<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 September 30, 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 September 30, 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 September 30, 1997 and June 30, 1997, the
results of operations for the three months ended September 30, 1997 and 1996,
and the cash flows for the three months ended September 30, 1997 and 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net Sales. Sales for the first quarter ended September 30, 1997 totaled
$1,048,977 compared with $1,431,168 for the same period a year ago.
The following table shows the Company's revenues for the periods indicated by
product line, total manufactured products and total distributed products.
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
---------- ----------
<S> <C> <C>
Product Line
Vacuums and Supplies $ 488,119 $ 396,556
ESD Equipment 31,939 70,922
Circuit Board Cases 8,872 2,351
Special Assemblies 33,783 48,551
---------- ----------
Total Manufacturing 562,713 518,380
Loose Tools 279,586 530,924
Tool Kits 83,579 103,977
Instrumentation 58,281 151,878
---------- ----------
Total Distribution 421,446 786,779
R3 Copy Control Products 56,994 116,009
M1 7,824 10,000
---------- ----------
Total Revenue $1,048,977 $1,431,168
</TABLE>
Manufacturing sales for the three months ended September 30, 1997 were $562,713
as compared to $518,380 for the same period in 1996. The primary reason for the
increase in revenues was the 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 ESD equipment and special assemblies.
Distribution sales for the three months ended September 30, 1997 were $421,446
as compared to $786,779 for the same period in 1996. The decrease for the three
months was primarily due to a reduction in sales of both loose tools and
instrumentation. Distribution sales to AT&T and Avnet, both major customers,
decreased 72% from the first quarter a year ago, as their purchases were limited
to emergency items only. The company expects sales to AT&T and Avnet to
continue to decline in future periods.
R3 Copy Control product sales for the three months ended September 30, 1997 were
$56,994 as compared to $116,009 for the same period in 1996. The primary reason
for the decrease for the three month period is decreased sales to Pitney Bowes,
a major R3 Copy Control customer. Sales to Pitney Bowes decreased as Pitney
Bowes reduced inventory levels for a variety of products. Sales are expected to
return to normal levels in future quarters.
Form 10-Q September 30, 1997 Page 2
<PAGE>
On September 30, 1997, the Company was issued a Utility Patent for its
Multipurpose Remote Office Machine Management System from the United States
Patent and Trademark Office. The Office 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 the Company's system.
Looking forward, the Company believes that revenues from manufactured vacuum
products, and the R3 Copy Control system will improve. 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 has also
announced the introduction of its A-Trax Production Monitoring System, which is
a new remote metering and monitoring system for the injection molding industry.
It was 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 the A-Trax Production
Monitoring System's competitive pricing, will provide a platform for Atrix to
expand into the $40 million annual plastics monitoring market. With the
exception of the likely decrease in the AT&T/Avnet sales, the Company believes
that sales to other customers will increase for the remainder of the fiscal
year. The Company notes that except for historical financial statements, the
above and other forward looking statements are subject to certain risks. For
this purpose, any statements contained in this report that are not statements of
historical fact may be deemed to be forward looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," or continue," or comparable terminology, are intended
to identify forward looking statements. These statements by their nature
involve substantial risks and uncertainties, and actual results may differ
materially depending on a variety of factors 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 32.8% and 31.0% for the
three month periods ended September 30, 1997, and 1996, respectively. 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 sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
September 30, 1997 and 1996 decreased to $375,688 from $406,650 for the same
period in 1996, or $30,962. Total selling expenses for the quarter ended
September 30, 1997 were $103,949 as compared to $143,568 for the same period in
1996. Reductions in commissions, travel, catalogs and show expenses were the
primary reasons for the decrease of $39,619. The Company expects selling
expenses to be slightly higher in future periods, due to increases in sales
commissions and travel related costs. The company has also added one part-time
and two full-time sales persons with the goal to increase sales. Total general
and administrative expenses for the quarter ended September 30, 1997 were
$271,739 compared to $263,082 for the same period in 1996. The primary reason
for the increase in the general and administrative expenses of $8,657 is an
increase in research and development costs, as labor related to the development
of the A-Trax Production Monitoring System is no longer being capitalized this
fiscal year. The Company expects general and administrative expenses to remain
at a comparable level in future periods. Selling, general and administrative
expenses represented 35.8% and 28.4% of sales for the quarters ending September
30, 1997 and 1996, respectively.
Form 10-Q September 30, 1997 Page 3
<PAGE>
Expenses as a percentage of sales increased due to the decline of $382,191 in
sales from the quarter ended September 30, 1997.
NET INCOME/(LOSS)
The Company generated a net loss for the quarter ended September 30, 1997 of
$41,071 versus a net income of $39,703 for the quarter ended September 30, 1996.
The changes were due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and marketable securities at September 30, 1997 was
$1,487,676 compared to $1,715,571 at June 30, 1997. Working capital decreased to
$1,750,395 at September 30, 1997 from $1,776,717 at June 30, 1997. The decrease
in the Company's cash and working capital positions, was due primarily to
factors related to the revenue decline including, a net loss for the quarter, an
increase in inventories and a decrease in accounts payable.
The Company maintains a line of credit with Riverside Bank. As of September 30,
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. The
interest rate is at prime. The Company is required to pay accrued interest on a
monthly basis. As of September 30, 1997, the outstanding balance on the line of
credit was $840,000 and the remaining borrowing availability was $20,979.
The Company did not have any material commitments for capital expenditures
outstanding as of September 30, 1997. 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, 1998
with working capital and bank borrowings. The Company expects to generate cash
from operations for the remainder of fiscal 1998 by increases in sales, gross
margin improvement and controlled operating expenses.
Form 10-Q September 30, 1997 Page 4
<PAGE>
ATRIX INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS September 30, 1997 June 30, 1997
------------------- --------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $1,276,291 $1,386,514
Marketable securities, at cost 211,385 329,057
Accounts receivable less allowance for doubtful accounts
($17,000 and $17,000, respectively) 570,163 543,091
Inventories 943,002 918,493
Prepaid expenses 107,015 94,315
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Total Current Assets 3,107,856 3,271,470
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Deferred Income Taxes 124,000 124,000
Property and equipment, net 352,473 375,624
Intangible assets, net 80,093 82,381
Capitalized software development costs, net 217,689 231,249
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TOTAL ASSETS $3,882,111 $4,084,724
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 373,116 $ 494,766
Notes payable - bank 840,000 850,000
Current maturities of long-term debt 61,410 62,622
Accrued liabilities 82,935 97,365
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Total current liabilities 1,357,461 1,504,753
Notes payable - long term 97,045 111,294
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Total Liabilities 1,454,506 1,616,047
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 (905,900) (864,828)
---------- ----------
Total shareholders' equity 2,427,605 2,468,677
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,882,111 $4,084,724
========== ==========
</TABLE>
See accompanying notes to financial statements.
Form 10-Q September 30, 1997 Page 5
<PAGE>
ATRIX INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1997 1996
----------- -------------
<S> <C> <C>
Net Sales $1,048,977 $1,431,168
Cost of Sales 718,998 987,952
---------- ----------
Gross Profit 329,979 443,216
Selling, general and
administrative expenses 375,688 406,650
---------- ----------
Income/(loss) from operations (45,709) 36,566
Interest Income/(expense) net 7,323 3,137
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Income/(loss) before taxes (38,386) 39,703
Income tax expense 2,685 0
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Net Income/(loss) $ (41,071) $ 39,703
========== ==========
Net income/(loss) per share ($.01) $.01
Weighted average number
of common stock equivalents 5,653,644 5,653,644
</TABLE>
See accompanying notes to financial statements.
Form 10-Q September 30, 1997 Page 6
<PAGE>
ATRIX INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss) $ (41,071) $ 39,703
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 42,899 63,823
Change in current assets and liabilities:
Accounts receivable (27,072) (55,373)
Inventories (24,509) 95,727
Prepaid expenses (12,700) 3,705
Accounts payable (121,650) (149,110)
Accrued liabilities (14,430) (42,247)
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Net cash provided by operating activities (198,533) (43,772)
Cash flows from investing activities:
Purchase of equipment, leasehold
improvements and other assets, net (3,900) (17,289)
(Purchases)/ sales of marketable securities, net 117,672 96,587
Additions intangible assets 0 (35,445)
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Net cash provided/(used) by investing activities 113,772 43,853
Cash flows from financing activities:
Proceeds (repayments) from notes payable - bank, net (10,000) 0
Repayments of notes payable - Porous Media (14,473) (14,272)
Repayments of capital lease obligations (989) (1,007)
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Net cash (used)/ provided by financing activities (25,462) (15,279)
Net increase in cash (110,223) (15,198)
Cash - beginning of the period 1,386,514 541,515
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Cash - end of the period $1,276,291 $ 526,317
========== =========
</TABLE>
See accompanying notes to financial statements.
Form 10-Q September 30, 1997 Page 7
<PAGE>
ATRIX INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Corporate Organization
Atrix International, Inc. (the Company) designs and manufactures toner vacuums,
vacuum filters and circuit board transport cases. The Company also designs the
hardware and software for R3 Remote Metering and Copy Control products. In
addition, Atrix distributes tools, meters, electrostatic discharge (ESD) and
static control products and assembles tool kits for the telecommunication,
office machine and computer industries.
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, 1997, 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, 1997 filed with the
Securities and Exchange Commission.
NOTE 3. INVENTORIES
Inventories are comprised of the following at:
September 30, 1997 June 30, 1997
-----------------------------------
Raw Materials $408,379 $355,165
Finished goods 534,623 563,328
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Total $943,002 $918,493
NOTE 4. INCOME TAXES
The Company has available net operating loss and tax credit carryforwards for
income tax purposes of approximately $1,086,937 and $83,688, respectively, on
June 30, 1997. 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 a portion of the net tax benefit
associated with all carryforwards and temporary differences at September 30,
1997 and June 30, 1997 as their realization is not presently assured.
Form 10-Q September 30, 1997 Page 8
<PAGE>
INVENTORY OF DEFERRED ITEMS AND NOL CARRYFORWARD
The composition of the net deferred tax are as follows:
<TABLE>
<CAPTION>
September 30, 1997 June 30, 1997
-----------------------------------
<S> <C> <C>
Loss Carryforwards $ 422,322 $ 476,078
Research & Development
Credits 83,688 83,688
Inventory 11,453 11,453
Bad Debts 5,671 5,671
Fixed Assets 77,516 77,121
Amortization (187,026) (186,033)
Other 0 0
--------- ---------
413,624 467,978
Less: Valuation Allowance (289,624) (343,978)
--------- ---------
$ 124,000 $ 124,000
========= =========
</TABLE>
Form 10-Q September 30, 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: November 7, 1997 /s/ Steven D. Riedel
----------------------------
Steven D. Riedel
Chief Executive Officer
(Principal Executive)
/s/ Dean L. Gerber
----------------------------
Dean L. Gerber
Chief Financial Officer
(Principal Accounting Officer)
Form 10-Q September 30, 1997 Page 10
<PAGE>
ATRIX INTERNATIONAL, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-QSB
For the Quarter Ended September 30, 1997
ITEM NO. ITEM METHOD OF FILING
- -------- ---- ----------------
27 Financial data schedule Filed herewith
Form 10-Q September 30, 1997 Page 11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,276,291
<SECURITIES> 211,385
<RECEIVABLES> 570,163<F1>
<ALLOWANCES> 0
<INVENTORY> 943,002
<CURRENT-ASSETS> 3,107,856
<PP&E> 352,473
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,882,111
<CURRENT-LIABILITIES> 1,357,461
<BONDS> 0
0
0
<COMMON> 56,536
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,882,111
<SALES> 1,048,977
<TOTAL-REVENUES> 1,048,977
<CGS> 718,998
<TOTAL-COSTS> 718,998
<OTHER-EXPENSES> 375,688
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,323)<F3>
<INCOME-PRETAX> (38,386)
<INCOME-TAX> 2,685
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (41,071)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
<FN>
<F1>Net of Allowance for Uncollectibles
<F2>Net of Accumulated Depreciation
<F3>Interest expense is net with interest income
</FN>
</TABLE>
