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 September 30, 2000
Commission File No. 000-22166
AETRIUM INCORPORATED
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction
of incorporation or 41-1439182
organization) (I.R.S. Employer Identification No.)
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, 9,474,566
outstanding as of November 4, 2000 ---------
<PAGE>
AETRIUM INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and December 31, 1999 3-4
Consolidated Statements of Operations (unaudited) for the nine
months ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 2000 and 1999 6
Notes to unaudited consolidated financial statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------------------------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,847 $ 13,184
Accounts receivable, net 11,688 8,381
Inventories 10,724 9,677
Deferred taxes 2,357 2,357
Other current assets 77 233
-------------------------------------
Total current assets 32,693 33,832
-------------------------------------
Property and equipment:
Furniture and fixtures 1,281 1,776
Equipment 4,320 5,513
-------------------------------------
5,601 7,289
Less accumulated depreciation and
amortization (3,584) (4,456)
-------------------------------------
Property and equipment, net 2,017 2,833
-------------------------------------
Noncurrent deferred taxes 14,318 12,445
Intangible and other assets, net 12,794 14,494
-------------------------------------
Total assets $ 61,822 $ 63,604
=====================================
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-----------------------------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 3,331 $ 1,917
Accrued compensation 1,444 1,567
Other accrued liabilities 2,946 2,690
-----------------------------------
Total current liabilities 7,721 6,174
-----------------------------------
Shareholders' equity:
Common stock, $.001 par value; 30,000,000
shares authorized; 9,474,566 and 9,436,035
shares issued and outstanding, respectively 9 9
Additional paid-in capital 60,247 59,963
Accumulated deficit (6,155) (2,542)
-----------------------------------
Total shareholders' equity 54,101 57,430
-----------------------------------
Total liabilities and shareholders' equity $ 61,822 $ 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 September 30, Nine months ended September 30,
---------------------------------- ---------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales $ 12,781 $ 10,106 $ 34,247 $ 26,176
Cost of goods sold 5,601 5,753 17,194 17,743
-----------------------------------------------------------------------
Gross profit 7,180 4,353 17,053 8,433
-----------------------------------------------------------------------
Operating expenses:
Selling, general, and administrative 4,382 4,768 12,917 13,347
Research and development 2,183 2,265 6,563 7,347
Special charges (credits) (436) 0 3,405 352
-----------------------------------------------------------------------
Total operating expenses 6,129 7,033 22,885 21,046
-----------------------------------------------------------------------
Income (loss) from operations 1,051 (2,680) (5,832) (12,613)
Other income, net 66 143 316 419
-----------------------------------------------------------------------
Income (loss) before income taxes 1,117 (2,537) (5,516) (12,194)
Provision for income taxes (402) 1,015 1,903 4,875
-----------------------------------------------------------------------
Net income (loss) $ 715 $ (1,522) $ (3,613) $ (7,319)
=======================================================================
Net income (loss) per common share:
Basic $ .08 $ (.16) $ (.38) $ (.77)
Diluted $ .08 $ (.16) $ (.38) $ (.77)
Weighted average common
shares outstanding :
Basic 9,475 9,475 9,464 9,481
Diluted 9,510 9,475 9,464 9,481
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
AETRIUM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------------
2000 1999
------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,613) $ (7,319)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,976 2,684
Write-off of intangibles 179 0
Loss on disposal of equipment and leaseholds 709 0
Deferred taxes (1,863) (5,692)
Changes in assets and liabilities:
Accounts receivable, net (3,307) (603)
Refundable income taxes 0 3,182
Inventories (1,047) 3,778
Other current assets 156 77
Intangible and other assets 79 47
Trade accounts payable 1,414 1,891
Accrued compensation (123) (228)
Other accrued liabilities 256 (178)
------------------------------------
Net cash used in operating activities (5,184) (2,361)
------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (426) (290)
------------------------------------
Net cash used in investing activities (426) (290)
------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 286 101
Repurchase of common stock (13) (500)
------------------------------------
Net cash provided by (used in) financing activities 273 (399)
------------------------------------
Net decrease in cash and cash equivalents (5,337) (3,050)
Cash and cash equivalents at beginning of period 13,184 18,133
------------------------------------
Cash and cash equivalents at end of period $ 7,847 $ 15,083
====================================
</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, in March 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. In
June 2000, the SEC amended SAB 101 a second time to delay
implementation for calendar year reporting companies to the quarter
ending December 31, 2000. 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 in accordance with SAB 101's implementation
guidance.
7
<PAGE>
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------- ------
(in thousands)
<S> <C> <C>
Purchased parts and completed subassemblies $ 5,510 $5,182
Work-in-process 2,962 3,040
Finished goods, including demonstration equipment 2,252 1,455
------- ------
Total $10,724 $9,677
======= ======
</TABLE>
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------ ------
(in thousands)
<S> <C> <C>
Accrued commissions $ 944 $ 362
Accrued warranty 506 821
Customer deposits 243 693
Accrued restructuring costs 558 0
Other 695 814
------ ------
Total $2,946 $2,690
====== ======
</TABLE>
6. SPECIAL CHARGES AND CREDITS
THIRD QUARTER 2000
The company recorded a special credit of $436,000 in the quarter ended
September 30, 2000. The credit consisted primarily of $367,000 of
proceeds from the sale of future royalty rights during the quarter. The
royalty rights had been obtained in connection with the sale of the
company's environmental test equipment product line which was sold in
the first quarter of 2000 when the company discontinued its operations
in Lawrence, MA. The credit recorded in the quarter ended September 30,
2000 is summarized below ($ in thousands):
Proceeds from sale of royalty rights $ (367)
Other, net (69)
-----
Total special credit, net $ (436)
=======
The special items recorded in the quarter ended September 30, 2000 are
not expected to have a significant impact on future operating results.
8
<PAGE>
SECOND QUARTER 2000
In the quarter ended June 30, 2000 the company recorded an inventory
write-down of $450,000 in cost of goods sold related to its decision to
discontinue marketing and manufacturing its oldest DRAM test handler,
the model M3200. As a result of this decision, all inventories related
to the production of the M3200 were written down to scrap value and are
expected to be disposed of by December 31, 2000.
On June 29, 2000, the company announced that it would transfer
manufacturing and certain administrative functions at its San Diego, CA
facility to its North St. Paul, MN operation, including the
manufacturing of its DTX series of test handlers. The restructuring
plan included a workforce reduction, subleasing the company's 45,000
square foot building, and transferring the remaining marketing and
engineering personnel to a smaller facility in the San Diego area. The
special charges recorded in the quarter ended June 30, 2000 are
summarized below ($ in thousands):
Restructuring charges:
Severance and related benefits costs $323
Facility exit costs 378
---
Total restructuring charges 701
Write-down leaseholds 70
Other restructuring expenses incurred 149
---
Total special charges $920
====
The severance and associated benefits are related to the elimination of
20 positions in San Diego in manufacturing, engineering, accounting and
administration. The affected employees were identified and notified of
the terminations and related severance benefits prior to June 30, 2000.
The facility exit costs represented primarily building rent and related
expenses for unutilized space until the 45,000 square foot building
could be sublet.
As a result of transferring these activities from San Diego to North
St. Paul, the company reduced quarterly operating costs by
approximately $350,000 consisting primarily of compensation and
building-related expenses. The company plans to hire additional
personnel at its North St. Paul facility to support the DTX test
handler product line. Consequently, these additional costs will offset
the San Diego savings to some extent in the future. The transfer of
manufacturing and certain administrative functions from San Diego to
North St. Paul was substantially completed in October 2000.
Special charges recorded in the second quarter also included $149,000
of costs incurred related to transferring certain activities from the
company's discontinued Lawrence, MA operation to North St. Paul, MN.
These costs consisted primarily of relocation expenses. Lawrence
operations ceased in the first quarter and the transfer of certain
assets and employees from Lawrence to North St. Paul was completed in
the second quarter.
FIRST QUARTER 2000
During the quarter ended March 31, 2000, the company announced plans to
restructure certain operations to improve manufacturing efficiencies
and reduce operating expenses. The restructuring activities included
the following:
1) The company closed its Lawrence, MA. 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 test equipment product line
accounted for less than 5% of the company's fiscal 1999
revenue of $37.2 million. Consideration received for these
assets was the buyer's assumption of certain future
9
<PAGE>
obligations related to the sold product line and royalties on
future sales. Lawrence operations ceased in late March 2000
and the facility was vacated in May 2000.
2) The company's two operations in Texas were consolidated.
Strategically significant manufacturing and development
activities being conducted at the Grand Prairie facility were
transferred to the company's Dallas facility where operations
associated with its WEB Technology product line are located.
The transfer was completed in mid-March 2000 and the Grand
Prairie facility was closed in late March 2000.
The restructuring plan included a workforce reduction and a
plan to sublease the company's Grand Prairie facility. The
special charges recorded in the quarter ended March 31, 2000
are summarized below ($ in thousands):
<TABLE>
<S> <C>
Restructuring charges:
Severance and related benefits costs $1,375
Facility exit costs 338
------
Total restructuring charges 1,713
Non-cash asset write-downs to net realizable value and
losses on the sale of business assets 1,208
------
Total special charges $2,921
======
</TABLE>
As a result of the first quarter restructuring activities, the
company eliminated approximately $1.5 million of manufacturing
overhead and operating expenses per quarter. The company
reduced its employee count from 310 on December 31, 1999 to
approximately 235 after completion of the restructuring,
including the elimination of positions in manufacturing,
engineering, sales and administration.
Following is a table that summarizes the severance and
facility exit restructuring charges accrued and the associated
reserve activity for the nine months ended September 30, 2000
($ in thousands):
<TABLE>
<CAPTION>
Severance Facility
And Benefits Exit Costs Total
------------ ---------- -----
<S> <C> <C> <C>
Accrual Balance, December 31, 1999 $ 0 $ 0 $ 0
Restructuring Charge - First Quarter 1,375 338 1,713
Cash Payments (427) (56) (483)
------ ----- ------
Accrual Balance, March 31, 2000 948 282 1,230
Restructuring Charge - Second Quarter 323 378 701
Cash Payments (751) (116) (867)
------ ----- ------
Accrual Balance, June 30, 2000 520 544 1,064
Reserve Adjustment - Third Quarter 31 0 31
Cash Payments (348) (189) (537)
------ ----- ------
Accrual Balance, September 30, 2000 $ 203 $ 355 $ 558
====== ===== ======
</TABLE>
7. SUBSEQUENT EVENT
In October 2000, the company announced its intention to transfer its
remaining engineering operations related to the DTX test handler
program in San Diego, CA to its North St. Paul, MN operation. The
company anticipates it will finalize a restructuring plan before
December 31, 2000 and expects to include special charges for severance
and other restructuring costs in its fourth quarter operating results.
10
<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 nine months ended September 30,
2000 were $34.2 million, a 31% increase from the same period
in 1999. Net sales for the quarter ended September 30, 2000,
were $12.8 million, an increase of 26% from the same period in
1999. Test handler sales increased significantly over the
prior year, except for test handlers 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 due
to market conditions and the company's decision in the second
quarter of 2000 to discontinue marketing and manufacturing its
model M3200 test handler for DRAM applications. Reliability
test product sales increased significantly over the prior year
due to continued market acceptance of the Model 1164 test
system. Sales of the company's IC Automation products
increased compared to the prior year due to an overall
improvement in industry conditions. The company did not
generate any sales of environmental test equipment in the
three months ended September 30, 2000 because this product
line was sold in the first quarter of 2000.
GROSS PROFIT. Gross profit was 49.8% of net sales for the nine
months ended September 30, 2000, compared to 32.2% for the
comparable period a year ago. Gross profit includes special
inventory write-down charges of $450,000 for the nine months
ended September 30, 2000 and $2.5 million for the nine months
ended September 30, 1999. Excluding special inventory charges,
gross profit was 51.1% for the nine months ended September 30,
2000 versus 41.8% for the nine months ended September 30,
1999. Gross profit was 56.2% of net sales for the quarter
ended September 30, 2000, compared to 43.1% for the same
period in 1999. Margins for all of the company's product lines
increased for the three months ended September 30, 2000 due to
higher sales volumes, improved revenue mix and the elimination
of underutilized manufacturing capacity that resulted from
restructuring activities in the first half of 2000.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the nine months ended September
30, 2000 were $12.9 million compared to $13.3 million for the
same period in 1999, a 3% decrease. Selling, general and
administrative expenses for the quarter ended September 30,
2000 were $4.4 million compared to $4.8 million in the
comparable period in 1999. Non-cash amortization expense
related to intangible assets from business acquisitions
amounted to approximately $1.2 million and $0.4 million for
the nine months and three months ended September 30, 2000,
respectively. Certain general and administrative expenses
decreased in the three months ended September 30, 2000 from
the same period in 1999 due to the company's cost reduction
measures implemented during the first quarter of 2000. These
expense reductions were offset somewhat by higher selling
expenses, primarily commissions, resulting from higher sales
over the same period in 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses
were $6.6 million for the nine months ended September 30, 2000
compared with $7.3 million for the comparable period in 1999,
an 11% decrease. Research and development expenses
11
<PAGE>
amounted to $2.2 million for the quarter ended September 30,
2000 compared to $2.3 million for the comparable period in
1999. As a percentage of net sales, research and development
expenses represented 17% of net sales for the quarter ended
September 30, 2000 compared to 22% for the same period in
1999. The reduction is primarily attributable to the company's
restructuring activities in the first quarter of 2000. Over
time, the company expects research and development expenses to
approximate 13% to 15% of net sales.
SPECIAL CHARGES AND CREDITS.
THIRD QUARTER 2000
The company recorded a special credit of $436,000 in the
quarter ended September 30, 2000. The credit consisted
primarily of $367,000 of proceeds from the sale of future
royalty rights during the quarter. The royalty rights had been
obtained in connection with the sale of the company's
environmental test equipment product line which was sold in
the first quarter of 2000 when the company discontinued its
operations in Lawrence, MA. The credit recorded in the quarter
ended September 30, 2000 is summarized below ($ in thousands):
Proceeds from sale of royalty rights $ (367)
Other, net (69)
-------
Total special credit, net $ (436)
=======
The special items recorded in the quarter ended September 30,
2000 are not expected to have a significant impact on future
operating results.
SECOND QUARTER 2000
In the quarter ended June 30, 2000 the company recorded an
inventory write-down of $450,000 in cost of goods sold related
to its decision to discontinue marketing and manufacturing its
oldest DRAM test handler, the model M3200. As a result of this
decision, all inventories related to the production of the
M3200 were written down to scrap value and are expected to be
disposed of by December 31, 2000.
On June 29, 2000, the company announced that it would transfer
manufacturing and certain administrative functions at its San
Diego, CA facility to its North St. Paul, MN operation,
including the manufacturing of its DTX series of test
handlers. The restructuring plan included a workforce
reduction, subleasing the company's 45,000 square foot
building, and transferring the remaining marketing and
engineering personnel to a smaller facility in the San Diego
area. The special charges recorded in the quarter ended June
30, 2000 are summarized below ($ in thousands):
Restructuring charges:
Severance and related benefits costs $323
Facility exit costs 378
---
Total restructuring charges 701
Write-down leaseholds 70
Other restructuring expenses incurred 149
---
Total special charges $920
====
The severance and associated benefits are related to the
elimination of 20 positions in San Diego in manufacturing,
engineering, accounting and administration. The affected
employees were identified and notified of the terminations and
related severance benefits prior to June 30, 2000. The
facility exit costs represented primarily building rent and
related expenses for unutilized space until the 45,000 square
foot building could be sublet.
12
<PAGE>
As a result of transferring these activities from San Diego to
North St. Paul, the company reduced quarterly operating costs
by approximately $350,000 consisting primarily of compensation
and building-related expenses. The company plans to hire
additional personnel at its North St. Paul facility to support
the DTX test handler product line. Consequently, these
additional costs will offset the San Diego savings to some
extent in the future. The transfer of manufacturing and
certain administrative functions from San Diego to North St.
Paul was substantially completed in October 2000.
Special charges recorded in the second quarter also included
$149,000 of costs incurred related to transferring certain
activities from the company's discontinued Lawrence, MA
operation to North St. Paul, MN. These costs consisted
primarily of relocation expenses. Lawrence operations ceased
in the first quarter and the transfer of certain assets and
employees from Lawrence to North St. Paul was completed in the
second quarter.
FIRST QUARTER 2000
During the quarter ended March 31, 2000, the company announced
plans to restructure certain operations to improve
manufacturing efficiencies and reduce operating expenses. The
restructuring activities included the following:
1) The company closed its Lawrence, MA. 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 test equipment product line
accounted for less than 5% of the company's fiscal 1999
revenue of $37.2 million. Consideration received for these
assets was the buyer's assumption of certain future
obligations related to the sold product line and royalties on
future sales. Lawrence operations ceased in late March 2000
and the facility was vacated in May 2000.
2) The company's two operations in Texas were consolidated.
Strategically significant manufacturing and development
activities being conducted at the Grand Prairie facility were
transferred to the company's Dallas facility where operations
associated with its WEB Technology product line are located.
The transfer was completed in mid-March 2000 and the Grand
Prairie facility was closed in late March 2000.
The restructuring plan included a workforce reduction and a
plan to sublease the company's Grand Prairie facility. The
special charges recorded in the quarter ended March 31, 2000
are summarized below ($ in thousands):
<TABLE>
<S> <C>
Restructuring charges:
Severance and related benefits costs $1,375
Facility exit costs 338
---
Total restructuring charges 1,713
Non-cash asset write-downs to net realizable value and
losses on the sale of business assets 1,208
-----
Total special charges $2,921
======
</TABLE>
As a result of the first quarter restructuring activities, the
company eliminated approximately $1.5 million of manufacturing
overhead and operating expenses per quarter. The company
reduced its employee count from 310 on December 31, 1999 to
approximately 235 after completion of the restructuring,
including the elimination of positions in manufacturing,
engineering, sales and administration.
13
<PAGE>
Following is a table that summarizes the severance and
facility exit restructuring charges accrued and the associated
reserve activity for the nine months ended September 30, 2000
($ in thousands):
<TABLE>
<CAPTION>
Severance Facility
And Benefits Exit Costs Total
------------ ---------- -----
<S> <C> <C> <C>
Accrual Balance, December 31, 1999 $ 0 $ 0 $ 0
Restructuring Charge - First Quarter 1,375 338 1,713
Cash Payments (427) (56) (483)
------ ---- ------
Accrual Balance, March 31, 2000 948 282 1,230
Restructuring Charge - Second Quarter 323 378 701
Cash Payments (751) (116) (867)
------ ----- ------
Accrual Balance, June 30, 2000 $ 520 $ 544 $1,064
Reserve Adjustment - Third Quarter 31 0 31
Cash Payments (348) (189) (537)
------ ----- ------
Accrual Balance, September 30, 2000 $ 203 $ 355 $ 558
====== ===== ======
</TABLE>
OTHER INCOME, NET. Other income, net, which consists primarily
of interest income from the investment of excess funds,
amounted to $316,000 for the nine months ended September 30,
2000 compared to $419,000 for the same period in 1999. Other
income, net amounted to $66,000 for the quarter ended
September 30, 2000 compared with $143,000 for the same period
in 1999. The decrease reflects lower average cash balances in
the nine month and three month periods ended September 30,
2000 compared with the same periods in 1999.
INCOME TAXES. The company recorded an income tax benefit of
$1.9 million for the nine months ended September 30, 2000
compared with an income tax benefit of $4.9 million for the
comparable period in 1999. For the three months ended
September 30, 2000 the company recorded income tax expense of
$402,000 compared to an income tax benefit $1.0 million in the
same period a year ago. As of September 30, 2000 the company
had $16.7 million of net deferred tax assets. The future
realization of these assets is dependent upon the company
generating sufficient operating profits in the future.
Management continues to believe it is more likely than not
that these deferred tax assets will be realized in future
periods.
SUBSEQUENT EVENT. In October 2000, the company announced its
intention to transfer its remaining engineering operations
related to the DTX test handler program in San Diego, CA to
its North St. Paul, MN operation. The company anticipates it
will finalize a restructuring plan before December 31, 2000
and expects to include special charges for severance and other
restructuring costs in its fourth quarter operating results.
14
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the company had cash and cash
equivalents amounting to $7.8 million compared with $13.2
million at December 31, 1999, a $5.3 million reduction in
cash. For the nine months ended September 30, 2000, $5.2
million was used to fund operating activities, including a net
loss of $3.6 million offset by non-cash depreciation and
amortization expense of $2.0 million. As a result of
increasing sales and business activity in 2000, accounts
receivable and inventories increased $3.3 million and $1.0
million respectively, offset by a $1.4 million increase in
accounts payable. Investing activities included $0.4 million
used for equipment purchases. Financing activities, primarily
proceeds from the exercise of employee stock options, provided
$0.3 million in cash for the nine-month period.
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 September 30, 2000 or
December 31, 1999.
The company believes its current cash balances of $7.8 million
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.
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, in March 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. In June 2000,
the SEC amended SAB 101 a second time to delay implementation
for calendar year reporting companies to the quarter ending
December 31, 2000. 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 in
accordance with SAB 101's implementation guidance.
15
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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. Other Information
None.
Item 5. Exhibits and Reports on Form 8-K
(a) Exh 27 - Financial Data Schedule.
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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: November 9, 2000 By: /s/ Joseph C. Levesque
-----------------------
Joseph C. Levesque
Chairman of the Board, President,
and Chief Executive Officer
Date: November 9, 2000 By: /s/ Paul H. Laufer
-------------------
Paul H. Laufer
Vice President of Finance and
Corporate Development
17
