SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR 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 NO. 0-22166
AETRIUM INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1439182
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2350 HELEN STREET
NORTH ST. PAUL, MINNESOTA 55109
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 770-2000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
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___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
As of March 18, 1997, 8,471,904 shares of Common Stock of the Registrant
were outstanding, and the aggregate market value of the Common Stock of the
Registrant as of that date (based upon the last reported sale price of the
Common Stock on that date as reported by the Nasdaq National Market), excluding
outstanding shares beneficially owned by directors and executive officers, was
approximately $126,374,005.
DOCUMENTS INCORPORATED BY REFERENCE
Part II of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific pages are referred to herein) from the
registrant's Annual Report to Shareholders for the year ended December 31, 1996
(the "1996 Annual Report"). Part III of this Annual Report on Form 10-K
incorporates by reference information (to the extent specific sections are
referred to herein) from the registrant's Proxy Statement for its 1997 Annual
Meeting to be held May 20, 1997 (the "1997 Proxy Statement").
PART I
This Form 10-K contains certain forward-looking statements. For this
purpose, any statements contained in this Form 10-K 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 those set forth in the section below entitled
"Certain Important Factors."
ITEM 1. BUSINESS.
Aetrium Incorporated ("Aetrium" or the "Company") designs, manufactures
and markets a variety of electromechanical equipment used in the handling and
testing of semiconductor devices known as integrated circuits ("ICs"). The
Company's primary focus is on high volume IC types and on the latest package
designs associated with "surface mount" technology. Aetrium's products are
purchased primarily by semiconductor manufacturers and are used in the
"back-end" of semiconductor manufacturing processes. The Company's products
automate critical functions to improve manufacturing yield, raise IC quality
levels, reduce manufacturing costs and increase product reliability.
The Company's principal revenue base is its broad line of test
handlers, which incorporate thermal conditioning, contactor and automated
handling technologies to provide automated handling of ICs during production
test cycles. Change kits to adapt the Company's test handlers to different IC
package configurations and to upgrade installed equipment for enhanced
performance also represent a significant part of the Company's revenue. The
Company also offers its Versatus product line of IC handling modules to original
equipment manufacturers ("OEMs") to incorporate as the automated handling
components of such OEM's own proprietary equipment for a variety of other IC
processing requirements, such as marking, lead scanning and lead trim and form.
The Company's product lines also include reliability test systems, which provide
IC manufacturers with IC performance data to aid in the evaluation and
improvement of IC designs and manufacturing processes to increase IC yield and
reliability, and its environmental test equipment products for burn-in testing
of ICs.
The Company's strategy has focused on revenue growth through product
expansion and customer satisfaction. Company sales have increased at an average
annual compounded growth rate of approximately 37% during the period from 1986
through 1996. Currently, the Company has an installed base of over 6,000 test
handlers, which the Company believes is the second largest installed base among
all test handler manufacturers.
The Company's revenue growth and expansion of its product lines have
resulted from both internal product development and the acquisition of
complementary businesses, product lines and technologies. Examples of the
Company's internally developed products are the Company's Versatus handling
modules, introduced in 1991, and the Model 900A pick-and-place test handler.
The Company acquired the core products of its 5050 series of gravity
feed test handlers, produced in North St. Paul, through its acquisition of
Electro-Mechanical Systems, Inc. ("EMS") in 1988. Since then, the Company has
expanded this series of products through internal development to include a full
range of thermal conditioning capabilities, contactor change kits for a wide
range of package types in the largest segment of surface mount ICs, high
performance contactors, dual test site capability, quad test site capability,
and more recently, micro small outline package ("MSOP") test capability.
Currently the Company's 5050 series represents its highest revenue product
series.
The Company acquired its reliability test systems product line,
produced in North St. Paul, through the purchase of the assets of Sienna
Technologies, Inc. ("Sienna Technologies") in December 1993. At the time of the
acquisition, Sienna Technologies' revenue was declining and customer confidence
was eroding due in part to product performance and customer service issues.
Since the acquisition, this product line has been improved to address
performance issues, customer service has improved, customer confidence has been
substantially restored, and gross profit margins have increased. These
improvements in product performance and customer service have led to substantial
revenue growth for this product line since the date of acquisition.
Aetrium acquired the products produced by its San Diego Division by
purchasing the assets of Sym-Tek Systems, Inc. ("SymTek") in November 1994. The
San Diego Division's products allowed Aetrium to enter the memory segment of the
IC market with both high volume multisite pick-and-place and extensive multisite
gravity feed test handler lines. The SymTek acquisition also extended Aetrium's
line of gravity feed test handlers for the non-memory IC market segment. The San
Diego Division's products, with an installed base of approximately 5,000 units,
also present opportunities for recurring change kit and spare parts revenues,
and increase Aetrium's test handler customer base to include companies such as
International Business Machines Corporation ("IBM") and Micron Electronics, Inc.
In January 1996, Aetrium acquired the environmental test products
produced by its Lawrence Division by purchasing the assets of E.J. Systems, Inc.
("EJ Systems"). The Lawrence Division is engaged in the business of the
manufacture and distribution of environmental conditioning chambers for burn-in
testing of ICs, and providing board assembly and burn-in testing services for
third parties. Since the acquisition, the Company has substantially increased
marketing and product distribution, increased average selling prices, and
improved manufacturing efficiencies.
Aetrium emphasizes both product quality and customer service to achieve
customer satisfaction, which is reflected in the certification of its Minnesota
facility in March 1995 as the first test handler company certified under the ISO
9001 program. The Company has since successfully completed recertification
audits, including two in 1996.
The Company was incorporated in Minnesota in December 1982. The
Company's executive offices are located at 2350 Helen Street, North St. Paul,
Minnesota 55109, and its telephone number is (612) 770-2000.
TEST HANDLER PRODUCTS
Test handlers are electromechanical systems interfaced with a tester to
form a test system designed to handle, thermally condition, contact and sort ICs
automatically during the testing process. IC devices are loaded into the handler
from tubes or trays and then typically transported to a temperature chamber
within the test handler where they are thermally conditioned to the required
testing temperature. The IC is then positioned against the test handler
contactor, which provides an electrical connection between the IC and the
tester. After testing, the test handler sorts the IC devices according to test
performance.
Traditionally, test handlers used gravity to move ICs through the
handler system. In order to accommodate more fragile IC package families,
gravity feed systems have incorporated various velocity limiting techniques to
reduce the speed of IC packages and minimize IC damage upon impact with other
ICs or other stopping mechanisms. More recently, pick-and-place test handler
systems have been introduced for IC package families most easily damaged in
handling, such as quad flatpack families ("QFPs") and some small outline
packages ("SOPs"). Pick-and-place systems move ICs electromechanically, and thus
can avoid jarring stops and resulting lead damage. Pick-and-place systems are
typically slower and more costly than gravity feed handlers.
Test handlers are designed for either memory or nonmemory ICs. Memory
ICs require relatively long test times. In order to achieve acceptable
throughput rates, memory IC test handlers have been designed to test up to 64
devices at a time. Nonmemory ICs require relatively short test times, and
traditionally test times have not been a limiting factor for throughput rates.
However, test times have increased as nonmemory ICs have become more complex,
and IC manufacturers have also sought to fully utilize the capacity of their
testers. Accordingly, multisite test handlers, with as many as eight test sites,
are now available for appropriate nonmemory IC applications.
Test handlers must meet industry criteria for thermal conditioning,
contactor integrity and minimization of lead damage. Test handlers compete on
the basis of cost, throughput, versatility, reliability and the specific
application requirements of the IC manufacturer. The combination of these
factors measures the cost of ownership of the test handler per device tested.
Aetrium believes its broad line of test handlers competes favorably on the basis
of cost of ownership for a wide range of IC manufacturer applications.
The Company's primary focus continues to be on the newer generation ICs
referred to as surface mount devices ("SMD") which represent the largest
volumes, the newest IC device types, and the fastest growing market segments.
The Company offers the broadest line of test handling products to the
semiconductor industry and, with the combination of Aetrium's North St. Paul and
San Diego designed products, it can now address all market segments of the
industry. Aetrium's test handler products are complementary in nature with
minimal overlap of application and can be distributed and serviced through a
common organization for efficiency.
GRAVITY FEED HANDLERS
5050 SERIES. Aetrium's 5050 series of gravity feed test handlers for
nonmemory IC applications, produced in North St. Paul, Minnesota, addresses a
wide range of SOP package types, which constitute the largest segment of all
surface mount ICs. These handlers compete most favorably in high-volume
applications and their high throughput rates are an added advantage in
relatively short test time applications. Models within this series vary on
adaptability to different IC package sizes and configurations and the
temperature range available for thermal conditioning in order to provide cost
effective solutions to a wide range of customer requirements. The Company also
offers dual test site and quad test site capability within its 5050 Series of
handlers to increase productivity and reduce testing costs in certain
applications.
MODEL 4098. The Model 4098, produced in North St. Paul, was first sold
by the Company in 1988 and is a gravity feed handler used for dual in line
("DIP") packages, the highest volume through-hole package type. In addition, it
serves as the base handler for a number of custom handler designs. It is
designed for high volume handling and provides ambient and hot temperature
capability.
MODEL 300. The Model 300, produced in San Diego, is a gravity feed test
handler which handles a wide variety of DIP devices. It provides hot and cold
thermal conditioning with a temperature range of -60oC to +150oC with +/-2oC
control capabilities. A menu driven CRT display allows the operator to set up
the handler's operational parameters as well as continually monitor the handler
status. The handler can be programmed to sort devices into user-defined
categories. This model also features electro-static discharge protection
throughout.
MODEL SO3058. The Model SO3058 handler, produced in San Diego, is
designed for 300 mil and wider SOP packages. It provides parallel testing of up
to 16 memory devices simultaneously. This model offers a dual channel
temperature controller that monitors both the storage chamber and test site air
temperature. It provides cold and hot thermal conditioning with a temperature
range of -60oC to +150oC.
MP SERIES. The MP Series of handlers, produced in San Diego, provide
parallel testing of up to 16 memory devices on models MP3050, MP4030 and MP4050,
and up to 32 memory devices on model M4300. The quick load spool design reduces
the number of moving parts in the test environment, eliminating multiple test
site adjustments common to other systems. MP Series systems are equipped with
two separate environmental chambers, independently controlled with a cold and
hot temperature range of -60oC to +150oC.
PICK-AND-PLACE HANDLERS
MODEL 900A. Aetrium's Model 900A pick-and-place handler, produced in
North St. Paul, provides gentle handling required for QFPs and the most
difficult to handle SOPs. This model also provides the stringent contact
integrity required for the highest performance ICs. The 900A can be quickly
adapted to accept different package types and configurations, and is well suited
for low volume engineering, preproduction and production applications. It also
competes for high volume nonmemory production applications where long test times
reduce the cost effectiveness of higher priced production based handlers.
Aetrium believes the 900A's unique "plunge to board" testing technique, which
utilizes temperature controlled thermal nests, gives it a special advantage in
the testing of high performance ICs most sensitive to signal degradation.
Through this technique, the 900A can place the IC under test directly against a
replicated PC board contact site, thus eliminating the test contactor and the
potential for signal degradation resulting from the contactor's physical and
electrical attributes. This plunge to board technique is made possible by the
900A's patented thermal conditioning nest that eliminates the need for a thermal
conditioning chamber and the resulting insulation the contactor must accommodate
between the tester and the IC under test. The 900A can be modified with change
kits to accommodate nearly every IC package configuration being manufactured in
volume today. On average, the 900A is used with seven change kits.
MODEL M3200. The Model M3200 Series test handlers, produced in San
Diego, are pick-and-place high volume production application test handlers for
memory ICs. The M3200 Series addresses a wide range of IC package types that
cannot be processed on gravity feed test handlers without special carriers, and
provides hot, ambient and cold parallel testing with up to 32 test sites. Its
horizontal tray based system design provides package protection with input and
output modules capable of automatically loading and unloading tubes or trays.
MODEL 6400. The Model 6400 pick-and-place handler is designed for
testing 64 memory devices at a time by presenting two trays of 32 devices each
to the tester. The Model 6400 can accommodate 128 devices. The Model 6400 is
produced by the San Diego Division in a joint development and manufacturing
program with a German technology partner.
CHANGE KITS, UPGRADES AND SPARE PARTS
The Company has ongoing demand for IC package change kits for its
installed test handler equipment, including test handlers no longer included in
its active product line, to accommodate the growing variety of IC packages used
by the IC industry. The demand for change kits is driven by introduction of new
IC package types and production volume changes experienced by the Company's end
customers. Also included in change kits are upgrade kits to enhance performance
of installed equipment.
VERSATUS AUTOMATION SYSTEMS
The Company believes that the growing number and volume of fine pitch
and other delicate IC packages is driving a demand for automated equipment for
all IC manufacturing processes. Existing processing equipment often will not
accommodate these package types or the numerous tray configurations used to
transport them. Aetrium believes that its Versatus product line offers the most
effective handling technology to automate these manufacturing processes for
increasingly difficult to handle, newer generation ICs.
The Company began the development of the Versatus product line in 1990.
This product line currently consists of a series of robotic electromechanical
handling modules, each designed to perform a specific handling function.
Together these modules perform nearly all of the handling functions necessary
for the various IC manufacturing processes. Each handling module has a
microprocessor that directs the handling module's function and communicates with
other modules through a proprietary software protocol that enables transfer of
ICs between modules in a logical and efficient manner.
The Versatus handling modules can be readily assembled into systems
configured to provide nearly any IC routing pattern required by an IC processing
application, and can be readily integrated as a component of the processing
equipment. This generic nature of the Versatus handling modules allows Aetrium
to provide a versatile, cost effective automation solution to IC processing
equipment OEMs that overcomes the handling automation challenges presented by
more fragile IC package types. The Versatus modules can also be adapted to
provide an automated linkage between IC manufacturing processes, thus offering
the potential for seamless automated handling of ICs from trim and form to
packaging for shipment.
Following are the principal automation modules in the Versatus product
line:
PICK-AND-PLACE MODULE. The pick-and-place module provides the means to
pick, transport and place IC packages on an individual basis. The pick-and-place
module adapts to various Versatus end effectors that perform the actual picking
and releasing of the IC package as the end effectors are moved along a
horizontal axis between fixed or user programmable locations. The pick-and-place
module can transport most IC packages from or to tray, tube or other transport
media to or from the IC process site. Standard Versatus end effectors are
commonly purchased with the pick-and-place module, although the module can
easily accommodate customer designed end effectors. The pick-and-place module is
currently in use by the Company's OEM customers in lead inspection, mark
inspection, mark curing, trim and form, taping, lead conditioning, media
transfer and prom programming equipment.
TRAY TRANSPORT MODULE. The tray transport module is a user programmable
IC tray handler that precisely indexes a tray of ICs row by row through a
process site. The tray transport module can accommodate a wide variety of IC
trays and tray matrix configurations including all industry standard trays.
Other customer trays can also be accommodated with the addition of appropriate
adapter kits. This module, together with the Company's pick-and-place module, is
used by the Company's OEM customers in lead inspection, mark inspection, taping,
lead conditioning, marking, media transfer and prom programming equipment.
CONVEYOR BELT MODULE. The conveyor belt module is designed to transport
and index IC trays through a process. The transport speeds and the number and
size of the index steps are user programmable, providing a versatile transport
mechanism for those applications that require continuous, single directional
flow of IC trays to, through and from manufacturing processes. The conveyor belt
module is commonly used in conjunction with the tray stacker/unstacker modules
as an automation subsystem to provide a continuous supply of trays with minimal
operator intervention, and is currently in use by the Company's OEM customers in
lead inspection, mark inspection, trim and form, media transfer, marking and
mark curing equipment.
TRAY STACKER/UNSTACKER MODULE. The tray stacker/unstacker module
separates a single tray from a stack of up to 30 IC trays for individual
processing with no operator intervention, and operates in reverse sequence to
stack trays after processes are complete. This module, in conjunction with the
conveyor, is user programmable and precisely positions trays for further
processing and/or transport. Tray stacker/unstacker modules are currently in use
by the Company's OEM customers in lead inspection, mark inspection, marking,
mark curing, burn-in board loading, trim and form, media transfer and prom
programming equipment.
INVERTING END EFFECTOR. One of several end effector configurations,
this end effector inverts an IC 180 degrees from its previous position. This
capability is required, for example, in some inspection processes where the IC
is transported with the leads pointing down but must be inspected with the leads
pointing up and returned to the transport media with the leads pointing down.
The inverter module is used in conjunction with a programmable pick-and-place
module by the Company's OEM customers in lead inspection and mark inspection
equipment.
TAPING MODULE. The taping module provides an automated means for
indexing tape media to a position for placement of devices commonly transferred
with the pick-and-place module. A reel of tape is a medium often used to ship
ICs to customers. This module is currently used by the Company's OEM customers
in lead inspection, mark inspection and taping equipment.
Versatus modules have been incorporated in trim and form, marking, mark
curing, lead inspection, mark inspection, lead conditioning, media transfer and
prom programming equipment to accomodate various device characteristics and
media packaging.
RELIABILITY TEST EQUIPMENT
Sienna Technologies was formed in 1987 to meet the growing demand for
commercially available, accurate testing of ICs at the wafer and package level
of fabrication. In December 1993, the Company acquired the assets of Sienna
Technologies.
The IC industry's demand for higher performance devices with smaller
circuit geometries has led to significant technological changes in the materials
and processes used to manufacture ICs. These changes in technology, along with
IC user demand for increased reliability, have created a need for increasingly
sophisticated reliability testing of IC designs and manufacturing processes. The
reliability test equipment product line includes a variety of systems with which
IC manufacturers can force precision levels of voltage and current through ICs,
collect and analyze relevant data, and predict lifetime performance of ICs. This
equipment can be utilized to perform reliability testing of packaged and
unpackaged ICs.
Aetrium recently completed development of the Model 1164, a
fundamentally improved design from previous reliability test products. The Model
1164 features a modular design that allows for great flexibility in performing
reliability tests, and can test up to 4096 devices at a time or perform numerous
simultaneous tests on smaller batches of ICs.
ENVIRONMENTAL TEST EQUIPMENT
The Company acquired substantially all of the assets of EJ Systems in
December 1995. The present environmental test equipment product line was
developed in response to a trend in increased power dissipation in ICs. This
increase in power dissipation resulted from increased device complexity (more
circuits) within smaller geometries. This phenomenon is especially evident in
high-end microprocessors. This power dissipation led to unique thermal
conditioning problems in the testing of such devices. EJ Systems developed
environmental test equipment that permitted individual IC temperature control
and used the conduction (direct contact) method rather than the traditional
convection (forced hot air) method to thermally condition devices. This
equipment also provides for the placement of ICs being tested in close proximity
to the test circuitry. "BAKPAK" was the trademarked name given to this patented
new approach to thermal conditioning.
The BAKPAK technology has been designed into a series of modules
("QUBEPAK") and can be mounted in equipment cabinets to provide for up to 64
devices to be burned-in and tested in parallel. Each device is under individual
thermal control and BAKPAK designs can accommodate up to 100 watts power
dissipation per device under test.
The Company believes the BAKPAK technology will meet the needs of the
sophisticated IC requirements for environmental test applications of the future.
The Company is adapting this thermal conditioning technology into a test handler
that is currently under development.
COMPETITION
The test handler market is highly competitive. Aetrium competes with a
number of companies ranging from very small businesses to large companies, some
of which have substantially greater financial, manufacturing, marketing and
product development resources than the Company. Some of these companies
manufacture and sell both testers and test handlers. The Company believes its
test handlers are compatible with all major testers, including those
manufactured by companies that sell both testers and test handlers. In general,
the particular companies with which the Company competes vary with the Company's
different markets, with no one company dominating the overall test handler
market. The companies with which the Company competes most directly in the
surface mount IC test handler market include Advantest Corporation, Aseco
Corporation, Cohu, Inc., Multitest Electronic Systems GmbH and Micro Component
Technology, Inc.
The Company competes for test handler sales primarily on the basis of
effective handler throughput, cost of ownership, temperature accuracy, contactor
integrity and other performance characteristics of its products, the breadth of
its product lines, the effectiveness of its sales and distribution channels and
its customer service. The Company believes that its products compete favorably
on these factors.
Aetrium believes that the market for its Versatus products is emerging,
with no clearly defined competition offering similar automated handling modules
to the IC industry. Historically, OEMs supplying equipment for IC manufacturing
processes have developed custom or semi-custom handling components. Many of
these OEMs have internal development capability for automated handling, and many
engineering companies have automated handling development capability. The
Company believes, however, that its Versatus product line of generic automation
modules offers OEMs the only existing, developed solution for their new
automated handling requirements. In addition, the Company believes it minimizes
competition by offering standard generic handling modules to its OEM customers
at a price difficult for its OEM customers to achieve otherwise, because of the
greater product volumes the Company can reach through multiple customers and
applications. The Company believes the economic justification, current
availability and effectiveness of its Versatus products provide strong
incentives to the Company's OEM customers to forego new product development and
to use Versatus handling modules.
The market for the Company's reliability test systems is also
competitive. Companies with which the Company competes include QualiTau, Ltd.
and Micro Instruments, Inc.
There are a number of companies that manufacture and sell conventional
burn-in equipment in the United States which compete with the environmental test
equipment product line, including Aehr Test Systems, Inc. and Reliability, Inc.
The Company is not aware of any companies that provide burn-in equipment which
addresses the combined needs of high-power dissipation and high-performance
while maintaining sufficiently accurate thermal conditioning.
MANUFACTURING AND SUPPLIES
Aetrium manufactures certain of its test handler products at its
facility in San Diego, California, its environmental test equipment in Lawrence,
Massachusetts, and the remainder of its products at its facility in North St.
Paul, Minnesota. The Company's manufacturing operations consist of procurement
and inspection of components and subassemblies, assembly and extensive testing
of finished products. Quality and reliability are emphasized in both the design
and manufacture of the Company's products. This emphasis is reflected in the
certification of the Company's North St. Paul facility in March 1995 under the
ISO 9001 certification criteria established by the European Community for the
standardization of manufacturing documentation and processes. The Company has
also commenced a program to become ISO 9001 certified at its San Diego facility,
acquired in the fourth quarter of 1994 as a part of the SymTek Systems
acquisition.
All components and subassemblies are inspected for mechanical and
electrical compliance to Company specifications. All finished products are
tested against Company and customer specifications, and fully assembled test
handler products are tested at all temperatures for which they are designed and
with all the IC packages to be accommodated. Where appropriate the Company's
handler products are shipped in custom engineered protective packaging to
minimize potential damage during shipment.
A significant portion of the components and subassemblies of the
Company's products, including PC boards, refrigeration systems, vacuum pumps and
contactor elements, are manufactured by third parties on a subcontract basis. As
a part of Aetrium's total quality management program, the Company has an ongoing
supplier quality program under which it selects, monitors and rates its
suppliers, and recognizes its suppliers for outstanding performance.
Certain components, including certain contactors for the 900A test
handler, temperature sensors and controllers for a number of the Company's test
handlers, certain flexible circuits for contactors, and certain heating elements
for temperature conditioning, are currently available only from sole sources,
and certain other components are available from only a limited number of
sources. Aetrium believes it can replace any of its suppliers within a time
period consistent with its business requirements. The Company also attempts to
keep an adequate supply of critical components in its inventory to minimize any
significant impact the loss of a supplier may cause.
SALES AND MARKETING
The Company markets its test handler products, environmental test
equipment and reliability test systems through a combination of direct
salespeople and independent manufacturers' representatives and distributors.
Aetrium sells its Versatus handling modules directly to OEM customers through
its internal sales force. As of December 31, 1996, the Company had 12 United
States manufacturers' representatives with an average of 3 salespeople each
located throughout the U.S. and Canada in areas critical to the Company's
success. International distributors are located in the United Kingdom, France,
Germany, India, Italy, Holland, Sweden, Japan, Taiwan, Thailand, Malaysia,
Korea, Singapore, Hong Kong, China and the Philippines.
Aetrium's direct sales organization, comprised of 12 salespeople,
coordinates the activities of the Company's manufacturers' representatives and
distributors and actively participates with them in selling efforts. This
enables the Company to establish strong direct ties with its customers. The
Company provides sales and technical support to its manufacturers'
representatives and distributors through the Company's sales and service
locations in North St. Paul, Minnesota; San Diego, California; Santa Clara,
California; Austin, Texas and Warwick, Rhode Island.
Aetrium's marketing efforts include advertising in trade and business
publications, participation in industry trade shows and production of product
literature and sales support tools. These efforts are designed to generate sales
leads for the Company's manufacturers' representatives, distributors and direct
salespeople.
International shipments accounted for 44%, 47% and 28% of the Company's
net sales in 1994, 1995 and 1996, respectively. In addition, it is not uncommon
for U.S. customers to take delivery of products in the U.S. for immediate
shipment to international sites. While many of the Company's international
shipments are made to international sites of U.S. IC manufacturers, there is a
growing foreign customer base included in the Company's international sales.
All of Aetrium's international sales are invoiced in U.S. dollars and,
accordingly, have not historically been subject to fluctuating currency exchange
rates. Credit limits have been established from time to time on the Company's
international distributors, who purchase test handlers from the Company and
resell to end users. Irrevocable letters of credit are often used to minimize
credit risk and to simplify the purchasing/payment cycle.
RESEARCH AND DEVELOPMENT
Aetrium believes it must continue to enhance, broaden and modify its
existing product line to meet the constantly evolving needs of the IC handler
market. To date the Company has relied both on internal development and also
technology acquisition and product line acquisition, to extend its product
lines, increase its customer base, avoid reliance on any single IC test handler
market segment, and develop its Versatus generic handling modules. The Versatus
product line required development of a software protocol that plays an important
role in the success of that product. Software is a critical element in the
Company's reliability test equipment and software development continues to play
an increasingly important role in test handling products. The Company intends to
bring additional resources to this area as required.
Product development expenses are typically split approximately 50% for
new product development and 50% for continuation engineering. New product
development efforts in 1995 included the completion of a quad test site 5050
Series test handler and a 5050 Series test handler with automated input and
output from and to industry standard trays. In 1996 Aetrium completed
development of the 5050MSOP which handles a small, new package type called the
MSOP. Other new products include the 1164 Reliability Test System and a version
of the 900A tester handler that features mechanical refrigeration. The Company
completed the development of the model 6400 to prototype stage and installed its
first unit at a customer location. In addition, a series of enhancements/options
are being developed for the Versatus product line which will allow the Company's
OEM customers to leverage their efforts on their primary value-added
technology/integration skills. The Company's continuing engineering efforts
include development of additional change kits to meet the expanding families of
IC package types, advancement of contactor technologies to meet the challenges
of high performance ICs, enhancement of the M3200 to increase throughput and
user interface capabilities, and enhancement of the command and control features
of the 5050 product line. Developing efforts continue on a pick-and-place
handler that incorporates the conductive thermal conditioning technology
received in the 1995 acquisition of EJ Systems. This development project has
replaced the development of the Model 8801, which product the Company is no
longer developing.
The Company expenses all research and development costs, including for
software development, in the year in which incurred. In 1994, 1995 and 1996, the
Company's expenses relating to research and development were approximately $3.2
million, $5.0 million and $7.6 million, respectively. The Company's objective is
to invest approximately 12% of its net sales in research and development each
year, although it is currently spending more than 12% of net sales due to
reduced shipments in the second half of 1996. The Company employed 78
engineering personnel as of December 31, 1996.
INTELLECTUAL PROPERTY RIGHTS
Aetrium attempts to protect the proprietary aspects of its products
with patents, copyrights, trade secret law and internal nondisclosure
safeguards. The Company currently holds several U.S. patents covering certain
features of its handling systems and Versatus modules and the contactor elements
incorporated in certain of its test handlers and for elements of its
environmental conditioning chambers. The source code for the software contained
in the Company's products is considered proprietary and is not furnished to
customers. Some OEM customers have signed noncompete agreements with the Company
that deter them from direct competition with the Versatus product line. The
Company has also entered into confidentiality agreements with each of its key
employees. Despite these restrictions, it may be possible for competitors or
users to copy aspects of the Company's products or to obtain information that
the Company regards as a trade secret.
Because of the rapid pace of technological changes in the IC industry,
the Company believes that patent, trade secret and copyright protection are less
significant to its competitive position than factors such as the knowledge,
ability and experience of the Company's personnel, new product development,
frequent product enhancements, name recognition and ongoing, reliable product
maintenance and support.
BACKLOG
The Company's backlog, which consists of customer purchase orders that
the Company expects to fill within the next 12 months from December 31, 1996,
was approximately $17.7 million as of such date. Because all purchase orders are
subject to cancellation or delay by customers with limited or no penalty, the
Company's backlog is not necessarily indicative of future revenue or earnings.
EMPLOYEES
As of December 31, 1996 the Company had 320 employees, including 156 in
manufacturing, 78 in engineering and product development, 54 in sales, marketing
and customer service and 32 in general administration and finance. None of the
Company's employees is represented by a labor union or is subject to any
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are satisfactory.
CERTAIN IMPORTANT FACTORS
In addition to the factors identified above, there are several
important factors that could cause the Company's actual results to differ
materially from those anticipated by the Company or which are reflected in any
forward-looking statements of the Company. These factors, and their impact on
the success of the Company's operations and its ability to achieve its goals,
include the following:
1. the Company's dependence on the IC market and the capital
expenditures of IC manufacturers;
2. the ability of the Company to manage its growth and to
integrate and assimilate recent and future acquisitions;
3. new product development cycles and market acceptance of new
products;
4. potential fluctuations in the Company's operating results
based on factors such as cancellation or rescheduling of
orders, seasonal fluctuations in business activity, and
product announcements by the Company or by competitors;
5. the impact of competition in the test handler, reliability
test equipment and environmental test equipment markets;
6. the effect of customer concentration and the loss of any
significant customer on the Company's sales; and
7. volatility of the Company's stock price based on factors
including developments in the IC industry and high-technology
industries generally, as well as fluctuations in the Company's
quarterly operating results.
ITEM 2. PROPERTIES.
The Company's primary administrative, manufacturing, product
development, sales, marketing and field service operations are located in North
St. Paul, Minnesota, where the Company currently occupies approximately 45,000
square feet under a lease which expires in March 2006, with an annual rent of
approximately $240,000. The lease includes an option to the Company, exercisable
at any time during the initial lease term, to require construction of an
additional approximately 45,000 square feet for lease at the same rental rate.
The Company's manufacturing, product development and certain sales and
marketing activities for its San Diego Division are conducted in facilities with
approximately 42,000 square feet located in San Diego, California under a lease
that expires in July 1999, with an annual rent of approximately $275,000. The
Company also leases and occupies approximately 3,000 square feet of space in
Santa Clara, California under a lease that expires in April 1997, with an annual
rent of approximately $32,000. The Company uses this space for sales and field
service operations. The Company is currently negotiating a renewal of this
lease.
The Company's Lawrence Division is located in Lawrence, Massachusetts,
and conducts its manufacturing and product development activities for its line
of environmental test equipment in facilities with approximately 61,500 square
feet under a sublease that expires in December 1999, at an annual rent of
approximately $332,000.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages and the offices held,
as of February 21, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph C. Levesque 52 Chairman of the Board, President and Chief Executive Officer
Darnell L. Boehm 48 Chief Financial Officer, Secretary and Director
Douglas L. Hemer 50 President - San Diego Division
Daniel M. Koch 43 Vice President - Worldwide Sales
Gerald C. Clemens 45 Vice President - Reliability Test Products
James E. Serley 50 Vice President and General Manager - IC Handling Products
Paul H. Askegaard 45 Treasurer
</TABLE>
Mr. Levesque has served as President, Chief Executive Officer and
Chairman of the Board of Directors of the Company since 1986. From 1973 to 1986,
Mr. Levesque served in various capacities and most recently as Executive Vice
President of Micro Component Technology, Inc., a manufacturer of integrated
circuit testers and test handlers. Mr. Levesque is also a director of Arden
Industrial Products, Inc., a public company, and served on its compensation
committee during 1996.
Mr. Boehm has served as Chief Financial Officer, Secretary and as a
director of the Company since 1986. From December 1994 until July 1995, Mr.
Boehm had also assumed executive management responsibilities for the Company's
San Diego Division. Mr. Boehm is also the principal of Darnell L. Boehm &
Associates, a management consulting firm. From October 1988 to March 1993, Mr.
Boehm served as the Acting President of Genesis Labs, Inc., a manufacturer of
medical diagnostic products. Mr. Boehm is also a director of Rochester Medical
Corporation, a public company.
Mr. Hemer has served as a director of the Company since 1986, and
served as the Chief Administrative Officer of the Company from May 1, 1996 until
February 1, 1997, at which time he was named the President of the San Diego
Division. Mr. Hemer was a partner in the law firm of Oppenheimer Wolff &
Donnelly for over 15 years before joining the Company. Oppenheimer Wolff &
Donnelly has provided and is expected to continue to provide legal services to
the Company.
Mr. Koch has served as the Company's Vice President-Worldwide Sales
since March 1991. From March 1990 to March 1991, Mr. Koch served as the Vice
President of Sales of Summation, Inc., a company involved with the testing of
integrated circuit boards. From December 1973 to March 1990, Mr. Koch served in
various sales positions and most recently as Vice President of Sales of Micro
Component Technology, Inc.
Mr. Clemens has served as the Company's Vice President-Reliability Test
Products since July 1995. From September 1993 to July 1995, Mr. Clemens served
as Vice President-Engineering. Mr. Clemens is also the principal of Clemens
Associates, a consulting firm. From August 1991 to September 1992, Mr. Clemens
was a Vice President at Vectorvision, Inc., a software company. From June 1990
to April 1991, Mr. Clemens was a Vice President at Elke Corporation, a software
company.
Mr. Serley has served as the Company's Vice President and General
Manager, IC Handling Products since April 1996. From June 1995 to April 1996,
Mr. Serley served as Vice President-Versatus Business Unit. From July 1990 to
January 1995, Mr. Serley was Vice President of Operations at Rosemount Aerospace
Inc., a supplier of measurement/instrumentation products to the aerospace
industry.
Mr. Askegaard has served as the Company's Treasurer since February
1992. From October 1986 to February 1992, Mr. Askegaard served as the Company's
Corporate Controller.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The information under the caption "Price Range of the Company's Common
Stock" on page 27 of the Company's 1996 Annual Report is incorporated herein by
reference. The prices reflected in the table presented in the 1996 Annual Report
do not include adjustments for retail mark-ups, mark-downs or commissions.
The Company did not have any unregistered sales of equity securities
during the fourth quarter of 1996.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Financial Data" on page 27
of the 1996 Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and
Analysis" on pages 12 through 15 of the Company's 1996 Annual Report is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following Consolidated Financial Statements of the Company and the
Independent Auditor's Report thereon are incorporated herein by reference from
the pages indicated in the Company's 1996 Annual Report:
Report of Independent Accountants--page 15.
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994--page 16.
Consolidated Balance Sheets as of December 31, 1996 and 1995--page 17.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994--page 18.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994--page 19.
Notes to Consolidated Financial Statements--pages 20 to 26.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the captions "Election of Directors--Information
About Nominees" and "Election of Directors--Other Information About Nominees" in
the Company's 1997 Proxy Statement is incorporated herein by reference.
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1997 Proxy Statement is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the captions "Election of Directors--Compensation
of Directors" and "Executive Compensation and Other Benefits" in the Company's
1997 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information under the caption "Principal Shareholders and
Beneficial Ownership of Management" in the Company's 1997 Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. FINANCIAL STATEMENTS OF REGISTRANT.
The following Consolidated Financial Statements of the Company and the
Independent Auditor's Report thereon are incorporated herein by reference from
the pages indicated in the Company's 1996 Annual Report:
Report of Independent Accountants--page 15.
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994--page 16.
Consolidated Balance Sheets as of December 31, 1996 and 1995--page 17.
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994--page 18.
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994--page 19.
Notes to Consolidated Financial Statements--pages 20 to 26.
(a) 2. FINANCIAL STATEMENT SCHEDULES OF REGISTRANT.
The following financial statement schedule is included herein and
should be read in conjunction with the financial statements referred to above:
Financial Statement Schedule:
II. Valuation and Qualifying Accounts
All other schedules are omitted as the required information is
inapplicable or the information is presented in the financial statements or
related notes.
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Aetrium Incorporated
Our audits of the consolidated financial statements referred to in our report
dated January 31, 1997, appearing on page 15 of the 1996 Annual Report to
Shareholders of Aetrium Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, such Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ Price Waterhouse LLP
Minneapolis, Minnesota
January 31, 1997
Schedule II
AETRIUM INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
<TABLE>
<CAPTION>
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND ACQUISITION BALANCE AT
DESCRIPTION PERIOD EXPENSES RELATED (1) DEDUCTIONS END OF PERIOD
- ----------------- ------------------ --------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1994 65,162 20,000 150,538 0 235,700
1995 235,700 45,337 25,668 (19,505) 287,200
1996 287,200 515,467 0 (3,267) 799,400
INVENTORY OBSOLESCENCE RESERVE:
1994 307,298 226,147 2,378,000 (208,445) 2,703,000
1995 2,703,000 429,000 726,457 (550,713) 3,307,744
1996 3,307,744 488,000 0 (1,780,611) 2,015,133
WARRANTY RESERVE:
1994 97,556 163,135 756,000 (213,691) 803,000
1995 803,000 361,781 25,000 (604,781) 585,000
1996 585,000 631,535 0 (605,959) 610,576
</TABLE>
(1) Reserve increases related to the inclusion of newly acquired businesses.
(a) 3. EXHIBITS.
The exhibits to this Report are listed in the Exhibit Index
attached hereto.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of April 4, 1997, upon receipt from any such person of a written
request for any such exhibit. Such request should be sent to Aetrium
Incorporated, 2350 Helen Street, North St.
Paul, Minnesota 55109; Attn.: Shareholder Relations.
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(a)(3):
1. Form of Incentive Stock Option Agreement (incorporated by
reference to Exhibit 10.6 to the Company's Form 10-KSB for the
year ended December 31, 1993). (File No. 0-22166).
2. Form of Non-Statutory Stock Option Agreement (incorporated by
reference to Exhibit 10.7 to the Company's Form 10-KSB for the
year ended December 31, 1993) (File No. 0-22166).
3. 1993 Stock Incentive Plan (incorporated by reference to
Exhibit 10.2 to the Company's Form 10-KSB for the year ended
December 31, 1995) (File No. 0-22166).
4. Salary Savings Plan (incorporated by reference to Exhibit 10.3
to the Company's Registration Statement on Form SB-2 (File No.
33-64962C)).
5. Employee Stock Purchase Plan (incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on Form
S-8 (File No. 33-74616)).
6. Employment Agreement dated April 1, 1986 between Joseph C.
Levesque and the Company (incorporated by reference to Exhibit
10.6 to the Company's Registration Statement on Form SB-2
(File No. 33-64962C)).
(b) REPORTS ON FORM 8-K.
The Company did not file any Current Reports on Form
8-K during the fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 28, 1997 By: /s/ Joseph C. Levesque
-----------------------
Joseph C. Levesque
Chief Executive Officer and President
(principal executive officer)
By: /s/ Darnell L. Boehm
--------------------
Darnell L. Boehm
Chief Financial Officer and Secretary
(principal financial and accounting
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 28, 1997 by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title
- --------- -----
/s/ Joseph C. Levesque Chairman of the Board
- ----------------------------------------
Joseph C. Levesque
/s/ Darnell L. Boehm Director
- ----------------------------------------
Darnell L. Boehm
/s/ Terrence W. Glarner Director
- ----------------------------------------
Terrence W. Glarner
/s/ Andrew J. Greenshields Director
- ----------------------------------------
Andrew J. Greenshields
/s/ Douglas L. Hemer Director
- ----------------------------------------
Douglas L. Hemer
/s/ Terrance J. Nagel Director
- ----------------------------------------
Terrance J. Nagel
<TABLE>
<CAPTION>
AETRIUM INCORPORATED
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
ITEM NO. ITEM METHOD OF FILING
- -------- ---- ----------------
<S> <C> <C>
3.1 The Company's Restated Articles of Incorporation, Incorporated by reference to Exhibit
as amended. 3.1 to the Company's Registration
Statement on Form SB-2 (File No.
33-64962C).
3.2 The Company's Bylaws, as amended. Incorporated by reference to Exhibit
3.2 to the Company's Registration
Statement on Form SB-2 (File No.
33-64962C).
4.1 Specimen Form of the Company's Common Stock Incorporated by reference to Exhibit
Certificate. 4.1 to the Company's Registration
Statement on Form SB-2 (File No.
33-64962C).
10.1 1987 Non-Statutory Stock Option Plan. Incorporated by reference to Exhibit
10.1 to the Company's Registration
Statement on Form SB-2 (File No.
33-64962C).
10.2 1993 Stock Incentive Plan. Incorporated by reference to Exhibit
10.2 to the Company's Annual Report on
Form 10-KSB for year ended December 31,
1995 (File No. 0-22166).
10.3 Salary Savings Plan. Incorporated by reference to Exhibit
10.3 to the Company's Registration
Statement on Form SB-2 (File No.
33-64962C).
10.4 Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit
10.6 to the Company's Annual Report on
Form 10-KSB for the year ended
December 31, 1993 (File No. 0-22166).
10.5 Form of Non-Statutory Option Agreement. Incorporated by reference to Exhibit
10.7 to the Company's Annual Report on
Form 10-KSB for the year ended
December 31, 1993 (File No. 0-22166).
10.6 Employment Agreement dated April 1, 1986, between Incorporated by reference to Exhibit
the Company and Joseph C. Levesque. 10.6 to the Company's Registration
Statement on Form SB-2 (File No.
33-64962C).
10.7 Credit Agreement dated August 11, 1989, between Incorporated by reference to Exhibit
Harris Bank and the Company. 10.7 to the Company's Registration
Statement on Form SB-2 (File No.
33-64962C).
10.8 Lease Agreement, dated July 19, 1995, between Incorporated by reference to Exhibit
KAMKO Investments and the Company 10.12 to the Company's Registration
Statement on Form SB-2 (File No.
33-98040).
10.9 Amendment to Lease Agreement, dated September 26, Incorporated by reference to Exhibit
1995, between KAMKO Investments and the Company 10.13 to the Company's Registration
Statement on Form SB-2 (File No.
33-98040).
10.10 Industrial Lease Agreement between Parken Incorporated by reference to Exhibit
Investment Company No. One N.V. and Sym-Tek 10.14 to the Company's Registration
Systems, Inc., dated as of July 7, 1994 Statement on Form SB-2 (File No.
33-98040).
10.11 First Amendment to Industrial Lease dated July 7, Incorporated by reference to Exhibit
1994 by and between Parken Investment Co. No. One 10.15 to the Company's Registration
N.V. c/o CBS Investment Realty Inc. and Aetrium Statement on Form SB-2 (File No.
Incorporated 33-98040).
10.12 Asset Purchase Agreement, dated as of December Incorporated by reference to Exhibit
29, 1995, between Aetrium Incorporated and E.J. 2.1 to the Company's Current Report on
Systems, Inc. Form 8-K dated January 16, 1996 (File
No. 0-22166).
10.13 Amendment No. 1 to Asset Purchase Agreement, Incorporated by reference to Exhibit
dated as of December 29, 1995, between Aetrium 2.2 to the Company's Current Report on
Incorporated and E.J. Systems, Inc. Form 8-K dated January 16, 1996 (File
No. 0-22166).
10.14 Employee Stock Purchase Plan. Incorporated by reference to Exhibit
99.1 to the Company's Registration
Statement on Form S-8 (File No.
33-74616).
10.15 Agreement of Sublease, dated January 16, 1990, by Incorporated by reference to Exhibit
and between General Signal Technology Corporation 10.19 to the Company's Annual Report
and E.J. Systems, Inc. on Form 10-KSB for year ended December
31, 1995 (File No. 0-22166).
13.1 Excerpts from Annual Report to 1996 Shareholders. Filed herewith electronically.
21.1 Subsidiaries of the Registrant. Incorporated by reference to Exhibit
21.1 to the Company's Annual Report on
Form 10-KSB for the year ended December
31, 1995 (File No. 0-22166).
23.1 Independent Auditors' Consent. Filed herewith electronically.
27.1 Financial Data Schedule. Filed herewith electronically.
</TABLE>
[PHOTO]
The Aetrium(R) SOIC Contactor shown is a
printing graphic image to enhance the effect of
the 1996 Annual Report and has nothing to do
with the copy.
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS: The following table sets forth certain statements of
income items as a percentage of net sales for 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 44.9 42.9 37.3
- ---------------------------------------------------------------------------------------------
Gross profit 55.1 57.1 62.7
- ---------------------------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 20.8 24.2 26.5
Research and development 13.1 10.4 12.4
Acquisition related charge -- 13.3 19.0
- ---------------------------------------------------------------------------------------------
Total operating expenses 33.9 47.9 57.9
- ---------------------------------------------------------------------------------------------
Income from operations 21.2 9.2 4.8
Other income, net 1.9 .9 1.4
- ---------------------------------------------------------------------------------------------
Income before income taxes 23.1 10.1 6.2
Provision for income taxes (7.3) (3.0) (1.9)
- ---------------------------------------------------------------------------------------------
Net income 15.8% 7.1% 4.3%
- ---------------------------------------------------------------------------------------------
NET SALES: The following table sets forth the various components of net sales by
product line as a percentage of total sales:
1996 1995 1994
- ---------------------------------------------------------------------------------------------
Test handlers 59% 53% 56%
Automation modules 15 18 20
Reliability and environmental test equipment 13 6 4
Change kits and spare parts 13 23 20
- ---------------------------------------------------------------------------------------------
100% 100% 100%
- ---------------------------------------------------------------------------------------------
</TABLE>
Net sales increased 23% to $58.4 million in 1996, compared with $47.6 million in
1995 and $26.1 million in 1994. Equipment sales increased in 1996 across all
product lines, including test handlers, automation modules, and
reliability/environmental test equipment. Test handler sales increased during
the three year period due to higher unit volume, increased average selling
prices, new customer penetration, and a generally strong semiconductor industry
through early 1996. The company's acquisition in November 1994 of its test
handler product line manufactured in San Diego, California contributed
substantially to the increase in test handler sales in 1995. The acquisition in
December 1995 of the environmental test equipment product line located in
Lawrence, Massachusetts was the primary contributor to the increase in sales of
reliability and environmental test equipment in 1996. Sales of change kits and
spare parts increased significantly in 1995 primarily due to the inclusion of
the San Diego Division results, which were at particularly high levels in 1995
due to a focused effort to shorten lead times on spares orders and reduce the
elevated past due backlog which existed at the time of the acquisition in late
1994. Sales of change kits and spare parts declined in 1996 as spare parts sales
at the San Diego Division decreased to normal levels in the first half of 1996
and sales in general declined in the second half of 1996 due to a slowdown in
the semiconductor industry.
PAGE 12
[PHOTO]
The Aetrium(R) PLCC Contactor shown is a
printing graphic image to enhance the effect of
the 1996 Annual Report and has nothing to do
with the copy.
GROSS PROFIT: Gross profit increased 18% to approximately $32.2 million in 1996
compared to $27.2 million for 1995 and $16.4 million in 1994. As a percentage of
net sales, gross profit amounted to 55.1%, 57.1%, and 62.7% in 1996, 1995, and
1994 respectively. Gross profit margins for the St. Paul, Minnesota-based
business units increased in 1995 and 1996 due to price increases, continued
efficiency improvements and a generally favorable product mix. The St. Paul
business units' margin improvement in 1995 was offset by a full year of
improving but lower margin shipments from the San Diego Division, resulting in a
consolidated gross margin of 57.1% for 1995 compared with 62.7% of net sales for
1994. Gross profit margins decreased to 55.1% in 1996, primarily due to the
inclusion of the lower margin sales of the Lawrence Division, which was acquired
in December 1995. Although the gross profit margins for the San Diego and
Lawrence divisions improved during 1996, the company believes they will continue
to dilute the company's overall gross profit margin for the foreseeable future.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses increased 6% to $12.2 million in 1996 compared with $11.5 million in
1995 and $6.9 million in 1994. The increase is primarily attributable to higher
expenses to support the San Diego and Lawrence divisions acquired in 1994 and
1995 respectively. These increases were offset somewhat by lower commissions
expense in 1996 resulting from increased sales to noncommissionable accounts.
Also, management compensation was lower in 1996 as a result of salary and
incentive reductions in the second half of the year based on the company's
operating results. As a percentage of net sales, selling, general and
administrative expenses decreased to 20.8%, 24.2%, and 26.5% in 1996, 1995, and
1994 respectively primarily because fixed expenses increased at a slower rate
than net sales.
RESEARCH AND DEVELOPMENT: Research and development expenses increased 53% to
$7.6 million in 1996 compared with $5.0 million in 1995 and $3.2 million in
1994. The increase in 1995 is primarily attributable to the inclusion of the San
Diego Division acquired in late 1994 and the increase in 1996 is primarily
attributable to the inclusion of the Lawrence Division acquired in December
1995. As a percentage of net sales, research and development expenses amounted
to 13.1%, 10.4%, and 12.4% in 1996, 1995, and 1994 respectively. Over time, the
company expects that research and development spending will generally average
12% of net sales.
ACQUISITION RELATED CHARGES: Effective December 29, 1995, the company acquired
substantially all of the assets and assumed certain liabilities of EJ Systems,
Inc. ("EJ"). On November 28, 1994 the company acquired substantially all of the
assets and assumed certain liabilities of SymTek Systems, Inc. ("SymTek"). These
acquisitions were accounted for using the purchase method and, accordingly, the
acquired assets and liabilities were recorded at their estimated fair market
values at the date of each acquisition.
PAGE 13
[PHOTO]
The Aetrium(R) Plunge-to-Board Contactor shown
is a printing graphic image to enhance the
effect of the 1996 Annual Report and has nothing
to do with the copy.
In each acquisition, a portion of the purchase price was allocated to research
and development activities that were in-process at the time of the acquisition
and had not yet reached technological feasibility. The amounts allocated to
in-process research and development amounted to $6.3 million for the EJ
acquisition and $4.9 million for the SymTek acquisition, and were recorded as an
operating expense in 1995 and 1994 respectively. These amounts are reflected in
the accompanying consolidated statements of income under the caption
"acquisition related charge." See Note 6 to the Consolidated Financial
Statements.
OTHER INCOME, NET: Other income, net, increased substantially in 1996 to $1.1
million compared with $.4 million in 1995 and 1994. The increase is attributable
to increased interest income earned on higher invested cash balances resulting
from the proceeds of a stock offering completed in late 1995.
INCOME TAX EXPENSE: Income tax expense was provided for at an effective rate of
31.5% in 1996 and 30% in 1995 and 1994. The higher rate in 1996 is due primarily
to the expiration of the federal research credit during portions of 1995 and
1996 and a reduced foreign sales corporation benefit in 1996 due to lower
offshore sales. The company's effective tax rate compares favorably with 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 securities.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES: Cash and short term
investments increased by approximately $.5 million in 1996 to $35.8 million.
Cash generated from 1996 operations was $10.1 million. Approximately $ 7.3
million was used to pay the indebtedness related to the EJ acquisition and $1.4
million was used for capital expenditures. As of December 31, 1996, there was no
long term debt.
Accounts receivable decreased 23% to $8.0 million at December 31, 1996 compared
to $10.4 million at December 31, 1995 primarily because 1996 fourth quarter net
sales were 27% lower than fourth quarter 1995 net sales due to a general
slowdown in the semiconductor industry in the second half of 1996.
Inventories increased from $8.7 million at December 31, 1995 to a peak level of
$11.6 million at June 30, 1996 to support higher sales levels in the first half
of 1996 and declined to $10.3 million at December 31, 1996 as sales levels
decreased in the second half of the year.
The company has a $5.0 million line of credit agreement with Harris Trust and
Savings Bank of Chicago, Illinois. Borrowings under this agreement are secured
by receivables, inventory and general intangibles. Borrowing is limited to a
percentage of eligible receivables and inventory. There were no line of credit
advances outstanding as of December 31, 1996 or 1995.
PAGE 14
[PHOTO]
The Aetrium(R) PLCC Contactor shown is a
printing graphic image to enhance the effect of
the 1996 Annual Report and has nothing to do
with the copy. This is a repeated graphic image
from page 13.
The company believes its cash and short term investments of $35.8 million at
December 31, 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 current report on Form 10-K for the year ended
December 31,1996.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of Aetrium Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Aetrium Incorporated and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
Minneapolis, Minnesota
January 31, 1997
PAGE 15
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 58,387,108 $ 47,630,639 $ 26,091,104
Cost of goods sold 26,218,862 20,450,299 9,734,733
- -------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 32,168,246 27,180,340 16,356,371
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, general and administrative 12,161,441 11,509,977 6,931,094
Research and development 7,630,572 4,972,762 3,238,716
Acquisition related charge -- 6,338,590 4,948,807
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 19,792,013 22,821,329 15,118,617
- -------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS 12,376,233 4,359,011 1,237,754
Other income, net 1,116,197 434,734 376,805
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 13,492,430 4,793,745 1,614,559
Provision for income taxes (4,250,000) (1,438,000) (484,000)
- -------------------------------------------------------------------------------------------------------------------
NET INCOME $ 9,242,430 $ 3,355,745 $ 1,130,559
- -------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.08 $ .46 $ .16
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,591,000 7,353,000 6,913,000
===================================================================================================================
See accompanying notes to the consolidated financial statements. AETRIUM INC. 1996
</TABLE>
PAGE 16
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 34,756,218 $ 35,291,200
Short term investments 1,028,201 --
Accounts receivable, net of allowance for doubtful
accounts of $799,400 and $287,200, respectively 8,032,064 10,442,171
Inventories 10,332,048 8,660,803
Deferred taxes 1,009,545 904,212
Other current assets 354,266 439,490
- -------------------------------------------------------------------------------------------------------------------
Total current assets 55,512,342 55,737,876
- -------------------------------------------------------------------------------------------------------------------
Property and equipment:
Furniture and fixtures 851,559 516,671
Equipment 3,683,434 2,945,651
- -------------------------------------------------------------------------------------------------------------------
4,534,993 3,462,322
Less accumulated depreciation and amortization (2,275,700) (1,864,563)
- -------------------------------------------------------------------------------------------------------------------
Property and equipment, net 2,259,293 1,597,759
- -------------------------------------------------------------------------------------------------------------------
Noncurrent deferred taxes 2,518,769 2,704,102
Intangible and other assets, net 1,427,577 1,560,004
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 61,717,981 $ 61,599,741
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Acquisition related obligation $ -- $ 7,507,323
Current portion of long-term debt -- 40,400
Trade accounts payable 1,040,760 1,732,281
Accrued compensation and commissions 1,515,069 1,825,886
Other accrued expenses 1,181,896 1,285,509
Income taxes payable -- 652,375
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,737,725 13,043,774
- -------------------------------------------------------------------------------------------------------------------
Long-term debt, less current portion -- 134,667
Commitments and contingencies
Shareholders' equity:
Common stock, $.001 par value; 16,000,000 shares
authorized; 8,449,420 and 8,302,810 shares issued and
outstanding, respectively 8,449 8,303
Additional paid-in capital 43,279,344 42,962,964
Retained earnings 14,692,463 5,450,033
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 57,980,256 48,421,300
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 61,717,981 $ 61,599,741
===================================================================================================================
See accompanying notes to the consolidated financial statements. AETRIUM INC. 1996
</TABLE>
PAGE 17
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock Stock Total
------------------ Additional Subscription Retained Shareholders'
Shares Amount Paid-in Capital Receivable Earnings Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DEC. 31, 1993 6,677,509 $ 6,678 $ 19,237,175 $ (130,000) $ 963,729 $ 20,077,582
Common stock received
in payment of note
and stock subscription
receivable (27,279) (27) (175,013) 130,000 -- (45,040)
Exercise of stock options 235,307 235 326,057 -- -- 326,292
Exercise of stock warrants 12,499 12 33,320 -- -- 33,332
Repurchase of common
stock in connection
with exercise of stock
rights (92,926) (93) (672,625) -- -- (672,718)
Tax benefit related to
exercise of stock
options -- -- 472,632 -- -- 472,632
Net income -- -- -- -- 1,130,559 1,130,559
- -------------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1994 6,805,110 6,805 19,221,546 -- 2,094,288 21,322,639
Exercise of stock options 290,726 291 1,364,376 -- -- 1,364,667
Exercise of stock warrants 135,000 135 944,865 -- -- 945,000
Repurchase of common
stock in connection
with exercise of stock
rights (193,004) (193) (3,200,153) -- -- (3,200,346)
Tax benefit related to
exercise of stock options -- -- 997,433 -- -- 997,433
Purchase of
fractional shares (22) -- (392) -- -- (392)
Common stock issued
in stock offering,
including exercise of
over-allotment option,
net of expenses 1,265,000 1,265 23,635,289 -- -- 23,636,554
Net income -- -- -- -- 3,355,745 3,355,745
- -------------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1995 8,302,810 8,303 42,962,964 -- 5,450,033 48,421,300
Exercise of stock options 289,071 289 1,703,584 -- -- 1,703,873
Repurchase of common
stock in connection
with exercise of stock
options (142,461) (143) (2,398,173) -- -- (2,398,316)
Tax benefit related to
exercise of stock options -- -- 1,010,969 -- -- 1,010,969
Net income -- -- -- -- 9,242,430 9,242,430
- -------------------------------------------------------------------------------------------------------------------
BALANCE DEC. 31, 1996 8,449,420 $ 8,449 $ 43,279,344 $ -- $ 14,692,463 $ 57,980,256
===================================================================================================================
See accompanying notes to the consolidated financial statements. AETRIUM INC. 1996
</TABLE>
PAGE 18
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,242,430 $ 3,355,745 $ 1,130,559
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 903,992 727,741 397,291
Acquisition related charge -- 6,338,590 4,948,807
Deferred taxes 80,000 (1,804,000) (931,000)
Changes in assets and liabilities, net of affects of
acquired businesses:
Accounts receivable, net 2,410,107 (3,457,934) (479,737)
Inventories (1,671,245) (3,199,674) 654,585
Other current assets 85,224 (183,886) (31,436)
Intangible and other assets 2,484 184,288 864
Trade accounts payable (691,521) 808,824 (341,305)
Accrued compensation and commissions (310,817) 332,773 210,404
Other accrued expenses (323,613) (634,405) 131,606
Income taxes payable 358,594 1,549,809 385,987
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,085,635 4,017,871 6,076,625
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash acquired -- -- (7,762,774)
Payment of acquisition related indebtedness (7,287,323) -- --
Purchase of property and equipment (1,435,583) (660,999) (297,965)
Purchase of short term investments (1,028,201) -- --
Other -- -- (2,350)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,751,107) (660,999) (8,063,089)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 355,724 23,819,675 153,545
Repurchase of common stock related to
exercise of stock options (1,050,167) (1,074,192) (466,638)
Principal payments on debt (175,067) -- (544,380)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (869,510) 22,745,483 (857,473)
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (534,982) 26,102,355 (2,843,937)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 35,291,200 9,188,845 12,032,782
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 34,756,218 $ 35,291,200 $ 9,188,845
===================================================================================================================
See accompanying notes to the consolidated financial statements. AETRIUM INC. 1996
</TABLE>
PAGE 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 BUSINESS DESCRIPTION
The company specializes in the design, development, manufacturing and marketing
of a variety of electromechanical equipment used by the semiconductor industry
to handle and test integrated circuits.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of the company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to conform
with the current year presentation.
CASH EQUIVALENTS AND SHORT TERM INVESTMENTS: Short term investments include
highly liquid investments purchased with an original maturity greater than three
months and less than one year and are stated at cost which approximates market
value. Short term investments which have a maturity of three months or less at
the time of purchase are considered cash equivalents.
INVENTORIES: Inventories are valued at the lower of cost or market, with cost
determined on a first-in, first-out basis.
PROPERTY AND EQUIPMENT : Property and equipment are stated at cost. Depreciation
and amortization are computed for financial statement and tax purposes using
accelerated methods over the shorter of the estimated useful lives or the
applicable lease terms. Maintenance and repairs are charged to expense as
incurred.
INTANGIBLES: Goodwill, representing the excess of purchase price over the fair
value of net assets of acquired businesses, is amortized on a straight-line
basis over 15 years. The company assesses the potential impairment of its
intangible assets based on anticipated undiscounted cash flows from operations.
At December 31, 1996 and 1995, no impairment was indicated.
Costs associated with the purchase of product and patent rights are capitalized
and amortized on a straight-line basis over their respective useful lives or 15
years, whichever is less.
WARRANTY COSTS: Estimated product warranty costs are accrued at the time of
shipment.
REVENUE RECOGNITION: Revenue is recognized upon the shipment of products.
RESEARCH AND DEVELOPMENT: Expenditures for research and development, including
software development, are expensed as incurred.
INCOME TAXES: Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards ("FAS") No. 109, "Accounting for Income Taxes".
Deferred tax assets are recognized for deductible temporary differences and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.
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 and common
equivalent shares outstanding during each year. Common stock equivalents include
stock options and warrants using the treasury stock method.
AETRIUM INC. 1996
PAGE 20
NOTE 3 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest and income taxes were as follows:
Year Ended Dec. 31, 1996 1995 1994
- -------------------------------------------------------
Interest paid $ 13,871 $ 10,044 $ 44,229
Income taxes paid $4,063,286 $ 1,619,976 $1,101,228
- -------------------------------------------------------
During the years ended December 31, 1996, 1995 and 1994 employees surrendered
79,310 ($1,348,149 fair market value), 73,796 ($1,181,154 fair market value) and
28,053 ($206,080 fair market value) shares of Common Stock, respectively, as
payment for the exercise prices of stock options.
NOTE 4 INVENTORIES
A summary of the composition of inventories is as follows:
December 31, 1996 1995
- -----------------------------------------------------------
Purchased parts and
completed subassemblies $ 7,330,388 $ 4,050,934
Work in process 2,105,037 3,180,906
Finished goods 896,623 1,428,963
===========================================================
Total inventories $ 10,332,048 $ 8,660,803
- -----------------------------------------------------------
NOTE 5 INTANGIBLE AND OTHER ASSETS
Intangible and other assets is comprised of the following:
December 31, 1996 1995
- -------------------------------------------------------------
Goodwill $ 1,269,937 $ 1,269,937
Product and patent rights 917,035 917,035
Other 60,154 46,782
- -------------------------------------------------------------
2,247,126 2,233,754
Accumulated amortization (819,549) (673,750)
=============================================================
Total intangible and
other assets, net $ 1,427,577 $ 1,560,004
- -------------------------------------------------------------
Amortization expense related to intangibles amounted to $145,799, $119,131, and
$119,090 for 1996, 1995 and 1994 respectively.
NOTE 6 ACQUISITIONS
EJ SYSTEMS: Effective December 29, 1995, the company acquired substantially all
of the assets (including in-process research and development) and assumed
certain liabilities of EJ Systems, Inc. ("EJ"), a manufacturer of environmental
test products. The purchase price totaled $7,507,323 including $7,287,323 of
cash and $220,000 of acquisition related costs. The acquisition was accounted
for as a purchase and, accordingly, the net assets acquired were recorded at
their fair values at December 29, 1995, the effective
AETRIUM INC. 1996
PAGE 21
NOTE 6 ACQUISITIONS (CONT.)
date of the acquisition. The purchase price was allocated as follows:
- -------------------------------------------------------
Current assets $ 1,265,515
Furniture and equipment 227,284
Intangibles, patents 400,000
In-process research and development 6,338,590
Notes payable (175,067)
Current liabilities (548,999)
=======================================================
Total purchase price $ 7,507,323
- -------------------------------------------------------
The $6,338,590 related to in-process research and development, as determined by
a third party appraisal, was charged against income in 1995 as the underlying
research and development projects had not yet reached technological feasibility.
In connection with the purchase of the EJ business, the company entered into a
product development contract with the previous owner of the business, which
provides for potential future payments up to a cumulative $2 million based upon
the successful completion of certain product developments. As of December 31,
1996, no payments had been made under the product development contract.
SYMTEK SYSTEMS: On November 28, 1994, the company acquired substantially all of
the assets (including in-process research and development) and assumed certain
liabilities of SymTek Systems, Inc. ("SymTek"), a manufacturer of automated
integrated circuit test handlers. The purchase price totaled $7,841,529
including $6,828,957 of cash and $1,012,572 of acquisition related costs. The
acquisition was accounted for as a purchase and, accordingly, the net assets
acquired were recorded at their fair values at the effective date of the
acquisition. The purchase price was allocated as follows:
- -------------------------------------------------------
Current assets $ 4,130,016
Furniture and equipment 462,020
In-process research and development 4,948,807
Current liabilities (1,699,314)
- -------------------------------------------------------
Total purchase price $ 7,841,529
- -------------------------------------------------------
The $4,948,807 related to in-process research and development, as determined by
a third party appraisal, was charged against income in 1994 as the underlying
research and development projects had not yet reached technological feasibility.
PRO FORMA INFORMATION: The company's consolidated financial statements include
the results of EJ operations since December 29, 1995 and the results of SymTek
operations since November 28, 1994. The following table presents the
consolidated results of operations of the company for 1995 and 1994 on an
unaudited pro forma basis as if the acquisitions took place at the beginning of
each year (in thousands, except per share data):
Unaudited pro forma 1995 1994
- --------------------------------------------------------------
Net sales $ 52,430 $ 46,795
Net income 7,159 1,136
Pro forma net income per share $ .97 $ .16
- --------------------------------------------------------------
Reported net income per share
before acquisition related charge $ 1.06 $ .66
- --------------------------------------------------------------
The acquisition related charges of $6,338,590 for EJ in 1995 and $4,948,807 for
SymTek in 1994 are not reflected in the pro forma results presented 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
acquisitions occurred at the beginning of the periods presented or the results
which may occur in the future.
AETRIUM INC. 1996
PAGE 22
NOTE 7 LONG-TERM DEBT AND CREDIT AGREEMENT
As of December 31, 1996, the company had no outstanding long-term debt. As of
December 31, 1995, long-term debt consisted of a bank loan obligation assumed in
the EJ acquisition amounting to $175,067. This loan was paid in full in January,
1996.
The company has a line of credit with a bank which provides for borrowings up to
the lesser of $5,000,000, or 80% of eligible accounts receivables and 50% of
eligible inventory. The line of credit is secured by receivables, inventory, and
general intangibles. There were no line of credit advances outstanding as of
December 31, 1996 and 1995.
NOTE 8 LEASE OBLIGATIONS
The company leases certain equipment and facilities under various operating
leases. Its headquarters is leased from a partnership owned by certain
shareholders of the company. The lease agreement expires in February 2006. None
of the shareholders in the partnership are either directors or officers of the
company. Rent expense under all operating leases was as follows:
Year Ended Dec. 31, 1996 1995 1994
- -----------------------------------------------------------------
Paid to shareholders $ 231,575 $ 185,284 $ 144,891
Paid to others 457,501 353,286 88,674
=================================================================
Total rent expense $ 689,076 $ 538,570 $ 233,565
- -----------------------------------------------------------------
Future minimum annual lease payments under operating leases are as follows:
- -------------------------------------------------------
1997 $ 919,000
1998 933,000
1999 793,000
2000 258,000
2001 240,000
Thereafter 999,000
=======================================================
Total minimum lease payments $ 4,142,000
- -------------------------------------------------------
NOTE 9 COMMON STOCK
On July 24, 1995, the company's board of directors approved a 3-for-2 stock
split. Accordingly, all historical financial data and per share amounts included
in the financial statements and footnotes have been restated to reflect the
stock split. In November 1995, the company issued 1,265,000 shares of Common
Stock in a stock offering. Net proceeds to the company were approximately $23.6
million after deducting the underwriter discounts and expenses.
NOTE 10 STOCK OPTIONS AND WARRANTS
In 1993, the company issued to the underwriters of its initial public offering
warrants to purchase 135,000 shares of Common Stock at $7.00 per share. During
1995, the underwriters exercised their warrants in cashless transactions whereby
46,735 shares with a fair market value of $945,000 were withheld as payment for
the exercise prices, resulting in a net issuance of 88,265 shares of Common
Stock.
A nonqualified stock option plan adopted by the company in 1987 (the "1987
Plan") terminated in 1992. As of December 31, 1996, outstanding options for the
purchase of 5,812 shares of Common Stock granted under the 1987 Plan continued
to be exercisable in accordance with their original terms.
In 1993, the company's shareholders approved the adoption of the 1993 Stock
Incentive Plan (the "Plan").
AETRIUM INC. 1996
PAGE 23
NOTE 10 STOCK OPTIONS AND WARRANTS (CONT.)
Employees, officers, directors, consultants and independent contractors
providing services to the company are eligible to receive awards under the Plan.
The number of shares available for issuance under the Plan is equal to 17.5% of
the aggregate number of shares of Common Stock outstanding less the total number
of shares of Common Stock issuable upon the exercise or conversion of any stock
options, warrants, or other stock rights. The Plan is administered by the
Compensation Committee of the Board of Directors and provides for the granting
of: (a) stock options; (b) stock appreciation rights; (c) restricted stock; (d)
performance awards; and (e) stock awards valued in whole or in part by reference
to or otherwise based upon the company's stock. Options granted under the Plan
may be incentive stock options or nonqualified stock options. The Plan provides
that newly elected outside directors will be granted a nonqualified stock option
to purchase 30,000 shares of Common Stock at a price equal to the fair market
value at the time of the grant. The Plan will terminate on June 16, 2003.
As required, the company adopted Statement of Financial Accounting Standards
("FAS") No. 123, "Accounting for Stock-Based Compensation" in 1996.
As permitted by FAS No. 123, the company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation expense related thereto. If the company had elected
to recognize compensation expense based on the fair value of the options granted
at grant date as prescribed by FAS No. 123, net income and net income per share
would have been reduced to the pro forma amounts indicated in the following
table ($ in thousands, except per share amounts):
1996 1995
- -------------------------------------------------------
Net income - as reported $ 9,242 $ 3,356
Net income - pro forma $ 8,662 $ 3,315
Net income per share -
as reported $ 1.08 $ .46
Net income per share -
pro forma $ 1.01 $ .45
- -------------------------------------------------------
The fair value of each option grant in 1996 and 1995 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:
- -------------------------------------------------------
Expected dividend level 0%
Expected stock price volatility 44%
Risk-free interest rate 6.0%
Expected life of options 3.5 years
- -------------------------------------------------------
The following table summarizes activity under the company's stock option plans:
<TABLE>
<CAPTION>
Outstanding Options
------------------------------------------------------------------
Weighted Average
Number of Shares Exercise Price Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1993 554,907 $ 1.39 to 6.58 $ 2.85
Options granted 637,500 6.50 to 7.83 6.79
Options exercised (235,307) 1.39 1.39
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 957,100 1.39 to 7.83 5.83
Options granted 525,725 10.25 to 16.50 11.27
Options exercised (290,726) 1.39 to 6.67 4.69
Options canceled (46,407) 1.39 to 6.50 6.34
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,145,692 1.39 to 16.50 8.59
Options granted 172,500 10.25 to 18.81 12.46
Options exercised (289,071) 1.39 to 11.50 5.89
Options canceled (29,939) 11.50 to 16.50 15.51
- -------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 999,182 $ 1.39 to 18.81 $ 9.59
===================================================================================================================
Options exercisable as of December 31, 1996 335,781 $ 1.39 to 18.81 $ 8.74
</TABLE>
AETRIUM INC. 1996
PAGE 24
The following table summarizes information related to stock options outstanding
at December 31, 1996, all of which are nonqualified options which become
exercisable over a four to five year period and expire five years after the
grant date:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------------------------
Number Weighted Number Weighted
Range of Outstanding Average Remaining Weighted Average Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.39 5,812 .6 years $ 1.39 5,812 $ 1.39
6.58 - 7.83 326,646 2.1 years 6.82 170,224 6.81
10.25 - 18.81 666,724 4.1 years 11.02 159,745 11.05
- -------------------------------------------------------------------------------------------------------------------
$ 1.39 - 18.81 999,182 3.4 years $ 9.59 335,781 $ 8.74
</TABLE>
During the years ended December 31, 1996, 1995, and 1994 in connection with
certain stock option exercises, employees surrendered 142,461 ($2,398,316 fair
market value), 146,269 ($2,255,346 fair market value) and 92,926 ($672,718 fair
market value) shares of Common Stock as payment for the exercise prices of such
options and related withholding tax obligations.
The company recorded a tax benefit of $1,010,969, $997,433 and $472,632 for the
years ending December 31, 1996, 1995, and 1994, respectively, related to the
exercise of nonqualified stock options, which amounts have been credited to
Additional Paid-in Capital.
NOTE 11 EMPLOYEE SAVINGS 401(k) AND STOCK PURCHASE PLANS
The company has a 401(k) employee savings plan which covers all employees who
are at least 21 years of age and have at least three months of service. Company
contributions to the plan were $271,190, $240,376 and $121,053 in 1996, 1995 and
1994 respectively.
During 1994, the company established a non-qualified employee stock purchase
plan. Full-time eligible employees may purchase shares of Common Stock by
contributing to the plan through payroll deductions. Employee contributions to
the plan are limited to 10% of each employee's base compensation. The plan
purchases shares on the open market at fair market value. At its discretion, the
company may choose to contribute to the plan. The company contributed $14,966
and $3,637 to the plan in 1996 and 1995 respectively.
NOTE 12 INCOME TAXES
The provision for income taxes is made up of the following components:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax provision:
Federal $ 3,585,000 $ 2,821,000 $ 1,263,000
State 585,000 421,000 152,000
- -------------------------------------------------------------------------------------------------------------------
Total current provision 4,170,000 3,242,000 1,415,000
- -------------------------------------------------------------------------------------------------------------------
Deferred tax provision:
Federal 69,000 (1,570,000) (871,000)
State 11,000 (234,000) (60,000)
- -------------------------------------------------------------------------------------------------------------------
Total deferred provision 80,000 (1,804,000) (931,000)
- -------------------------------------------------------------------------------------------------------------------
Total provision for income taxes $ 4,250,000 $ 1,438,000 $ 484,000
===================================================================================================================
</TABLE>
AETRIUM INC. 1996
PAGE 25
NOTE 12 INCOME TAXES (CONT.)
An analysis of the effective tax rate on earnings and a reconciliation from the
expected statutory rate are as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $ 13,492,430 $ 4,793,745 $ 1,614,559
- -------------------------------------------------------------------------------------------------------------------
Statutory federal tax rate 35% 34% 34%
- -------------------------------------------------------------------------------------------------------------------
Tax computed at federal statutory rate $ 4,722,351 $ 1,629,873 $ 548,950
State taxes, net of federal benefit 387,400 123,420 83,708
Increase (decrease) in tax from:
Goodwill amortization 19,938 19,368 19,368
Foreign sales corporation benefit (315,000) (244,800) (184,620)
Tax exempt interest income (388,909) (154,484) (115,586)
Tax credits (198,750) (234,300) (130,680)
Other 22,970 298,923 262,860
- -------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 4,250,000 $ 1,438,000 $ 484,000
===================================================================================================================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
December 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable,principally due to allowances for returns and doubtful accounts $ 287,784 $ 94,168
Inventories, principally due to reserves for obsolescence and additional costs
inventoried for tax purposes pursuant to the Tax Reform Act of 1986 318,552 272,338
Employee compensation and benefits accrued for financial reporting purposes 69,093 77,290
Purchased research and development 2,928,326 3,224,178
Tax credit carryforwards 104,867 153,048
Other (180,308) (212,708)
- -------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $ 3,528,314 $ 3,608,314
===================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
NOTE 13: BUSINESS SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION, AND
CONCENTRATION OF CREDIT RISK
The company operates in one industry segment supplying electromechanical
equipment to the semiconductor industry.
Foreign sales from the United States were as follows:
Year Ended Dec. 31, 1996 1995 1994
- --------------------------------------------------------------
Southeast Asia $12,552,000 $18,021,000 $ 9,472,000
Europe 3,597,000 4,364,000 1,954,000
Other 8,000 7,000 105,000
- --------------------------------------------------------------
$16,157,000 $22,392,000 $11,531,000
==============================================================
Sales to a distributor customer represented 10.0%, 19.5% and 19.7% of total net
sales in 1996, 1995 and 1994 respectively. Sales to a second customer
represented 16.0% of total net sales in 1996. Sales to a third customer
represented 16.3% of total net sales in 1995. Sales to a fourth customer
represented 11.6% and 10.4% of total net sales in 1995 and 1994 respectively.
Sales to a fifth customer represented 10.1% of total net sales in 1994.
The company sells its products principally to manufacturers of integrated
circuits and semiconductor equipment. Its accounts receivable balance is
concentrated with customers principally in one industry; however, the company
regularly monitors the creditworthiness of its customers and credit losses have
historically been minimal.
AETRIUM INC. 1996
PAGE 26
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
FIVE YEAR SUMMARY
IN THOUSANDS, EXCEPT PER SHARE DATA
Year ended December 31,
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income statement data:
Net sales $ 58,387 $ 47,631 $ 26,091 $ 20,900 $ 13,597
Income from operations 12,376 4,359 1,238 4,810 1,251
Net income 9,242 3,356 1,131 4,584* 1,145
Net income per share 1.08 .46 .16 .85* .23
- -------------------------------------------------------------------------------------------------------------------
* INCLUDES $1,315 ($.25 PER SHARE) NET GAIN FROM UNUSUAL ITEMS.
December 31,
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
Balance sheet data:
Total assets $ 61,718 $ 61,600 $ 25,210 $ 22,896 $ 9,622
Long term debt, less current portion -- 135 -- 410 183
Convertible preferred stock -- -- -- -- 10,245
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA (UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE DATA First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1996 Net sales $ 17,049 $ 17,271 $ 13,048 $ 11,019
Gross profit 9,563 9,817 6,991 5,797
Income from operations 4,145 4,451 2,320 1,460
Net income 3,001 3,203 1,781 1,257
Net income per share .35 .37 .21 .15
- -------------------------------------------------------------------------------------------------------------------
1995 Net sales $ 8,341 $ 10,665 $ 13,542 $ 15,083
Gross profit 4,765 6,206 7,470 8,739
Income from operations before
unusual item 1,511 2,075 3,086 4,026(1)
Net income before unusual item 1,112 1,508 2,218 2,954(1)
Net income per share before
unusual item .16 .21 .30 .37(1)
Net income (loss) per share .16 .21 .30 (.19)
- -------------------------------------------------------------------------------------------------------------------
(1) BEFORE AN ACQUISITION RELATED CHARGE.
</TABLE>
PRICE RANGE OF THE COMPANY'S COMMON STOCK
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------
1996 HIGH $ 20.75 $ 22.00 $ 18.00 $ 14.50
LOW $ 13.25 $ 14.75 $ 8.38 $ 10.00
- -------------------------------------------------------------------------
1995 HIGH $ 10.33 $ 13.08 $ 25.25 $ 22.00
LOW $ 6.67 $ 9.00 $ 12.00 $ 15.75
- -------------------------------------------------------------------------
As of December 31, 1996 there were approximately 200 shareholders of record. The
company estimates that an additional 6,100 shareholders own stock held for their
accounts at brokerage firms and financial institutions.
DIVIDENDS
The Company has never paid cash dividends on Common Stock. The company currently
intends to retain any earnings for use in its operations and does not anticipate
paying cash dividends in the foreseeable future.
AETRIUM INC. 1996
PAGE 27
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Numbers 33-72656 and 33-74616) of Aetrium Incorporated
of our report dated January 31, 1997 appearing on page 15 of the Annual Report
to Shareholders which is incorporated in this Annual Report on Form 10-K. We
also consent to incorporation by reference of our report on the Financial
Statement Schedule, which appears on page 18 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 34,756
<SECURITIES> 1,028
<RECEIVABLES> 8,032
<ALLOWANCES> 0
<INVENTORY> 10,332
<CURRENT-ASSETS> 55,512
<PP&E> 4,535
<DEPRECIATION> 2,276
<TOTAL-ASSETS> 61,718
<CURRENT-LIABILITIES> 3,738
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 57,972
<TOTAL-LIABILITY-AND-EQUITY> 61,718
<SALES> 58,387
<TOTAL-REVENUES> 58,387
<CGS> 26,219
<TOTAL-COSTS> 26,219
<OTHER-EXPENSES> 7,631
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,492
<INCOME-TAX> 4,250
<INCOME-CONTINUING> 9,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,242
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
