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 March 31, 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, 9,483,393
outstanding as of May 7, 1999 ---------
<PAGE>
AETRIUM INCORPORATED
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998 3-4
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 1999 and 1998 5
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 1999 and 1998 6
Notes to unaudited consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-----------------------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,720 $ 18,133
Accounts receivable, net 6,387 7,191
Refundable income taxes 2,829 3,182
Inventories 13,982 14,335
Deferred taxes 1,946 1,946
Other current assets 315 360
-----------------------------------
Total current assets 42,179 45,147
-----------------------------------
Property and equipment:
Furniture and fixtures 1,957 1,949
Equipment 5,858 5,718
-----------------------------------
7,815 7,667
Less accumulated depreciation and
amortization (4,362) (3,903)
-----------------------------------
Property and equipment, net 3,453 3,764
-----------------------------------
Noncurrent refundable income taxes 1,592 0
Noncurrent deferred taxes 6,038 6,038
Intangible and other assets, net 16,995 17,495
-----------------------------------
Total assets $ 70,257 $ 72,444
===================================
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 1,999 $ 721
Accrued compensation and commissions 1,424 1,933
Other accrued expenses 2,350 3,005
--------------------------------
Total current liabilities 5,773 5,659
--------------------------------
Shareholders' equity:
Common stock, $.001 par value; 30,000,000
shares authorized; 9,483,393 and 9,471,642
shares issued and outstanding, respectively 10 10
Additional paid-in capital 60,297 60,304
Retained earnings 4,177 6,471
--------------------------------
Total shareholders' equity 64,484 66,785
--------------------------------
Total liabilities and shareholders' equity $ 70,257 $ 72,444
================================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
----------------------------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $ 8,057 $ 20,481
Cost of goods sold 4,830 10,198
----------------------------------
Gross profit 3,227 10,283
----------------------------------
Operating expenses:
Selling, general, and administrative 4,409 4,330
Research and development 2,596 2,949
Restructuring expenses 190 0
----------------------------------
Total operating expenses 7,195 7,279
----------------------------------
Income (loss) from operations (3,968) 3,004
Other income, net 145 305
----------------------------------
Income (loss) before income taxes (3,823) 3,309
Provision for income taxes 1,529 (926)
----------------------------------
Net income (loss) $ (2,294) $ 2,383
==================================
Net income (loss) per common share:
Basic $ (.24) $ .27
Diluted $ (.24) $ .27
Weighted average common
shares outstanding:
Basic 9,484 8,791
Diluted 9,484 8,955
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
--------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,294) $ 2,383
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 959 406
Changes in assets and liabilities, net of
effects of acquired businesses:
Accounts receivable, net 804 (3,107)
Refundable income taxes 353 0
Inventories 353 (304)
Other current assets 45 151
Noncurrent refundable income taxes (1,592) 0
Intangible and other assets 58 0
Trade accounts payable 1,278 1,173
Accrued compensation and commissions (509) 67
Other accrued expenses (655) (89)
Income taxes payable 0 268
--------------------------------
Net cash provided by (used in) operating activities (1,200) 948
--------------------------------
Cash flows from investing activities:
Purchase of technology 0 (500)
Purchase of property and equipment (148) (667)
--------------------------------
Net cash used in investing activities (148) (1,167)
--------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 95 21
Repurchase of common stock (160) (145)
--------------------------------
Net cash used in financing activities (65) (124)
--------------------------------
Net decrease in cash and cash equivalents (1,413) (343)
Cash and cash equivalents at beginning of period 18,133 27,584
--------------------------------
Cash and cash equivalents at end of period $ 16,720 $ 27,241
================================
</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.
2. INVENTORIES
Inventories consist of the following:
March 31, December 31,
1999 1998
-------- --------
(in thousands)
Purchased parts and completed subassemblies $ 8,089 $ 7,292
Work-in-process 3,650 4,221
Finished goods, including demonstration equipment 2,243 2,822
-------- --------
Total $ 13,982 $ 14,335
======== ========
3. REFUNDABLE INCOME TAXES
During the quarter ended March 31, 1999 the company received income tax
refunds of approximately $353,000. The company anticipates that it will
receive approximately $2.8 million in additional income tax refunds
generated from net operating loss carrybacks after it files its income tax
returns for the year ended December 31, 1998. Such refunds should be
received in the second half of 1999. In addition, approximately $1.6
million in estimated refundable income taxes related to the first quarter
operating loss has been reflected in the balance sheet as a long-term asset
as of March 31, 1999 as receipt of the funds is anticipated in the next
fiscal year.
4. 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.
7
<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 quarter ended March 31, 1999, were $8.1
million, a decrease of 61% from the same period in 1998. Equipment
sales declined in all product areas as a result of the severe
semiconductor equipment industry downturn that began in 1998. Test
handler sales declined most significantly, due to excess capacity at
many customer sites. Sales of IC Automation products declined due to
excess inventories at some OEM customers and the decision of one
significant OEM customer to exit the business in mid-1998. These
factors were offset somewhat by the inclusion of the sales of the IC
Automation product line acquired from WEB Technology, Inc. in April
1998. Sales of environmental and reliability test equipment, change
kits and spare parts also declined due to weak industry conditions.
GROSS PROFIT. Gross profit was 40.1% of net sales for the quarter
ended March 31, 1999, compared with 50.2 % for the same period in
1998. Gross margins for test handler and certain IC Automation
products declined primarily due to lower sales volume. Gross margins
for environmental test equipment were relatively flat compared with
the prior year. These factors were offset somewhat by the inclusion
of relatively high-margin sales of the IC Automation product line
acquired from WEB Technology, Inc.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the quarter ended March 31, 1999 were
$4.4 million compared with $4.3 million for the comparable period in
1998. Results in 1999 include operating expenses and amortization
expense of intangibles related to the equipment business acquired
from WEB Technology, Inc. in April 1998. Non-cash amortization
expense related to intangible assets from business acquisitions
amounted to approximately $490,000 for the quarter ended March 31,
1999. These expense increases were offset by lower commissions
expense based on reduced sales as well as various cost reduction
measures implemented during 1998, including workforce reductions.
RESEARCH AND DEVELOPMENT. Research and development expenses amounted
to $2.6 million for the quarter ended March 31, 1999 or 12% less
than the $2.9 million for the comparable period in 1998. As a
percentage of net sales, research and development expenses
represented 32.2% of net sales for the quarter ended March 31, 1999
compared with 14.4% for the same period in 1998. Research and
development spending in 1999 included increased costs related to the
continuation of certain development projects which were in-process
at the time of the acquisition of the IC Automation equipment
business of WEB Technology, Inc. in April 1998. These increases were
offset by cost reduction actions implemented in test handler
operations during 1998, including a reduction in engineering
personnel at certain locations.
8
<PAGE>
RESTRUCTURING EXPENSES. As a result of continued weak business
conditions in the semiconductor equipment industry, the company has
continued to implement various actions to reduce costs and improve
operating efficiencies. During March 1999, the company completed a
workforce reduction resulting in severance and related costs of
$190,000 for the quarter ended March 31, 1999.
OTHER INCOME, NET. Other income, net, which consists primarily of
interest income from the investment of excess funds, amounted to
$145,000 for the quarter ended March 31, 1999 compared with $305,000
for the same period in 1998. The decline reflects lower interest
rates in 1999 as well as a decrease in invested funds due primarily
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.
INCOME TAXES. The company recorded an income tax benefit of
approximately $1.5 million for the quarter ended March 31, 1999
compared with income tax expense of approximately $926,000 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 which can be recovered through
net operating loss carrybacks to prior years.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the company had cash and cash equivalents
amounting to $16.7 million. The company anticipates that it will
receive income tax refunds of approximately $2.8 million during the
second half of 1999. The company also 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 March 31,
1999 or December 31, 1998.
The company believes its current cash balances 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, risks and unanticipated costs
associated with integrating acquired companies or product lines, 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.
9
<PAGE>
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: By the end of the second quarter of 1999, the
company expects to have completed an evaluation of its telephone,
manufacturing equipment, facility heating and cooling, and other
non-IT systems for Year 2000 readiness, and promptly take remedial
action as necessary.
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 will be
supplied to affected customers prior to June 30, 1999.
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 is
focused on suppliers of materials and services who are either the
sole source or one of a limited number of potential suppliers. To
date, more than 250 suppliers have been surveyed in connection with
this study, which is expected to be completed by the end of the
second quarter of 1999. The company will require 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.
Substantially all of the effort to evaluate the company's Year 2000
readiness has been made using internal personnel, and therefore
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, although the evaluation of
non-IT systems is not yet complete. 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
10
<PAGE>
the future, although the evaluation of key vendors' and their Year
2000 readiness is not yet complete.
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. The company,
however, will consider implementing or adopting additional
contingency plans as it continues to monitor its Year 2000
readiness, as new information becomes available. At this stage of
the process, the company has identified 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. 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, and the company continues to monitor the status of
its supplier base to qualify additional sources of supply for key
materials and purchased parts. 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.
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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exh 27 - Financial Data Schedule.
(b) Reports on Form 8-K
None.
12
<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: May 7, 1999 By: /s/ Joseph C. Levesque
---------------------------------------
Joseph C. Levesque
Chairman of the Board, President, and
Chief Executive Officer
Date: May 7, 1999 By: /s/ Darnell L. Boehm
---------------------------------------
Darnell L. Boehm
Chief Financial Officer, Secretary, and
Director
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 16,720
<SECURITIES> 0
<RECEIVABLES> 6,387
<ALLOWANCES> 0
<INVENTORY> 13,982
<CURRENT-ASSETS> 42,179
<PP&E> 7,815
<DEPRECIATION> 4,362
<TOTAL-ASSETS> 70,257
<CURRENT-LIABILITIES> 5,773
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 64,474
<TOTAL-LIABILITY-AND-EQUITY> 70,257
<SALES> 8,057
<TOTAL-REVENUES> 8,057
<CGS> 4,830
<TOTAL-COSTS> 3,227
<OTHER-EXPENSES> 2,956
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,823)
<INCOME-TAX> (1,529)
<INCOME-CONTINUING> (2,294)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,294)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
</TABLE>
