<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 December 31, 1996.
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 December 31, 1996 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 December 31, 1996 and June 30, 1996, the
results of operations for the three and six months ended December 31, 1996 and
1995, and the cash flows for the six months ended December 31, 1996 and 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET SALES. Sales for the second quarter ended December 31, 1996 totaled
$1,397,075 compared with $1,476,447 for the same period a year ago. Sales for
the six months ended December 31, 1996 totaled $2,828,243 compared to $2,944,880
for the same period last year.
The following table shows the Company's revenues for the quarter by product
line, total manufactured products and total distributed products.
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---------------------- ----------------------
Product Line
Vacuums and Supplies $ 463,877 $ 469,827 $ 860,433 $ 730,323
ESD Equipment 53,034 60,734 123,956 128,363
Circuit Board Cases 16,741 6,648 19,092 36,836
Special Assemblies 21,951 46,234 70,502 90,923
---------- ---------- ---------- ----------
Total Manufacturing 555,603 583,443 1,073,983 986,445
Loose Tools 525,081 513,255 1,056,005 1,137,740
Tool Kits 37,755 86,111 141,732 180,336
Instrumentation 185,382 177,639 337,260 379,881
---------- ---------- ---------- ----------
Total Distribution 748,218 777,005 1,534,997 1,697,957
R3 Copy Control Products 93,254 115,974 209,263 254,055
Royalty Revenue 0 25 0 6,423
MM1 0 0 10,000 0
---------- ---------- ---------- ----------
Total Revenue $1,397,075 $1,476,447 $2,828,243 $2,944,880
Manufacturing sales for the three months ended December 31, 1996 were $555,603
as compared to $583,443 for the same period in 1995. For the six months ended
December 31, 1996, manufacturing sales were $1,073,983 as compared to $986,445
for the same period last year. The primary reason for the increase in revenues
for the six month period was strong acceptance of the Omega vacuum line and
continued revenues from the Porous Media acquisition of November, 1995.
Increases in these areas more than offset decreases in circuit board cases and
special assemblies.
Distribution sales for the three months ended December 31, 1996 were $748,218 as
compared to $777,005 for the same period in 1995. For the six months ended
December 31, 1996, distribution sales were $1,534,997, compared to $1,697,957
for the same period in the prior year. The decrease for the six month period was
primarily due to a reduction in sales of both loose tools and instrumentation
devices, 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 December 31, 1996 Page 2
<PAGE>
R3 Copy Control product sales for the three months ended December 31, 1996 were
$93,254 as compared to $115,974 for the same period in 1995. For the six months
ended December 31, 1996, R3 Copy Control product sales were $209,263 as compared
to $254,055 for the same period in the prior year. The reason for the decrease
is that last years first quarter included a nonrecurring R3 inventory stocking
shipment of approximately $100,000 that did not recur in fiscal 1997.
Looking forward, the Company believes that revenues from manufactured vacuum
products, and the R3 Copy Control system will improve. The release of the new
Omega Vacuum in June of 1996, received a very positive response from
distributors and customers at the Business and Technology Show in Las Vegas.
Acceptance of the Omega series vacuum line has been very strong, with agreements
being reached with five 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 six
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 plans
to begin 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. Sales and net income for the
first six months were affected by the Company's ongoing plans to emphasize sales
of vacuums for toner, asbestos and lead abatement. In addition, the Company
continues to emphasize sales of R3 Copy Control systems hardware and software
products. 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 29.3% and 30.4% for the
three month periods ended December 31, 1996, and 1995, respectively. For the six
month period ended December 31, 1996, the gross profit margin was 30.1% versus
30.2% for the one year ago. The decrease in gross profit margin is due mainly to
lower gross margins in distribution sales, resulting from the AT&T breakup. As a
result of the AT&T breakup, the Company has had to sell tools to Avnet for
resale to AT&T, at a lower gross margin. Also, R3 sales are down from a year ago
which carry a gross margin of approximately 49%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended December
31, 1996 and 1995 decreased to $398,223 from $400,272 or $2,049. Total selling
expenses for the quarter ended December 31, 1996 were $134,840 as compared to
$140,235 for the same period in 1995. 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 be less in future periods, due to
reduced requirements in sales manpower, travel and advertising related items.
The primary reason for the decrease of $5,395 in selling expenses is due to a
reduction in catalog and advertising expenses. Total general and administrative
expenses for the quarter ended December 31, 1996 were $263,383 compared to
$260,037 for the same period in 1995. The increase of $3,346 can be attributed
to primarily higher salary, pension, and benefits expenses, which were offset in
part by lower research and development expenses as development of the R3 Copy
Control product was completed. Selling, general and administrative expenses
represented 28.5% and 27.1% of sales for the quarters ending December 31, 1996
and 1995 respectively.
Selling, general and administrative expenses for the six months ended December
31, 1996 increased to $804,873 from $789,605 in the same period of 1995, or
$15,268. Total selling expenses for the six months
Form 10-Q December 31, 1996 Page 3
<PAGE>
ended December 31, 1996 were $278,408, compared to $287,487 for the same period
in 1995. Reductions in catalog and advertising expenses were the primary reasons
for the decrease of $9,079. Total general and administrative expenses for the
six months ended December 31, 1996 increased to $526,465, compared to $502,118
or $24,347 for the same period in 1995. The increase can be attributed primarily
to higher salary, pension and benefits expenses. Selling, general and
administrative expenses represented 28.5% and 26.8% of sales for the six months
ending December 31, 1996 and 1995, respectively. The Company expects its
selling, general and administrative expenses to be lower as a percentage of
sales for the remainder of fiscal 1997.
NET INCOME
Net income for the quarter ended December 31, 1996 decreased to $14,619 from
$50,295 for the quarter ended December 31, 1996. Net income for the six months
ended December 31, 1996 was $54,322, compared to $100,453 for the same period in
1995. The decreases were due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, restricted cash and marketable securities at December 31,
1996 was $1,417,103 compared to $1,485,163 at June 30, 1996. Working capital
increased to $1,710,103 at December 31, 1996 from $1,648,615 at June 30, 1996.
The decrease in the Company's cash, and increase in working capital position,
were due primarily to reducing accounts payable to lower than normal levels.
The Company maintains a line of credit with Riverside Bank. As of December 31,
1996, the borrowing base under the line of credit was the lesser of $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 December 31, 1996,
the outstanding balance on the line of credit was $900,000 and the remaining
borrowing availability was $81,787.
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 December 31, 1996 Page 4
<PAGE>
ATRIX INTERNATIONAL, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS December 31, 1996 June 30, 1996
------------------ --------------
Current Assets: (unaudited)
<S> <C> <C>
Cash $ 664,637 $ 541,515
Restricted cash 250,000 250,000
Marketable securities, at cost 502,466 693,648
Accounts receivable less allowance
for doubtful accounts ($17,000 and
$17,000, respectively) 768,918 757,650
Inventories 920,242 994,858
Prepaid Expenses 83,009 76,489
----------- -----------
Total Current Assets 3,189,272 3,314,160
----------- -----------
Property and equipment, net 439,624 492,096
Intangible assets, net 79,570 82,345
Capitalized software development costs, net 227,180 207,358
----------- -----------
TOTAL ASSETS $ 3,935,646 $ 4,095,959
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 479,231 $ 595,388
Notes payable - bank 900,000 941,299
Current maturities of long-term debt 70,107 76,553
Accrued liabilities 29,831 52,305
----------- -----------
Total current liabilities 1,479,169 1,665,545
Notes payable - long term 134,348 162,607
----------- -----------
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 (1,011,376) (1,065,698)
----------- ----------
Total shareholders' equity 2,322,129 2,267,807
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,935,646 $ 4,095,959
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Form 10-Q December 31, 1996 Page 5
<PAGE>
ATRIX INTERNATIONAL, INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Product Revenue $1,397,075 $1,476,422 $2,828,243 $2,938,457
Royalty Revenue 25 6,423
---------- ---------- ---------- ----------
Net Revenue 1,397,075 1,476,447 2,828,243 2,944,880
Cost of Sales 987,921 1,027,971 1,975,873 2,056,980
---------- ---------- ---------- ----------
Gross Profit 409,154 448,476 852,370 887,900
Selling, general and
administrative expenses 398,223 400,272 804,873 789,605
---------- ---------- ---------- ----------
Income from operations 10,931 48,204 47,497 98,295
Other Income/expense, net 0 0 0 0
Interest Income(expense) net 2,907 2,091 6,044 776
---------- ---------- ---------- ----------
Net Income before
income taxes 13,838 50,295 53,541 99,071
Income tax expense/benefit 781 0 781 1,382
---------- ---------- ---------- ----------
Net Income $ 14,619 $ 50,295 $ 54,322 $ 100,453
========== ========== ========== ==========
Net income per share $.00 $.01 $.01 $.02
Weighted average number
of common stock equivalents 5,653,644 5,653,644 5,653,644 5,430,266
</TABLE>
See accompanying notes to financial statements.
Form 10-Q December 31, 1996 Page 6
<PAGE>
ATRIX INTERNATIONAL, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
Six Months Ended December 31,
Cash Flows from operating activities: 1996 1995
---------- ----------
<S> <C> <C>
Net income $ 54,322 $ 100,453
Adjustments to reconcile net income to net
Cash provided (used) by operating activities:
Depreciation and amortization 106,781 100,822
Change in current assets and liabilities:
Accounts receivable (19,900) (87,303)
Inventories 83,247 18,902
Prepaid expenses (6,520) (61,856)
Accounts payable (116,156) (68,026)
Accrued liabilities (22,474) (19,610)
---------- ----------
Net cash provided (used) by operating activities 79,300 (16,618)
Cash flow from investing activities:
Purchase of equipment, leasehold
Improvements and other assets, net (22,900) (16,516)
Purchase of product line 0 (50,000)
(Purchases) sales of marketable securities, net 186,950 (182,686)
Additions intangible assets (48,456) (14,850)
---------- ----------
Net cash provided (used) by investing activities 115,594 (264,052)
Cash flow from financing activities:
Proceeds (repayments) from notes payable - bank net (41,299) 90,900
Repayments of notes payable - Porous Media (33,385) (14,434)
Restricted cash 0 150,000
Repayments of capital lease obligations (1,320) (1,027)
Proceeds from exercise of common stock warrants 0 323,750
--------- ---------
Net cash (used) provided by financing activities (76,004) 549,189
Net increase (decrease) in cash 123,122 268,519
Cash - beginning of the period 541,515 77,145
--------- ---------
Cash - end of the period $ 664,637 $ 345,664
========= =========
</TABLE>
See accompanying notes to financial statements.
Form 10-Q December 31, 1996 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, 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:
December 31, 1996 June 30, 1996
----------------------------------
Raw Materials $424,194 $448,291
Finished goods 496,048 546,567
-------- --------
Total $920,242 $994,858
NOTE 4. SALE OF COMMON STOCK
On September 30, 1995, the Company completed a private sale of 451,666 shares of
Common Stock. The private offering was made to a limited number of shareholders
of the Company that held warrants to purchase shares of Common Stock. The
Company received net proceeds of $323,750 from the private offering. The purpose
of the offering was to increase the Company's capital and surplus in order to
comply with NASDAQ Small Cap Market rules that require that the Company maintain
capital and surplus of $2 million.
Form 10-Q December 31, 1996 Page 8
<PAGE>
NOTE 5. 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 December 31, 1996 and June
30, 1996 as their realization is not presently assured.
INVENTORY OF DEFERRED ITEMS AND NOL CARRYFORWARD
The composition of the net deferred tax are as follows:
June 30, 1996 December 31, 1996
---------------------------------
Loss Carryforwards $ 564,060 $ 540,670
Research & Development
Credits 83,688 83,688
Inventory 17,163 17,163
Bad Debts 7,045 7,045
Fixed Assets 73,557 80,317
Amortization (133,050) (153,601)
Other 0 0
--------- ---------
612,463 575,282
Less: Valuation Allowance (612,463) (575,282)
--------- ---------
$ 0 $ 0
========= =========
Form 10-Q December 31, 1996 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.
/s/ STEVEN D. RIEDEL
Date: February 11,1997 _______________________________
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 December 31, 1996 Page 10
<PAGE>
ATRIX INTERNATIONAL, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1996
ITEM NO. ITEM METHOD OF FILING
- ------- ---- ----------------
27 Financial data schedule Filed herewith
Form 10-Q December 31, 1996 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 914,637
<SECURITIES> 502,466
<RECEIVABLES> 768,918<F1>
<ALLOWANCES> 0
<INVENTORY> 920,242
<CURRENT-ASSETS> 3,189,272
<PP&E> 439,624<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,935,646
<CURRENT-LIABILITIES> 1,479,169
<BONDS> 0
0
0
<COMMON> 56,536
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,935,646
<SALES> 2,828,243
<TOTAL-REVENUES> 2,828,243
<CGS> 1,975,873
<TOTAL-COSTS> 1,975,873
<OTHER-EXPENSES> 804,873
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,044)<F3>
<INCOME-PRETAX> 53,541
<INCOME-TAX> (781)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,322
<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>
