receipt from the party to whom this Warrant is to be so transferred or
to whom Warrant Stock is to be issued or so transferred of any
representations and agreements requested by the Company in order to permit
such issuance or transfer to be made pursuant to exemptions from
registration under federal and applicable state securities laws. Each
certificate representing the Warrant (or any part thereof) and any shares
of Warrant Stock shall be stamped with appropriate legends
3
<PAGE>
setting forth these restrictions on transferability. The Holder, by acceptance
hereof, agrees to give written notice to the Company before exercising or
transferring this Warrant or transferring any shares of Warrant Stock of the
Holder's intention to do so, describing briefly the manner of any proposed
exercise or transfer. Within thirty (30) days after receiving such written
notice, the Company shall notify the Holder as to whether such exercise or
transfer may be effected.
6. (a) If at any time during the period ending on the date 5 years after the
date of this Warrant the Company proposes to register any shares of its Common
Stock under the Securities Act of 1933, the Company shall give to all registered
holders of this Warrant and the holders of any Warrant Stock written notice of
its intention in that regard and use its best efforts to effect the registration
under such Act, if such registration is permissible, of such Warrant Stock as
may be specified by written notice from any of such holders delivered to the
Company within 20 days after such notice is given (which notice shall be deemed
to have been given upon the deposit thereof in first-class or express U.S. mail,
postage pre-paid, addressed to each holder of the address of such holder as
shown in the books of the Company); provided, however, that (i) the Company
shall not be required to include any such Warrant Stock in any such registration
for any holder who is able to sell during a period of six months or less all
Warrant Stock owned by such holder (or issuable to such holder upon exercise of
this Warrant) pursuant to Rule 144 under the Securities Act of 1933 (or any
similar rule or regulation); (ii) the Company shall not be required to include
this Warrant in any such registration; (iii) the Company shall not be required
to give such notice with respect to, or to include such Warrant Stock in, any
such registration which is primarily (A) a registration of a stock option plan
or other employee benefit plan or of securities issued or issuable pursuant to
any such plan, or (B) a registration of securities proposed to be issued in
exchange for securities or assets of, or in connection with a merger or
consolidation with, another corporation; (iv) the Company shall not be required
to give such notice with respect to, or to include such Warrant Stock in, any
such registration which is at the request or demand of any holder or holders of
its securities having contractual registration rights; (v) the Company shall not
be required to include in any such registration any securities previously duly
registered under the Securities Act of 1933; (vi) the Company may, in its sole
discretion, withdraw any such registration statement and abandon the proposed
offering in which any such holder had requested to participate; (vii) if the
offering to which the registration statement relates is to be distributed by or
through an underwriter, each such holder shall agree, as a condition to the
inclusion of such holder's Warrant Stock in such registration, to sell the
Warrant Stock held by such holder through such underwriter on the same terms and
conditions as the underwriter agrees to sell securities on behalf of the Company
and not to sell, transfer, pledge, assign or otherwise dispose of any Warrant
Stock not sold by such holder in such offering for such period (up to 180 days
after the effective date of the registration statement) as may be required by
the underwriter; and (viii) if the offering to which the registration statement
relates is to be distributed by or through an underwriter and a greater number
of securities is offered for participation in the proposed underwriting than in
the opinion of the Company's underwriter can be accommodated without
significantly adversely affecting the proposed underwriting, the amount of such
securities otherwise to be included in the underwritten offering on behalf of
all persons other than the Company may be reduced pro rata, in accordance with
the securities proposed to be sold by each such holder, or may be eliminated
entirely from such underwritten public offering.
(b) On a one-time basis, if at any time during the period ending on
september 30, 2000, the Company shall receive a written request there for from
the record holder or holders of an aggregate of more than 50% of the aggregate
of all shares of Common Stock which have been or could be issued upon exercise
of this Warrant and all other warrants of like tenor issued in
4
<PAGE>
connection with the Offering Memorandum and have not then been the subject
of any registration pursuant hereto (the "Purchased Stock"), the Company
shall prepare and file a registration statement under the Securities Act of
1933 covering the shares of Purchased Stock which are the subject of such
request and shall use its best efforts to cause such registration statement
to become effective. In addition, upon the receipt of such request, the
Company shall promptly give written notice to all other record holders of
shares of Purchased Stock that such registration is to be effected. The
Company shall include in such registration statement such shares of
Purchased Stock for which it has received written requests to register by
such other record holders within 30 days after the delivery of the
Company's written notice to such other record holders. The Company shall be
entitled to delay filing any registration statement requested pursuant to
this Paragraph 6(b) in the event that, in the reasonable judgment of the
Company's Board of Directors, such filing would interfere with any
transaction then contemplated by the Company; provided, however, that no
such delay shall exceed six months in duration.
(c) The costs and expenses of any registration pursuant to this
Paragraph 6, including but not limited to legal fees, special audit fees,
printing expenses, filing fees, fees and expenses relating to
qualifications under state securities or blue sky laws and the premiums for
insurance, if any, incurred by the Company shall be borne entirely by the
Company; provided, however, that any holders participating in such
registration shall bear their own underwriting discounts and commissions
and the fees and expenses of their own counsel or accountants in connection
with any such registration.
(d) In the event of any registration of a security pursuant to this
Paragraph 6, the Company shall indemnify each such holder, its officers and
directors and each person, if any, who controls such holder within the
meaning of Section 15 of the Securities Act of 1933 against all losses,
claims, damages and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement
or prospectus (and as amended or supplemented) relating to such
registration, or caused by any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they are made unless such statement or omission was made in reliance upon
and in conformity with information furnished in writing to the Company by
such holder expressly for use therein.
The obligations of the Company to register any of its securities in
accordance with the foregoing shall be subject to the condition that each
holder shall agree in writing to indemnify the Company, its officers and
directors, and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act of 1933, and each underwriter
of the Warrant Stock so registered, and each person, if any, who controls
such underwriter within the meaning of Section 15 of the Securities Act of
1933, with respect to losses, claims, damages and liabilities caused by any
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by such holder to the Company expressly
for use in such registration statement or prospectus.
(e) The Company shall, at its expense, also take reasonable measures
to qualify the Warrant Stock included in any registration statement
pursuant to Paragraph 6 for sale under applicable blue sky laws.
(f) Upon the exercise of registration rights pursuant to this
Paragraph 6, each holder agrees to supply the Company with such information
as may be required by the Company to
5
<PAGE>
register or qualify such Warrant Stock.
7. This Warrant shall be transferable only on the books of the Company by
the Holder in person, or by duly authorized attorney, on surrender of the
Warrant, properly assigned.
8. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer and to be dated as of the date set forth above.
ATRIX INTERNATIONAL, INC.
By
--------------------------------
Its
-------------------------------
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED
OR OTHERWISE DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE
COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION
OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
6
<PAGE>
EXHIBIT 10.6
INVESTMENT AGREEMENT
Atrix International, Inc.
14301 Ewing Avenue South
Burnsville, Minnesota 55306
Gentlemen:
The undersigned hereby subscribes to purchase __________ shares (the "Shares")
of the Common Stock of Atrix International, Inc., a Minnesota corporation (the
"Company") at purchase price of $0.75 per share or a total purchase price of
$__________. As additional consideration for the total purchase price paid by
the undersigned, the undersigned hereby subscribes for a warrant in the form
attached hereto as Exhibit A (the "Warrant") to purchase _______ shares of
Common Stock of the Company (the "Warrant Shares"), such number of Warrant
Shares being equal to one-third (1/3) of the number of Shares, rounded down to
the nearest whole Warrant Share. The Shares, Warrant and Warrant Shares are
referred to collectively as the "Securities").
The undersigned acknowledges having received a copy of (i) the Company's Private
Placement Memorandum dated September 13, 1995, (ii) the Company's Annual Report
on form 10-KSB for the fiscal year ended June 30, 1994, as filed with the
Securities and Exchange Commission, (iii) the Company's Proxy Statement for the
Annual Meeting of Shareholders held October 26, 1994, (iv) the Company's
Quarterly Reports on Form 10-QSB for the quarters ended September 30, 1994,
December 31, 1994 and March 31, 1994, as filed with the Securities and Exchange
Commission, (v) audited financial statements for fiscal year ended June 30,
1995, and (vi) any other information requested from the Company. Further, the
undersigned has had an opportunity to ask questions of and receive answers from
the management of the Company concerning the terms and conditions of the
offering and to obtain any additional information desired or has elected to
waive such opportunity. The undersigned also acknowledges that the purchase of
the Shares and the Warrant is a speculative investment and recognizes that the
Company makes no assurance whatever concerning the present or prospective value
of the Shares or the Warrant.
The undersigned understands that neither the Shares, the Warrant nor the Warrant
Shares have been registered (i) under the Securities Act of 1933, as amended
(the "Act"), on the ground that the Company believes the transaction is exempt
from registration under the Act by virtue of the provisions of Sections 3(b) or
4(2) thereof, or (ii) under the securities laws of the state in which the
undersigned resides on the basis that the transaction is exempt from
registration under such laws. The undersigned understands that the Company's
reliance upon the foregoing exemptions is predicated in part on the
representations of the undersigned contained herein.
NOTE TO SUBSCRIBERS: PLEASE READ CAREFULLY PARAGRAPH (E) BELOW AND CHECK THE
BOX NEXT IN THAT PARAGRAPH APPLICABLE TO YOU, INDICATING WHETHER YOU ARE AN
ACCREDITED INVESTOR, AND IF SO, THE BASIS FOR SUCH STATUS.
By signing this Subscription Agreement, the undersigned agrees with and
represents and warrants to the Company that:
(a) The undersigned is acquiring the Securities subscribed for hereby for
the account of the undersigned and not on behalf of any other person
or persons and is purchasing the shares for investment purposes and
not for resale or other distribution.
(b) The Securities may not be sold, transferred, assigned or otherwise
disposed of except
<PAGE>
pursuant to an effective registration statement, or upon receipt of an
opinion of counsel satisfactory to the Company that the transfer is exempt
from registration under the applicable state and federal securities laws.
The undersigned has been informed that the certificate representing the
Securities will bear the following or a substantially similar legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT FROM
REGISTRATION UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
(c) The undersigned has been informed by the Company that it does not intend,
nor is it obligated now or at any future date, to register the Securities
under either state or federal securities laws or to make publicly available
or to provide the undersigned with the information required by Rule 144 of
the Securities and Exchange Commission under the Securities Act of 1933 to
allow resale of the Securities under the provisions of such Rule.
(d) The undersigned understands that the undersigned must bear the economic
risk of this investment for an indefinite period of time because the
Securities have been registered and, therefore, cannot be sold unless they
are subsequently registered or an exemption from such registration is
available.
(e) the undersigned IS an "Accredited Investor" within the meaning of Rule 501
under the Act in that:
[_] (1) The undersigned is a director or executive officer of the Company; or
[_] (2) The undersigned has an individual net worth, or joint net worth with
his or her spouse, which exceeds $1,000,000 as of the date of
signature hereof; or
[_] (3) The undersigned had individual gross income exceeding $200,000 in each
of the two most recent years or joint gross income with his or her
spouse exceeding $300,000 in each of the two most recent years and
reasonably expects an individual gross income exceeding $200,000 in
this year or joint gross income with his or her spouse exceeding
$300,000 in this year.
[_] (4) Other (Please specify by writing in the space below.)
[_] or, the undersigned is NOT an Accredited Investor.
2
<PAGE>
Type of Ownership (check one):
_____ Individual Ownership _____ Joint Tenant with Right of
Survivorship (both parties
must sign)
_____ Tenants in common _____ Other (please specify:
(both parties must sign) ________________________)
Dated: ___________________, 1995
- ---------------------------------- -------------------------------------
Signature Signature
- ---------------------------------- -------------------------------------
Name Typed or Printed Name Typed or Printed
- ---------------------------------- -------------------------------------
Residence Address Residence Address
- ---------------------------------- -------------------------------------
City, State and Zip Code City, State and Zip Code
- ---------------------------------- -------------------------------------
Tax Identification or Tax Identification or
Social Security Number Social Security Number
This Subscription Agreement is accepted as of _______________, 1995.
ATRIX INTERNATIONAL, INC.
By
-----------------------------------
Its
----------------------------------
3
<PAGE>
Exhibit 13.1
ATRIX INTERNATIONAL
1996 ANNUAL REPORT
THE FUTURE
IS
NOW!
[PHOTO OF R3 PRODUCTS]
[PHOTO OF OUR NEW OMEGA VAC]
[BACKGROUND OF COVER IS ART OF CLOUDS & SUN]
<PAGE>
FINANCIAL HIGHLIGHTS
Financial Highlights
<TABLE>
<CAPTION>
NET SALES OPERATING EXPENSE AS A
PERCENTAGE OF SALES
[GRAPH OF NET SALES] [GRAPH OF OPERATING EXPENSES]
Net Sales Operating Expense
--------- NET INCOME as a Percent of Sales
<S> <C> ---------------------
1996 $6,028,427 [GRAPH OF NET INCOME] <S> <C>
1995 5,778,179 1996 27%
1994 5,023,079 Net Income 1995 30%
1993 4,580,764 ---------- 1994 39%
1992 4,169,198 <S> <C> 1993 42%
1996 $144,041 1992 47%
1995 $300,282
1994 $405,189
1993 ($602,154)
1992 ($935,587)
</TABLE>
Please note: Net income in 1994, 1995 and 1996 includes miscellaneous income
related to patent litigation settlements of $1,117,364, $169,496 and $1,990,
respectively.
<PAGE>
A LETTER FROM STEVE RIEDEL, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
We are pleased to report that 1996 was a record year for Atrix International.
Excluding royalties, sales grew by $652,000 or 12% over fiscal 1995. Including
royalties, sales for the year ended June 30, 1996 were $6,028,000 compared to
$5,778,000 in the previous year.
Net income for the year was $144,000 compared to $300,000 for the previous year.
However, last year's net income included "miscellaneous income" related to
patent settlements of $169,000. Without the patent settlement in 1995, net
income would have increased 10% compared to last year. And we are pleased to
report that the company has now reported net income for twelve consecutive
quarters.
Our goals going into fiscal 1996 were to:
. Expand our marketshare for the R3 Copy Management System.
. Expand our domestic market for manufactured and distribution products.
. Expand our international market for manufactured products.
While sales for the R3 Copy Management System did increase by 136% over prior
year sales, they were short of our expectations. Additional investments have
been made in software development, marketing aids, and sales personnel to
improve sales in fiscal 1997.
The acquisition of the Porous Media vacuum line in November of 1995 added twenty
new distributors and $373,000 in manufacturing sales during fiscal 1996. We
expect this growth to continue throughout 1997 as we pursue additional customers
in the ultra-fine filtration markets.
[PICTURE OF STEVEN D. RIEDEL]
Steven D. Riedel
President, Chief Executive and
Chief Financial Officer
International sales of $829,000 for manufactured products increased 12% over
sales of $738,000 in fiscal 1995. With new distributors in Korea and Ireland, we
are positioned to increase international sales in fiscal 1997.
The progress we have made is best illustrated by the awards that Atrix received
at the Business Technology Association (BTA) convention in Las Vegas in July of
1996. This show hosted more than 300 manufacturers who displayed their products
to office machine dealers from across North America.
We received two prestigious awards at the BTA show:
. The best booth in the under 40-foot category
. The best marketing team
We also introduced the new Omega Vac and the WinTrax Software packages at this
convention. Both products received an unusual amount of attention by prospective
visitors and new orders have already been placed from new customers. We are
committed to carrying this momentum into 1997.
With the introduction of the two new Copy Control System software products, the
maturing of the R3 Copy Control hardware, the acquisition and expansion of the
Porous Media fine filtration vacuum line, and the introduction of our new Omega
Vac in July, we have selected "THE FUTURE IS NOW" as our theme for fiscal 1997.
We have the sales management, products, and manufacturing capabilities to make
1997 a banner year at Atrix International!
/s/ Steven D. Riedel
Steven D. Riedel
President and CEO
/s/ W. William Bednarczyk
W. William Bednarczyk
Chairman
Atrix International
3
<PAGE>
COPY MANAGEMENT SYSTEMS AND NEW SOFTWARE
Atrix took large steps in 1996 to solidify our place as a leader in Copy
Management Systems with the development of WINTRAX-TR and completion and
shipments of WINTRAX-PNP.
WINTRAX-TR, a transactional based software and hardware system, is an economical
alternative for copy centers, law offices and small businesses. Termed "user
friendly" by some current customers, this software is designed to retrieve and
store information pertaining to a copy job. The information stored includes who
made the copies, for whom the copies were made, and how many and what time
copies were made. Detailed reports can then be generated or data may be exported
in many popular formats including Lotus, Excel, Quatro File, and standard text
files, to name just a few.
WINTRAX-PNP, our new laptop software package, allows users to efficiently and
effortlessly retrieve and store copier information when automatic readings by
phone or network is prohibitive. This "hands-free" and easy-to-use software is a
cost effective alternative for those who want the ability to track copy machine
usage. It is currently being used by local and national government agencies, and
facility management companies. In fact, one customer is managing 200 copiers and
approximately 4,000 account numbers with Atrix software.
These new software products expand and enhance the original OFFICETRAX software
released in 1995.
OFFICETRAX, a phone-based copy management system, is currently being used in a
number of government offices with more scheduled to be installed later this
year. Schools and college campuses that are utilizing the Atrix system are
realizing the benefits provided by this powerful system.
Atrix is also bringing this technology and experience to other applications and
marketplaces. Development is underway that will be completed early next year for
a new generation of products that Atrix believes will put it at the top of the
monitoring and reporting field.
"WE HAVE BEEN ABLE TO ACCURATELY CAPTURE ALL OF OUR BILLABLE CHARGES IN OUR COPY
CENTER WITH THE ATRIX SYSTEM." SUPERVALU INC.
"THE ATRIX SYSTEM IS THE BEST COPIER MANAGEMENT SYSTEM ON THE MARKET TODAY. OUR
BUDGET/ADMINISTRATIVE OFFICERS MARVEL OVER THE DATA PRODUCED BY THIS SYSTEM."
DEPT. OF HEALTH AND HUMAN SERVICES
[PICTURE OF R3 PRODUCT]
[SCREEN DUMP OF R3 SOFTWARE]
[SCREEN DUMP OF R3 SOFTWARE]
[SCREEN DUMP OF R3 SOFTWARE]
[PICTURE OF LARRY PYLKA]
MR. LARRY PYLKA
MANAGER
SUPERVALU INC.
[PICTURE OF BOB WHEELER]
MR. BOB WHEELER
REPROGRAPHICS MANAGER
DEPARTMENT OF HEALTH AND HUMAN SERVICES
Atrix International
4
<PAGE>
THE FUTURE IS NOW - WITH THE NEW FINE FILTRATION VACUUMS!
[PICTURE OF OMEGA VAC]
The Omega Vac
The acquisition of the Porous Media toner and asbestos vacuum line did more for
Atrix than simply improve vacuum sales. The technology gained has expanded the
Company's new HEPA filter vacuum products into the asbestos abatement, lead
abatement, and ultra-fine filtration markets.
Additionally, Atrix has combined this technology with the AAA vacuum to create
the most advanced vacuum of its kind- the Omega Vac.
The Omega Vac is a dual-purpose filtration vacuum providing the best toner
retention ability with a 0.3 micron filter, and the best asbestos retention
ability with a .12 micron HEPA filter. Because of this versatility, customer
response has improved and our marketshare for fine filtration vacuums is
expected to increase substantially.
Similar to the AAA Vacuum, the Omega Vac has conductive construction providing
maximum static protection to safeguard sensitive electronic components. Plus,
the Omega Vac comes complete with a disposable canister filter, power cord,
rubber flex neck, crevice tool, detachable crevice tool brush and toner-proof
stretch hose.
In addition, the acquisition and introduction of the Omega Vac positioned the
Company to secure higher gross margins for several reasons:
. The Company is now assembling the filters in-house to lower manufacturing
costs.
. The volume of filters has increased allowing the Company to purchase raw
materials more economically.
. Due to the HEPA filtration capability, the Omega Vac is being sold into
asbestos abatement and other fine filtration markets. These markets
traditionally earn a higher gross margin.
The Company plans to introduce the Omega Vac into Europe in the second quarter
of fiscal 1997.
Because the Omega Vac costs less to manufacture, the Company believes it will be
able to price the Omega Vac very competitively. This will enable Atrix to expand
marketshare with traditional toner vacuums.
With such a strong line of toner, asbestos and fine filtration vacuums, Atrix
believes its future is now!
Atrix International
5
<PAGE>
FINANCIAL HIGHLIGHTS FOR THE YEARS ENDED JUNE 30,
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net Sales $6,028,427 $5,778,179 $5,023,079 $4,580,764 $4,169,198
Income (loss) from operations 142,896 156,540 (628,658) (524,171) (717,104)
Patent infringement settlements 1,990 169,496 1,117,364
Net income (loss) 144,041 300,282 405,189 (602,154) (935,587)
Net income (loss) per share 0.03 0.06 0.08 (0.12) (0.21)
Weighted average number
of common shares outstanding 5,541,345 5,201,978 5,167,722 5,192,549 4,455,542
BALANCE SHEET DATA
Total assets 4,095,959 3,380,115 3,097,398 2,558,870 3,385,324
Long-term debt, net
of current maturities 162,607 8,106 13,766 62,656
Working capital 1,648,615 1,217,401 875,172 143,447 387,459
Shareholders' equity 2,267,807 1,800,016 1,499,734 1,100,068 1,702,222
Book value per
common share 0.40 0.35 0.28 0.21 0.33
Common shares outstanding
at June 30, 5,653,644 5,201,978 5,201,978 5,155,038 5,199,204
</TABLE>
ATRIX INTERNATIONAL, INC. STOCK TRADING PRICES
The Company's Common Stock is currently traded in the over-the-counter market
and is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation System (NASDAQ). The following table sets forth, for the periods
indicated, the high and low bid prices for the Company's common stock as
reported by NASDAQ. Such quotations represent interdealer prices, without retail
markup, markdown or commission, and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
FISCAL YEAR 1996 HIGH LOW
---- ---
<S> <C> <C>
First Quarter (from July 1, 1995) 1 13/16
Second Quarter 15/16 3/4
Third Quarter 3/4 11/16
Fourth Quarter 27/32 25/32
FISCAL YEAR 1995
First Quarter (from July 1, 1994) 7/8 3/4
Second Quarter 1-1/16 7/8
Third Quarter 1-1/8 25/32
Fourth Quarter 1-1/8 3/4
</TABLE>
As of September 16, 1996, there were 5,653,644 shares of Common Stock
outstanding, held of record by approximately 191 persons. The Company has not
declared or paid any cash dividends on its Common Stock since its inception and
does not intend to pay any dividends for the foreseeable future.
Atrix International
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
NET SALES
Net sales increased by $250,248 or approximately 4% over the prior year to
$6,028,427 from $5,778,179 in 1995 and $5,023,079 in 1994. Sales for the year
ended June 30, 1996, (exclusive of royalties), were $6,021,988 compared with
sales for the previous year of $5,369,815 (exclusive of royalties). Without
royalties, product sales increased 12%. Royalty payments were $6,439 for the
current year and $408,364 for the previous year. These payments were the result
of a number of patent infringement settlements from prior years.
The primary reasons for the increase in sales during 1996 were due to the
Company's increase in distribution sales, sales from the new Copy Control
Machine Monitor and an increase in international sales.
For fiscal 1996, sales of the R3 Office Machine Monitor improved by 136% over
sales of $147,691 in the prior year. In March 1995, the Company announced that
it had reached a non-exclusive, five-year agreement with Pitney Bowes Copier
Division for the development of a new Copy Control System based on Atrix's R3
technology. During 1996, the company shipped in excess of 1,000 units to Pitney
Bowes. In addition, new installations were made in the U.S. Department of Health
and Human Services, AT&T Corporation and Carlton College in conjunction with
Ricoh Corporation.
In June of 1996, the Company hired a national sales manager with over ten years
of experience in the Copy Control and Facility Management markets. This, coupled
with the recent training of all outside sales personnel on the WinTrax software,
builds the base for increasing R3 sales during fiscal 1997.
Sales of vacuums and supplies were $1,759,366, $1,417,994 and $1,345,454 in
1996, 1995 and 1994, respectively. The increase in 1996 from prior years was
primarily due to the purchase of the toner and asbestos product line from Porous
Media in November, 1995. This technology expands the Company's new HEPA filter
vacuum products into the asbestos market which command higher gross margins.
Given the recent release of the new Omega Vac and the favorable customer
response of the Porous Media Vacuum Line, we anticipate an increase in vacuum
sales in fiscal 1997.
================================================================================
The following table shows the Company's revenues for the periods indicated by
product line, total manufactured products and total distributed products.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
PRODUCT LINE 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Vacuums and supplies $1,759,366 $1,417,994 $1,345,454
ESD equipment 234,285 281,287 282,571
Circuit Board Cases 67,935 27,940 49,982
Special Assemblies 206,922 437,463 618,442
---------- ---------- ----------
Total Manufacturing 2,268,508 2,164,684 2,296,449
---------- ---------- ----------
Loose Tools 2,292,800 1,921,650 1,796,899
Tool Kits 376,869 368,641 269,901
Instrumentation 715,213 766,632 493,939
---------- ---------- ----------
Total Distribution 3,384,882 3,056,923 2,560,739
---------- ---------- ----------
R3 Office Machine Monitor 348,598 147,691 17,367
Royalties 6,439 408,364 119,185
Disposal 0 517 27,979
Other 20,000 0 1,360
---------- ---------- ----------
Total Sales $6,028,427 $5,778,179 $5,023,079
========== ========== ==========
</TABLE>
Atrix International
7
<PAGE>
Distribution sales were $3,384,882, $3,056,923 and $2,560,739 in 1996, 1995, and
1994, respectively. The increase in fiscal 1995 and 1996 was primarily due to
increased distribution through custom catalogs. The Company published custom
catalogs for Unisys, AT&T, Ricoh Corporation, Ikon Office Solutions, and Danka
Business Systems. In addition, overall sales to Unisys increased.
On August 27, 1996, the Company announced the signing of a three-year contract
with Avnet Industrial. This agreement appoints Atrix as a focused supplier of
more than 200 products to Avnet for resale to Lucent Technologies. This contract
expands the distribution business for Atrix and should lead to increased sales
for distribution products in fiscal 1997.
ROYALTIES
The Company received R3 patent royalties of $6,439, $408,364 and $119,185 in
1996, 1995 and 1994, respectively, due to enforcement of its R3 patent during
these years. The R3 patent expired in April 1995 and the Company does not expect
to receive meaningful royalties in future periods.
GROSS PROFIT
The gross profit margin as a percentage of sales was 29.4% in 1996, 33.1% in
1995 and 26.3% in 1994.
The gross profit margin decreased in 1996 from 1995 due primarily to the
decrease in royalties from 1995 to 1996. The R3 royalties carry a gross margin
of approximately 50%. The Company expects gross margins to improve in fiscal
1997 due to lower product cost, although not to the levels achieved in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses were $1,630,934, $1,754,398, and $1,952,259 in 1996, 1995 and
1994, respectively, which were 27%, 30%, and 39% of sales for the years 1996,
1995 and 1994, respectively. The decrease in expenses in fiscal 1996 was
primarily due to a reduction in patent litigation expenses of approximately
$41,000 and patent amortization of $143,000 in 1995. The Company expects its
operating expenses to remain at these lower levels for fiscal 1997.
The decrease in operating expenses in 1995 from 1994 was primarily due to lower
legal expenses for patent infringement litigation.
INCOME (LOSS) FROM OPERATIONS
Income (loss) from operations was $142,896 compared to $156,540 and $(628,658)
for 1996, 1995 and 1994, respectively. The $13,644 decrease from 1995 to 1996
can be attributed to lower patent royalties and lower gross margins. The
improvement in 1995 over 1994 is due primarily to increased sales while
controlling operating expenses. The Company expects to continue to generate
income from operations in fiscal 1997.
INTEREST EXPENSE, NET
Net interest expense was $2,227, $18,404, and $75,017 in 1996, 1995 and 1994,
respectively. The decrease in net interest expense in 1996 is primarily due to
lower interest rates and additional interest income on increasing cash and cash
equivalent balances.
NET INCOME
Net income was $144,041 in 1996 compared to $300,282 and $405,189 for 1995 and
1994, respectively. The decrease in net income from 1995 to 1996 of $156,241 was
primarily due to $408,364 in higher margin patent royalties received in fiscal
1995.
Atrix International
8
<PAGE>
INCOME TAXES
At June 30, 1996, the Company has net operating loss carryforwards of
approximately $1,287,807 for income tax purposes which expire in the years 2003
to 2008. The Company has not recognized any significant income tax expense
during 1994, 1995, or 1996, due to utilization of available net operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, restricted cash and marketable securities at June 30, 1996
was $1,485,163 compared to $1,157,255 at June 30, 1995. Working capital
increased to $1,648,615 from $1,217,401 at June 30, 1995. The current ratio as
of June 30, 1996 and 1995 was 2.0 and 1.8, respectively. The increases in the
Company's cash and working capital position are primarily due to cash generated
from operations and a private warrant offering completed in September 1995,
offset primarily by additions to property and equipment.
In March 1996, the Company extended its working capital line of credit with
Riverside Bank at a rate of prime. The borrowing base under the new line of
credit is the lesser of (a) $1,250,000 or (b) the sum of (i) 85% of eligible
accounts receivable plus (ii) 50% of eligible inventory. As of June 30, 1996,
credit line advances were $941,299. The terms of the line of credit require the
Company to maintain tangible net worth of at least $1,100,000. The line of
credit is secured by the Company's assets, and the Company is required to
maintain a $250,000 certificate of deposit with the lender to secure the line of
credit. The line of credit has an initial term that expires in October 1996, but
is due on demand at any time. The Company is required to pay accrued interest on
a monthly basis.
Cash provided by operations decreased to $86,246 from $722,004 for fiscal 1996,
and 1995, respectively. The decrease in 1996 was due primarily to the
miscellaneous non-recurring income from patent lawsuit settlements, non-
recurring royalties, aggressive steps on cash discount vendors, and a
significant decrease in accounts receivable in 1995 that did not recur in 1996.
The Company incurred an increase in cash used for investing activities due to
the Porous Media vacuum line acquisition in November 1995.
The Company's plans for the fiscal year ending June 30, 1997 do not call for
additional capital. The Company plans to finance its operations for the fiscal
year ending June 30, 1997 with working capital and bank borrowing, if necessary.
The Company expects to generate cash from operations during fiscal 1997 by
increasing sales, improving gross profit margins and controlling operating
expenses. The Company believes that funds generated from operations and
borrowings available under the line of credit will be adequate to meet the
Company's working capital requirements for the foreseeable future.
Except for the historical financial information contained in this Annual Report,
the statements under "Management's Discussion and Analysis" consist of forward
looking statements which are subject to change based on various important
factors including, but not limited to, the success of the WinTrax software, the
new Omega Vac, and the Avnet Industrial contract.
Atrix International
9
<PAGE>
MESSAGE FROM THE CONTROLLER
Fiscal 1996 brought on a number of diversified challenges. As the Company began
the new year, it concentrated on its goals set at the end of fiscal 1995:
promoting the R3 Copy Management System, expanding our marketing channels
domestically and expanding our international sales.
[PICTURE OF DENICE BLOOMER]
Denice J. Bloomer
Vice President and Controller
In September 1995, the Company invested in a new customized catalog. This
catalog allowed us to focus on expanding our marketing channels through
telemarketing while allowing our outside sales representatives to provide our
customers with a fully illustrated catalog.
The Porous Media Product acquisition in November 1995 allowed the Company to
expand our marketing channels and our international sales. The Company purchased
the toner and asbestos product line which allows for a higher gross margin
potential. Since the acquisition, the Company has recognized $372,995 in sales
from this product line.
As the year progressed, the Company focused on promoting the R3 Copy Management
System. The outside sales representatives were fully trained in performing
demonstrations. The Research and Development Department provided the Sales
department with the WinTrax and Plug-n-Play softwares. In fiscal 1996, Atrix
recorded $348,598 in R3 sales compared to $147,691 in fiscal 1995.
The accounting team of Atrix concentrated on improving vendor relationships,
reducing accounts receivable outstanding, improving internal policies and
procedures, and controlling expenses. We are proud to report that the Company
improved cash discounts by 46%, reduced the over 60 days to 10% of total
accounts receivable, and controlled operating expenses over fiscal 1995.
Fiscal 1997 will bring new opportunities for Atrix through increased copy
control sales, new Omega Vac sales (introduced in July 1996) and marketing of
our new toner and asbestos products.
Atrix has given me the opportunity to challenge myself, be a teamplayer and meet
new people. Unfortunately, due to the relocation of my husband's job, I must
leave Atrix. I feel very strong that the accounting team at Atrix will succeed
in accomplishing the goals set by the Company for fiscal 1997. I wish all
employees, directors, and shareholders well in their future endeavors.
/s/ Denice J. Bloomer
Denice J. Bloomer
Vice President and Controller
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
Atrix International, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Atrix International, Inc. at June
30, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 1996 in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
July 30, 1996
Atrix International
10
<PAGE>
ATRIX INTERNATIONAL BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30,
1996 1995
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 541,515 $ 567,255
Restricted cash 250,000 400,000
Marketable securities, at cost 693,648 190,000
Accounts receivable, less allowance for doubtful accounts of
$16,000 and $17,000, respectively 757,650 746,490
Inventories 994,858 851,671
Prepaid expenses 76,489 33,978
----------- -----------
Total current assets 3,314,160 2,789,394
----------- -----------
Property and equipment, net 492,096 299,832
Intangible assets, net 82,345 14,424
Capitalized software development costs, net 207,358 276,465
----------- -----------
Total assets $ 4,095,959 $ 3,380,115
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 595,388 $ 661,640
Notes payable - bank 941,299 812,653
Current maturities of long-term debt 76,553 5,742
Accrued liabilities 52,305 91,958
----------- -----------
Total current liabilities 1,665,545 1,571,993
Long-term debt, net of current maturities 162,607 8,106
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 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
shares issued and outstanding, respectively 56,536 52,019
Additional paid-in capital 3,276,969 2,957,736
Accumulated deficit (1,065,698) (1,209,739)
----------- -----------
Total shareholders' equity 2,267,807 1,800,016
----------- -----------
Total liabilities and shareholders' equity $ 4,095,959 $ 3,380,115
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
Atrix International
11
<PAGE>
ATRIX INTERNATIONAL, INC. STATEMENT OF OPERATIONS FOR THE
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $6,028,427 $5,778,179 $5,023,079
Cost of sales 4,254,597 3,867,241 3,699,478
---------- ---------- ----------
Gross profit 1,773,830 1,910,938 1,323,601
Selling, general and administrative expenses 1,630,934 1,754,398 1,952,259
---------- ---------- ----------
Income (loss) from operations 142,896 156,540 (628,658)
Interest expense, net (2,227) (18,404) (75,017)
Patent infringement settlements 1,990 169,496 1,117,364
---------- ---------- ----------
Income before income taxes 142,659 307,632 413,689
Income tax expense (benefit) (1,382) 7,350 8,500
---------- ---------- ----------
Net income $ 144,041 $ 300,282 $ 405,189
========== ========== ==========
Net income per share $ 0.03 $ 0.06 $ 0.08
========== ========== ==========
Weighted average number of
common shares outstanding $5,541,345 $5,201,978 $5,167,722
========== ========== ==========
</TABLE>
See accompanying notes to the financial statements.
Atrix International
12
<PAGE>
ATRIX INTERNATIONAL INC. STATEMENT OF SHAREHOLDER'S EQUITY FOR THE
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
NUMBER PAID-IN ACCUMULATED
OF SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1993 $5,155,038 $51,550 $2,963,728 $(1,915,210) $1,100,068
Warrants converted, net of related
expenses of $62,000 46,940 469 (5,992) (5,523)
Net income 405,189 405,189
---------- ------- ---------- ----------- ----------
Balance, June 30, 1994 5,201,978 52,019 2,957,736 (1,510,021) 1,499,734
Net income 300,282 300,282
---------- ------- ---------- ----------- ----------
Balance, June 30, 1995 5,201,978 52,019 2,957,736 (1,209,739) 1,800,016
---------- ------- ---------- ----------- ----------
Warrants converted, net of related
expenses of $15,000 451,666 4,517 319,233 323,750
Net Income 144,041 144,041
---------- ------- ---------- ----------- ----------
Balance, June 30, 1996 $5,653,644 $56,536 $3,276,969 $(1,065,698) $2,267,807
========== ======= ========== =========== ==========
</TABLE>
See accompanying notes to the financial statements.
Atrix International
13
<PAGE>
ATRIX INTERNATIONAL, INC. STATEMENT OF CASH FLOWS FOR THE
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 144,041 $ 300,282 $ 405,189
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 244,968 374,266 458,967
Changes in current assets and liabilities:
Accounts receivable (11,160) 253,297 (402,111)
Inventories (143,187) (148,042) 155,707
Prepaid expenses (42,511) 3,998 6,850
Accounts payable (66,252) (31,859) 85,734
Accrued liabilities (39,653) (29,938) 82,128
--------- --------- ---------
Net cash provided by operating activities 86,246 722,004 792,464
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (74,880) (117,290) (57,957)
Purchase of product line (50,000)
Additions to capitalized software development costs (18,099) (194,945) (6,295)
Purchases of marketable securities, net (503,648) (190,000)
Additions to intangible assets (18,067) (14,424)
--------- --------- ---------
Net cash used in investing activities (664,694) (516,659) (64,252)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - bank, net 128,646 114,153 142,844
Repayments from notes payable - shareholders 0 (65,015) (185,610)
Repayments of long term debt (49,688) (4,906)
Increase/decrease in restricted cash 150,000 (400,000)
Net proceeds (cost) from exercise of common stock warrants 323,750 (5,523)
--------- --------- ---------
Net cash provided (used) by
financing activities 552,708 44,232 (448,289)
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents (25,740) 249,577 279,923
Cash and cash equivalents - beginning of the year 567,255 317,678 37,755
--------- --------- ---------
Cash and cash equivalents - end of the year $ 541,515 $ 567,255 $ 317,678
========= ========= =========
</TABLE>
See accompanying notes to the financial statements.
Atrix International
14
<PAGE>
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
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments with original
maturities of three months or less and are readily convertible to cash.
RESTRICTED CASH
Restricted cash is comprised of a one-year certificate of deposit and maintained
with our lending bank. This restriction is in line with the credit agreement as
discussed in Note 6 on page 17.
MARKETABLE SECURITIES
Marketable securities generally consist of certificates of deposits with
maturities of up to one year. The Company's marketable securities are classified
as held to maturity and, therefore, are carried at amortized cost. The estimated
fair value of the securities approximates their amortized cost. Unrealized
holding gains and losses were not significant.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of the product net of customer
discounts.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit risk
consist primarily of accounts receivable. The Company grants credit to customers
in the ordinary course of business. See Sales to Major Customers and Export
Sales in Note 3 on page 16.
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 the assets 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.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense when incurred. These costs
were approximately $120,000, $12,000, and $2,500 for 1996, 1995 and 1994,
respectively. See the Capitalized Software Development Costs section on page 16
for additional discussion on development activities.
INTANGIBLE ASSETS
Intangible assets consist of an applied patent relating to the Office Machine
Management System, goodwill and other intangibles. The Company is amortizing the
intangible assets
Atrix International
15
<PAGE>
on a straight-line basis over the estimated useful lives of seven to fifteen
years. Periodically, management assesses whether there has been a permanent
impairment in the value of intangible assets.
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 on a straight-line basis over their estimated useful life of six years.
Accumulated amortization was $323,861 and $236,655 at June 30, 1996 and 1995,
respectively. Total amortization expense for each of the years ended June 30,
1996, 1995 and 1994 of $87,206, $55,776 and $101,000, respectively, was recorded
in cost of sales.
NET INCOME PER SHARE
Net income per share computations are based on the weighted average number of
common shares and common share equivalents outstanding during the year.
CASH FLOWS
The Company paid interest of $62,326, $69,950, and $92,000 during fiscal years
1996, 1995 and 1994, respectively. No income taxes were paid in 1996 and 1994.
During 1995, the Company paid $8,880 in alternative minimum taxes.
INCOME TAXES
The Company accounts for income taxes in accordance with Financial Accounting
Board Statement No. 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.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to current year
presentation.
NOTE 3 SALES TO MAJOR CUSTOMERS AND EXPORT SALES
In fiscal years 1996, 1995 and 1994, sales to major customers that exceeded 10%
of total net sales were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------
<S> <C> <C> <C>
Customer A 23% 25% 19%
Customer B --- --- 10%
Customer C --- --- 9%
</TABLE>
Accounts receivable from Customer A represented approximately 4% and 18% of
total receivables at June 30, 1996 and 1995, respectively. There were no other
significant concentrations of receivables.
Export Sales were approximately $829,000, $738,000, and $677,000 in fiscal years
1996, 1995 and 1994, respectively. Substantially all of the Company's export
sales are negotiated, invoiced and paid in U.S. dollars, and were generated from
customers primarily in Europe and Asia.
NOTE 4 INVENTORIES
Inventories are comprised of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Raw materials $ 448,291 $ 285,200
Finished goods 546,567 566,471
----------- -----------
Total $ 994,858 $ 851,671
=========== ===========
</TABLE>
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment, at cost, are comprised of the following at June 30:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Tooling and molds $ 1,092,009 $ 836,805
Office furniture and fixtures 323,239 434,034
Manufacturing equipment 146,719 103,649
Leasehold improvements 80,432 79,443
Warehouse equipment 49,627 54,024
Vehicles 8,860
----------- -----------
1,700,886 1,507,955
Accumulated depreciation (1,208,790) (1,208,123)
----------- -----------
$ 492,096 $ 299,832
=========== ===========
</TABLE>
Atrix International
16
<PAGE>
NOTE 6 LINE OF CREDIT
The Company maintains a line of credit with a commercial Bank. The borrowing
base under the line of credit is the lesser of (a) $1,250,000 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 $250,000 certificate of
deposit. The interest rate is at prime. The line of credit has an initial term
that expires October 31, 1996 but is due on demand at any time. The Company is
required to pay accrued interest on a monthly basis.
NOTE 7 LONG-TERM DEBT
In November 1995, the company issued acquisition notes payable totaling $275,000
which are payable in periodic installments based on the terms of the agreements.
The interest rate is at prime and the obligations will be paid through November
1998. Estimated principal payments of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
<S> <C>
1997 $ 72,060
1998 72,060
1999 87,128
--------
Total $231,248
</TABLE>
NOTE 8 LEASES
The Company leases office, warehouse and production facilities as well as
certain office equipment under long-term operating and capital lease agreements.
The lease covering the facilities runs through April 1998 and provides for a
five-year renewal option.
Future minimum payments under the leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING JUNE 30, LEASES LEASES
<S> <C> <C>
1997 $186,716 $ 5,190
1998 156,616 3,597
1999 4,808 241
2000 4,154 0
-------- -------
Total $352,294 9,028
Less:interest (1,116)
-------
TOTAL $ 7,912
</TABLE>
Rental expense for operating leases was approximately $198,200, $199,800, and
$198,000 for 1996, 1995 and 1994, respectively.
NOTE 9 STOCK OPTIONS AND WARRANTS
OPTIONS
The Company adopted its 1994 Stock Option Plan in April 1994 which has 800,000
shares of Common Stock reserved for issuance pursuant to exercise of stock
options. The plan provides for the issuance of options to purchase Common Stock
to directors, officers, employees and consultants of the Company. Options
granted under the plan may be either non-qualified stock options or incentive
stock options. Incentive options must have an exercise price equal to at least
100% of the fair market value on the date of grant and non-qualified options
must have an exercise price equal to at least 85% of the fair market value on
the date of grant. Outstanding options are generally exercisable immediately and
expire five to ten years from the date of the grant. Cancelled options are
available for future grants.
A summary of the activity of stock options is as follows:
<TABLE>
<CAPTION>
SHARES EXERCISE
UNDER PRICE
OPTION RANGE
<S> <C> <C>
Outstanding at
June 30, 1994 436,000 $0.09-$2.06
Granted 620,000 $0.88-$1.28
Cancelled from
new stock option plan (436,000) $0.91-$2.06
Cancelled (127,600) $0.91-$1.00
Outstanding at
June 30, 1995 492,400 $0.88-$1.28
Granted 15,900 $1.00
Cancelled (25,500) $1.00
--------
Outstanding at
June 30, 1996 482,800 $0.88-$1.28
</TABLE>
Atrix International
17
<PAGE>
Options outstanding at June 30, 1996 to purchase 360,280 common shares were
exercisable at prices ranging from $0.88 to $1.28.
On April 13, 1994, the Stock Option Committee granted new options under the 1994
Plan replacing certain options previously existing under the 1990 Plan for
identical number of shares with an exercise price of $1.00 per share, the fair
market value on that date.
WARRANTS
In February and March of 1993, the Company issued warrants to purchase 250,625
shares of Common Stock at a price of $1.22 per share, which expire on February
28, 1998. These warrants were issued in connection with the Company's sale of
promissory notes in the aggregate principal amount of $250,625. In November
1993, the Company issued warrants to purchase an aggregate of 315,000 shares of
Common Stock at a price of $1.38 per share, which expire on November 5, 1998.
These warrants were issued to directors of the Company who had guaranteed a
portion of the Company's line of credit.
A portion of the above warrants were exercised in connection with a private
offering completed on September 30, 1995 of 451,666 shares of common stock at
$.75 per share and the company received net proceeds of $323,750. The holders of
the warrants that were exercised were granted new warrants to purchase 451,666
shares of common stock at $.75 per share.
NOTE 10 INCOME TAXES
The Company has available net operating loss and tax credit carryforwards for
income tax purposes of $1,287,807 and $83,688, respectively, on June 30, 1996.
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 June 30, 1996 as their realization is
not presently assured. The Company has not recognized any significant income tax
expense during 1994, 1995 or 1996 due to utilization of available net operating
loss carryforwards.
Assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C>
Loss Carryforwards $ 564,060 $ 647,756
Research & Development
Credits 83,688 83,688
Inventory 17,163 28,473
Bad Debts 7,045 6,722
Fixed Assets 73,557 91,200
Amortization (133,050) (100,586)
Other 0 4,658
--------- ---------
612,463 761,911
Less: Valuation Allowance (612,463) (761,911)
--------- ---------
$ 0 $ 0
</TABLE>
NOTE 11 PATENT LITIGATION SETTLEMENTS
In fiscal 1996, 1995 and 1994, the Company recorded net patent infringement
settlements from several companies totaling $1,990, $169,496, and $1,117,364
respectively, after legal and other expenses.
NOTE 12 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
and were $4,128, $6,300 and $0 during 1996, 1995, and 1994 respectively.
NOTE 13 PURCHASE OF PRODUCT LINE
In November 1995, the Company completed the acquisition of a vacuum product line
from Porous Media. The Company acquired certain product line equipment and
intangibles. The purchase price consisted of cash and notes payable.
Atrix International
18
<PAGE>
[BACKGROUND PICTURE OF CLOUDS & SUN]
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 3:30 p.m. on Tuesday, October
22, 1996 at:
Crown Plaza North Star Hotel
618 Second Avenue South
Minneapolis, Minnesota
All shareholders are urged to attend.
ATRIX INTERNATIONAL, INC. CORPORATE OFFICES
14301 Ewing Avenue South
Burnsville, Minnesota 55306
ATRIX BOARD OF DIRECTORS
W. William Bednarczyk, Chairman, Management Consultant
Clifford B. Meacham, Vice Chairman
Steven D. Riedel, President, Chief Executive Officer & Chief Financial Officer
William E. Bennett, Consultant
Charles J.B. Mitchell, Jr., Consultant
Richard W. Perkins, Capital Management Consultant
Gordon H. Ritz, Sr., Investor
ATRIX CORPORATE OFFICERS
Steven D. Riedel, President, Chief Executive Officer and Chief Financial Officer
Denice J. Bloomer, Vice President and Controller
Thomas Letscher, Secretary
MANAGEMENT TEAM
Denice J. Bloomer, Vice President and Controller
Steven D. Riedel, President, Chief Executive Officer and Chief Financial Officer
Chris P. Walsh, MIS and Manufacturing Manager
Steven J. Zeilinger, Inside Sales and Distribution Manager
INDEPENDENT AUDITORS
Price Waterhouse LLP
Minneapolis, Minnesota
LEGAL COUNSEL
Oppenhiemer Wolff and Donnelly
Minneapolis, Minnesota
FORM 10-KSB
The Company's Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission is available to shareholders upon request, and may be
obtained by writing to:
Ms. Sharon Maras
Atrix International, Inc.
14301 Ewing Avenue South
Burnsville, Minnesota 55306
NASDAQ SYMBOL
ATXI
REGISTRAR AND TRANSFER AGENT
Please direct inquires regarding change of address, lost certificates and other
transfer of share matters to the address below.
Norwest Bank, N.A.
Stock Transfer
P.O. Box 738
South Saint Paul, Minnesota
55075-0738
612-450-4064 or 800-468-9716
MARKET MAKERS
Ernst and Company
Herzog, Heine, Geduld, Inc.
John G. Kinnard and Company, Inc.
Mayer and Schweitzer, Inc.
M.H. Myerson and Company
Nash Weiss/Division of Shatkin
Paragon Capital Corporation
R.J. Steichen and Company
Troster Singer Corporation
Wein Securities Corporation
19
<PAGE>
[BACKGROUND PICTURE OF CLOUDS AND SUN]
WE WANT TO DEVELOP A POSITIVE AND CHALLENGING WORK ENVIRONMENT PROVIDING
PRODUCTS AND SERVICES TO THE EXPANDING TELECOMMUNICATIONS, COMPUTER AND OFFICE
PRODUCT MARKETS.
OUR GOALS ARE TO:
ENHANCE PROFITABILITY IN OUR BUSINESS OF COPY MANAGEMENT, MANUFACTURING AND
DISTRIBUTION BY FOCUSING ON INCREASING SALES AND IMPROVING GROSS MARGINS.
BECOMING A LEADING SUPPLIER OF COPY MANAGEMENT AND REMOTE METERING PRODUCTS
IMPROVE CUSTOMER SATISFACTION BY IMPLEMENTING QUALITY PROCEDURES FOR OUR
PRODUCTS AND SERVICES
ENHANCE SHAREHOLDER VALUE
AGGRESSIVELY SEEK NEW OPPORTUNITIES AND MARKETS FOR OUR CURRENT PRODUCTS.
ATRIX IS A LEADING EDGE MANUFACTURER OF REMOTE METERING AND COPY CONTROL
PRODUCTS. THE COMPANY IS ALSO A MANUFACTURER OF TONER VACUUMS, VACUUM FILTERS
AND PRINTED CIRCUIT BOARD TRANSPORT CASES FOR THE OFFICE MACHINE INDUSTRY. IN
ADDITION, ATRIX DISTRIBUTES TOOLS AND INSTRUMENTATION FOR FIELD SERVICE
ORGANIZATIONS THROUGHOUT THE WORLD.
[ATRIX LOGO]
ATRIX INTERNATIONAL, INC.
14301 EWING AVENUE SOUTH
BURNSVILLE, MN 55306
612-894-6154 . 800-222-6154
20
<PAGE>
[PRICE WATERHOUSE LLP LETTERHEAD]
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-00699) and
in the Registration Statement on Form S-8 (No. 33-80682) of Atrix International,
Inc. of our report dated July 30, 1996 appearing on page 10 of the Annual Report
to Shareholders which is incorporated in this Annual Report on Form 10-KSB.
/s/ Price Waterhouse LLP
- --------------------------
Price Waterhouse LLP
Minneapolis, Minnesota
September 24, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the 1996 Atrix Annual Report and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 791,515
<SECURITIES> 693,648
<RECEIVABLES> 757,650<F1>
<ALLOWANCES> 0
<INVENTORY> 994,858
<CURRENT-ASSETS> 3,314,160
<PP&E> 492,096<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,095,959
<CURRENT-LIABILITIES> 1,665,545
<BONDS> 0
<COMMON> 56,536
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,095,959
<SALES> 6,028,427
<TOTAL-REVENUES> 6,028,427
<CGS> 4,254,597
<TOTAL-COSTS> 4,254,597
<OTHER-EXPENSES> 1,628,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,227<F3>
<INCOME-PRETAX> 142,659
<INCOME-TAX> (1,382)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,041
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<FN>
<F1> NET OF ALLOWANCE FOR UNCOLLECTIBLES.
<F2> NET OF ACCUMULATED DEPRECIATION.
<F3> INTEREST EXPENSE IS NET WITH INTEREST INCOME.
</FN>
</TABLE>
