UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File No. 000-22166
AETRIUM INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1439182
(State or other jurisdiction ( I.R.S. Employer Identification No.)
of incorporation or
organization)
2350 HELEN STREET, NO. ST. PAUL, MINNESOTA 55109
(Address of principal executive offices) (Zip Code)
(612) 770-2000
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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 _____
Number of shares of Common Stock, $.001 par value, outstanding
as of October 31, 1996 8,407,030
---------
AETRIUM INCORPORATED
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 1996
(unaudited) and December 31, 1995. 3-4
Consolidated Statements of Income for the three months
(unaudited) ended September 30, 1996 and 1995 and the
nine months ended September 30, 1996 (unaudited)
and 1995. 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996 (unaudited) and 1995. 6
Notes to consolidated financial statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8-10
PART II. OTHER INFORMATION
Legal Proceedings 11
Changes in Securities 11
Defaults Upon Senior Securities 11
Submission of Matters to a Vote of Security Holders 11
Other Information 11
Exhibits and Reports on Form 8-K 11
SIGNATURES 12
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Audited)
(in thousands, except share data)
Current Assets:
Cash and cash equivalents $ 33,369 $ 35,291
Short-term investments 1,028 0
Accounts receivable, net 8,004 10,442
Inventories 10,818 8,661
Deferred tax asset 904 904
Other current assets 197 440
-------- --------
Total current assets 54,320 55,738
-------- --------
Property and equipment:
Furniture and fixtures 818 517
Equipment 3,611 2,946
-------- --------
4,429 3,463
Less accumulated depreciation and
amortization (2,132) (1,865)
-------- --------
Property and equipment, net 2,297 1,598
-------- --------
Noncurrent deferred tax asset 2,704 2,704
Intangible and other assets, net 1,437 1,560
-------- --------
Total assets $ 60,758 $ 61,600
======== ========
See accompanying notes to the consolidated financial statements.
<TABLE>
<CAPTION>
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1996 1995
---------------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current liabilities:
Acquisition related obligation $ 0 $ 7,507
Current portion of long-term debt 0 40
Trade accounts payable 987 1,732
Accrued compensation 1,388 996
Accrued commissions 454 831
Accrued taxes, other than income 116 131
Accrued warranty 626 585
Other accrued expenses 489 570
Income taxes payable 275 652
------- -------
Total current liabilities 4,335 13,044
------- -------
Long-term debt, less current portion 0 135
Shareholders' equity:
Common stock, $.001 par value; 16,000,000
shares authorized; 8,386,852 and 8,302,810
shares issued and outstanding, respectively 8 8
Additional paid-in capital 42,980 42,963
Retained earnings 13,435 5,450
------- -------
Total shareholders' equity 56,423 48,421
------- -------
Total liabilities and shareholders' equity $60,758 $61,600
======= =======
See accompanying notes to the consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
------------------------ ------------------------
(unaudited) (unaudited) (unaudited) (audited)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 13,048 $ 13,542 $ 47,368 $ 32,548
Cost of goods sold 6,057 6,072 20,997 14,107
-------- -------- -------- --------
Gross profit 6,991 7,470 26,371 18,441
-------- -------- -------- --------
Operating expenses:
Selling, general, and administrative 2,737 2,983 9,670 8,265
Research and development 1,934 1,401 5,785 3,504
-------- -------- -------- --------
Total operating expenses 4,671 4,384 15,455 11,769
-------- -------- -------- --------
Income from operations 2,320 3,086 10,916 6,672
Other income, net 299 82 828 239
-------- -------- -------- --------
Income before income taxes 2,619 3,168 11,744 6,911
Provision for income taxes (838) (950) (3,759) (2,073)
-------- -------- -------- --------
Net income $ 1,781 $ 2,218 $ 7,985 $ 4,838
======== ======== ======== ========
Net income per common share $ .21 $ .30 $ .93 $ .68
======== ======== ======== ========
Weighted average common and
common equivalent shares
outstanding 8,566 7,316 8,590 7,154
======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
-------------------------------
1996 1995
-------------------------------
(unaudited) (audited)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,985 $ 4,838
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 722 616
Deferred tax provision 0 265
Changes in assets and liabilities:
Accounts receivable, net 2,438 (2,998)
Inventories (2,157) (2,745)
Other current assets 243 16
Intangible and other assets 2 184
Trade accounts payable (745) 2,086
Accrued compensation 392 104
Accrued commissions (377) 458
Accrued taxes, other than income (15) 106
Accrued warranty 41 (243)
Other accrued expenses (301) (201)
Income taxes payable 416 986
-------- --------
Net cash provided by operating activities 8,644 3,472
-------- --------
Cash flows from investing activities:
Purchase of assets of EJ Systems, Inc, net
of cash acquired (7,287) 0
Purchase of short-term investments (1,028) 0
Purchase of property and equipment (1,300) (314)
-------- --------
Net cash used in investing activities (9,615) (314)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 50 183
Repurchase of common stock related to exercise of
stock options (826) (873)
Principal payments on debt (175) 0
-------- --------
Net cash used in financing activities (951) (690)
-------- --------
Net increase (decrease) in cash and cash equivalents (1,922) 2,468
Cash and cash equivalents at beginning of period 35,291 9,189
======== ========
Cash and cash equivalents at end of period $ 33,369 $ 11,657
======== ========
See accompanying notes to the consolidated financial statements.
</TABLE>
AETRIUM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL REPORTING
The interim consolidated statements of income and of cash flows for the
nine month period ended September 30, 1995 were audited in connection
with the filing of a registration statement on Form SB-2 in November
1995. The interim consolidated balance sheet as of September 30, 1996,
the consolidated statements of income for the three month periods ended
September 30, 1996 and 1995 and the consolidated statements of income and
cash flows for the nine month period ended September 30, 1996 are
unaudited; however, in the opinion of management, such unaudited
financial statements include all adjustments necessary to present fairly
the financial position, results of operations, and changes in cash flows
for the interim periods presented. The results of the interim periods are
not necessarily indicative of future results.
Certain footnote information has been condensed or omitted from these
financial statements. Therefore, these financial statements should be
read in conjunction with the consolidated financial statements and
accompanying footnotes included in Form 10-KSB for the year ended
December 31, 1995.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Purchased parts and completed subassemblies $ 6,500 $ 4,051
Work in process 2,453 3,181
Finished goods, primarily demonstration equipment 1,865 1,429
------- -------
Total $10,818 $ 8,661
======= =======
</TABLE>
3. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of shares of common stock and common stock
equivalent shares outstanding during each period. Common stock
equivalents include stock options and warrants using the treasury stock
method.
4. ACQUISITION
On January 16, 1996 pursuant to an Asset Purchase Agreement dated
December 29, 1995, the Company completed the acquisition of substantially
all of the assets of EJ Systems, Inc., a manufacturer of burn-in test
equipment. The purchase price totaled $7,507,323 including $7,287,323 of
cash and $220,000 of acquisition related costs.
AETRIUM INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET SALES. Net sales were $47.4 million for the nine months
ended September 30, 1996 compared with $32.5 million for the
comparable period in 1995, a 46% increase. Equipment revenues
increased across all product lines, including test handlers,
Versatus automation modules and reliability/burn-in test
systems.
GROSS PROFIT. Gross profit margins as a percentage of sales for
the Minnesota and California-based business units increased in
the nine months ended September 30, 1996 compared with the same
period in 1995 due to price increases, continued efficiency
improvements and a favorable product mix. These margin
improvements were offset by lower margin shipments from the EJ
Systems operation (acquired in December 1995), resulting in a
gross profit of 55.7% of net sales for the nine months ended
September 30, 1996 compared with 56.7% for the nine months
ended September 30, 1995.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses were $9.7 million for the nine months
ended September 30, 1996 compared with $8.3 million for the
comparable period in 1995. The increase in 1996 is primarily
attributable to the inclusion of expenses associated with the
recently acquired EJ Systems business. As a percentage of net
sales, these expenses decreased from 25.3% to 20.4% for the
nine month periods in 1995 and 1996 respectively, primarily
because fixed selling, general and administrative expenses were
lower as a percentage of net sales as net sales increased.
RESEARCH AND DEVELOPMENT. Research and development expenses for
the nine months ended September 30, 1996 were $5.8 million
compared with $3.5 million for the nine months ended September
30, 1995, an increase of 65%. This increase is attributable to
the inclusion of the EJ Systems operation in Massachusetts in
1996 and increased development activity at both the Minnesota
and California locations. These expenses represented 12.2% of
net sales for the nine month period ended September 30, 1996
compared with 10.8% of net sales for the same period in 1995.
Over time, the Company expects that development spending will
generally approximate 12% of net sales.
OTHER INCOME, NET. Other income, net, amounted to $828,000 for
the nine months ended September 30, 1996 compared with $239,000
for the comparable period in 1995. The increase is attributable
to increased interest income earned on higher invested cash
balances resulting from the proceeds of a stock offering
completed in November 1995.
INCOME TAX EXPENSE. Income tax expense was provided for at an
effective rate of 32.0% and 30.0% of pretax income for the nine
months ended September 30, 1996 and 1995 respectively. The
increase in the rate results primarily from the expiration of
the federal research and development tax credit in 1995. The
effective tax rates compare favorably with the Federal and
state statutory rates primarily due to benefits associated with
the Company's Foreign Sales Corporation and the implementation
of various tax planning strategies, including the investment of
excess funds in tax exempt instruments.
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET SALES. Net sales were $13.0 million for the quarter ended
September 30, 1996 compared with $13.5 million for the
comparable 1995 quarter, a 4% decrease. Sales of
reliability/burn-in test equipment increased slightly but were
offset by a decrease in sales for test handlers, Versatus
automation modules, and spare parts resulting from a general
downturn and lower capital spending in the semiconductor
industry in 1996.
GROSS PROFIT. Gross profit was 53.6% of net sales for the
quarter ended September 30, 1996. This compares with 55.2% for
the quarter ended September 30, 1995. The reduction in 1996 is
primarily attributable to the inclusion of EJ Systems'
shipments which generate improving, but substantially lower
margins than the Company's other product lines. Gross profit
margins for the California-based product lines improved in the
quarter ended September 30, 1996 compared with the same quarter
in 1995 as a result of increased volume, continued efficiency
improvements and favorable product mix. The gross profit
margins for the Minnesota-based product lines declined slightly
in the same period due to lower overall volume and higher costs
associated with new products introduced.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the quarter ended September 30,
1996 were $2.7 million compared with $3.0 million for the
comparable quarter in 1995. The decrease in 1996 is primarily
due to lower sales commissions and incentive compensation
related to reduced sales and profitability, offset somewhat by
the inclusion of EJ Systems' results.
RESEARCH AND DEVELOPMENT. Research and development expenses
were $1.9 million for the quarter ended September 30, 1996
compared with $1.4 million for the comparable period in 1995.
The increase is partially attributable to the inclusion of the
EJ Systems operation in 1996. In addition the Company continued
its aggressive investment in product development at its
Minnesota and California facilities, such that total research
and development expenses represented 14.8% of net sales in the
quarter ended September 30, 1996 compared with 10.3% for the
comparable period in 1995.
OTHER INCOME, NET. Other income, net, amounted to $299,000 for
the quarter ended September 30, 1996 compared with $82,000 for
the comparable quarter in 1995. The increase is attributable to
increased interest income earned on higher invested cash
balances resulting from the proceeds of a stock offering
completed in November 1995.
INCOME TAX EXPENSE. Income tax expense was provided for at an
effective rate of 32.0% and 30.0% of pretax income for the
quarters ended September 30, 1996 and 1995 respectively. As
indicated above, the higher tax rate in 1996 is primarily
attributable to the expiration of the federal research and
development credit in 1995. Federal legislation was passed in
August 1996 which re-instated, with some modifications, the
federal research and development credit, retroactive to July 1,
1996. The impact of this legislation is currently being
reviewed and is not reflected in the results for the quarter
and nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $5.0 million line of credit agreement with
Harris Trust and Savings Bank in Chicago, Illinois. Borrowings
under this agreement are secured by receivables, inventories
and general intangibles. Borrowing is limited to a percentage
of eligible receivables and inventories. There were no line of
credit advances outstanding as of September 30, 1996 or
December 31, 1995.
The Company believes its existing cash balances of $33.4
million at September 30, 1996, funds generated from operations,
and borrowings available under its credit facility will be
sufficient to meet capital expenditure and working capital
needs for at least 24 months. The Company may acquire other
companies, product lines or technologies that are complementary
to the Company's business, and the Company's working capital
needs may change as a result of such acquisitions.
BUSINESS RISKS AND UNCERTAINTIES
A number of risks and uncertainties exist which could impact
the Company's future operating results. These uncertainties
include, but are not limited to, general economic conditions,
competition, changes in rates of capital spending by
semiconductor manufacturers, the Company's success in
developing new products and technologies, market acceptance of
new products, and other factors, including those set forth in
the Company's SEC filings, including its prospectus dated
November 9, 1995.
AETRIUM INCORPORATED
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None which the Company believes will have a material
adverse impact on its financial condition or results of
operations.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exh 27 - Financial Data Schedule.
(b) Reports on Form 8-K.
None.
AETRIUM INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AETRIUM INCORPORATED
(Registrant)
Date: November 13, 1996 By: /s/ Joseph C. Levesque
---------------------------------------
Joseph C. Levesque
Chairman of the Board, President, and
Chief Executive Officer
Date: November 13, 1996 By: /s/ Darnell L. Boehm
---------------------------------------
Darnell L. Boehm
Chief Financial Officer, Secretary, and
Director
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 33,369
<SECURITIES> 1,028
<RECEIVABLES> 8,004
<ALLOWANCES> 0
<INVENTORY> 10,818
<CURRENT-ASSETS> 54,320
<PP&E> 4,429
<DEPRECIATION> 2,132
<TOTAL-ASSETS> 60,758
<CURRENT-LIABILITIES> 4,335
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 56,415
<TOTAL-LIABILITY-AND-EQUITY> 60,758
<SALES> 47,368
<TOTAL-REVENUES> 47,368
<CGS> 20,997
<TOTAL-COSTS> 20,997
<OTHER-EXPENSES> 5,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,744
<INCOME-TAX> 3,759
<INCOME-CONTINUING> 7,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,985
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
