<PAGE>
Form 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the period ended March 31, 1997.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _______________ to _______________
Commission File Number: 0-18880
Atrix International, Inc.
-------------------------
(Exact Name of registrant as specified in its charter)
Minnesota 41-1591075
--------- ----------
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
14301 Ewing Avenue South, Burnsville, MN 55306
- -----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(612) 894-6154
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
As of March 31, 1997 the following securities of the registrant were
outstanding: 5,653,644 shares of Common Stock, $.01 per value per share.
<PAGE>
PART I.
Item 1. Financial Statements
This report includes the financial position of Atrix International, Inc.,
("Atrix" or the "Company") as of March 31, 1997 and June 30, 1996, the results
of operations for the three and nine months ended March 31, 1997 and 1996, and
the cash flows for the nine months ended March 31, 1997 and 1996.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Net Sales. Sales for the third quarter ended March 31, 1997 totaled $1,560,315
compared with $1,610,685 for the same period a year ago. Sales for the nine
months ended March 31, 1997 totaled $4,388,558 compared to $4,555,565 for the
same period last year.
The following table shows the Company's revenues for the periods indicated by
product line, total manufactured products and total distributed products.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
Product Line
Vacuums and Supplies $ 557,926 $ 499,968 $1,418,360 $1,230,292
ESD Equipment 31,416 42,564 155,372 170,928
Circuit Board Cases 929 0 20,022 36,836
Special Assemblies 36,552 68,063 107,053 158,986
---------- ---------- ---------- ----------
Total Manufacturing 626,823 610,595 1,700,807 1,597,042
Loose Tools 499,298 638,600 1,555,301 1,776,339
Tool Kits 70,159 100,940 211,892 281,276
Instrumentation 244,811 203,046 582,071 582,927
---------- ---------- ---------- ----------
Total Distribution 814,268 942,586 2,349,264 2,640,542
R3 Copy Control Products 76,797 57,487 286,060 311,542
Royalty Revenue 17 6,439
M1 42,427 0 52,427 0
---------- ---------- ---------- ----------
Total Revenue $1,560,315 $1,610,685 $4,388,558 $4,555,565
</TABLE>
Manufacturing sales for the three months ended March 31, 1997 were $626,823 as
compared to $610,595 for the same period in 1996. For the nine months ended
March 31, 1997, manufacturing sales were $1,700,807 as compared to $1,597,042
for the same period last year. The primary reason for the increase in revenues
for the three and nine month periods was strong acceptance of the Omega vacuum
line and continued revenues from the Ulti Vac product line. Increases in these
areas more than offset decreases in circuit board cases and special assemblies.
Distribution sales for the three months ended March 31, 1997 were $814,268 as
compared to $942,586 for the same period in 1996. For the nine months ended
March 31, 1997, distribution sales were $2,349,264 compared to $2,640,542 for
the same period in the prior year. The decreases for the three and nine month
periods were primarily due to a reduction in sales of both loose tools and tool
kits, and was expected with the breakup of AT&T, a major tool customer. The
decrease also reflects the Company's decision to de-emphasize sales of tool
products and focus its efforts on the more profitable lines of vacuum products
and Copy Control products.
Form 10-Q March 31, 1997
Page 2
<PAGE>
R3 Copy Control product sales for the three months ended March 31, 1997 were
$76,797 as compared to $57,487 for the same period in 1996. For the nine months
ended March 31, 1997, R3 Copy Control product sales were $286,060 as compared to
$311,542 for the same period in the prior year. The reason for the decrease for
the nine month period is that the first quarter of 1996 included a nonrecurring
R3 inventory stocking shipment of approximately $100,000 that did not recur in
fiscal 1997.
On March 18, 1997, the Company announced that they had received notification
from the United States Patent and Trademark Office, that their Utility Patent
for its Multipurpose Remote Office Machine Management System has been approved
to issue. The Copy Management System is designed to interface with various
office machines such as copiers, duplicators or facsimile devices for the remote
reading and monitoring of usage and performance information. Data can be
transmitted to a host personal computer via local area networks for
consolidation of usage and maintenance reports. Additionally, the patent covers
remote communication capabilities using standard shared telephone lines or radio
transmission RF technology. Presently, Atrix has installed over 2,000 monitors
within the copier industry and has numerous prospects that are evaluating their
system.
Looking forward, the Company believes that revenues from manufactured vacuum
products, and the R3 Copy Control system will continue to improve. The Company
released it's new Omega Vacuum in June of 1996, which received a very positive
response from distributors and customers at the Business and Technology Show in
Las Vegas in July of 1996 and in February of 1997. Acceptance of the Omega
series vacuum line has been very strong, with agreements being reached with
eight distributors to stock the vacuum line. In addition, numerous other
prospects are currently evaluating these products. The Company also expects to
see an increase in R3 Copy Control devices over the next three months. The
Company has also announced the introduction of its M1 system, which is a new
remote metering and monitoring system for the injection molding industry. It is
being developed as a retro fit system permitting injection molding plants to
install the units on existing molding machines for plant monitoring, metering,
reporting and scheduling capabilities. The Company began field testing the
product in February, 1997. The Company believes that M1's competitive pricing,
will provide a platform for Atrix to expand into the $40 million annual plastics
monitoring market. With the new product introductions, lower operating expenses,
the increase in distributor agreements and the acceptance of the Porous Media
products, the Company believes that sales will increase in the remainder of
fiscal 1997. The Company notes that except for historical financial statements,
the above and other forward looking statements are subject to certain risks
including market acceptance of the Company's new products, changes in production
costs, loss of a major customer, an economic downturn, an unplanned expense, or
other events.
Gross Profit
The gross profit margin as a percentage of sales was 30.9% and 28.3% for the
three month periods ended March 31, 1997, and 1996, respectively. For the nine
month period ended March 31, 1997 the gross profit margin was 30.4% versus 29.5%
for the one year ago. The increase in gross profit margin is due mainly to the
Company's product mix, moving away from the less profitable distribution sales
and towards the more profitable vacuum and R3 Copy Control.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March
31, 1997 and 1996 decreased to $414,763 from $422,317 for the same period in
1996, or $7,554. Total selling expenses for the quarter ended March 31, 1997
were $131,607 as compared to $142,039 for the same period in 1996. Due to the
strong acceptance of the Omega vacuum product line, the Company decided in
September 1996, to market the vacuum through distribution channels rather than
directly to the end user. As a result, the Company expects selling expenses to
remain at a comparable level in future periods, due to reduced requirements in
sales personnel, travel and advertising related items. Total general and
administrative expenses for the quarter ended March 31, 1997 were $283,156
compared to $280,278 for the same period
Form 10-Q March 31, 1997
Page 3
<PAGE>
in 1996. Selling, general and administrative expenses represented 26.6% and
26.2% of sales for the quarters ending March 31, 1997 and 1996, respectively.
Selling, general and administrative expenses for the nine months ended March 31,
1997 increased to $1,219,636 from $1,212,922 in the same period of 1996, or
$7,714. Total selling expenses for the nine months ended March 31, 1997 were
$410,015, compared to $429,527 for the same period in 1996. Reductions in
catalog and advertising expenses were the primary reasons for the decrease of
$19,512. Total general and administrative expenses for the nine months ended
March 31, 1997 increased to $809,621, compared to $782,395 or $27,226 for the
same period in 1996. The increase can be attributed primarily to higher salary,
pension and benefits expenses. Selling, general and administrative expenses
represented 27.8% and 26.6% of sales for the nine months ending March 31, 1997
and 1996, respectively. The Company expects its selling, general and
administrative expenses to remain at a comparable level for the remainder of
fiscal 1997.
Net Income
Net income for the quarter ended March 31, 1997 increased to $72,257 from
$32,962 for the quarter ended March 31, 1996. Net income for the nine months
ended March 31, 1997 was $126,579, compared to $133,415 for the same period in
1996. The changes were due to the factors discussed above.
Liquidity and Capital Resources
The Company's cash, restricted cash and marketable securities at March 31, 1997
was $1,557,669 compared to $1,485,163 at June 30, 1996. Working capital
increased to $1,800,861 at March 31, 1997 from $1,648,615 at June 30, 1996. The
increase in the Company's cash and working capital positions, was due primarily
to ongoing operating activities.
The Company maintains a line of credit with Riverside Bank. As of March 31,
1997, the borrowing base under the line of credit was the lesser of (a)
$1,250,000 or (b) the sum of (i) 75% of eligible accounts receivable and (ii)
50% of eligible inventory. The Company is also required to maintain tangible net
worth of $1,700,000. 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 Company
is required to pay accrued interest on a monthly basis. As of March 31, 1997,
the outstanding balance on the line of credit was $900,000 and the remaining
borrowing availability was $37,409.
The Company's plan of operations currently does not call for raising additional
capital. The Company plans to finance its operations for the remainder of fiscal
year ending June 30, 1997 with working capital and bank borrowings. The Company
expects to generate cash from operations for the remainder of fiscal 1997 by
continued increases in sales, gross margin improvement and controlled operating
expenses.
Form 10-Q March 31, 1997
Page 4
<PAGE>
Atrix International, Inc.
Balance Sheet
<TABLE>
<CAPTION>
ASSETS March 31, 1997 June 30, 1996
-------------- -------------
Current Assets: (unaudited)
<S> <C> <C>
Cash $ 830,815 $ 541,515
Restricted cash 250,000 250,000
Marketable securities, at cost 476,854 693,648
Accounts receivable less allowance for doubtful accounts
($17,000 and $17,000, respectively) 722,051 757,650
Inventories 901,051 994,858
Prepaid Expenses 66,443 76,489
---------- ----------
Total Current Assets 3,247,214 3,314,160
---------- ----------
Property and equipment, net 402,686 492,096
Intangible assets, net 78,122 82,345
Capitalized software development costs, net 234,559 207,358
---------- ----------
TOTAL ASSETS $3,962,581 $4,095,959
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 437,522 $ 595,388
Notes payable - bank 900,000 941,299
Current maturities of long-term debt 66,755 76,553
Accrued liabilities 42,076 52,305
---------- ----------
Total current liabilities 1,446,353 $1,665,545
Notes payable - long term 121,843 162,607
---------- ----------
Shareholders' Equity:
Preferred stock, $.01 par value
3,000,000 shares authorized,
no shares issued
Common stock, $.01 par value,
50,000,000 shares authorized, 5,653,644
shares issued and outstanding 56,536 56,536
Capital in excess of par value 3,276,969 3,276,969
Accumulated deficit (939,120) (1,065,698)
---------- -----------
Total shareholders' equity 2,394,385 2,267,807
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,962,581 $ 4,095,959
========== ===========
</TABLE>
See accompanying notes to financial statements.
Form 10-Q March 31, 1997
Page 5
<PAGE>
Atrix International, Inc.
Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Product Revenue $1,560,315 $1,610,668 $4,388,558 $4,549,126
Royalty Revenue 17 6,439
---------- ---------- ---------- ----------
Net Revenue 1,560,315 1,610,685 4,388,558 4,555,565
Cost of Sales 1,078,483 1,155,614 3,054,356 3,212,594
---------- ---------- ---------- ----------
Gross Profit 481,832 455,071 1,334,202 1,342,971
Selling, general and
administrative expenses 414,763 422,317 1,219,636 1,211,922
---------- ---------- ---------- ----------
Income from operations 67,069 32,754 114,566 131,049
Other Income (expense), net 255 255
Interest Income (expense) net 5,196 208 11,240 984
---------- ---------- ---------- ----------
Net Income before
income taxes 72,520 32,962 126,061 132,033
Income tax expense (benefit) 263 (518) (1,382)
---------- ---------- ---------- ----------
Net Income $ 72,257 $ 32,962 $ 126,579 $ 133,415
========== ========== ========== ==========
Net income per share $.01 $.01 $.02 $.02
Weighted average number
of common stock equivalents 5,653,644 5,653,644 5,653,644 5,504,184
</TABLE>
See accompanying notes to financial statements.
Form 10-Q March 31, 1997
Page 6
<PAGE>
Atrix International, Inc.
Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 126,579 $ 133,415
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 139,529 166,880
Change in current assets and liabilities:
Accounts receivable 33,113 (98,756)
Inventories 96,293 (50,753)
Prepaid expenses 10,045 (42,966)
Accounts payable (157,865) (29,812)
Accrued liabilities (10,230) (40,101)
--------- ---------
Net cash provided by operating activities 237,464 37,907
Cash flows from investing activities:
Purchase of equipment, leasehold
improvements and other assets, net (17,369) (39,818)
Purchase of product line 0 (50,000)
(Purchases) sales of marketable securities, net 216,794 (116,243)
Additions intangible assets (55,729) (18,068)
--------- ---------
Net cash provided (used) by investing activities 143,696 (224,129)
Cash flows from financing activities:
Proceeds (repayments) from notes payable - bank, net (41,299) 89,310
Repayments of notes payable - Porous Media (49,909) (26,934)
Restricted cash 0 150,000
Repayments of capital lease obligations (652) (4,424)
Proceeds from exercise of common stock warrants 0 323,750
--------- ---------
Net cash (used) provided by financing activities (91,860) 531,702
Net increase in cash 289,300 345,480
Cash - beginning of the period 541,515 77,145
--------- ---------
Cash - end of the period $ 830,815 $ 422,625
========= =========
See accompanying notes to financial statements.
Form 10-Q March 31, 1997
Page 7
</TABLE>
<PAGE>
ATRIX INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Corporate Organization
Atrix International, Inc. (the Company) designs and manufactures toner vacuums,
vacuum filters and circuit board transport cases. The Company also designs the
hardware and software for R3 Remote Metering and Copy Control products. In
addition, Atrix distributes tools, meters, electrostatic discharge (ESD) and
static control products and assembles tool kits for the telecommunication,
office machine and computer industries.
On November 9, 1995 the Company purchased the Ulti Vac(TM) product line from
Porous Media. The assets acquired by the Company include production equipment,
customer lists and Ulti Vac trademark. This expands the Company's offering of
toner vacuum products to the photocopier and laser printer industries. In
addition, the product acquisition includes filtration products for the asbestos
and Hepa markets.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements, which are unaudited except for the
balance sheet as of June 30, 1996, have been prepared in accordance with
instructions to Form 10-QSB and do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have been
included. These financial statements should be read in conjunction with the
financial statements and accompanying notes included in the Company's Annual
Report on Form 10-KSB, for the year ended June 30, 1996 filed with the
Securities and Exchange Commission.
Note 3. Inventories
Inventories are comprised of the following at:
<TABLE>
<CAPTION>
March 31, 1997 June 30, 1996
-----------------------------------
<S> <C> <C>
Raw Materials $357,947 $448,291
Finished goods 543,104 546,567
-------- --------
Total $901,051 $994,858
</TABLE>
Note 4. Income Taxes
The Company has available net operating loss and tax credit carryforwards for
income tax purposes of approximately $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 March 31, 1997 and June 30,
1996 as their realization is not presently assured.
Form 10-Q March 31, 1997
Page 8
<PAGE>
Inventory of Deferred Items and NOL Carryforward
The composition of the net deferred tax are as follows:
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1997
-------------------------------
<S> <C> <C>
Loss Carryforwards $ 564,060 $ 508,618
Research & Development
Credits 83,688 83,688
Inventory 17,163 17,163
Bad Debts 7,045 7,045
Fixed Assets 73,557 83,697
Amortization (133,050) (163,876)
Other 0 0
--------- ---------
612,463 536,335
Less: Valuation Allowance (612,463) (536,335)
--------- ---------
$ 0 $ 0
========= =========
</TABLE>
Form 10-Q March 31, 1997
Page 9
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATRIX INTERNATIONAL, INC.
Date: May 1, 1997 /s/ Steven D. Riedel
-------------------------------------------
Steven D. Riedel
Chief Executive Officer
(Principal Executive and Financial Officer)
/s/ Dean L. Gerber
-------------------------------------------
Dean L. Gerber
Controller (Principal Accounting Officer)
Form 10-Q March 31, 1997
Page 10
<PAGE>
ATRIX INTERNATIONAL, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-QSB
For the Quarter Ended March 31, 1997
Item No. Item Method of Filing
- -------- ---- ----------------
27 Financial data schedule Filed herewith
Form 10-Q March 31, 1997 Page 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Form 10QSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,080,815
<SECURITIES> 476,854
<RECEIVABLES> 722,051<F1>
<ALLOWANCES> 0
<INVENTORY> 901,051
<CURRENT-ASSETS> 3,247,214
<PP&E> 402,686<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,962,581
<CURRENT-LIABILITIES> 1,446,353
<BONDS> 0
0
0
<COMMON> 56,536
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,962,581
<SALES> 4,388,558
<TOTAL-REVENUES> 4,388,558
<CGS> 3,054,356
<TOTAL-COSTS> 3,054,356
<OTHER-EXPENSES> 1,219,636
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11,495)<F3>
<INCOME-PRETAX> 126,061
<INCOME-TAX> (518)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,579
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1> NET OF ALLOWANCE FOR UNCOLLECTIBLES
<F2> NET OF ACCUMULATED DEPRECIATION
<F3> INTEREST EXPENSE IS NET WITH INTEREST INCOME
</FN>
</TABLE>
