<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, 1999.
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, 1999 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 March 31, 1999 and June 30, 1998, the results
of operations for the three months and nine months ended March 31, 1999 and
1998, and the cash flows for the nine months ended March 31, 1999 and 1998.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Net Sales. Sales for the third quarter ended March 31, 1999 totaled $1,027,738
compared with $1,095,211 for the same period a year ago. Sales for the nine
months ended March 31, 1999 totaled $3,227,305 compared to $3,099,028 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 Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Product Line
Vacuums and Supplies $ 468,852 $ 491,145 $1,391,767 $1,426,537
ESD Equipment 30,275 55,682 113,829 127,892
Circuit Board Cases 21,992 744 100,110 17,107
Special Assemblies 10,155 67,028 63,875 146,630
---------- ---------- ---------- ----------
Total Manufacturing 531,274 614,599 1,669,581 1,718,166
Loose Tools 279,130 271,728 1,010,872 808,766
Tool Kits 51,567 78,945 190,033 242,845
Instrumentation 56,984 41,455 114,236 149,839
---------- ---------- ---------- ----------
Total Distribution 387,681 392,128 1,315,141 1,201,450
R3 Copy Control Products 93,192 83,884 217,767 157,060
MI (A-Trax System) 15,591 4,600 24,816 22,352
---------- ---------- ---------- ----------
Total Revenue $1,027,738 $1,095,211 $3,227,305 $3,099,028
Manufacturing sales for the three months ended March 31, 1999 were $531,274 as
compared to $614,599 for the same period in 1998, a decrease of $83,325. For the
nine months ended March 31, 1999, manufacturing sales were $1,669,581 as
compared to $1,718,166 for the same period last year, a decrease of $48,585.
Sales of vacuums, ESD equipment and special assemblies were down from one year
ago for both the three and nine month periods, while sales of circuit board
cases increased over last year for both periods.
Distribution sales for the three months ended March 31, 1999 were $387,681 as
compared to $392,128 for the same period in 1998, a decrease of $4,447. The
sales decrease in the quarter ended March 31, 1999 is due primarily to lower
sales of tool kits, which were largely offset by increases in loose tools and
instrumentation. For the nine months ended March 31, 1999, distribution sales
were $1,315,141, compared to $1,201,450 for the same period in the prior year.
The increase in the nine period ending March 31, 1999 was primarily due to an
increase in sales of miscellaneous tool items.
Form 10-QSB March 31, 1999 Page 2
<PAGE>
R3 Copy Control product sales for the three months ended March 31, 1999 were
$93,192 as compared to $83,884 for the same period in 1998. For the nine months
ended March 31, 1999, R3 Copy Control product sales were $217,767 as compared to
$157,060 for the same period in the prior year. The primary reason for the
increase for the three and nine month periods is increased sales to both the
public and private sectors, as well as increased sales to Pitney Bowes, a major
R3 Copy Control customer. R3 sales are expected to continue above last year's
levels for the remainder of this fiscal year.
M1 (A-Trax Production Monitoring System) sales for the three months ended March
31, 1999 were $15,591 as compared to $4,600 for the same period in 1998. For the
nine months ended March 31, 1999, M1 sales were $24,816 as compared to $22,352
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
in place 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 will
likely continue at current levels 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 33.4% and 33.9% for the
three month periods ended March 31, 1999, and 1998, respectively. For the nine
month period ended March 31, 1999, the gross profit margin was 32.1% versus
32.3% for the same period last year. The decrease in gross profit margin for the
three month and nine month periods is due mainly to the Company's product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March
31, 1999 and 1998 decreased to $337,038 from $407,458 for the same period in
1998, or $70,420. Total selling expenses for the quarter ended March 31, 1999
were $104,431 as compared to $115,089 for the same period in 1998. The decrease
of $10,658 is due to reductions in sales salaries and travel expenses which were
partially offset by an incease in contract labor. The Company expects selling
expenses to remain at this level in future periods. Total general and
administrative expenses for the quarter ended March 31, 1999 was $232,607
compared to $292,369 for the same period in 1998. The primary reason for the
decrease in the general and administrative expenses of $59,762 is a decrease in
research and development costs, as labor related to software development is
being capitalized this fiscal year. In addition, the Company's legal and SEC
expenses decreased in the third quarter as the prior year included expenses
relating to a potential merger that did not occur. The Company expects
Form 10-QSB March 31, 1999 Page 3
<PAGE>
general and administrative expenses to remain at a comparable level in future
periods. Selling, general and administrative expenses represented 32.8% and
37.2% of sales for the quarters ending March 31, 1999 and 1998, respectively.
Expenses as a percentage of sales decreased primarily due to the reduction in
expenses of $70,420 from the quarter ended March 31, 1998.
Selling, general and administrative expenses for the nine months ended March 31,
1999 decreased to $1,034,985 from $1,173,715 in the same period of 1998, or
$138,730. Total selling expenses for the nine months ended March 31, 1999 were
$325,379, compared to $334,693 for the same period in 1998. 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 nine
months ended March 31, 1999 decreased to $709,606 compared to $839,022 or
$129,416 for the same period in 1998. Lower salaries, legal and SEC expenses, as
well as 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 32.1% and 37.9% of sales for the ninr
months ending March 31, 1999 and 1998, respectively. Expenses as a percentage of
sales decreased due to a combination of increased sales of $128,277 and
decreased expenses of $138,730 from the same nine-month period one year ago.
Miscellaneous expense of $54,435 and $77,996 for the three and nine month
periods ending March 31, 1999 respectively, 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. as well as costs incurred in obtaining a
fairness opinion on that same transaction. 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 currently expects the merger to be completed in the
second quarter of 1999.
Net Income/(Loss)
The Company incurred a net loss for the quarter ended March 31, 1999 of $40,685
versus a net loss of $31,965 for the quarter ended March 31, 1998. The net loss
for the nine months ended March 31, 1999 was $42,286 as compared to a net loss
of $153,900 for the same period in 1998. The changes were due to the factors
discussed above.
Liquidity and Capital Resources
The Company's cash and marketable securities at March 31, 1999 were $963,912
compared to $1,195,079 at June 30, 1998. Working capital decreased to $1,782,099
at March 31, 1999 from $1,791,067 at June 30, 1998. The decrease in the
Company's cash position, was due primarily to a repayment of $774,000 made on
the Company's line of credit which was partially offset by decreases in
marketable securities, accounts receivable and inventory levels.
The Company maintains a line of credit with Riverside Bank. As of March 31,
1999, 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 interest on a monthly basis. As of March 31,
1999, the outstanding balance on the line of credit was $1,000 and the remaining
borrowing availability was $359,422.
Form 10-QSB March 31, 1999 Page 4
<PAGE>
The Company did not have any material commitments for capital expenditures
outstanding as of March 31, 1999. 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 is currently
verifying 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 for the quarter ended
March 31, 1999
(b) Reports on Form 8-K
None
Form 10-QSB March 31, 1999 Page 5
<PAGE>
Atrix International, Inc.
Balance Sheet
<TABLE>
<CAPTION>
ASSETS March 31, 1999 June 30, 1998
-------------- -------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 963,912 $ 1,195,079
Marketable securities, at cost 289,679
Accounts receivable less allowance for doubtful accounts
($27,301 and $27,158, respectively) 460,155 706,010
Inventories 766,097 802,138
Prepaid expenses 57,428 117,230
----------- -----------
Total Current Assets 2,247,592 3,110,136
----------- -----------
Deferred Income Taxes 124,000 124,000
Property and equipment, net 237,793 277,915
Intangible assets, net 67,282 73,362
Capitalized software development costs, net 236,618 230,166
----------- -----------
TOTAL ASSETS $ 2,913,285 $ 3,815,579
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 400,614 $ 449,038
Notes payable - bank 1,000 775,000
Current maturities of long-term debt 8,981 23,645
Accrued liabilities 54,898 71,386
----------- -----------
Total current liabilities 465,493 1,319,069
Notes payable - long term 84,371 90,803
----------- -----------
Total Liabilities 549,864 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 (970,084) (927,798)
----------- -----------
Total shareholders' equity 2,363,421 $ 2,405,707
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,913,285 $ 3,815,579
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Form 10-QSB March 31, 1999 Page 6
<PAGE>
Atrix International, Inc.
Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
March 31, March 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $1,027,738 $1,095,211 $3,227,305 $3,099,028
Cost of Sales 684,669 723,715 2,192,435 2,096,741
----------- ----------- ----------- -----------
Gross Profit 343,069 371,496 1,034,870 1,002,287
Selling, general and
administrative expenses 337,038 407,458 1,034,985 1,173,715
----------- ----------- ----------- -----------
Income/(loss) from operations 6,031 (35,962) (115) (171,428)
Other Income 0 0 10,000 0
Miscellaneous (Expense) (54,435) (77,996)
Interest Income/(expense), net 9,231 5,077 27,837 21,293
----------- ----------- ----------- -----------
Income/(loss) before taxes (39,173) (30,885) (40,274) (150,135)
Income tax (expense)/benefit (1,512) (1,080) (2,012) (3,765)
----------- ----------- ----------- -----------
Net Income/(loss) ($40,685) ($31,965) ($42,286) ($153,900)
=========== =========== =========== ===========
Net income/(loss) per share -
Basic and diluted ($0.03) ($0.02) ($0.03) ($0.11)
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.
Form 10-QSB March 31, 1999 Page 7
<PAGE>
Atrix International, Inc.
Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
Cash flows from operating activities: 1999 1998
----------- -----------
<S> <C> <C>
Net income/(loss) ($42,286) ($153,900)
Adjustments to reconcile net income/(loss) to net
cash provided/(used) by operating activities:
Depreciation and amortization 125,687 128,488
Change in current assets and liabilities:
Accounts receivable 245,855 (34,633)
Inventories 36,041 (57,302)
Prepaid expenses 59,802 6,122
Accounts payable (48,424) (70,026)
Accrued liabilities (16,488) (27,085)
----------- -----------
Net cash provided/(used) by operating activities 360,187 (208,336)
Cash flows from investing activities:
Purchase of equipment, leasehold
improvements and other assets, net (36,653) (11,372)
(Purchases)/ sales of marketable securities, net 289,679 34,780
Additions intangible assets (49,284) (2,102)
----------- -----------
Net cash provided/(used) by investing activities 203,742 21,306
Cash flows from financing activities:
Repayments of notes payable - bank (774,000) (10,000)
Repayments of notes payable - Porous Media (21,096) (44,391)
Repayments of capital lease obligations 0 (1,866)
----------- -----------
Net cash (used) by financing activities (795,096) (56,257)
Net (decrease) in cash (231,167) (243,287)
Cash - beginning of the period 1,195,079 1,386,514
----------- -----------
Cash - end of the period $963,912 $1,143,227
=========== ===========
</TABLE>
See accompanying notes to financial statements.
Form 10-QSB March 31, 1999 Page 8
<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. 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
anti-dilative for all periods due to net losses.
Note 3. Inventories
Inventories are comprised of the following at:
March 31, 1999 June 30, 1998
-------------- -------------
Raw Materials $284,484 $336,649
Finished goods 481,613 465,489
--------- ---------
Total $766,097 $802,138
Form 10-QSB March 31, 1999 Page 9
<PAGE>
Note 4. Income Taxes
The Company has available net operating loss and tax credit carryforwards for
income tax purposes of $1,149,907 and $83,688, respectively, 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 March 31, 1999 and June 30, 1998
as their realization is not presently assured.
Inventory of Deferred Items and NOL Carryforward
The composition of the net deferred tax is as follows:
March 31, 1999 June 30, 1998
-------------- -------------
Loss Carryforwards $522,181 $503,659
Research & Development
Credits 83,688 83,688
Inventory 33,718 33,718
Bad Debts 11,767 11,767
Fixed Assets 68,666 68,666
Software Development Costs (214,983) (211,377)
Other 0 0
-------- --------
505,037 492,104
Less: Valuation Allowance (381,037) (368,104)
-------- --------
$124,000 $124,000
======== ========
Form 10-QSB March 31, 1999 Page 10
<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 5, 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)
Form 10-QSB March 31, 1999 Page 11
<PAGE>
ATRIX INTERNATIONAL, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-QSB
For the Quarter Ended March 31, 1999
Item No. Item Method of Filing
- -------- ---- ----------------
27.1 Financial Data Schedule for the
quarter ended March 31, 1999 Filed herewith
Form 10-QSB March 31, 1999 Page 12
<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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 963,912
<SECURITIES> 0
<RECEIVABLES> 460,155<F1>
<ALLOWANCES> 0
<INVENTORY> 766,097
<CURRENT-ASSETS> 2,247,592
<PP&E> 237,793<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,913,285
<CURRENT-LIABILITIES> 465,493
<BONDS> 0
0
0
<COMMON> 56,536
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,913,285
<SALES> 3,227,305
<TOTAL-REVENUES> 3,227,305
<CGS> 2,192,435
<TOTAL-COSTS> 2,192,435
<OTHER-EXPENSES> 1,034,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27,837)<F3>
<INCOME-PRETAX> (40,274)
<INCOME-TAX> 2,012
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,286)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
<FN>
<F1>Net of allowance for doubtful accounts
<F2>Net of accumulated depreciation
<F3>Interest expense is net with interest income
</FN>
</TABLE>
