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, 1999
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 including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the 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, 9,484,185
outstanding as of August 6, 1999 ---------
<PAGE>
AETRIUM INCORPORATED
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998 3-4
Consolidated Statements of Operations (unaudited) for the
three months and six months ended
June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 1999 and 1998 6
Notes to unaudited consolidated financial statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
1999 1998
---------------------
(Unaudited) (Audited)
(in thousands, except share data)
Current Assets:
Cash and cash equivalents $ 15,079 $ 18,133
Accounts receivable, net 6,803 7,191
Refundable income taxes 2,329 3,182
Inventories 10,706 14,335
Deferred taxes 1,946 1,946
Other current assets 360 360
---------------------
Total current assets 37,223 45,147
---------------------
Property and equipment:
Furniture and fixtures 1,959 1,949
Equipment 5,923 5,718
---------------------
7,882 7,667
Less accumulated depreciation and
amortization (4,803) (3,903)
---------------------
Property and equipment, net 3,079 3,764
---------------------
Noncurrent deferred taxes 10,448 6,038
Intangible and other assets, net 16,550 17,495
---------------------
Total assets $ 67,300 $ 72,444
=====================
See accompanying notes to the consolidated financial statements.
3
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
June 30, December 31,
1999 1998
------------------
(Unaudited) (Audited)
(in thousands, except share data)
Current liabilities:
Trade accounts payable $ 1,624 $ 721
Accrued compensation and commissions 1,698 1,933
Other accrued expenses 2,992 3,005
------------------
Total current liabilities 6,314 5,659
------------------
Shareholders' equity:
Common stock, $.001 par value; 30,000,000
shares authorized; 9,484,185 and 9,471,642
shares issued and outstanding, respectively 10 10
Additional paid-in capital 60,302 60,304
Retained earnings 674 6,471
------------------
Total shareholders' equity 60,986 66,785
------------------
Total liabilities and shareholders' equity $67,300 $72,444
==================
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,
-------------------- --------------------
1999 1998 1999 1998
-----------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 8,013 $ 16,108 $ 16,070 $ 36,589
Cost of goods sold 7,160 12,152 11,990 22,350
-----------------------------------------------
Gross profit 853 3,956 4,080 14,239
-----------------------------------------------
Operating expenses:
Selling, general, and administrative 4,170 5,491 8,579 9,821
Research and development 2,486 3,528 5,082 6,477
Non-recurring charges 162 6,527 352 6,527
-----------------------------------------------
Total operating expenses 6,818 15,546 14,013 22,825
-----------------------------------------------
Loss from operations (5,965) (11,590) (9,933) (8,586)
Other income, net 131 214 276 519
-----------------------------------------------
Loss before income taxes (5,834) (11,376) (9,657) (8,067)
Provision for income taxes 2,331 3,606 3,860 2,680
-----------------------------------------------
Net loss $ (3,503) $ (7,770) $ (5,797) $ (5,387)
===============================================
Net loss per common share:
Basic $ (.37) $ (.80) $ (.61) $ (.58)
Diluted $ (.37) $ (.80) $ (.61) $ (.58)
Weighted average common shares outstanding :
Basic 9,484 9,704 9,484 9,250
Diluted 9,484 9,704 9,484 9,250
</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,
1999 1998
---------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,797) $ (5,387)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,859 1,289
Acquisition-related charges 0 3,900
Write-off of intangibles 0 2,080
Deferred taxes (4,352) (3,155)
Changes in assets and liabilities, net of
effects of acquired business:
Accounts receivable, net 388 815
Refundable income taxes 853 0
Inventories 3,629 3,163
Other current assets 0 198
Intangible and other assets (14) 0
Trade accounts payable 903 (1,118)
Accrued compensation and commissions (235) 5
Other accrued expenses (13) 450
Income taxes payable 0 (579)
---------------------
Net cash provided by (used in) operating activities (2,779) 1,661
---------------------
Cash flows from investing activities:
Purchases of a business and technology 0 (8,835)
Purchase of property and equipment (215) (1,011)
---------------------
Net cash used in investing activities (215) (9,846)
---------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 100 73
Repurchase of common stock (160) (214)
---------------------
Net cash used in financing activities (60) (141)
---------------------
Net decrease in cash and cash equivalents (3,054) (8,326)
Cash and cash equivalents at beginning of period 18,133 27,584
---------------------
Cash and cash equivalents at end of period $ 15,079 $ 19,258
=====================
</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, 1998 as well as management's discussion and analysis of
financial condition and results of operations presented herein.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Purchased parts and completed subassemblies $ 5,948 $ 7,292
Work-in-process 3,262 4,221
Finished goods, including demonstration equipment 1,496 2,822
------- -------
Total $10,706 $14,335
======= =======
</TABLE>
3. NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding
during the period. Diluted net income (loss) per share is computed by
dividing net income (loss) 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. For periods in which the company reports a net
loss, common stock equivalents are excluded from the computations
because they are antidilutive.
4. ACQUISITION
On April 1, 1998, the company acquired substantially all of the
assets and assumed certain liabilities of the Equipment Division of
WEB Technology, Inc., a privately held company. The Equipment
Division specializes in the design, development, manufacturing and
marketing of automatic burn-in board loaders/unloaders and a variety
of other electromechanical equipment used by the semiconductor
industry to handle and test integrated circuits. The purchase price
totaled $23,567,500 including $7,835,000 of cash, 900,000 shares of
the company's common stock valued at $15,412,500 and $320,000 of
acquisition-related costs. The company's consolidated financial
statements include the results of the Equipment Division's operations
since April 1, 1998.
7
<PAGE>
4. ACQUISITION (CONTINUED)
The acquisition was accounted for as a purchase and, accordingly, the
net assets acquired were recorded at their estimated fair values at
the date of the acquisition. The estimated fair value of acquired
intangibles, as determined by third party appraisal, amounted to
$20,698,423. Of this amount, $3,900,000 was allocated to in-process
research and development, which amount was expensed in the second
quarter of 1998 as the underlying research and development projects
had not yet reached technological feasibility and did not have
alternative future uses. This amount is included in the caption
"Non-recurring charges" in the accompanying Statement of Operations.
The following table presents the consolidated results of operations
of the company for the six months ended June 30, 1998 on an unaudited
pro forma basis as if the acquisition of the Equipment Division had
taken place on January 1, 1998 (in thousands, except per share data):
Six Months Ended
----------------
Unaudited Pro Forma June 30, 1998
------------------- -------------
Net sales $ 39,583
Net loss (2,819)
Net loss per diluted share $ (.29)
------------------------------------------------------------------------
Reported net loss per diluted share before
acquisition-related charge $ (.32)
------------------------------------------------------------------------
The acquisition-related charge of $3,900,000 is not reflected in the
pro forma results above. The unaudited pro forma results of
operations are for comparative purposes only and do not necessarily
reflect the results that would have occurred had the acquisition
occurred at the beginning of the period 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,
1999, were $16.1 million, a decrease of 56 percent from
the same period of 1998. Net sales were $8.0 million for
the quarter ended June 30, 1999, compared with $16.1
million for the comparable 1998 quarter, a 50% decrease.
Equipment sales declined in all product areas as a result
of the severe semiconductor equipment industry downturn
that began in 1998. The decrease also reflects a decision
on the part of one of the company's significant test
handler customers to significantly reduce its capital
spending for the current year.
GROSS PROFIT. Gross profit was 25.4 % of net sales for the
six months ended June 30, 1999, including an inventory
charge of $2.5 million for excess and obsolete inventory,
which was primarily as a result of one of the company's
largest customers significantly reducing its 1999 capital
spending as well as an upcoming transition to new
products. Excluding the one-time charge, gross profit was
40.9 % of net sales, compared with 49 % for the same
period of 1998. Gross profit was 10.6 % of net sales for
the quarter ended June 30, 1999, including the unusual
$2.5 million charge, and 41.8 % excluding the unusual
charge. This compares with 47.5 %, excluding an unusual
$3.7 million inventory charge, for the quarter ended June
30, 1998. Excluding one-time charges, the decrease in the
gross margin in 1999 resulted primarily from underabsorbed
manufacturing overhead due to lower sales volume.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the six months ended June 30,
1999 were $8.6 million compared with $9.8 million for the
comparable period in 1998, a 12% decrease. Included in
selling, general, and administrative expense in 1999 is
approximately $960,000 of non-cash expense for the
amortization of intangible assets purchased in recent
business acquisitions. This compares with $610,000 of
non-cash expense for the amortization of intangible assets
in the same period of 1998. Selling, general and
administrative expenses for the quarter ended June 30,
1999 were $4.2 million, compared with $5.5 million for the
comparable period in 1998, a 24% decrease. The decrease in
1999 resulted primarily from aggressive cost containment
efforts, including a work-force reduction in each of the
first and second quarters. The decrease also reflects
lower commissions and warranty expense as a result of
lower net sales.
RESEARCH AND DEVELOPMENT. Research and development
expenses were $5.1 million for the six months ended June
30, 1999 compared with $6.5 million for the comparable
period in 1998, a 22% decrease. Research and development
expenses were $2.5 million for the quarter ended June 30,
1999 compared with $3.5 million for the comparable period
in 1998, a 29% decrease. Research and development spending
in 1999 included costs for the continuation of certain
development projects that were in process at the time of
the acquisition of the IC Automation equipment business of
WEB Technology, Inc. in April 1998. The decrease in 1999
resulted from aggressive cost containment efforts
implemented in each of the first and second quarters,
including a reduction in research and development
personnel. Research and development expenses were equal to
31 % of net sales for the quarter ended June 30, 1999.
9
<PAGE>
NON-RECURRING CHARGES. As a result of continued weak
business conditions in the semiconductor equipment
industry, the company has continued to reduce costs.
During the first six months of 1999, the company completed
workforce reductions resulting in severance and related
costs of $352,000 for the six months ended June 30, 1999.
Of this amount, $162,000 was incurred in the quarter ended
June 30, 1999. The company incurred non-recurring charges
of $6.5 million in the quarter and six months ended June
30, 1998. Of this amount, $3.9 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 projects 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 second quarter of 1998
were for severance costs resulting from a reduction in
work force and the write-off of certain capitalized
technology. 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 $276,000 for the six months ended June
30, 1999 which was a decline from the $519,000 for the
same period in 1998. Other income, net, amounted to
$131,000 for the quarter ended June 30, 1999, compared to
$214,000 for the same period of 1998. The decline reflects
lower interest rates in 1999 as well as a decrease in
invested funds due to the cash outlay of $7.8 million for
the acquisition of the equipment business of WEB
Technology in April 1998 and approximately $2.0 million
used to repurchase company shares at various times since
June 1998, and the effect on cash balances of recent
operating losses.
INCOME TAX EXPENSE (BENEFIT). The company recorded an
income tax benefit of approximately $3.9 million for the
six months ended June 30, 1999 compared with income tax
benefit of approximately $2.7 for the comparable period in
1998. The income tax benefit in 1999 results from the
operating loss incurred for the period and generally
represents refundable income taxes that can be recovered
through net operating loss carrybacks to prior years and
net operating loss carryforwards which can be used to
reduce taxable income in future years.
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, 1999 or December 31,
1998.
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, 1998.
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 third parties
(such as customers, financial institutions, and 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 adopted a formal plan to evaluate its
state of readiness for the Year 2000 and to address any
deficiencies. The plan encompasses 1) information
technology (IT) systems 2) non-IT systems 3) company
products and 4) systems of third parties, including key
suppliers.
INFORMATION TECHNOLOGY: The company's principal computer
systems that it uses for financial accounting,
manufacturing, inventory control, purchasing, sales
administration, engineering, and other business functions
have been determined to be substantially Year 2000
compliant. The company intends to monitor such principal
computer systems throughout the balance of 1999 for any
Year 2000 issues.
NON-IT SYSTEMS: The company has completed an evaluation of
its telephone, manufacturing equipment, facility heating
and cooling, and other non-IT systems for Year 2000
readiness. These systems have been determined to be
substantially Year 2000 compliant.
COMPANY PRODUCTS: The company has completed a series of
tests, utilizing industry standards, of the electronics
systems of its products, including certain product lines
no longer being manufactured but remaining in use at
customer sites. Certain products that are no longer being
manufactured required a minor software adjustment to
address Year 2000 issues. A software upgrade has been
developed at a cost of approximately $4,000 and has been
supplied to affected customers.
THIRD PARTIES: The company has distributed a survey to its
key vendors and suppliers to assess their plans for
bringing any non-compliant systems into Year 2000
compliance. This study focused on suppliers of materials
and services who are either the sole source or one of a
limited number of potential suppliers. More than 250
suppliers have been surveyed in connection with this
study, which was substantially completed at the end of the
second quarter. The company requires any supplier found to
have non-compliant systems to demonstrate compliance
during the third and fourth quarters of 1999. The company
has determined that its key distributors are Year 2000
compliant.
11
<PAGE>
Substantially all of the effort to evaluate the company's
Year 2000 readiness has been made using internal
personnel, and therefore incremental expenses have been
less than $50,000, excluding the time of the company's
personnel. Any employee costs associated with the company
2000 readiness program have been expensed as incurred. The
company has achieved substantial compliance on Year 2000
issues on its principal computer systems in the course of
normally planned hardware and software upgrades, and thus
has not incurred any significant expense to date
specifically to address Year 2000 issues. The company has
not incurred any material expenses in connection with its
evaluation of non-IT systems, and does not expect material
expenses in the future. The company has not incurred
material expenses to date in connection with the
evaluation of its products and the status of its vendors
and suppliers with respect to Year 2000 issues, and does
not anticipate material expenses in the future.
The only formal contingency plan adopted by the company
concerns certain purchased parts and materials for its
products that, should there be an interruption of
deliveries from vendors, could cause a disruption of the
company's product build schedules. As a result, the
materials planning group of the company continues to
monitor its supplier base and qualify additional sources
of supply for purchased parts and materials that are
either critical or available from a limited number of
suppliers. The company will consider implementing or
adopting additional contingency plans as it continues to
monitor its Year 2000 readiness, and as new information
becomes available. The company believes that the most
reasonably likely worst case Year 2000 scenario would
result from a disruption of prompt deliveries of purchased
materials and subassemblies used to manufacture the
company's products. This concern is being addressed by the
materials contingency plan mentioned above. The company
will determine the need for such additional plans as part
of its ongoing assessment of vendors and suppliers,
products, and internal systems.
Due to the complexity and pervasiveness of the Year 2000
issue, and in particular the uncertainty regarding the
Year 2000 compliance programs of third parties, no
assurances can be given that there will not be material
adverse effects on the business or its results from
operations.
12
<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 18, 1999 the company held its Annual Shareholder
Meeting at which the following matters were voted upon.
1. The shareholders elected the following individuals to
serve as members of the Board of Directors:
Votes for Votes Withheld
--------- --------------
Joseph C. Levesque 8,334,863 66,640
Darnell L. Boehm 8,331,213 70,290
Terrence W. Glarner 8,334,763 66,740
Andrew J. Greenshields 8,334,763 66,740
Douglas L. Hemer 8,331,213 70,290
Terrance J. Nagel 8,334,863 66,640
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exh 27 - Financial Data Schedule.
(b) Reports on Form 8-K
None.
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 6, 1999 By: /s/ Joseph C. Levesque
-----------------------
Joseph C. Levesque
Chairman of the Board, President, and
Chief Executive Officer
Date: August 6, 1999 By: /s/ Darnell L. Boehm
---------------------
Darnell L. Boehm
Chief Financial Officer, Secretary, and
Director
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,079
<SECURITIES> 0
<RECEIVABLES> 3,803
<ALLOWANCES> 0
<INVENTORY> 10,706
<CURRENT-ASSETS> 37,223
<PP&E> 7,882
<DEPRECIATION> 4,803
<TOTAL-ASSETS> 67,300
<CURRENT-LIABILITIES> 6,314
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 60,976
<TOTAL-LIABILITY-AND-EQUITY> 67,300
<SALES> 16,070
<TOTAL-REVENUES> 16,070
<CGS> 11,990
<TOTAL-COSTS> 4,080
<OTHER-EXPENSES> 5,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (9,657)
<INCOME-TAX> 3,860
<INCOME-CONTINUING> (5,797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,797)
<EPS-BASIC> (.61)
<EPS-DILUTED> (.61)
</TABLE>
