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 June 30, 1997
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 July 25, 1997 8,745,815
---------
<PAGE>
AETRIUM INCORPORATED
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997
(unaudited) and December 31, 1996 3-4
Consolidated Statements of Operations (unaudited) for the
three month and six month periods ending June 30, 1997
and 1996 5
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 1997 and 1996 6
Notes to unaudited consolidated financial statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-10
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
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1997 1996
-------- --------
(Unaudited) (Audited)
(in thousands, except share data)
Current Assets:
Cash and cash equivalents $ 29,713 $ 34,756
Short term investments 0 1,028
Accounts receivable, net 11,769 8,032
Inventories 13,834 10,332
Deferred taxes 1,104 1,009
Other current assets 272 355
-------- --------
Total current assets 56,692 55,512
-------- --------
Property and equipment:
Furniture and fixtures 1,029 852
Equipment 3,924 3,683
-------- --------
4,953 4,535
Less accumulated depreciation and
amortization (2,536) (2,276)
-------- --------
Property and equipment, net 2,417 2,259
Noncurrent deferred taxes 4,750 2,519
Intangible and other assets, net 3,845 1,428
-------- --------
Total assets $ 67,704 $ 61,718
======== ========
See accompanying notes to the consolidated financial statements.
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------- -------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current liabilities:
Trade accounts payable 4,304 1,041
Accrued compensation and commissions 1,457 1,515
Other accrued expenses 2,890 1,182
Income taxes payable 476 0
------- -------
Total current liabilities 9,127 3,738
------- -------
Shareholders' equity:
Common stock, $.001 par value; 16,000,000
shares authorized; 8,709,761 and 8,449,420
shares issued and outstanding, respectively 9 8
Additional paid-in capital 46,206 43,280
Retained earnings 12,362 14,692
------- -------
Total shareholders' equity 58,577 57,980
------- -------
Total liabilities and shareholders' equity $67,704 $61,718
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 14,921 $ 17,271 $ 26,857 $ 34,320
Cost of goods sold 7,295 7,454 13,113 14,940
-------- -------- -------- --------
Gross profit 7,626 9,817 13,744 19,380
-------- -------- -------- --------
Operating expenses:
Selling, general, and administrative 3,224 3,435 6,090 6,933
Research and development 2,474 1,931 4,452 3,851
Acquisition related charge 7,191 0 7,191 0
-------- -------- -------- --------
Total operating expenses 12,889 5,366 17,733 10,784
-------- -------- -------- --------
Income (loss) from operations (5,263) 4,451 (3,989) 8,596
Other income, net 303 261 615 529
-------- -------- -------- --------
Income (loss) before income taxes (4,960) 4,712 (3,374) 9,125
Provision for income taxes 1,520 (1,509) 1,044 (2,921)
-------- -------- -------- --------
Net income (loss) $ (3,440) $ 3,203 $ (2,330) $ 6,204
======== ======== ======== ========
Net income (loss) per common share $ (.39) $ .37 $ (.26) $ .72
======== ======== ======== ========
Weighted average common and
common equivalent shares
outstanding 8,932 8,622 8,807 8,602
======== ======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,330) $ 6,204
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 504 529
Acquisition related charge 7,191 0
Deferred taxes (2,265) 0
Changes in assets and liabilities, net of affect of
acquired business:
Accounts receivable, net (3,454) (2)
Inventories (2,656) (2,939)
Other current assets 111 283
Intangible and other assets 0 2
Trade accounts payable 2,863 431
Accrued compensation and commissions (169) (37)
Other accrued expenses (122) (220)
Income taxes payable 903 288
-------- --------
Net cash provided by operating activities 576 4,539
-------- --------
Cash flows from investing activities:
Purchase of business, net of cash acquired (3,997) 0
Payment of acquisition related indebtedness 0 (7,287)
Sale (purchase) of short term investments 1,000 0
Purchase of property and equipment (329) (1,139)
Purchase of technology (1,000) 0
-------- --------
Net cash used in investing activities (4,326) (8,426)
-------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 439 50
Repurchase of common stock related to exercise of
stock options (439) (648)
Principal payments on debt (1,293) (175)
-------- --------
Net cash used in financing activities (1,293) (773)
-------- --------
Net decrease in cash and cash equivalents (5,043) (4,660)
Cash and cash equivalents at beginning of period 34,756 35,291
-------- --------
Cash and cash equivalents at end of period $ 29,713 $ 30,631
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
AETRIUM INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL REPORTING
In the opinion of management, the accompanying unaudited consolidated
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.
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-K for the year ended December
31, 1996.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Purchased parts and completed subassemblies $ 7,232 $ 7,330
Work in process 4,778 2,105
Finished goods, primarily demonstration equipment 1,824 897
------- -------
Total $13,834 $10,332
======= =======
</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 the period. Common stock equivalents
include stock options and warrants using the treasury stock method.
4. ACQUISITION - FORWARD SYSTEMS AUTOMATION
On April 1, 1997, the company acquired substantially all of the assets
(including in-process research and development) and assumed certain
liabilities of Forward Systems Automation, Inc. ("FSA"), a privately-held
manufacturer of equipment for the semiconductor and electronic component
industries. The purchase price totaled $6,749,840 including $4,000,000 of
cash, 186,000 shares of Aetrium common stock valued at $2,499,840 and
$250,000 of acquisition related costs. In addition, the company assumed
certain FSA notes payable obligations of approximately $1,293,000 which
were paid on April 1, 1997 concurrent with the closing of the
acquisition. The acquisition was accounted for as a purchase. The
company's consolidated financial statements include the results of FSA
operations since April 1, 1997.
<PAGE>
The following table presents the consolidated results of operations of
the company on an unaudited pro forma basis as if the acquisition had
taken place at the beginning of each period (in thousands, except per
share data):
Six months ended June 30,
-------------------------
Unaudited pro forma 1997 1996
------------------- ---- ----
Net sales $ 27,596 $ 35,457
Net income 1,913 5,906
Net income per share $ .21 $ .67
The acquisition related charge of $7,191,000 is not reflected in the pro
forma results above. The unaudited pro forma results of operations are
for comparative purposes only and do not necessarily reflect the results
that would have occurred had the acquisition occurred at the beginning of
the periods presented or the results which may occur in the future.
5. ACQUISITION RELATED INDEBTEDNESS - EJ SYSTEMS
Effective December 29,1995, the company acquired substantially all of the
assets and assumed certain liabilities of EJ Systems, Inc., a
manufacturer of environmental test products. The purchase price included
$7,287,323 of cash which was paid in January 1996.
6. INTANGIBLE AND OTHER ASSETS
On June 27, 1997, the company paid $1,000,000 to an independent
contractor for the development completed on a test handler which utilizes
conductive thermal conditioning and control technologies. The capitalized
technology is being amortized on a straight line basis over fifteen
years.
<PAGE>
AETRIUM INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES. Net sales were $14.9 million for the second quarter
ended June 30, 1997, a 25% increase over the $11.9 million for
the immediately preceding quarter ended March 31, 1997 and a 14 %
decrease from the $17.3 million for the second quarter of 1996.
Net sales were $26.9 million for the six months ended June 30,
1997, compared with $34.3 million for the comparable period in
1996, a 22% decrease. Sales of test handlers and spare parts
decreased substantially in the first half of 1997 compared to the
first half of 1996 due to a general slowdown in the semiconductor
industry. Decreases in test handler and spare parts sales were
offset somewhat by strong gains in the sales of automation
modules and a moderate gain in the sales of
reliability/environmental test equipment. The inclusion of
revenues from the recently acquired FSA business were relatively
insignificant to total sales.
GROSS PROFIT. Gross profit was 51.2% of net sales for the six
months ended June 30, 1997 compared with 56.5% for the six months
ended June 30, 1996. Gross profit was 51.1% of net sales for the
second quarter ended June 30, 1997 compared with 56.8% for the
second quarter of 1996. Gross profit margins for test handlers,
which represent a substantial portion of the consolidated
revenues, were lower in 1997 due to significantly lower unit
volume and a shift in product mix to relatively more
pick-and-place test handlers, which tend to have lower margins
than gravity-feed test handlers. Also, sales of lower margin
automation modules have represented a significantly larger
portion of total sales in the first half of 1997, diluting the
overall gross profit margins.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the six months ended June 30, 1997
were $6.1 million compared with $6.9 million for the same period
in 1996 and were $3.2 million for the second quarter ended June
30, 1997 compared with $3.4 million for the comparable quarter in
1996. The decrease in 1997 expense is primarily attributable to
lower commissions expense due to lower revenue levels, offset
somewhat by the inclusion of FSA results since April 1, 1997.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$4.5 million for the six months ended June 30, 1997 compared with
$3.9 million for the comparable period in 1996 and were $2.5
million for the second quarter ended June 30, 1997 compared with
$1.9 million for the second quarter in 1996. Development spending
increased at each of the company's operating locations in 1997
compared with 1996. In addition, expenses of the recently
acquired FSA business are included since April 1, 1997. Research
and development expenses represented 16.6% and 11.2% of net sales
for the six months ended June 30, 1997 and 1996 respectively,
reflecting the company's strategy of continuing to fund
development activities despite fluctuations in revenue levels.
<PAGE>
ACQUISITION RELATED CHARGE. In connection with the FSA
acquisition, $ 7,191,000 related to in-process research and
development was charged against income in the second quarter
ended June 30, 1997 as the underlying research and development
projects had not yet reached technological feasibility. A
deferred tax benefit of approximately $ 2.2 million was recorded
related to the future tax deductibility of this expense.
OTHER INCOME, NET. Other income, net, amounted to $615,000 for
the six months ended June 30, 1997 compared with $529,000 for the
comparable period in 1996 and amounted to $303,000 for the second
quarter ended June 30, 1997 compared with $261,000 for the same
quarter in 1996. The increase is attributable to increased
interest income earned on higher average invested cash balances.
INCOME TAX EXPENSE. Income tax expense was provided for at an
effective rate of 30.9% and 32.0% of pretax income for the six
months ended June 30, 1997 and 1996 respectively. The lower rate
in 1997 results primarily from the reinstatement of the federal
research tax credit in mid-1996. 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 research tax credits as well as the
implementation of various tax planning strategies, including the
investment of excess funds in tax exempt instruments.
FINANCIAL CONDITION, 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 June 30, 1997 or December 31,
1996.
On April 1, 1997 the company disbursed $4.0 million in connection
with the FSA acquisition plus approximately $ 1.3 million to pay
off certain FSA debts. The company believes its remaining cash
and short term investments of approximately $29.7 million, 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.
FINANCIAL CONDITION, 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, risks and
unanticipated costs associated with integrating acquired
businesses, and other factors, including those set forth in the
company's SEC filings, including its current report on Form 10-K
for the year ended December 31, 1996.
<PAGE>
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
On May 20, 1997 the Company held it's Annual Shareholder Meeting
at which the following matters were voted upon.
1. The shareholders elected the following individuals to serve as
members of the Board of Directors:
Votes For Votes Withheld
--------- --------------
Joseph C. Levesque 7,553,317 195,887
Darnell L. Boehm 7,553,317 195,887
Terrence W. Glarner 7,553,317 195,887
Andrew J. Greenshields 7,553,217 195,987
Douglas L. Hemer 7,553,317 195,887
Terrance J. Nagel 7,553,217 195,987
2. The shareholders also approved certain amendments to the
Company's 1993 Stock Incentive Plan.
Votes For Votes Against Votes
--------- ------------- Withheld
--------
Amendments to 1993
Stock Incentive Plan 6,846,827 778,885 123,492
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.
<PAGE>
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: August 8, 1997 By: /s/ Joseph C. Levesque
---------------------------------------
Joseph C. Levesque
Chairman of the Board, President, and
Chief Executive Officer
Date: August 8, 1997 By: /s/ Darnell L. Boehm
---------------------------------------
Darnell L. Boehm
Chief Financial Officer, Secretary, and
Director
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 29,713
<SECURITIES> 0
<RECEIVABLES> 11,769
<ALLOWANCES> 0
<INVENTORY> 13,834
<CURRENT-ASSETS> 56,692
<PP&E> 4,953
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<COMMON> 9
0
0
<OTHER-SE> 58,568
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<SALES> 26,857
<TOTAL-REVENUES> 26,857
<CGS> 13,113
<TOTAL-COSTS> 13,113
<OTHER-EXPENSES> 11,643
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<INCOME-PRETAX> (3,374)
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