<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, 1998.
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, 1998 the following securities of the registrant were
outstanding: 1,413,449 shares of Common Stock, $.04 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, 1998 and June 30, 1998, the
results of operations for the three months and six months ended December 31,
1998 and 1997, and the cash flows for the six months ended December 31, 1998 and
1997.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Net Sales. Sales for the second quarter ended December 31, 1998 totaled
$1,052,880 compared with $954,840 for the same period a year ago. Sales for the
six months ended December 31, 1998 totaled $2,199,567 compared to $2,003,817 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.
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
---------- -------- ---------- ----------
Product Line
Vacuums and Supplies $ 465,877 $447,273 $ 922,915 $ 935,392
ESD Equipment 51,439 40,271 83,554 72,210
Circuit Board Cases 44,449 7,491 78,118 16,363
Special Assemblies 23,194 45,819 53,720 79,602
---------- -------- ---------- ----------
Total Manufacturing 584,959 540,854 1,138,307 1,103,567
Loose Tools 322,552 257,452 731,742 537,038
Tool Kits 75,605 80,321 138,466 163,900
Instrumentation 34,113 50,103 57,252 108,384
---------- -------- ---------- ----------
Total Distribution 432,270 387,876 927,460 809,322
R3 Copy Control Products 28,111 16,182 124,575 73,176
MI (A-Trax System) 7,540 9,928 9,225 17,752
---------- -------- ---------- ----------
Total Revenue $1,052,880 $954,840 $2,199,567 $2,003,817
Manufacturing sales for the three months ended December 31, 1998 were $584,959
as compared to $540,854 for the same period in 1997, an increase of $44,105. For
the six months ended December 31, 1998, manufacturing sales were $1,138,307 as
compared to $1,103,567 for the same period last year, an increase of $34,740.
The primary reason for the increase for the three and six month periods was
increased sales of circuit board cases, primarily to Unisys Corporation.
Distribution sales for the three months ended December 31, 1998 were $432,270 as
compared to $387,876 for the same period in 1997, an increase of $44,394. For
the six months ended December 31, 1998, distribution sales were $927,460,
compared to $809,322 for the same period in the prior year. The increase for
both periods was primarily due to an increase in sales of miscellaneous tool
items to Unisys Corporation.
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<PAGE>
R3 Copy Control product sales for the three months ended December 31, 1998 were
$28,111 as compared to $16,182 for the same period in 1997. For the six months
ended December 31, 1998, R3 Copy Control product sales were $124,575 as compared
to $73,176 for the same period in the prior year. The primary reason for the
increase for the three and six month periods is increased sales to Pitney Bowes,
a major R3 Copy Control customer. Sales to Pitney Bowes had decreased in fiscal
1998, as Pitney Bowes reduced inventory levels for a variety of products. Sales
to Pitney Bowes are expected to continue at normal levels in future quarters.
M1 (A-Trax Production Monitoring System) sales for the three months ended
December 31, 1998 were $7,540 as compared to $9,928 for the same period in 1997.
For the six months ended December 31, 1998, M1 sales were $9,225 as compared to
$17,752 for the same period in the prior year. The company expects M1 sales to
increase as it continues to implement marketing strategies for this product.
Looking forward, the Company believes that revenues from manufactured vacuum
products, and the R3 Copy Control system will improve. In March of 1998, the
Company shipped its initial order of 48 R3 Copy Control units to the U. S.
Department of Agriculture, equipped with automated proximity card input. This
account has the potential to reach 650+ units over the coming two year period.
Acceptance of the Omega series vacuum line has been very strong, with agreements
being reached with sixteen domestic and seven international distributors to
stock the vacuum line. In addition, numerous other prospects are currently
evaluating these products. The Company is beginning to market its A-Trax
Production Monitoring System (M1), 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 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. The Company believes that
distribution sales which were strong in the first half of the year, will likely
continue strong 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 30.9% and 31.5% for the
three month periods ended December 31, 1998, and 1997, respectively. For the six
month period ended December 31, 1998, the gross profit margin was also 31.5%
versus 31.5% for the same period last year. The decrease in gross profit margin
for the three month period is due mainly to the Company's product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended December
31, 1998 and 1997 decreased to $322,662 from $390,568 for the same period in
1997, or $67,906. Total selling expenses for the quarter ended December 31, 1998
were $91,321 as compared to $115,654 for the same period in 1997. Reductions in
sales salaries and travel expenses were the primary reasons for the decrease of
$24,333. The Company expects selling expenses to remain at this level in future
periods. Total general and administrative expenses for the quarter ended
December 31, 1998 was $231,341 compared to $274,914 for the same period in 1997.
The primary reason for the decrease in the general and administrative expenses
of $43,573 is a decrease in research and development costs, as labor related to
software development is
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being capitalized this fiscal year. In addition, the Company's legal and SEC
expenses decreased as the second quarter in the prior year included expenses
relating to the one-for-four reverse stock split announced on December 11, 1997.
The Company expects general and administrative expenses to remain at a
comparable level in future periods. Selling, general and administrative expenses
represented 30.6% and 40.9% of sales for the quarters ending December 31, 1998
and 1997, respectively. Expenses as a percentage of sales decreased primarily
due to a combination of increased sales of $98,040 and reduced expenses of
$67,906 from the quarter ended December 31, 1997.
Selling, general and administrative expenses for the six months ended December
31, 1998 decreased to $697,947 from $766,257 in the same period of 1997, or
$68,310. Total selling expenses for the six months ended December 31, 1998 were
$220,948, compared to $219,604 for the same period in 1997. Reductions in sales
salaries, travel and show expense were offset by increases in contract labor,
catalogs and advertising. Total general and administrative expenses for the six
months ended December 31, 1998 decreased to $476,999 compared to $546,653 or
$69,654 for the same period in 1997. Lower salaries and decreased research and
development costs were the primary reasons for the reduction in expenses from
the same period one year ago. Selling, general and administrative expenses
represented 31.7% and 38.2% of sales for the six months ending December 31, 1998
and 1997, respectively. Expenses as a percentage of sales decreased due to a
combination of increased sales of $195,750 and decreased expenses of $68,310
from the same six-month period one year ago.
Miscellaneous expense of $23,561 consists of costs relating to the negotiation
and preparation of the definitive merger agreeement and a proxy statement
relating to the previously announced proposed merger between the Company and
Atrix Acquisition Corp. Effective December 18, 1998, the Company, Atrix
Acquisition Corp. and Steven D. Riedel, the Company's President and Chief
Executive Officer, entered into a definitive agreement pursuant to which the
Company will be merged into Atrix Acquisition Corp., which was formed by Mr.
Riedel to complete the merger. Pursuant to the merger, each outstanding share
of Atrix Common Stock will be converted into the right to receive $2.00 in cash
per share. Completion of the merger is subject to various customary conditions,
including approval by the Company's shareholders and obtaining financing. The
Company also announced that on December 23, 1998, it filed a preliminary Proxy
Statement with the Securities and Exchange Commission relating to the
shareholder meeting, which the company plans to call in the first quarter of
1999 to approve the Merger.
Net Income/(Loss)
The Company incurred a net loss for the quarter ended December 31, 1998 of
$12,488 versus a net loss of $80,864 for the quarter ended December 31, 1997.
The net loss for the six months ended December 31, 1997 was $1,601 as compared
to a net loss of $121,935 for the same period in 1997. The changes were due to
the factors discussed above.
Liquidity and Capital Resources
The Company's cash and marketable securities at December 31, 1998 were $945,591
compared to $1,195,079 at June 30, 1998. Working capital increased to $1,805,373
at December 31, 1998 from $1,791,067 at June 30, 1998. The decrease in the
Company's cash position, was due primarily to a repayment of $675,000 made on
the Company's line of credit which was partially offset by decreases in accounts
receivable and inventory levels.
The Company maintains a line of credit with Riverside Bank. As of December 31,
1998, the borrowing base under the line of credit was the lesser of (a)
$1,000,000 or (b) 80% of eligible accounts receivable. The Company is also
required to maintain tangible net worth of $1,800,000. The line of credit is
secured by the Company's assets. The interest rate is at prime plus 1%. The
Company is required to pay accrued
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interest on a monthly basis. As of December 31, 1998, the outstanding balance on
the line of credit was $100,000 and the remaining borrowing availability was
$340,825.
The Company did not have any material commitments for capital expenditures
outstanding as of December 31, 1998. 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, 1999 with working
capital and bank borrowings.
Year 2000 Compliance
As the end of the century draws near, there is concern that Year 2000 technology
problems may wreak havoc on global economies and materially effect the operating
results of companies. Atrix is taking the necessary steps to insure that this
potential problem does not adversely affect its operating results in the future.
In this regard, management is currently implementing a comprehensive plan to
insure its Year 2000 readiness.
(a) Company's State of Readiness
Atrix is currently in the process of evaluating its information technology
infrastructure for Year 2000 compliance. The Company's internal accounting
system, manufacturing control system, payroll system, as well as other
significant software packages the Company uses, including Windows 95 and
Office 97, are Year 2000 ready. The new release of the Company's Wintrax
III product, which is in Beta testing, is also Year 2000 ready. Additional
tests are being made on internal personal computers, phone system, and
alarm system to verify readiness.
Costs Associated with Year 2000 Issues
Thus far, the majority of the work on insuring Year 2000 compatibility has
been performed by the Company's employees, which has limited the cost spent
to date. As a result, the Company has not incurred any material expense to
date, nor does it expect to incur any material costs on this project.
Risks Associated with Year 2000 Issues
Atrix currently has limited information concerning the Year 2000 compliance
status of its key suppliers and customers. The Company plans to verify
third- party compliance, primarily through the use of questionnaires. In
the event that any of the Company's key suppliers or customers do not
successfully and timely achieve Year 2000 compliance, the Company's
business or operations could be adversely affected.
Contingency Plans
Because the complete assessment of Year 2000 issues is incomplete, the
Company has not yet developed contingency plans for this issue. Management
expects the assessment and any related necessary contingency plans will be
complete by the end of the second quarter of calendar 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herein:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
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<PAGE>
Atrix International, Inc.
Balance Sheet
<TABLE>
<CAPTION>
ASSETS December 31, 1998 June 30, 1998
------------------ --------------
Current Assets: (unaudited)
<S> <C> <C>
Cash and cash equivalents $ 945,591 $1,195,079
Marketable securities, at cost 289,679
Accounts receivable less allowance for doubtful accounts
($27,301 and $27,158, respectively) 598,454 706,010
Inventories 730,068 802,138
Prepaid expenses 72,253 117,230
---------- ----------
Total Current Assets 2,346,366 3,110,136
---------- ----------
Deferred Income Taxes 124,000 124,000
Property and equipment, net 262,184 277,915
Intangible assets, net 70,026 73,362
Capitalized software development costs, net 228,688 230,166
---------- ----------
TOTAL ASSETS $3,031,264 $3,815,579
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 354,057 $ 449,038
Notes payable - bank 100,000 775,000
Current maturities of long-term debt 8,950 23,645
Accrued liabilities 77,986 71,386
---------- ----------
Total current liabilities 540,993 1,319,069
Notes payable - long term 86,165 90,803
---------- ----------
Total Liabilities 627,158 1,409,872
Shareholders' Equity:
Preferred stock, $.01 par value
3,000,000 shares authorized,
no shares issued
Common stock, $.04 par value,
12,500,000 shares authorized, 1,413,449
shares issued and outstanding 56,536 56,536
Capital in excess of par value 3,276,969 3,276,969
Accumulated deficit (929,399) (927,798)
---------- ----------
Total shareholders' equity 2,404,106 $2,405,707
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,031,264 $3,815,579
========== ==========
</TABLE>
See accompanying notes to financial statements.
Page 6
<PAGE>
Atrix International, Inc.
Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $1,052,880 $ 954,840 $2,199,567 $2,003,817
Cost of Sales 727,635 654,029 1,507,766 1,373,026
---------- ---------- ---------- ----------
Gross Profit 325,245 300,811 691,801 630,791
Selling, general and
administrative expenses 322,662 390,568 697,947 766,257
---------- ---------- ---------- ----------
Income/(loss) from operations 2,583 (89,757) (6,146) (135,466)
Other Income 1,700 10,000 1,700
Miscellaneous (Expense) (23,561) (23,561)
Interest Income(expense), net 8,990 7,193 18,606 14,516
---------- ---------- ---------- ----------
Income/(loss) before taxes (11,988) (80,864) (1,101) (119,250)
Income tax (expense)/benefit (500) 0 (500) (2,685)
---------- ---------- ---------- ----------
Net Income/(loss) ($12,488) ($80,864) ($1,601) ($121,935)
========== ========== ========== ==========
Net income/(loss) per share -
Basic and diluted ($.01) ($.06) ($.00) ($.09)
Weighted average number of
common shares outstanding 1,413,449 1,413,449 1,413,449 1,413,449
</TABLE>
See accompanying notes to financial statements.
Page 7
<PAGE>
Atrix International, Inc.
Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended December 31,
Cash flows from operating activities: 1998 1997
----------- -----------
<S> <C> <C>
Net income/(loss) ($1,601) ($121,935)
Adjustments to reconcile net income/(loss) to net
cash provided/(used) by operating activities:
Depreciation and amortization 83,410 85,100
Change in current assets and liabilities:
Accounts receivable 107,556 69,053
Inventories 72,070 (154,644)
Prepaid expenses 44,977 1,383
Accounts payable (94,981) (14,094)
Accrued liabilities 6,600 (16,083)
----------- -----------
Net cash provided/(used) by operating activities 218,031 (151,220)
Cash flows from investing activities:
Purchase of equipment, leasehold
improvements and other assets, net (35,071) (11,716)
(Purchases)/ sales of marketable securities, net 289,679 (217,991)
Additions intangible assets (27,794) (601)
----------- -----------
Net cash provided/(used) by investing activities 226,814 (230,308)
Cash flows from financing activities:
Proceeds (repayments) from notes payable - bank, net (675,000) (10,000)
Repayments of notes payable - Porous Media (19,333) (30,201)
Repayments of capital lease obligations 0 (1,175)
----------- -----------
Net cash (used) by financing activities (694,333) (41,376)
Net (decrease) in cash (249,488) (422,904)
Cash - beginning of the period 1,195,079 1,386,514
----------- -----------
Cash - end of the period $ 945,591 $ 963,610
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
ATRIX INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Corporate Organization
Atrix International, Inc. (the Company) designs and manufactures toner vacuums,
vacuum filters and circuit board transport cases. The Company also designs the
hardware and software for R3 Remote Metering and Copy Control products. In
addition, Atrix distributes tools, meters, electrostatic discharge (ESD) and
static control products and assembles tool kits for the telecommunication,
office machine and computer industries.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements, which are unaudited except for the
balance sheet as of June 30, 1998, 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, 1998 filed with the
Securities and Exchange Commission.
Net income (loss) per share
In February, 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share" (SFAS No. 128), SFAS No. 128 applies to entities with
publicly held common stock and is effective for financial statements issued for
periods ending after December 15, 1997. Under SFAS No. 128 the presentation of
primary earnings per share is replaced with a presentation of basic earnings per
share. SFAS No. 128 requires dual presentation of basic and diluted earnings per
share for entities with complex capital structures. Basic earnings per share
includes no dilution and is computed by dividing net income (loss) available to
common stockholders by the weighted average number of common shares outstanding
for the period (1,413,449 for all periods presented in this report on Form
10-QSB). Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. The Company has adopted SFAS No. 128 in the quarter
ended December 31, 1997, and all net income (loss) per share data presented
complies with this statement. There is no difference between basic and diluted
earnings per share data as presented, as the impact from stock options is either
anti-dilative for the fiscal 1998 periods due to net losses, or there was no
additional dilution from stock options for the fiscal 1997 periods, due to stock
option exercise prices exceeding the average common stock price for the periods.
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Note 3. Inventories
Inventories are comprised of the following at:
December 31, 1998 June 30, 1998
----------------- -------------
Raw Materials $316,593 $336,649
Finished goods 413,475 465,489
-------- --------
Total $730,068 $802,138
Note 4. Income Taxes
The Company has available net operating loss and tax credit carryforwards for
income tax purposes of $1,340,975 on June 30, 1998. These carryforwards expire
in the years ending June 30, 2003 through 2008. Utilization of the net operating
loss and tax credit carryforwards may be 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 June 30, 1998 as their realization is not presently more likely
than not.
Inventory of Deferred Items and NOL Carryforward
The composition of the net deferred tax is as follows:
December 31, 1998 June 30, 1998
----------------- -------------
Loss Carryforwards $ 504,361 $ 503,659
Research & Development
Credits 83,688 83,688
Inventory 33,718 33,718
Bad Debts 11,767 11,767
Fixed Assets 68,666 70,649
Software Development Costs (213,781) (211,377)
Other 0 0
--------- ---------
488,419 492,104
Less: Valuation Allowance (364,419) (368,104)
--------- ---------
$ 124,000 $ 124,000
========= =========
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<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: February 11, 1999 /s/ Steven D. Riedel
------------------------------------------
Steven D. Riedel
Chief Executive Officer
(Principal Executive Officer)
/s/ Dean L. Gerber
------------------------------------------
Dean L. Gerber
Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE>
ATRIX INTERNATIONAL, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-QSB
For the Quarter Ended December 31, 1998
Item No. Item Method of Filing
- -------- ---- ----------------
27.1 Financial Data Schedule for the
quarter ended December 31, 1998 Filed herewith
<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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 945,591
<SECURITIES> 0
<RECEIVABLES> 598,454<F1>
<ALLOWANCES> 0
<INVENTORY> 730,068
<CURRENT-ASSETS> 2,346,366
<PP&E> 262,184<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,031,264
<CURRENT-LIABILITIES> 540,993
<BONDS> 0
0
0
<COMMON> 56,536
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,031,264
<SALES> 2,199,567
<TOTAL-REVENUES> 2,199,567
<CGS> 1,507,766
<TOTAL-COSTS> 1,507,766
<OTHER-EXPENSES> 697,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,606)<F3>
<INCOME-PRETAX> (1,101)
<INCOME-TAX> 500
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,601)
<EPS-PRIMARY> (.00)
<EPS-DILUTED> (.00)
<FN>
<F1>NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
<F2>NET OF ACCUMULATED DEPRECIATION
<F3>INTEREST EXPENSE IS NET WITH INTEREST INCOME
</FN>
</TABLE>
