UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File No. 000-22166
AETRIUM INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1439182
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
2350 HELEN STREET, NO. ST. PAUL, MINNESOTA 55109
(Address of principal executive offices) (Zip Code)
(651) 704-1800
(Registrant's telephone number)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months ( or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES _X_ NO ___
Number of shares of Common Stock, $.001 par value,
outstanding as of August 6, 1998 9,703,308
---------
<PAGE>
AETRIUM INCORPORATED
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997 3-4
Consolidated Statements of Operations (unaudited) for the
three months and six months ended June 30, 1998 5
and 1997
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 1998 and 1997 6
Notes to unaudited consolidated financial statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Legal Proceedings 12-13
Changes in Securities 12-13
Defaults Upon Senior Securities 12-13
Submission of Matters to a Vote of Security Holders 12-13
Other Information 12-13
Exhibits and Reports on Form 8-K 12-13
SIGNATURES 14
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1998 1997
-----------------------
(Unaudited) (Audited)
(in thousands, except share data)
Current Assets:
Cash and cash equivalents $ 19,258 $ 27,584
Accounts receivable, net 14,131 12,709
Inventories 15,554 16,785
Deferred taxes 2,417 784
Other current assets 417 615
-----------------------
Total current assets 51,777 58,477
-----------------------
Property and equipment:
Furniture and fixtures 1,537 1,351
Equipment 6,080 5,282
-----------------------
7,617 6,633
Less accumulated depreciation and
amortization (3,502) (2,990)
-----------------------
Property and equipment, net 4,115 3,643
-----------------------
Noncurrent deferred taxes 8,984 4,951
Intangible and other assets, net 10,537 3,823
-----------------------
Total assets $ 75,413 $ 70,894
=======================
See accompanying notes to the consolidated financial statements.
3
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 2,148 $ 2,611
Accrued compensation and commissions 2,745 2,250
Other accrued expenses 3,369 2,807
Income taxes payable 0 734
--------------------
Total current liabilities 8,262 8,402
--------------------
Shareholders' equity:
Common stock, $.001 par value; 30,000,000
shares authorized; 9,703,308 and 8,786,740
shares issued and outstanding, respectively 10 9
Additional paid-in capital 61,989 46,562
Retained earnings 5,152 15,921
--------------------
Total shareholders' equity 67,151 62,492
--------------------
Total liabilities and shareholders' equity $75,413 $70,894
====================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
-----------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 16,108 $ 14,921 $ 36,589 $ 26,857
Cost of goods sold 12,152 7,295 22,350 13,113
-----------------------------------------------------------
Gross profit 3,956 7,626 14,239 13,744
-----------------------------------------------------------
Operating expenses:
Selling, general, and administrative 5,255 3,224 9,585 6,090
Research and development 3,528 2,474 6,477 4,452
Non-recurring charges 14,656 7,191 14,656 7,191
-----------------------------------------------------------
Total operating expenses 23,439 12,889 30,718 17,733
-----------------------------------------------------------
Loss from operations (19,483) (5,263) (16,479) (3,989)
Other income, net 214 303 519 615
-----------------------------------------------------------
Loss before income taxes (19,269) (4,960) (15,960) (3,374)
Provision for income taxes 6,117 1,520 5,191 1,044
-----------------------------------------------------------
Net loss $(13,152) $ (3,440) $(10,769) $ (2,330)
===========================================================
Net loss per common share:
Basic $ (1.36) $ (.40) $ (1.16) $ (.27)
Diluted $ (1.36) $ (.40) $ (1.16) $ (.27)
Weighted average common shares outstanding :
Basic 9,704 8,683 9,250 8,572
Diluted 9,704 8,683 9,250 8,572
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1998 1997
-----------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,769) $ (2,330)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,053 504
Acquisition-related charges 12,029 7,191
Writedown of intangibles 2,080 0
Deferred taxes (5,666) (2,265)
Changes in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable, net 815 (3,454)
Inventories 3,163 (2,656)
Other current assets 198 111
Trade accounts payable (1,118) 2,863
Accrued compensation and commissions 5 (169)
Other accrued expenses 450 (122)
Income taxes payable (579) 903
-----------------------
Net cash provided by operating activities 1,661 576
-----------------------
Cash flows from investing activities:
Purchases of businesses and technology, net of cash acquired (8,835) (4,997)
Sale of short term investments 0 1,000
Purchase of property and equipment (1,011) (329)
-----------------------
Net cash used in investing activities (9,846) (4,326)
-----------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 73 439
Repurchase of common stock, primarily related to exercise of
stock options (214) (439)
Principal payments on debt 0 (1,293)
-----------------------
Net cash used in financing activities (141) (1,293)
-----------------------
Net decrease in cash and cash equivalents (8,326) (5,043)
Cash and cash equivalents at beginning of period 27,584 34,756
-----------------------
Cash and cash equivalents at end of period $ 19,258 $ 29,713
=======================
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
AETRIUM INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL REPORTING
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments necessary to present fairly
the financial position, results of operations, and changes in cash flows
for the interim periods presented.
Certain footnote information has been condensed or omitted from these
financial statements. Therefore, these financial statements should be
read in conjunction with the consolidated financial statements and
accompanying footnotes included in Form 10-K for the year ended December
31, 1997.
2. INVENTORIES
Inventories consist of the following:
June 30, December 31,
1998 1997
------- -------
(in thousands)
Purchased parts and completed subassemblies $ 7,807 $ 9,307
Work in process 5,556 5,488
Finished goods, primarily demonstration equipment 2,191 1,990
------- -------
Total $15,554 $16,785
======= =======
3. NET INCOME (LOSS) PER COMMON SHARE
Basic net income per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period.
Diluted net income per share is computed by dividing net income by the
weighted-average number of common shares and common stock equivalent
shares outstanding during the period. Common stock equivalents include
stock options using the treasury stock method. Since the company reported
net losses for the interim periods presented herein, common stock
equivalents have been excluded from the computations because they are
antidilutive.
7
<PAGE>
4. ACQUISITIONS
On April 1, 1998, the company acquired substantially all of the assets
(including in-process research and development) and assumed certain
liabilities of the Equipment Division ("Equipment Division") of WEB
Technology, Inc., a privately-held company that consisted of several
business units in addition to the Equipment Division. The Equipment
Division 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. The
purchase price totaled $23,567,500 consisting of $7,835,000 in cash,
900,000 shares of Aetrium common stock valued at $15,412,500 and $320,000
of acquisition-related costs. The acquisition was accounted for as a
purchase. The company's consolidated financial statements include the
results of the Equipment Division's operations since April 1, 1998.
On April 1, 1997, the company acquired substantially all of the assets
(including in-process research and development) and assumed certain
liabilities of Forward Systems Automation, Inc. ("FSA"), a privately held
manufacturer of equipment for the semiconductor and electronic component
industries. The purchase price totaled $6,749,840 consisting of
$4,000,000 of cash, 186,000 shares of Aetrium common stock valued at
$2,499,840 and $250,000 of acquisition-related costs. The acquisition was
accounted for as a purchase. The company's consolidated financial
statements include the results of FSA's operations since April 1, 1997.
For each acquisition, a portion of the purchase price, as determined by
third party appraisal, was allocated to in-process research and
development that had not reached technological feasibility and did not
have alternative future uses. As required by generally accepted
accounting principles, the value of the in-process research and
development ( $12,029,000 for the Equipment Division and $7,190,809 for
FSA) were charged to operations in the second quarter of 1998 and 1997
respectively. These amounts are included in the caption "Non-recurring
charges" in the accompanying Statements of Operations.
The following table presents the consolidated results of operations of
the company on an unaudited pro forma basis as if the acquisitions of the
Equipment Division and FSA had taken place at the beginning of each
period (in thousands, except per share data):
Six months ended
Unaudited pro forma June 30, 1998 June 30, 1997
------------------- ------------- -------------
Net sales $39,583 $30,416
Net income (loss) (2,355) 2,429
Net income (loss) per share - diluted $ (.24) $ .25
-------------------------------------------------------------------------
Reported net income (loss) per share before
acquisition-related charges - diluted $ (.31) $ .32
-------------------------------------------------------------------------
The acquisition-related charges of $12,029,000 in 1998 and $7,190,809 in
1997 are not reflected in the pro forma results above. The unaudited pro
forma results of operations are for comparative purposes only and do not
necessarily reflect the results that would have occurred had the
acquisitions occurred at the beginning of the periods presented or the
results which may occur in the future.
8
<PAGE>
AETRIUM INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES. Net sales for the six months ended June 30, 1998, were
$36.6 million, an increase of 36 percent from the same period of
1997. The 1998 results include the net sales of FSA (acquired in
April 1997), the Advantek Handler Division (acquired in October
1997), and the equipment business of WEB Technology (acquired in
April 1998). Net sales were $16.1 million for the quarter ended
June 30, 1998, compared with $14.9 million for the comparable 1997
quarter, an 8% increase. The increase is primarily attributable to
the inclusion of the net sales of the acquired operations.
GROSS PROFIT. Gross profit was 38.9 % of net sales for the six
months ended June 30, 1998, including an inventory charge of $3.7
million related primarily to the suspension of marketing efforts
on certain older, less profitable products. Excluding the one-time
charge, gross profit was 49 % of net sales, compared with 51.2 %
for the same period of 1997. Gross profit was 24.6 % of net sales
for the quarter ended June 30, 1998, including the unusual $3.7
million charge, and 47.5 % excluding the unusual charge. This
compares with 51.1 % for the quarter ended June 30, 1997.
Excluding the one-time charge of $3.7 million, the decrease in the
gross margin in 1998 is primarily attributable to the inclusion of
results from the Advantek Handler Division; the significant
increase in the sales mix to more pick-and-place test handlers
which tend to have lower margins than gravity-feed test handlers;
and the costs associated with the production ramp of new products
produced by the Aetrium FSA Division. These factors are partially
offset by improving gross margins at the Lawrence Division and the
inclusion of relatively high-margin sales from the recently
acquired equipment business of WEB Technology.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the six months ended June 30, 1998
were $9.6 million compared with $6.1 million for the comparable
period in 1997, a 57% increase. Selling, general and
administrative expenses for the quarter ended June 30, 1998 were
$5.3 million compared with $3.2 million for the comparable period
in 1997, a 66% increase. The increase in 1998 is attributable to
higher commissions expense on increased net sales as well as the
inclusion of the results of FSA, the Advantek Handler Division,
and the equipment business of WEB Technology.
RESEARCH AND DEVELOPMENT. Research and development expenses were
$6.5 million for the six months ended June 30, 1998 compared with
$4.5 million for the comparable period in 1997, a 44% increase.
Research and development expenses were $3.5 million for the
quarter ended June 30, 1998 compared with $2.5 million for the
comparable period in 1997, a 40% increase. The increase in 1998 is
attributable to the inclusion of the results of FSA, the Advantek
Handler Division, and the equipment business of WEB Technology,
including expenditures required to complete the research and
development projects that were in process at the time of each
acquisition. Research and development expenses represented 21.9%
of net sales for the quarter ended June 30, 1998.
9
<PAGE>
NON-RECURRING CHARGES. The company incurred non-recurring charges
of $14.7 million in the quarter ended June 30, 1998. Approximately
$12.0 million was related to the acquisition of the Equipment
Division of WEB Technology, for that portion of the purchase price
allocated to research and development activities that were in
process at the time of acquisition but had not yet reached
technological feasibility. The balance of the non-recurring
charges during the quarter were for severance costs resulting from
a reduction in work force and the write-down of certain
capitalized technology. In connection with the FSA acquisition,
$7.2 million related to in-process research and development was
charged against income in the second quarter ended June 30, 1997
as the underlying research and development projects had not yet
reached technological feasibility. See Note 4 to the unaudited
consolidated financial statements.
OTHER INCOME, NET. Other income, net, which consists primarily of
interest income from the investment of excess funds, amounted to
$519,000 for the six months ended June 30, 1998 which was a
decline from the $615,000 for the same period in 1997 due to lower
average levels of invested funds. Other income, net, amounted to
$214,000 for the quarter ended June 30, 1998, compared to $303,000
for the same period of 1997. The decline reflects the decrease in
invested funds due to the cash outlay of $7.8 million for the
acquisition of the equipment business of WEB Technology.
INCOME TAX EXPENSE. Income tax expense was provided for at an
effective rate of 28.0% for the quarter and six months ended June
30, 1998 which was comparable to the rate used for fiscal year
1997 excluding the impact of non-recurring acquisition-related
charges. The effective tax rate compares favorably with the
Federal and state statutory rates primarily due to benefits
associated with the company's Foreign Sales Corporation and
research tax credits as well as the implementation of various tax
planning strategies, including the investment of excess funds in
tax exempt instruments.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The company has a $5.0 million line of credit agreement with
Harris Trust and Savings Bank in Chicago, Illinois. Borrowings
under this agreement are secured by receivables, inventories and
general intangibles. Borrowing is limited to a percentage of
eligible receivables and inventories. There were no line of credit
advances outstanding as of June 30, 1998 or December 31, 1997.
In the quarter ended June 30, 1998, the company disbursed
approximately $7.8 million in connection with the acquisition of
the equipment business of WEB Technology, Inc. The company
believes its remaining cash balances of approximately $19.3
million as of June 30, 1998, 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.
10
<PAGE>
BUSINESS RISKS AND UNCERTAINTIES
A number of risks and uncertainties exist which could impact the
company's future operating results. These uncertainties include,
but are not limited to, general economic conditions, competition,
changes in rates of capital spending by semiconductor
manufacturers, the company's success in developing new products
and technologies, market acceptance of new products, risks and
unanticipated costs associated with integrating acquired
businesses, and other factors, including those set forth in the
company's SEC filings, including its current report on Form 10-K
for the year ended December 31, 1997.
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a
year in the date field, with the result that data referring to the
year 2000 and subsequent years may be misinterpreted by these
programs. If present in the computer applications of the company
or its suppliers and not corrected, this problem may cause
computer applications to fail or to create erroneous results and
could cause a disruption in operations and have an adverse effect
on the company's business and results of operations. The company
has evaluated its principal computer systems and has determined
that they are substantially Year 2000 compliant. The company has
completed a series of tests of the electronics systems of its
products, including those product lines no longer being
manufactured but remaining in use at customer sites, and has
determined that they should continue to operate according to
specification after January 1, 2000. The company has initiated
discussions with its key suppliers to determine whether they have
any Year 2000 issues. The company has not incurred any material
expenses to date in connection with this evaluation, and does not
anticipate material expenses in the future, depending upon the
status of its suppliers with respect to this issue.
11
<PAGE>
AETRIUM INCORPORATED
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None which the company believes will have a material adverse
impact on its financial condition or results of operations.
Item 2. Changes in Securities
None.
Item 3. Defaults on Senior Securities
None.
Item 4. Submissions of Matters to a Vote of Security Holders
On May 19, 1998 the company held it's Annual Shareholder Meeting
at which the following matters were voted upon.
1. The share holders elected the following individuals to serve
as members of the Board of Directors:
Votes for Votes Withheld
--------- --------------
Joseph C. Levesque 7,946,788 20,444
Darnell L. Boehm 7,946,038 21,194
Terrence W. Glarner 7,946,153 21,079
Andrew J. Greenshields 7,946,528 20,704
Douglas L. Hemer 7,945,838 21,394
Terrance J. Nagel 7,946,253 20,979
2. The shareholders also approved an amendment to the company's
Restated Articles of Incorporation to increase the number of the
company's authorized shares of common stock, $.001 par value,
from 16,000,000 to 30,000,000 shares.
Votes Votes
Votes for Against Withheld
--------- ------- --------
Amendment to Restated
Articles of Incorporation 7,800,627 145,442 21,163
12
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exh 27 - Financial Data Schedule.
(b) Reports on Form 8-K
On April 15, 1998, the company filed a Form 8-K relating to
the purchase of substantially all of the assets of the
Equipment Division ( "Equipment Division") of WEB Technology,
Inc. on April 1, 1998 pursuant to an Asset Purchase Agreement
which was executed on March 20, 1998. On June 15, 1998, the
company filed an amendment to the Form 8-K on Form 8-K/A that
contained (i) audited historical financial statements of the
Equipment Division for the year ended December 31, 1997, (ii)
unaudited historical financial statements of the Equipment
Division for the three months ended March 31, 1998, and (iii)
pro forma consolidated financial statements as of March 31,
1998, for the year ended December 31, 1997, and for the three
months ended March 31, 1998.
13
<PAGE>
AETRIUM INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AETRIUM INCORPORATED
------------------------
(Registrant)
Date: August 12, 1998 By: /s/ Joseph C. Levesque
-----------------------------------------
Joseph C. Levesque
Chairman of the Board, President, and
Chief Executive Officer
Date: August 12, 1998 By: /s/ Darnell L. Boehm
-----------------------------------------
Darnell L. Boehm
Chief Financial Officer, Secretary, and
Director
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,258
<SECURITIES> 0
<RECEIVABLES> 14,131
<ALLOWANCES> 0
<INVENTORY> 15,554
<CURRENT-ASSETS> 51,777
<PP&E> 7,617
<DEPRECIATION> 3,502
<TOTAL-ASSETS> 75,413
<CURRENT-LIABILITIES> 8,262
<BONDS> 0
10
0
<COMMON> 0
<OTHER-SE> 67,141
<TOTAL-LIABILITY-AND-EQUITY> 75,413
<SALES> 36,589
<TOTAL-REVENUES> 36,589
<CGS> 22,350
<TOTAL-COSTS> 22,350
<OTHER-EXPENSES> 21,133
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (15,960)
<INCOME-TAX> (5,191)
<INCOME-CONTINUING> (10,769)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,769)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
