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, 2000
Commission File No. 000-22166
AETRIUM INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1439182
(State or other jurisdiction ( I.R.S. Employer Identification No.)
of incorporation or
organization)
2350 HELEN STREET, NO. ST. PAUL, MINNESOTA 55109
(Address of principal executive offices) (Zip Code)
(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, outstanding as 9,471,910
of May 4, 2000 ---------
<PAGE>
AETRIUM INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
<S> <C>
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and
December 31, 1999 3-4
Consolidated Statements of Operations (unaudited) for the three
months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows (unaudited) for the three
months ended March 31, 2000 and 1999 6
Notes to unaudited consolidated financial statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10-12
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
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------- --------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $10,677 $13,184
Accounts receivable, net 8,660 8,381
Inventories 10,068 9,677
Deferred taxes 2,357 2,357
Other current assets 298 233
-------------------- --------------------
Total current assets 32,060 33,832
-------------------- --------------------
Property and equipment:
Furniture and fixtures 1,636 1,776
Equipment 4,601 5,513
-------------------- --------------------
6,237 7,289
Less accumulated depreciation and
amortization (3,953) (4,456)
-------------------- --------------------
Property and equipment, net 2,284 2,833
-------------------- --------------------
Noncurrent deferred taxes 14,343 12,445
Intangible and other assets, net 13,624 14,494
-------------------- --------------------
Total assets $62,311 $63,604
==================== ====================
</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,
2000 1999
-------------------- --------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current liabilities:
Trade accounts payable $2,766 $1,917
Accrued compensation 1,127 1,567
Other accrued liabilities 3,546 2,690
-------------------- --------------------
Total current liabilities 7,439 6,174
-------------------- --------------------
Shareholders' equity:
Common stock, $.001 par value; 30,000,000
shares authorized; 9,470,452 and 9,436,035
shares issued and outstanding, respectively 9 9
Additional paid-in capital 60,224 59,963
Accumulated deficit (5,361) (2,542)
-------------------- --------------------
Total shareholders' equity 54,872 57,430
-------------------- --------------------
Total liabilities and shareholders' equity $62,311 $63,604
==================== ====================
</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,
-----------------------------------------
2000 1999
---------------------- ------------------
(in thousands, except per share data)
<S> <C> <C>
Net sales $10,611 $8,057
Cost of goods sold 5,766 4,830
---------------------- ------------------
Gross profit 4,845 3,227
---------------------- ------------------
Operating expenses:
Selling, general, and administrative 4,294 4,409
Research and development 2,492 2,596
Special charges 2,921 190
---------------------- ------------------
Total operating expenses 9,707 7,195
---------------------- ------------------
Loss from operations (4,862) (3,968)
Other income, net 163 145
---------------------- ------------------
Loss before income taxes (4,699) (3,823)
Income tax benefit 1,880 1,529
---------------------- ------------------
Net loss $(2,819) $(2,294)
====================== ==================
Net loss per common share:
Basic $(.30) $(.24)
Diluted $(.30) $(.24)
Weighted average common
shares outstanding :
Basic 9,445 9,484
Diluted 9,445 9,484
</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,
----------------------------------------
2000 1999
------------------- --------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,819) $(2,294)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 690 959
Writedown of intangibles 408 0
Loss on disposal of equipment and leaseholds 405 0
Deferred taxes (1,888) (1,592)
Changes in assets and liabilities:
Accounts receivable, net (279) 804
Refundable income taxes 0 353
Inventories (391) 353
Other current assets (65) 45
Intangible and other assets 48 58
Trade accounts payable 849 1,278
Accrued compensation (440) (452)
Other accrued liabilities 856 (712)
------------------- ---------------------
Net cash used in operating activities (2,626) (1,200)
------------------- ---------------------
Cash flows from investing activities:
Purchase of property and equipment (131) (148)
------------------- ---------------------
Net cash used in investing activities (131) (148)
------------------- ---------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 263 95
Repurchase of common stock (13) (160)
------------------- ---------------------
Net cash provided by (used in) financing activities 250 (65)
------------------- ---------------------
Net decrease in cash and cash equivalents (2,507) (1,413)
Cash and cash equivalents at beginning of period 13,184 18,133
------------------- ---------------------
Cash and cash equivalents at end of period $10,677 $16,720
=================== =====================
</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, 1999.
2. 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.
3. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes the SEC's views in applying
generally accepted accounting principles to selected revenue recognition
issues, including equipment sales contracts that contain customer
acceptance provisions. A substantial portion of the company's sales are
subject to customer acceptance provisions. Implementation of the guidance
in SAB 101 was initially to be required in the company's fiscal quarter
ended March 31, 2000. However, on March 24, 2000, the SEC amended SAB 101
to delay its implementation for three months in order to allow companies
more time to study and evaluate the guidance. Management is currently
evaluating the impact SAB 101 will have on the company's current accounting
policies. If management determines that the implementation of SAB 101
requires a change in the company's revenue recognition policy, the company
would likely record a charge for a cumulative effect of a change in
accounting principle as of January 1, 2000, in accordance with SAB 101's
implementation guidance.
7
<PAGE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------- -------
(in thousands)
<S> <C> <C>
Purchased parts and completed subassemblies $ 5,928 $5,182
Work-in-process 2,879 3,040
Finished goods, including demonstration equipment 1,261 1,455
------- ------
Total $10,068 $9,677
======= ======
</TABLE>
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------- -------
(in thousands)
<S> <C> <C>
Accrued commissions $ 447 $ 362
Accrued warranty 748 821
Customer deposits 347 693
Accrued restructuring costs 1,230 0
Other 774 814
------- ------
Total $ 3,546 $2,690
======= ======
</TABLE>
6. SPECIAL CHARGES AND RESTRUCTURING ACTIVITIES
During the quarter ended March 31, 2000, the company restructured its
operations to improve manufacturing efficiencies and reduce operating
expenses. In January 2000, the company publicly announced and initiated a
restructuring plan that included the following:
1) The company closed its Lawrence, Mass. facility. The Thermal Forcing
System product line and the development activities associated with the
company's proprietary conductive thermal technologies were transferred
to the company's North St. Paul facility. The company sold certain
assets associated with the Lawrence operation, including its
environmental test equipment product line. Consideration received for
these assets included the assumption of certain future obligations
related to the sold product line and royalties on future sales.
Lawrence operations ceased in late March 2000 and the facility will be
completed vacated by the end of May 2000.
2) The company's two operations in Texas were consolidated.
Strategically significant manufacturing and development activities
being conducted at the Grand Prairie facility were transferred to the
company's Dallas facility where operations associated with its WEB
Technology product line are located. The transfer was completed in
mid-March 2000 and the Grand Prairie facility was closed in late March
2000.
In conjunction with this restructuring plan, the company recorded special
charges of $2.9 million, which included $1.4 million for severance and
related benefits, $0.3 million for facility exit costs, $0.8 million for
losses on abandoned leaseholds and the sale of assets at the Lawrence
facility, and $0.4 million for the write-down of impaired intangibles
related to the discontinued operations. The severance and associated
benefits are related to the elimination of 85 positions in operations,
engineering, sales and administration in Massachusetts and Texas. The
affected employees were
8
<PAGE>
identified and notified of the terminations and related severance benefits
prior to March 31, 2000. The facility exit costs represent primarily
building rent and maintenance costs for the Grand Prairie facility for nine
months, the estimated period of time needed to sublease the vacated space.
The abandoned leaseholds are related to the vacated facilities in
Massachusetts and Texas. The loss on the sale of assets at the Lawrence
facility included primarily equipment and inventory sold for less than
carrying value. The write-down of intangibles is primarily related to
patents associated with the environmental test equipment product line that
was sold. These patents were written down to estimated fair value based on
the present value of estimated future royalty payments.
The sale of the environmental test equipment product line is not expected to
have a long-term, material adverse impact on revenues and margins. Revenues
for this product line accounted for less than 5% of the company's fiscal
1999 revenue of $37.2 million and have historically generated lower gross
margins relative to the company's other higher volume products. As a result
of these restructuring activities, the company has eliminated approximately
$1.5 million per quarter in costs associated with personnel, facilities,
depreciation, amortization, and other operating expenses. The company
estimates that the quarterly cost savings will lower cost of sales by $0.5
million and operating expenses by $1.0 million beginning in the quarter
ended June 30, 2000.
Following is a table that summarizes the severance and facility exit
restructuring costs which will require future cash expenditures and the
associated accrual activity for the three months ended March 31, 2000 (in
thousands):
<TABLE>
<CAPTION>
Severance Facility
and Benefits Exit Costs Total
------------ ---------- -----
<S> <C> <C> <C> <C> <C>
Accrual Balance, December 31, 1999 $ 0 $ 0 $ 0
Restructuring Charge 1,375 338 1,713
Cash Payments (427) (56) (483)
------- ----- -------
Accrual Balance, March 31, 2000 $ 948 $ 282 $ 1,230
======= ===== =======
</TABLE>
The company recorded a special charge of $0.2 million during the quarter ended
March 31, 1999 related to a workforce reduction. This reduction included the
termination of 32 employees resulting in an estimated annual cost savings of
$1.2 million. The affected employees were identified, notified and terminated
prior to March 31, 1999.
9
<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, 2000, were
$10.6 million, an increase of 32% from the same period in 1999.
Test handler sales increased significantly, except for products
directed at the memory segment of the market, due to an overall
improvement in industry conditions and the introduction of new
products. Test handler sales to the memory segment of the
market declined from the same period in 1999 due to excess
capacity at customer sites. Reliability test product sales
increased significantly from the same period a year ago due to
continued market acceptance of the Model 1164 test system.
Sales of IC Automation products were relatively flat. Sales of
environmental test equipment declined as a result of the
company's decision to sell this product line.
GROSS PROFIT. Gross profit was 45.7% of net sales for the
quarter ended March 31, 2000, compared with 40.1 % for the same
period in 1999. Gross margins for test handlers increased
primarily due to higher sales volume. Gross margins for IC
Automation and environmental test equipment declined somewhat
compared with the prior year due primarily to product mix and
lower sales volumes, respectively.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the quarter ended March 31, 2000
were $4.3 million compared with $4.4 million for the comparable
period in 1999. Non-cash amortization expense related to
intangible assets from business acquisitions amounted to
approximately $414,000 for the quarter ended March 31, 2000.
Certain general and administrative expenses decreased from the
same period in 1999 due to the company's cost reduction
measures implemented during 1999. These expense reductions were
offset by higher commission expense due to higher sales over
the same period in 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses
amounted to $2.5 million for the quarter ended March 31, 2000
compared to $2.6 million for the comparable period in 1999. As
a percentage of net sales, research and development expenses
represented 24% of net sales for the quarter ended March 31,
2000 compared with 32% for the same period in 1999.
10
<PAGE>
SPECIAL CHARGES. During the quarter ended March 31, 2000, the
company restructured its operations to improve manufacturing
efficiencies and reduce operating expenses. The restructuring
was completed as follows:
1) The company closed its Lawrence, Mass. facility. The Thermal
Forcing System product line and the development activities
associated with the company's proprietary conductive thermal
technologies were transferred to the company's North St. Paul
facility. The company sold certain assets associated with the
Lawrence operation, including its environmental test equipment
product line. The environmental product line accounted for less
than 5% of the company's fiscal 1999 revenue of $37.2 million.
Consideration received for these assets was the assumption of
certain future obligations related to the assets and royalties
on future sales. Lawrence operations ceased in late March 2000
and the facility will be vacated by the end of May 2000.
2) The company's two operations in Texas were consolidated.
Strategically significant manufacturing and development
activities being conducted at the Grand Prairie facility were
transferred to the company's Dallas facility where operations
associated with its WEB Technology product line are located.
The transfer was completed in mid-March 2000 and the Grand
Prairie facility was closed in late March 2000.
In conjunction with this activity the company incurred special
charges of $2.9 million. These amounts include restructuring
charges of $1.7 million to cover severance and facility exit
costs, and $1.2 million to cover losses incurred on the sale of
assets and asset write-downs. Approximately $0.5 million of the
$1.7 million restructuring costs had been paid as of March 31,
2000. The $1.2 million to cover losses incurred on the sale of
assets and asset write-downs are non-cash charges that do not
represent a use of cash.
As a result of these restructuring activities, the company has
eliminated $1.5 million of manufacturing overhead and operating
expenses per quarter. The company has reduced its employee
count from 310 on December 31, 1999 to approximately 235 as a
result of these activities. The company eliminated positions in
operations, engineering, sales and administration to accomplish
the restructuring.
OTHER INCOME, NET. Other income, net, which consists primarily
of interest income from the investment of excess funds,
amounted to $163,000 for the quarter ended March 31, 2000
compared with $145,000 for the same period in 1999. The
increase reflects higher interest rates in the quarter ended
March 31, 2000 compared with the same period in 1999.
INCOME TAXES. The company recorded an income tax benefit of
approximately $1.9 million for the quarter ended March 31, 2000
compared with income tax benefit of $1.5 million for the
comparable period in 1999. As of March 31, 2000 the company had
$16.7 million of net deferred tax assets. The future
realization of these assets is dependent on a return to
profitable operations. Management continues to believe it is
more likely than not that these deferred tax assets will be
realized in future periods.
11
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the company had cash and cash equivalents
amounting to $10.7 million. 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, 2000 or December 31, 1999.
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 the
foreseeable future. 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, 1999.
YEAR 2000 ISSUES:
Prior to January 1, 2000, the company's internal computer
systems had been upgraded and verified as necessary to ensure
that they would handle dates and process information accurately
in the new millenium. After the millenium change, we did not
experience any significant problems as a result of year 2000
issues in our financial reporting, resource planning, or other
internal computing systems. We also did not experience any
significant problems as a result of year 2000 issues with any
of our vendors. In addition, none of our customers advised us
of any year 2000 failures with any product or software we
installed. Nevertheless, if unanticipated or unremediated year
2000 problems arise, these failures or problems could disrupt
our normal business activities and operations. If a year 2000
problem occurs with a supplier or customer, we may have
difficulty in determining the cause of the problem. If any
products or software sold by us to our customers fails, we
could be liable to our customers for damages and costs to the
extent that our vendors do not cover these liabilities.
Due to the complexity and pervasiveness of the Year 2000 issue
and, in particular, the uncertainty regarding potential Year
2000 issues that may arise with 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
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.
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: May 5, 2000 By: /s/ Joseph C. Levesque
-----------------------
Joseph C. Levesque
Chairman of the Board, President,
and Chief Executive Officer
Date: May 5, 2000 By: /s/ Paul H. Laufer
-------------------
Paul H. Laufer
Vice President of Finance and
Corporate Development
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,677
<SECURITIES> 0
<RECEIVABLES> 8,660
<ALLOWANCES> 0
<INVENTORY> 10,068
<CURRENT-ASSETS> 32,060
<PP&E> 6,237
<DEPRECIATION> 3,953
<TOTAL-ASSETS> 62,311
<CURRENT-LIABILITIES> 7,439
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 54,863
<TOTAL-LIABILITY-AND-EQUITY> 62,311
<SALES> 10,611
<TOTAL-REVENUES> 10,611
<CGS> 5,766
<TOTAL-COSTS> 4,845
<OTHER-EXPENSES> 2,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,699)
<INCOME-TAX> (1,880)
<INCOME-CONTINUING> (2,819)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,819)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
