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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2012

 

Commission File No. 000-22166

 

AETRIUM INCORPORATED

(Exact name of registrant as specified in its charter)

 

Minnesota 41-1439182
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 

2350 Helen Street, North St. Paul, Minnesota 55109
( Address of principal executive offices) (Zip Code)

 

(651) 770-2000

(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 Securities Exchange Act of 1934 during the preceding 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 þ No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,“ “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

  

Large accelerated filer £ Accelerated filer £ Non-accelerated filer £ Smaller reporting company R

 

Indicate by a checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

 

Number of shares of Common Stock, $.001 par value,
outstanding on July 31, 2012
   10,781,451 

 

 
 

 

AETRIUM INCORPORATED

 

INDEX

  

  Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2012 and December 31, 2011 3
     
  Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2012 and 2011 4
     
  Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2012 and 2011 5
     
  Notes to unaudited condensed consolidated financial statements 6 - 9
     
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 13
     
Item 4. Controls and Procedures 13
     
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 14
     
Item 1A. Risk Factors 14
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14
     
Item 3. Defaults Upon Senior Securities 14
     
Item 4. Mine Safety Disclosures 14
     
Item 5. Other Information 14
     
Item 6. Exhibits 15
     
SIGNATURES 16

 

2
 

 

PART 1. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

AETRIUM INCORPORATED

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

 

   June 30,   December 31, 
   2012   2011 
         
ASSETS           
           
Current assets:          
Cash and cash equivalents  $4,267   $5,008 
Accounts receivable, net of allowance for doubtful accounts of $30 at June 30, 2012 and December 31, 2011   935    1,324 
Inventories   7,070    7,731 
Other current assets   137    53 
Total current assets   12,409    14,116 
           
Property and equipment, net   200    109 
           
Other asset   24    30 
           
Total assets  $12,633   $14,255 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
           
Current liabilities:          
Capital lease obligation – current portion  $26   $0 
Trade accounts payable   219    506 
Accrued compensation   349    323 
Other accrued liabilities   277    728 
Total current liabilities   871    1,557 
           
           
Capital lease obligation – noncurrent portion   50    0 
Accrued liabilities - noncurrent   256    256 
           
Commitments and contingencies          
           
Shareholders' equity:          
Common stock, $.001 par value; 30,000,000 shares authorized; 10,781,451 shares issued and outstanding   11    11 
Additional paid-in capital   65,505    65,385 
Accumulated deficit   (54,060)   (52,954)
Total shareholders' equity   11,456    12,442 
           
Total liabilities and shareholders' equity  $12,633   $14,255 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

3
 

 

AETRIUM INCORPORATED

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

 

   Three months ended   Six months ended 
   June 30,   June 30, 
   2012   2011   2012   2011 
                 
Net sales  $2,012   $3,319   $3,902   $5,179 
Cost of goods sold   1,073    2,108    2,042    2,929 
Gross profit   939    1,211    1,860    2,250 
                     
Operating expenses:                    
Selling, general and administrative   1,061    1,193    2,178    2,372 
Research and development   361    626    790    1,229 
Total operating expenses   1,422    1,819    2,968    3,601 
                     
Loss from operations   (483)   (608)   (1,108)   (1,351)
Interest income (expense), net   0    9    2    22 
Loss before income taxes   (483)   (599)   (1,106)   (1,329)
Income taxes   0    0    0    0 
Net loss  $(483)  $(599)  $(1,106)  $(1,329)
                     
Loss per share – basic and diluted  $(0.04)  $(0.06)  $(0.10)  $(0.12)
                     
Weighted average common shares outstanding – basic and diluted   10,781    10,781    10,781    10,781 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

4
 

 

AETRIUM INCORPORATED

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

   Six months ended 
   June 30, 
   2012   2011 
Cash flows from operating activities:          
Net loss  $(1,106)  $(1,329)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization expense   38    30 
Share-based compensation expense   120    185 
Changes in assets and liabilities:          
Accounts receivable   389    (340)
Inventories   661    (919)
Other current assets   (84)   (86)
Other asset   6    5 
Trade accounts payable   (287)   396 
Accrued compensation   26    (26)
Other accrued liabilities   (451)   (108)
Net cash used in operating activities   (688)   (2,192)
           
Cash flows from investing activities:          
Purchase of property and equipment   (40)   (71)
Collection of note receivable   0    26 
Net cash used in investing activities   (40)   (45)
           
Cash flows from financing activities:          
Payments on capital lease   (13)   0 
Net cash used by financing activities   (13)   0 
           
Net decrease in cash and cash equivalents   (741)   (2,237)
           
Cash and cash equivalents at beginning of period   5,008    10,033 
           
Cash and cash equivalents at end of period  $4,267   $7,796 
           
Supplemental cash flow information: Equipment acquired by capital lease  $89   $0 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

5
 

 

AETRIUM INCORPORATED

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1.BASIS OF PRESENTATION

 

The condensed consolidated balance sheet at December 31, 2011 has been derived from our audited financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements include all adjustments (consisting only of normal, recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the operating results to be expected for the full year or any future period.

 

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted, pursuant to such rules and regulations. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

 

2.LOSS PER COMMON SHARE

 

Basic and diluted loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during each period. The computation of diluted loss per share excludes the impact of stock options because they would be antidilutive.

 

3.INVENTORIES

 

Inventories are comprised of the following (in thousands):

 

   June 30,   December 31, 
   2012   2011 
         
Purchased parts and completed subassemblies  $3,316   $3,688 
Work-in-process   760    571 
Finished goods, including saleable demonstration equipment   2,994    3,472 
Total inventories  $7,070   $7,731 

 

4.OTHER CURRENT ACCRUED LIABILITIES

 

Other current accrued liabilities are comprised of the following (in thousands):

 

   June 30,   December 31, 
   2012   2011 
         
Accrued commissions  $32   $132 
Accrued severance and related costs   90    326 
Accrued retirement benefits – current portion   67    133 
Accrued warranty   34    42 
Other   54    95 
Total other current accrued liabilities  $277   $728 

 

6
 

 

In January 2012, as a part of expense reduction measures taken to address weak semiconductor industry conditions and in order to reduce our expense structure to be better aligned with expected sales levels, we terminated 16 employees in manufacturing, sales, administration and engineering. We recorded a charge of $159,000 for severance and related costs in the quarter ended March 31, 2012 related to this workforce reduction, all of which was paid by June 30, 2012. Accrued severance and related costs at June 30, 2012 represents amounts owing under a separation agreement executed in December 2011 with our former president/chief executive officer that is scheduled to be paid in bi-weekly installments through November 30, 2012.

 

Accrued retirement benefits for our chief executive officer and chief administrative officer amounted to approximately $314,000 ($67,000 current, $247,000 noncurrent) at June 30, 2012 and $380,000 ($133,000 current, $247,000 noncurrent) at December 31, 2011. The current portion of accrued retirement benefits is included in “Other accrued liabilities” and the noncurrent portion is included in “Accrued liabilities - noncurrent” in our condensed consolidated balance sheet.

 

In November 2011, Joseph C. Levesque, the chairman of our board of directors, was appointed to serve as president and chief executive officer on an interim basis pending the appointment of a permanent replacement for these positions. We entered into an employment agreement with Mr. Levesque that provides for the payment of a majority of his base salary to be deferred until 2013. The current portion of amounts deferred under this agreement ($60,000 at June 30, 2012 and $0 at December 31, 2011) is included in “Accrued Compensation” and the noncurrent portion ($9,000 at June 30, 2012 and December 31, 2011) is included in “Accrued liabilities - noncurrent” in our condensed consolidated balance sheet.

 

Changes in accrued warranty are summarized below (in thousands):

 

   Six months ended June 30, 
   2012   2011 
Accrual balance, beginning of period  $42   $64 
Accruals for warranties   2    50 
Settlements made   (10)   (59)
Accrual balance, end of period  $34   $55 

 

5.CAPITAL LEASE

 

In February 2012, we entered into an agreement to lease certain data processing equipment. The agreement provides for monthly payments of $2,634 plus applicable sales taxes over three years. At the end of the three year term, we have the option to purchase the equipment for $200. We recorded this transaction as a capital lease in the amount of $89,000, the fair value of the related equipment. As of June 30, 2012 the capitalized lease obligation amounted to approximately $76,000 ($26,000 current, $50,000 noncurrent).

 

7
 

 

6.STOCK INCENTIVE PLAN AND SHARE-BASED COMPENSATION

 

The following table summarizes stock option activity under our stock incentive plan for the six months ended June 30, 2012:

 

       Weighted   Weighted     
       Average   Average   Aggregate 
   Number   Exercise   Remaining   Intrinsic Value 
   of Shares   Price   Contract Term   (in thousands) 
Outstanding, January 1, 2012   1,275,640   $2.32           
Options granted   1,019,319    0.78           
Options forfeited   (63,344)   2.35           
Options expired   (535,489)   2.33           
Outstanding, June 30, 2012   1,696,126   $1.39    3.71 years   $15 
                     
Exercisable, June 30, 2012   619,679   $1.88    2.54 years   $2 

 

All stock options outstanding at June 30, 2012 are nonqualified options that expire five years after the grant date and of which 509,659 become exercisable in monthly increments over one year and of which 1,186,467 become exercisable over four years from the grant date. The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between Aetrium’s closing stock price on June 30, 2012 and the option exercise price) of all in-the-money stock options that would have been received by the option holders had they exercised their options on June 30, 2012.

 

Aetrium uses the fair value method to measure and recognize share-based compensation. We determine the fair value of share-based awards on the grant date using the Black-Scholes option valuation model and recognize the compensation expense on a straight-line basis over the vesting period of the applicable awards.

 

In March 2012, pursuant to our 2003 Stock Incentive Plan, we granted stock options to purchase 1,019,319 shares of our common stock at an exercise price of $0.775 per share, the fair market value of the common stock on the date of the grants. Each stock option agreement provides that one-half of the option shares vest in equal monthly increments over one year and that one-half of the option shares vest in equal monthly increments over four years. All options expire five years after the grant date. Using the Black-Scholes valuation model, the fair value of the options granted was determined to be $0.25 per share or approximately $254,000, which amount is being expensed over the applicable vesting periods. Assumptions used in applying the Black-Scholes option-pricing model to determine the fair value of the options granted were as follows:

 

Expected stock price volatility   45%
Risk-free interest rate   0.6%
Expected dividend level   0%
Expected life of options (years)   3.15 

 

Share-based compensation expense included in our condensed consolidated statements of operations was as follows (in thousands):

 

   Three months ended June 30,   Six months ended June 30, 
   2012   2011   2012   2011 
                 
Cost of goods sold  $5   $11   $10   $27 
Selling, general and administrative   52    43    88    115 
Research and development   12    18    22    43 
Total share-based compensation expense  $69   $72   $120   $185 

 

8
 

 

 

As of June 30, 2012, we had approximately $0.4 million of unrecognized pretax share-based compensation expense, which is expected to be recognized over a weighted average period of 2.07 years.

 

7.INCOME TAXES

 

We record the benefit we will derive in future accounting periods from tax losses and credits and deductible temporary differences as “deferred tax assets.” In accordance with ASC 740, “Income Taxes,” we record a valuation allowance to reduce the carrying value of our deferred tax assets if, based on all available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Since 2009, we have maintained a valuation allowance to fully reserve our deferred tax assets. We recorded a full valuation allowance in 2009 because we determined there was not sufficient positive evidence regarding our potential for future profits to outweigh the negative evidence of our three year cumulative loss position at that time under the guidance provided in ASC 740. We expect to continue to maintain a full valuation allowance until we determine that we can sustain a level of profitability that demonstrates our ability to realize these assets. To the extent we determine that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.  Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, an increase in shareholders' equity.

 

9
 

 

AETRIUM INCORPORATED

 

Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

Aetrium designs, manufactures and markets a variety of electromechanical equipment used in the handling and testing of integrated circuits, or ICs, which constitute the highest revenue component of the semiconductor industry. Our primary focus is on high volume ICs, the latest IC package designs, and ICs using advanced geometry designs. Our test handler products are purchased primarily by semiconductor manufacturers and their assembly and test subcontractors and are used in the test, assembly and packaging, or TAP, segment of semiconductor manufacturing. Our reliability test products are used to validate IC designs and evaluate and improve semiconductor wafer fabrication processes, and are used in advanced reliability test labs at wafer manufacturing sites. Our products automate critical functions to improve manufacturing yield, raise quality levels, increase product reliability and reduce manufacturing costs.

 

Demand for Aetrium’s test handler products is driven primarily by worldwide demand for ICs, which in turn depends on end-user demand for electronic products. Demand for Aetrium’s reliability test products is less sensitive to fluctuations in IC demand and is driven more by technological change in IC design and manufacturing processes. The demand for our products can fluctuate significantly from period to period due to the direct or indirect impact of numerous factors, including but not limited to changes in the supply and demand for ICs, changes in IC manufacturing capacity, advancements in industry technologies, changes in U.S. and worldwide economic conditions and competitive factors.

 

The worldwide financial crisis and economic recession that began to unfold in 2008 led to a significant decrease in the sales of electronic products and one of the most severe downturns ever in our industry. In mid-2009, general economic conditions began to improve and the semiconductor industry began a slow and uneven recovery. Demand for ICs improved in 2010 and many IC manufacturers expanded their production capacity. However, by the end of the year, IC demand had weakened and IC production decreased significantly late in the year.

 

In 2011, worldwide economic uncertainty contributed to relatively flat and inconsistent business conditions in the semiconductor industry. IC production growth resumed in the first half of 2011 but leveled off in the third quarter and then decreased significantly in the fourth quarter, having never reached the previous peak production levels of 2010. As a result, many manufacturers operated at less than full capacity throughout the year and many semiconductor equipment manufacturers experienced reduced sales in 2011 compared with 2010. Sales of our test handler products decreased significantly in 2011 as many of our customers operated with excess production capacity throughout the year and required new equipment for only their fastest growing products. During 2011, one of our largest test handler customers was conducting an evaluation of eight-site gravity feed test handlers, including our new VMAX test handler. During the evaluation process, this customer purchased initial units of our VMAX test handler and related change kits in the first half of 2011 but did not purchase any test handlers from us in the second half of the year as industry conditions weakened. Sales of our reliability test equipment and change kits/spare parts increased slightly in 2011 despite the generally weak industry conditions. Our total sales declined from $16.3 million in 2010 to $9.0 million in 2011 as a result of a 75% decrease in test handler sales.

 

10
 

 

Generally weak semiconductor industry conditions characterized by high inventories and excess production capacity continued into 2012. Our net sales were relatively flat in the first half of the year, amounting to $1.9 million and $2.0 million in the first and second quarters, respectively. Sales of test handlers and change kits/spare parts remained weak while sales of our reliability test products increased over prior year levels. In April 2012, the customer discussed above informed us that it had completed its test handler evaluations and had selected another supplier for its eight-site gravity feed test handler requirements. Although we expect to continue to be a supplier to this customer, we believe future sales to this customer in the near term are likely to continue to be substantially lower than in past years.

 

Some industry analysts have indicated that IC production bottomed in the second quarter of 2012 and predict that IC production will increase in the second half of the year. We believe there is still excess production capacity in the industry that needs to be absorbed before meaningful increases in the purchases of production-based equipment occur. We believe business conditions will improve for Aetrium in the second half of 2012. However, a worsening or prolonged continuation of the slowdown in our industry would likely adversely impact the demand for and prices of our products, in particular our test handler products, and adversely affect our future operating results and cash flows.

 

Critical Accounting Policies

 

Aetrium’s critical accounting policies are disclosed in our most recent Annual Report on Form 10-K for the year ended December 31, 2011. There were no changes in such policies during the six months ended June 30, 2012.

 

Results of Operations

 

Net Sales. Net sales for the six months ended June 30, 2012 were $3.9 million compared with $5.2 million for the same period in 2011, a 25% decrease. Sales of our test handlers, change kits and spare parts continued to be impacted by semiconductor industry conditions characterized by relatively weak IC demand and excess production capacity that existed throughout fiscal year 2011 and continued into 2012 and by reduced sales to the customer discussed above. Sales to this customer amounted to $0.2 million in the six months ended June 30, 2012 compared with $1.5 million for the same period in 2011. Sales of test handlers were $1.1 million in the six months ended June 30, 2012 compared with $1.7 million for the same period in 2011, a decrease of 38%. Sales of change kits and spare parts were $0.6 million in the six months ended June 30, 2012 compared with $1.7 million for the same period in 2011, a decrease of 64%. Sales of reliability test equipment products, which are driven more by technology factors and less by IC demand and production capacity, were $2.2 million in the six months ended June 30, 2012 compared with $1.8 million for the same period in 2011, an increase of 25%. Net sales for the three months ended June 30, 2012 were $2.0 million compared with $3.3 million for the same period in 2011, a 39% decrease. The decrease was attributable to lower sales of test handlers and change kits/spare parts resulting from relatively weak industry conditions and lower sales to the customer discussed above.

 

Gross Profit. Aetrium’s gross profit as a percentage of net sales can fluctuate based on a number of factors, including but not limited to the mix of products sold, distribution channel mix, price discounting, product maturity, inventory writedowns, and the utilization of our manufacturing capacity based upon varying production levels. Gross profit was 47.7% of net sales in the six months ended June 30, 2012 compared with 43.4% for the same period in 2011. Gross margin increased in 2012 primarily due to a more favorable product mix and a reduction in manufacturing overhead costs resulting from restructuring actions taken in late 2011 and early 2012. Test handlers, which are generally lower margin sales than reliability test equipment and change kits/spare parts, represented 27% of total net sales in the first six months of 2012 compared with 34% for the same period in 2011. Reliability test equipment sales represented 57% of total net sales in the first six months of 2012 compared with 34% for the same period in 2011 and change kits/spare parts sales represented 16% of total net sales in the first six months of 2012 compared with 32% for the same period in 2011. Gross profit was 46.7% of net sales in the three months ended June 30, 2012 compared with 36.5% for the same period in 2011. Gross margin increased in 2012 primarily due to a more favorable product mix and improved efficiencies resulting from restructuring actions implemented in 2011 and 2012.

 

11
 

 

Selling, General and Administrative. Selling, general and administrative (S, G and A) expenses for the six months ended June 30, 2012 were $2.2 million compared with $2.4 million for the comparable period in 2011, a decrease of 8%. The decrease in S, G & A expenses from the prior year was primarily attributable to lower wages and share-based compensation expense resulting from reductions in personnel and lower travel costs, partially offset by a $39,000 charge for severance costs related to a workforce reduction we implemented in January 2012. S, G and A expenses for the three months ended June 30, 2012 were $1.1 million compared with $1.2 million for the comparable period in 2011, a decrease of 11%. The decrease was primarily attributable to lower wages resulting from reductions in personnel.

 

Research and Development. Research and development expenses for the six months ended June 30, 2012 were $0.8 million compared with $1.2 million for the comparable period in 2011, a 36% decrease. The decrease from the prior year was primarily attributable to lower wages resulting from reductions in personnel, and lower contract services, travel, and materials expense, partially offset by a $72,000 charge for severance costs related to a workforce reduction we implemented in January 2012. Research and development expenses for the three months ended June 30, 2012 were $0.4 million compared with $0.6 million for the comparable period in 2011, a 42% decrease. The decrease was primarily attributable to a decrease in wages and contract service costs. Research and development expenses represented 20.2% of total net sales for the six month period ended June 30, 2012 and 23.7% of total net sales for the comparable period in 2011. New product development is an essential part of our strategy to gain market share. Over time, we expect to invest approximately 12% to 15% of our revenues in research and development, although we may exceed this range in periods of relatively low revenues as was the case in the six month periods ended June 30, 2012 and 2011.

 

Interest Income (expense), net. Interest income (expense), net, amounted to $2,000 and $22,000 for the six months ended June 30, 2012 and 2011, respectively, and amounted to $0 and $9,000 for the three months ended June 30, 2012 and 2011, respectively. The decrease in interest income in 2011 reflects primarily lower average invested cash balances.

 

Income Taxes. We recorded no income tax benefit or expense for the three and six month periods ended June 30, 2012 and 2011. Since 2009, we have maintained a valuation allowance to fully reserve our deferred tax assets. We expect to continue to maintain a full valuation allowance until we determine that we can sustain a level of profitability that demonstrates our ability to realize these assets. To the extent we determine that the realization of some or all of these benefits is more likely than not based upon expected future taxable income, a portion or all of the valuation allowance will be reversed.  Such a reversal would be recorded as an income tax benefit and, for some portion related to deductions for stock option exercises, an increase in shareholders' equity.

 

Financial Condition, Liquidity and Capital Resources

 

Cash and cash equivalents decreased by approximately $0.7 million in the six months ended June 30, 2012. We used $0.7 million of cash to fund operating activities during this period, including our net loss of $1.1 million, partially offset by non-cash depreciation and share-based compensation expense of $0.2 million and $0.3 million in working capital changes. Working capital changes generating cash consisted primarily of a $0.4 million decrease in accounts receivable and a $0.7 million decrease in inventories, partially offset by a $0.1 million increase in other current assets and decreases of $0.3 million in accounts payable, $0.1 million in accrued commissions and $0.2 million in accrued severance costs. Accounts receivable decreased due to a decrease in net sales in the second quarter of 2012 compared with the fourth quarter of 2011 and the timing of collections. Inventories and accounts payable decreased due to reduced inventory purchases in the second quarter of 2012 compared with the fourth quarter of 2011. Net cash flows used in investing and financing activities in the six months ended June 30, 2012 were not significant.

 

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Cash and cash equivalents decreased by approximately $2.2 million in the six months ended June 30, 2011. We used $2.2 million of cash to fund operating activities during this period, including our net loss of $1.3 million and $1.1 million in working capital changes, partially offset by $0.2 million in non-cash depreciation and share-based compensation expense. Working capital changes using cash consisted primarily of a $0.3 million increase in accounts receivable, a $0.9 million increase in inventories, and a $0.1 million decrease in other accrued liabilities, partially offset by a $0.4 million increase in accounts payable. Accounts receivable increased due to an increase in net sales in the second quarter of 2011 compared with the fourth quarter of 2010. The increase in inventories reflected an increase in inventories related to our new VMAX eight-site test handler to meet anticipated sales demand and demo/evaluation unit requirements for potential new accounts. Accounts payable increased primarily due to increased inventory purchases in the second quarter of 2011 compared with the fourth quarter of 2010. Net cash flows from investing and financing activities in the six months ended June 30, 2011 were insignificant.

 

Historically we have supported our capital expenditure and working capital needs with cash generated from operations and our existing cash and cash equivalents. We believe our cash balance of $4.3 million at June 30, 2012 will be sufficient to meet capital expenditure and working capital requirements for at least the next twelve months. As discussed above, semiconductor industry conditions weakened in the second half of 2011 and the slowdown continued into 2012. A worsening or prolonged continuation of the slowdown would likely adversely impact the demand for and prices of our products and adversely affect our future operating results and cash flows. Also, as we continue to monitor the industry and customer needs, we may acquire other companies, product lines or technologies that are complementary to our business, and our working capital needs may change as a result of such acquisitions.

 

Item 4.Controls and Procedures

 

Our chief executive officer, our chief administrative officer and our treasurer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on their evaluation, they concluded that our disclosure controls and procedures were effective as of June 30, 2012, the end of the period covered by this quarterly report. There were no changes in our internal control over financial reporting that occurred during the second quarter of 2012 that have materially affected, or are reasonably likely to materially affect, Aetrium’s internal control over financial reporting.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In designing and operating a control system, one must consider the potential benefits of controls relative to their costs and the reality of limited resources available to allocate to control activities, particularly in smaller companies. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any control will meet its objectives under all potential future conditions. Because of such inherent limitations in any control system, there can be no absolute assurance that control issues, misstatements, and/or fraud will be prevented or detected.

 

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AETRIUM INCORPORATED

 

PART II. OTHER INFORMATION

 

Item 1.Legal Proceedings

 

Since December 1993, an action brought by UTHE Technology Corporation (“UTHE”) against the Company and its then Sales Manager for Southeast Asia, Harry Allen (“Allen”), asserting federal securities claims, a RICO claim, and certain state law claims, has been stayed in the United States District Court for the Northern District of California.  UTHE’s claims were based on UTHE’s allegations that four former employees of a Singapore company, which UTHE formerly wholly owned, conspired to and did divert business from the subsidiary, and in turn UTHE, and directed that business to themselves and a secret company they had formed, which forced UTHE to sell its subsidiary shares to the former employee defendants at a distressed price.  The complaint alleged that the Company and Allen participated in the conspiracy carried out by the former employee defendants. In December 1993, the case was dismissed as to the former employee defendants because of a contract requiring them to arbitrate their claims in Singapore.  The District Court stayed the case against the Company and Allen pending the resolution of arbitration in Singapore involving UTHE and three of the former employee defendants, but not involving the Company or Allen.  The Company has received notice that on March 23, 2012 awards totaling S$12,786,350 were made in the Singapore arbitration against one or more of the former employee defendants who are parties to the arbitration.  On June 18, 2012, UTHE filed a motion to reopen the case against the Company and Allen and to lift the stay, which the court granted. UTHE filed an amended complaint on July 5, 2012, reasserting its original claims and adding an unfair competition claim under California’s Business and Professions Code section 17200 et seq.  We do not believe that the claims asserted in this matter have any merit and intend to vigorously defend the action. While it is not possible to predict the outcome of these legal proceedings, the costs associated with such proceedings could have a material adverse effect on our consolidated results of operations, financial position or cash flows of a future period.

 

Item 1A.Risk Factors

 

Except as described in Item 1 and in our Current Report on Form 8-K dated April 23, 2012, there have not been any material changes to the risk factors disclosed in our Form 10-K for the year ended December 31, 2011.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.Defaults on Senior Securities

 

None.

 

Item 4.Mine Safety Disclosures

 

Not applicable.

 

Item 5.Other Information

 

None.

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  Item 6. Exhibits  
       
    31.1 Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    31.2 Certification by Chief Administrative Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    31.3 Certification by Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
    32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    101.INS * XBRL Instance Document
    101.SCH * XBRL Taxonomy Extension Schema
    101.CAL * XBRL Taxonomy Extension Calculation Linkbase
    101.DEF * XBRL Taxonomy Extension Definition Linkbase
    101.LAB * XBRL Taxonomy Extension Label Linkbase
    101.PRE * XBRL Taxonomy Extension Presentation Linkbase

 

* Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under Sections 11 or 12 of the Securities Act of 1933, as amended, or otherwise subject to the liability of those sections, except as shall be expressly set forth by specific reference in such filings.

 

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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: August 7, 2012 By: /s/ Joseph C. Levesque
    Joseph C. Levesque
    President and Chief Executive Officer
     
Date: August 7, 2012 By: /s/ Paul H. Askegaard
    Paul H. Askegaard
    Treasurer (principal financial and accounting officer)

 

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